<PAGE>
As filed with the Securities and Exchange Commission on April 28, 1999
Registration No. 333-61063
---------
811-7689
SECURITIES AND EXCHANGE COMMISSION
----------------------------------
WASHINGTON, D.C. 20549
Immediate Income Builder
FORM N-4
REGISTRATION STATEMENT UNDER THE [ ]
SECURITIES ACT OF 1933
Pre-Effective Amendment No. ___ [_]
Post-Effective Amendment No. 2 [X]
and
REGISTRATION STATEMENT UNDER [_]
THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 13 [X]
PFL RETIREMENT BUILDER VARIABLE ANNUITY
ACCOUNT
(Exact Name of Registrant)
PFL LIFE INSURANCE COMPANY
(Name of Depositor)
4333 Edgewood Road N.E.
Cedar Rapids, IA 52499-0001
(Address of Depositor's Principal Executive Offices)
Depositor's Telephone Number: (319) 297-8468
Frank A. Camp, Esq.
PFL Life Insurance Company
4333 Edgewood Road, N.E.
Cedar Rapids, IA 52499-0001
(Name and Address of Agent for Service)
Copy to:
Frederick R. Bellamy, Esq.
Sutherland, Asbill and Brennan LLP
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004-2415
<PAGE>
Approximate Date of Proposed Public Offering: As soon as practicable after the
- --------------------------------------------
effective date of the Registration statement.
Title of Securities Being Registered: Single Premium Immediate Variable Annuity
- ------------------------------------
Contracts
--------------------------
It is proposed that this filing will become effective:
immediately upon filing pursuant to paragraph (b) of Rule 485.
- ------
X on May 1, 1999 pursuant to paragraph (b)(1)(iii) of Rule 485.
- ------
60 days after filing pursuant to paragraph (a)(i) of Rule 485.
- ------
on May 1, 1999 pursuant to paragraph (a)(i) of Rule 485.
- ------
If appropriate, check the following box:
This post-effective amendment designates a new effective date
------
for a previously filed post-effective amendment.
<PAGE>
PFL LIFE INSURANCE COMPANY
PFL RETIREMENT BUILDER VARIABLE ANNUITY ACCOUNT
FORM N-4
Cross Reference Sheet
Pursuant to Rule 495(a)
Under the Securities Act of 1933
PART A
Showing Location of Information in Prospectuses
Form N-4
Item No. Prospectus Caption
- -------- ------------------
1. Cover Page..................................Cover Page
2. Definitions.................................Glossary of Terms
3. Synopsis....................................Summary; Fee Table
4. Condensed Financial Information.............Financial Information;
5. General Description of Registrant,
Depositor and Portfolio Companies
(a) Depositor..............................PFL Life Insurance Company
(b) Registrant.............................The Separate Account
(c) Portfolio Company......................The Funds
(d) Fund Prospectus........................The Funds
(e) Voting Rights..........................Voting Rights
6. Deductions and Expenses
(a) General................................Expenses
(b) Sales Load %...........................N/A
(c) Special Purchase Plan..................N/A
(d) Commissions............................Distributor of the Contracts
(e) Expenses - Registrant..................Charges Under the Contracts
(f) Fund Expenses..........................Portfolio Management Fees
(g) Organizational Expenses................N/A
7. Contracts
(a) Persons with Rights....................The Annuity Policy; Annuity
Payment; Annuity Payments;
Voting Rights
(b) (i) Allocation of Premium............Allocations of Your Premium to
i
<PAGE>
the Separate Account
(ii) Transfers........................Allocations of Your Premium to
the Separate Account
(iii) Exchanges........................N/A
(c) Changes................................Policy Value; Annuity Payment
Options; Allocation of Premium
Payments
(d) Inquiries..............................Summary
8. Annuity Period..............................Annuity Payments
9. Death Benefit...............................Death Benefit
10. Purchases and Value
(a) Purchases..............................Purchase
(b) Valuation..............................Variable Annuity Units
(c) Daily Calculation......................Variable Annuity Units
(d) Underwriter............................Distribution of the Contracts
11. Redemptions
(a) By Owners..............................Surrender Values
By Annuitant...........................N/A
(b) Texas OP...............................
(c) Check Delay............................Annuity Payments
(d) Lapse..................................N/A
(e) Free Look..............................Summary
12. Taxes......................................Taxes
13. Legal Proceedings..........................Legal Proceedings
14. Table of Contents for the Statement
of Additional Information..................Table of Contents of the
Statement of Additional
Information
ii
<PAGE>
PART B
Showing Location of Information in Statement of Additional Information
Caption in Statement of
Form N-4 -----------------------
Item No. Additional Information
- ---------- ----------------------
15. Cover Page.................................Cover Page
16. Table of Contents..........................Table of Contents
17. General Information and History............(Prospectus) PFL Life
Insurance Company
18. Services
(a) Fees and Expenses of Registrant.........N/A
(b) Management Policies.....................N/A
(c) Custodian...............................Custody of Assets
Independent Auditors....................Independent Auditors
(d) Assets of Registrant....................Custody of Assets
(e) Affiliated Person.......................N/A
(f) Principal Underwriter...................Distribution of the Contracts
19. Purchase of Securities Being Offered........Distribution of the Contracts
Offering Sales Load.........................N/A
20. Underwriters................................Distribution of the Contracts;
(Prospectus) Distribution of
the Contracts
21. Calculation of Performance Data.............Historical Performance Data
22. Annuity Payments............................(Prospectus) Types of Annuity
Payment Options
23. Financial Statements........................Financial Statements
PART C
Information required to be set forth in Part C is set forth under the
appropriate item, so numbered, in Part C of the registration statement.
iii
<PAGE>
PFL IMMEDIATE
INCOME BUILDER
Issued Through
PFL RETIREMENT BUILDER
VARIABLE ANNUITY ACCOUNT
By
PFL LIFE INSURANCE COMPANY
Prospectus
May 1, 1999
This prospectus and the mutual fund prospectuses give you important information
about the contracts and the mutual funds. Please read them carefully before you
invest and keep them for future reference.
If you would like more information about the PFL Immediate Income Builder, a
fixed and variable single premium immediate annuity contract, you can obtain a
free copy of the Statement of Additional Information (SAI) dated May 1, 1999.
Please call us at (800) 544-3152 or write us at: PFL Life Insurance Company,
Financial Markets Division, Variable Annuity Department, 4333 Edgewood Road
N.E., P.O. Box 3183, Cedar Rapids, Iowa, 52406-3183. A registration statement,
including the SAI, has been filed with the Securities and Exchange Commission
(SEC) and is incorporated herein by reference. Information about the separate
account and the target account can be reviewed and copied at the SEC's Public
Reference Room in Washington, D.C. You may obtain information about the
operation of the public reference room by calling the SEC at 1-800-SEC-0330.
The SEC also maintains a web site (http://www.sec.gov) that contains the
prospectus, the SAI, material incorporated by reference, and other information.
The table of contents of the SAI is included at the end of this prospectus.
Please note that the contracts and the underlying portfolios:
. are not bank deposits;
. are not federally insured;
. are not endorsed by any bank or government agency;
. are not guaranteed to achieve their goal; and
. are subject to risks, including loss of premium.
The immediate annuity contract has fixed and variable payment options. There
are fourteen portfolios you can select from if you choose to receive variable
payments. You can choose any combination of fixed and variable payments. You
bear the investment risk if you choose variable payments.
MANAGED BY FIDELITY MANAGEMENT & RESEARCH COMPANY:
Variable Insurance Products Fund (VIP):
VIP Money Market
VIP High Income
VIP Equity-Income
VIP Growth
VIP Overseas
Variable Insurance Products Fund II (VIP II):
VIP II Investment Grade Bond
VIP II Asset Manager
VIP II Asset Manager: Growth
VIP II Index 500
VIP II Contrafund
Variable Insurance Products Fund III (VIP III):
VIP III Balanced
VIP III Growth & Income
VIP III Growth Opportunities
VIP III Mid Cap
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.
1
<PAGE>
<TABLE>
<CAPTION>
TABLE OF
CONTENTS Page
<S> <C>
GLOSSARY OF TERMS........................................................... 3
SUMMARY..................................................................... 4
EXPENSE TABLE............................................................... 6
EXAMPLES.................................................................... 7
1. THE ANNUITY CONTRACT..................................................... 8
2. ANNUITY PAYMENTS......................................................... 8
Annuity Payment Dates..................................................... 8
Payments Under the Contract............................................... 8
Fixed, Variable or Combination Payments................................... 8
Assumed Investment Rate (AIR)............................................. 8
Payment Options........................................................... 9
3. PURCHASE................................................................. 12
Contract Issue Requirements............................................... 12
Premium Payment........................................................... 12
Allocation of Premium Payment............................................. 12
Variable Annuity Units.................................................... 13
4. INVESTMENT CHOICES....................................................... 13
The Separate Account...................................................... 13
Transfers................................................................. 14
5. EXPENSES................................................................. 14
Separate Account Charge................................................... 14
Expenses of the Funds..................................................... 15
Premium Taxes............................................................. 15
Other Taxes............................................................... 15
Surrender Value........................................................... 15
Transfer Fee.............................................................. 15
6. TAXES.................................................................... 15
Annuity Policies in General............................................... 15
Qualified and Nonqualified Policies....................................... 16
Withdrawals--Nonqualified Policies........................................ 16
Withdrawals--Qualified Policies........................................... 16
Withdrawals--403(b) Policies.............................................. 17
Diversification and Distribution Requirements............................. 17
Taxation of Death Benefits................................................ 17
Annuity Payments.......................................................... 17
Transfers, Assignments or Exchanges of Policies........................... 17
Possible Tax Law Changes.................................................. 18
7. SURRENDER VALUE.......................................................... 18
Surrenders................................................................ 18
Surrender Value........................................................... 18
8. PERFORMANCE.............................................................. 18
9. DEATH BENEFIT............................................................ 19
10. OTHER INFORMATION....................................................... 19
PFL Life Insurance Company................................................ 19
The Separate Account...................................................... 20
Voting Rights............................................................. 20
Distributor of the Contracts.............................................. 20
Non-participating Contract................................................ 20
Variations in Contract Provisions......................................... 20
Year 2000 Matters......................................................... 20
IMSA...................................................................... 21
Delay of Payments......................................................... 21
Legal Proceedings......................................................... 21
Financial Statements...................................................... 21
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION................ 21
APPENDIX A
Historical Performance Data................................................. 22
APPENDIX B
Illustrations of Annuity Payment Values..................................... 39
</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--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.
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. 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>
SUMMARY
The sections in this summary correspond to sections in this prospectus, which
discuss the topics in more detail. Words printed in italics in this prospectus
are defined in the Glossary.
1. THE ANNUITY CONTRACT
The Fixed and Variable Single Premium Immediate Annuity Contract offered by PFL
Life Insurance Company (PFL, we, us or our) is a contract between you, as the
owner, and PFL, an insurance company. The contract is intended to provide a
stream of income for life or for a specific period of time you select.
2. ANNUITY PAYMENTS
Annuity payments may be either fixed, variable or a combination of fixed and
variable. We guarantee the amount of fixed annuity payments. We do not,
however, guarantee the amount of variable annuity payments. Variable annuity
payment amounts are determined by the investment performance of the subaccounts
you select.
Annuity payments may be scheduled for either monthly or quarterly payments.
Semiannual and annual payments are available only with our approval.
We recommend using electronic funds transfer (EFT) whenever possible.
3. PURCHASE
You purchase this contract with a single premium. You cannot make additional
premium payments. The minimum premium is $25,000, although we can accept a
smaller premium if we want.
You may return your contract for a refund within 10 days after you receive it.
The amount of the refund will generally be the premium plus or minus the
investment performance of the subaccounts to which your premium was allocated,
if any.
We will generally pay the refund within 7 days after we receive written notice
of cancellation and the returned contract. The contract will then be deemed
void. In some states you may have more than 10 days, or receive a refund of
more (or less) than the amount described above.
4. INVESTMENT CHOICES
You choose between fixed or variable annuity payments, or a combination of
both. If you choose variable annuity payments you must also select one or more
of the following portfolios described in the underlying fund prospectuses:
MANAGED BY FIDELITY MANAGEMENT & RESEARCH COMPANY
VIP Money Market
VIP High Income
VIP Equity-Income
VIP Growth
VIP Overseas
VIP II Investment Grade Bond
VIP II Asset Manager
VIP II Asset Manager: Growth
VIP II Index 500
VIP II Contrafund
VIP III Balanced
VIP III Growth & Income
VIP III Growth Opportunities
VIP III Mid Cap
Your variable annuity payments may go up or down with the investment
performance of any of these portfolios. You bear this investment risk.
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).
5. EXPENSES
There is a separate account charge of 1.15% annually of average daily net
assets if you allocate $50,000 or more to variable annuity payments; if you
allocate less than $50,000 to variable annuity payments the separate account
charge is 1.35%. This charge will not increase and does not apply to fixed
annuity payments.
Each portfolio has investment management and other fees charged directly to it.
In 1998, these ranged from 0.28% to 1.00% annually of average daily net assets.
4
<PAGE>
In some states, a charge for applicable premium taxes ranging from 0% to 3.5%
is deducted from the premium when paid.
6. TAXES
You are taxed on the part of your annuity payment considered income. Annuity
payments from nonqualified contracts may be considered partly a return of your
investment in the contract so that part of each payment would not be taxable as
income. Annuity payments from qualified contracts are generally considered as
all taxable income.
7. SURRENDER VALUE
You do not have access to your money and cannot surrender any of your contract
unless you select either the Certain Only or Life with Emergency Cash SM
payment option. No other payment option allows surrenders. If you elect a
Certain Only payment option you may surrender the present value of the
remaining payments. If you select the Life with Emergency Cash SM payment
option, we will provide you with a Life with Emergency Cash SM benefit schedule
that will allow you to determine how much is available to surrender. For either
option, the amount you surrender must be at least 25% of the full surrender
value.
Surrenders may have adverse tax consequences. You should consult with your tax
advisor before requesting a surrender.
8. PERFORMANCE
The amount of your variable annuity payments will vary up or down depending
upon the investment performance of the subaccounts you choose. We provide
historical, or past, performance information for 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.
9. DEATH BENEFIT
Some payment options provide a death benefit in the event the annuitant dies
after annuity payments begin or if an owner or annuitant dies before annuity
payments begin.
10. OTHER INFORMATION
This section of the prospectus contains information on:
. PFL Life Insurance Company
.The Separate Account
. Voting Rights
. Distributor of the Contracts
. Non-participating Contracts
. Variations of Contract Provisions
. Year 2000 Matters
. IMSA
. Delay of Payments
. Legal Proceedings
. Financial Statements
Inquiries
If you need more information, please contact us at:
Administrative and Service Office
Financial Markets Division
Variable Annuity Department
PFL Life Insurance Company
4333 Edgewood Road N.E.
P.O. Box 3183
Cedar Rapids, IA 52406-3183
(800) 525-6205
5
<PAGE>
EXPENSE TABLE
Contract Owner Transaction Expenses
<TABLE>
- --------------------------------------------------------------------------------
<S> <C>
Sales Load charged to premium......................................... None
Annual Contract Administration
Charge............................................................... None
Transfer Fee (for first six
transfers in any contract
year)(/1/)........................................................... None
Surrender Charge...................................................... None
There is no surrender charge with
respect to variable annuity
payments under the contract. For an
explanation of the surrender value,
see "SURRENDER VALUE".
Separate Account Annual Expenses
(as a percentage of average net assets)
Separate Account Charge:
Mortality and Expense Risk Charge
....................................................................... 1.20%
(This charge is 1.00% if you
allocate $50,000 or more to
variable annuity payments)
Administrative Charge.................................................. 0.15%
-----
Total.................................................................. 1.35%
</TABLE>
- -------------------------------------------------------------------------------
Portfolio Annual Expenses(/2/)
(as a percentage of average net assets and after expense reimbursements)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Total Portfolio
Portfolio Management Fees Other Expenses Annual Expenses
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
VIP Money Market............. 0.20% 0.10% 0.30%
VIP High Income.............. 0.58% 0.12% 0.70%
VIP Equity-Income(/6/)....... 0.49% 0.08% 0.57%
VIP Growth(/6/).............. 0.59% 0.07% 0.66%
VIP Overseas(/6/)............ 0.74% 0.15% 0.89%
VIP II Investment Grade
Bond........................ 0.43% 0.14% 0.57%
VIP II Asset Manager(/6/).... 0.54% 0.09% 0.63%
VIP II Asset Manager:
Growth(/6/)................. 0.59% 0.07% 0.66%
VIP II Index 500(/6/)........ 0.24% 0.04% 0.28%
VIP II Contrafund(/6/)....... 0.59% 0.13% 0.72%
VIP III Balanced(/6/)........ 0.44% 0.14% 0.58%
VIP III Growth &
Income(/6/)................. 0.49% 0.11% 0.60%
VIP III Growth
Opportunities(/6/).......... 0.59% 0.11% 0.70%
VIP III Mid Cap(/6/)......... 0.56% 0.44% 1.00%
</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 Fidelity Management & Research Company, and PFL has not
independently verified such information. Expenses may be higher or lower
than these 1998 expenses.
(/3/) A portion of the brokerage commissions that certain funds pay was used to
reduce fund expenses. In addition, certain funds, or FMR on behalf of
certain funds, have entered into arrangements with their custodian whereby
credits realized as a result of uninvested cash balances were used to
reduce custodian expenses. The total operating expenses, after
reimbursement for the VIP II Index 500 Portfolio and the VIP III Mid Cap
Portfolio reflect these reductions in the table above.
6
<PAGE>
EXAMPLES
The following examples indicate the expenses you would pay in various
situations, based on actual portfolio expenses for 1998, and the following
assumptions:
. a $1,000 investment (and, therefore, a 1.35% separate account charge);
.a 5.0% annual return on assets;
.monthly payments;
.a 5% assumed investment return;
.there are no premium taxes;
.there are no transfers;
. the entire premium is allocated to each subaccount; and
.the annuitant is a 65 year old male.
(Any different assumption(s) would result in different expenses.)
<TABLE>
<CAPTION>
Single Life Annuity
Single Life Annuity 20 Year Certain Only with Emergency CashSM
(the contract cannot be Annuity and the contract and the contract is
surrendered) is not surrendered surrendered
----------------------------------------------------------------------
Subaccounts 1 Year 3 Years 1 Years 3 Years 1 Year 3 Years
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
VIP Money Market........ $16 $46 $16 $46 $16 $45
---------------------------------------------------------------------------
VIP High Income......... $20 $56 $20 $57 $20 $56
---------------------------------------------------------------------------
VIP Equity-Income....... $19 $53 $19 $53 $18 $52
---------------------------------------------------------------------------
VIP Growth.............. $19 $55 $19 $56 $19 $55
---------------------------------------------------------------------------
VIP Overseas............ $22 $61 $22 $62 $21 $61
---------------------------------------------------------------------------
VIP II Investment Grade
Bond................... $19 $53 $19 $53 $18 $52
---------------------------------------------------------------------------
VIP II Asset Manager.... $19 $55 $19 $55 $19 $54
---------------------------------------------------------------------------
VIP II Asset Manager:
Growth................. $19 $55 $19 $56 $19 $55
---------------------------------------------------------------------------
VIP II Index 500........ $16 $45 $16 $45 $16 $45
---------------------------------------------------------------------------
VIP II Contrafund....... $20 $57 $20 $57 $20 $56
---------------------------------------------------------------------------
VIP III Balanced........ $19 $53 $19 $53 $19 $53
---------------------------------------------------------------------------
VIP III Growth &
Income................. $19 $54 $19 $54 $19 $53
---------------------------------------------------------------------------
VIP III Growth
Opportunities.......... $20 $56 $20 $57 $20 $56
---------------------------------------------------------------------------
VIP III Mid Cap......... $23 $64 $23 $65 $22 $64
</TABLE>
The above tables will assist you in understanding the costs and expenses of the
contract and the underlying funds that you will bear, directly or indirectly.
The expense table assumes that your entire premium is allocated to the separate
account; therefore, it reflects expenses of the separate account as well as the
underlying portfolios.
The tables do not reflect any deductions for taxes. Any applicable premium
taxes are deducted from the premium when you buy the contract.
The examples are not a representation of past or future expenses. Actual
expenses may be more or less than those shown.
Financial Information. The subaccounts had not commenced operations as of
December 31, 1998, therefore there is no condensed financial information to
report as of the date of this prospectus.
7
<PAGE>
1. THE ANNUITY CONTRACT
This prospectus describes the PFL Immediate Income Builder. This is a single
premium immediate annuity contract offered by PFL Life Insurance Company.
An annuity is a contract between you, the owner, and an insurance company (in
this case PFL), where the insurance company promises to pay you an income in
the form of annuity payments. You choose the frequency of these payments and
the first annuity payment date.
You can use the contract to provide periodic payments over your lifetime or
some other specific period of time you select.
The contract is "fixed and variable" because you can allocate your premium
between fixed and variable annuity payments. The amount of the fixed annuity
payments will not vary and are guaranteed by PFL. The amount of the variable
annuity payments will vary depending on the investment performance of your
investment choices.
It is a "single premium" contract because you purchase it with a single
premium. You cannot pay additional premiums.
The contract is an "immediate" contract because the annuity payments must
generally begin within 30 days.
2. ANNUITY PAYMENTS
Annuity Payment Dates
We provide annuity payments to the payee on each payment date. You select
either a monthly or quarterly payment frequency when you purchase the contract.
Payments will generally be made by electronic funds transfer. Semi-annual or
annual payment frequencies and other disbursement options may be available, if
we approve. The first payment date is typically 30 days after the contract
issue date. All subsequent payment dates will generally be on the same day of
the month as the first payment date.
Payments Under the Contract
We usually make payments within seven days of the payment date or receipt of
all applicable written notices and/or proofs of death.
We will not pay interest on amounts represented by uncashed annuity payment
checks if the postal or other delivery service is unable to deliver checks to
the payee's address of record. Uncashed variable annuity payments will not
participate in the performance of the portfolios. Each payee is responsible for
keeping us informed of their current address of record.
Fixed, Variable or Combination Payments
You allocate your premium between fixed and variable payments under a payment
option when you buy the contract. You may choose all fixed, all variable or a
combination of fixed and variable annuity payments.
Any portion of your premium allocated to a fixed payment option will always
remain allocated to fixed annuity payments. However, you may transfer from
variable annuity payments to fixed annuity payments at any time.
If you choose a combination of fixed and variable annuity payments, a portion
of your annuity payments will be fixed and a portion will vary according to the
investment experience of the portfolios underlying the subaccounts. We will
guarantee the dollar amount of any fixed portion of each annuity payment;
however, the amount of the variable annuity payments will depend upon the
investment experience of the portfolios underlying the subaccounts and is not
guaranteed.
Under certain joint and survivor payment options, the annuity payments decrease
upon the death of the annuitant or secondary annuitant (as described for
payment options 5, 6, 8, and 9) whether they are fixed or variable.
Assumed Investment Return (AIR)
The assumed investment return you choose is used in the calculation of variable
annuity payments.
8
<PAGE>
IF:
. the performance of the applicable subaccounts after all expenses is equal
to the AIR on a modal basis;
THEN:
. the variable annuity payments will remain constant.
* * *
IF:
. the performance of the subaccounts after all expenses exceeds the AIR on a
modal basis;
THEN:
. the variable annuity payments will increase.
* * *
IF:
. the performance of the subaccounts after all is less than the AIR on a
modal basis;
THEN:
. the variable annuity payments will decrease.
* * *
A "modal basis" refers to the frequency of payments. For example, for monthly
payments to increase, the performance of the subaccounts must exceed the
monthly equivalent AIR; for quarterly payments to increase, the performance of
the subaccounts must exceed the quarterly equivalent AIR.
You choose either a 3.5% AIR or a 5% AIR.
IF:
. you choose a 5% AIR instead of a 3.5% AIR;
THEN:
. you will receive a higher initial payment; and
. payments will increase less during periods of good investment performance
(i.e., when investment performance exceeds the AIR) and decrease more
during periods of poor investment performance (i.e., when investment
performance is below the AIR).
* * *
IF:
. you choose a 3.5% AIR instead of a 5% AIR;
THEN:
. you will receive a lower initial payment; and
. payments will increase more during periods of good investment performance
(i.e., when investment performance exceeds the AIR) and decrease less
during periods of poor investment performance (i.e., when investment
performance is below the AIR).
See Appendix B for an illustration of the difference in the two AIRs.
Payment Options
You select the payment option and the number of guaranteed years, if any. You
cannot change the payment option and guarantee period after we issue the
contract. Please note that generally you can only select one payment option.
We currently offer the options described below.
The amount of variable annuity payments will depend on the investment
performance of the portfolio(s) you select. The number of annuity payments may
depend on how long the annuitant or a secondary annuitant, if any, lives.
Therefore, the sum of annuity payments may be less than the premium (except
for option 10--Life Annuity with Premium Refund Payments).
1. Certain Only Annuity. This option provides annuity payments for a
guaranteed period (10-30 years). You choose the guaranteed period. If the
annuitant dies prior to the last guaranteed payment date, we will either:
. continue payments as they become due; or
. pay the present value of the remaining guaranteed payments in a lump sum to
the beneficiary when we receive due proof of the annuitant's death.
No additional payments will be made under this option after all the guaranteed
payments have been made.
If the lump sum death benefit is chosen and the payments under this option are
variable, the present value of the remaining guaranteed payments is calculated
as of the date we receive written notice of the annuitant's death, using the
AIR you chose when the contract was issued. If the payments under this option
are fixed, the present value of the remaining guaranteed payments is
calculated using
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interest rates (determined by PFL) in effect on the date we receive due proof
of death.
Under this option, you, as the owner, can make full or partial surrenders from
the contract prior to the last guaranteed payment date. Any surrender must be
at least 25% of the full surrender value. A partial surrender will reduce all
future payments.
See "SURRENDER VALUE."
You should consult a tax advisor before requesting a full or partial surrender.
2. Single Life Annuity. This option provides annuity payments for the
annuitant's lifetime, no matter how long that may be. The final payment will be
the payment made immediately prior to the death of the annuitant. No additional
payments will be made after the annuitant dies.
This option offers you the highest level of annuity payments, due to the risk
that only one annuity payment will be made if the annuitant dies before the
second payment date.
No surrenders are permitted under this option.
3. Single Life Annuity with Period Certain. This option provides annuity
payments for a guaranteed period (5 to 30 years) or for the life of the
annuitant, whichever is later. The final annuity payment will be the later of
either the last guaranteed payment or the scheduled annuity payment immediately
prior to the annuitant's death. If the annuitant dies prior to the last
guaranteed payment date, we will make payments to the beneficiary when we
receive due proof of the annuitant's death. No additional payments will be made
if the annuitant dies after all guaranteed payments have been made.
No surrenders are permitted under this option.
4. 100% Joint and Survivor Life Annuity. This option provides annuity payments
for the annuitant and the secondary annuitant's lifetimes. After the death of
either the annuitant or the secondary annuitant, we will continue to provide
the full amount of annuity payments to the survivor. Annuity payments stop when
both the annuitant and the secondary annuitant die.
No surrenders are permitted under this option.
5. Joint and Survivor Life Annuity with Reduced Annuity Payments to the
Secondary Annuitant. This option is similar to option 4 above, except that
annuity payments are higher while both the annuitant and the secondary
annuitant are living, and then are lower if the annuitant dies before the
secondary annuitant. The final annuity payment will be the one made immediately
before the last surviving annuitant's death. No additional annuity payments
will be made after the death of both annuitants.
If the annuitant dies before the secondary annuitant, the amount of the fixed
annuity payments will be reduced to the percent you select: either 50%, 66.67%
or 75%. For variable annuity payments, the number of variable annuity units
will also be reduced to 50%, 66.67% or 75%.
If the secondary annuitant dies before the annuitant, we will continue to make
annuity payments as they are due, and the amount of the annuity payments will
not go down due to the death.
No surrenders are permitted under this option.
6. Joint and Last Survivor Life Annuity. This option provides annuity payments
for the annuitant's and secondary annuitant's lifetimes. Payments are higher
while both annuitants are living and decrease upon the death of either the
annuitant or the secondary annuitant. The final annuity payment will be the one
made immediately before the death of the last surviving annuitant. No
additional annuity payments will be made after the death of both annuitants.
Upon the first death, the amount of the fixed annuity payments will be reduced
to a percent you select: either 50%, 66.67% or 75%. For variable annuity
payments, the number of variable annuity units will also be reduced to 50%,
66.67% or 75%.
No surrenders are permitted under this option.
7. 100% Joint and Survivor Life Annuity with Period Certain. This option
provides annuity payments for a guaranteed period (5-30 years) or for the
annuitant's and joint annuitant's lifetimes, whichever is later. The final
annuity payment will be the later of the last guaranteed payment or the annuity
payment made immediately prior to the last surviving annuitant's death. No
additional payments will be made if both annuitants die after all guaranteed
payments have been made.
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If both annuitants die prior to the last guaranteed payment date, we will
continue to make guaranteed payments to the beneficiary as they become due for
the remainder of the guaranteed period.
No surrenders are permitted under this option.
8. Joint and Survivor Life Annuity with Period Certain and Reduced Annuity
Payments to the Secondary Annuitant. This option is similar to option 7 above,
except that annuity payments are higher while both the annuitant and the
secondary annuitant are living, and then are lower if the annuitant dies before
the secondary annuitant and after the guaranteed period. The final annuity
payment will be the later of the last guaranteed payment or the annuity payment
made immediately prior to the last surviving annuitant's death. No additional
payments will be made if both annuitants die after all guaranteed annuity
payments have been made.
If the annuitant dies before the secondary annuitant and after the guaranteed
period, the amount of the fixed annuity payments will be reduced to the percent
you select: either 50%, 66.67% or 75%. For variable annuity payments, the
number of variable annuity units will also be reduced to 50%, 66.67% or 75%.
If the secondary annuitant dies before the annuitant, we will continue to make
annuity payments as they are due, and the amount of the annuity payments will
not go down due to the death.
No surrenders are permitted under this option.
9. Joint and Last Survivor Life Annuity with Period Certain. This option
provides annuity payments for a guaranteed period (5-30 years) or for the
annuitant's and secondary annuitant's lifetimes, whichever is later. Payments
are higher while both annuitant(s) are living and decrease after the guarantee
period upon the death of either the annuitant or the secondary annuitant. The
final annuity payment will be the later of the last guaranteed payment or the
annuity payment made immediately prior to the last surviving annuitant's death.
No additional annuity payments will be made after the death of both annuitants.
Upon the first death after the guaranteed period (or the end of the guaranteed
period if the first death occurred prior thereto), the amount of the fixed
annuity payments will be reduced to a percent you select: either 50%, 66.67% or
75%. For variable annuity payments, the number of variable annuity units will
also be reduced to 50%, 66.67% or 75%.
No surrenders are permitted under this option.
10. Life Annuity with Premium Refund Payment. This option provides annuity
payments for the annuitant's lifetime. The final annuity payment will be either
the payment made immediately prior to the annuitant's death or the premium
refund benefit.
We will pay the premium refund benefit to the beneficiary if, at the date of
the annuitant's death, the sum of all the annuity payments made is less than
the premium. The premium refund benefit will be the premium less the sum of the
previously distributed variable and fixed annuity payments.
No surrenders are permitted under this option.
11. Single Life Annuity with Emergency Cash SM. This option provides annuity
payments for the annuitant's lifetime. You can only receive variable payments
under this option. With the Life with Emergency Cash SM feature, you are able
to surrender all or a portion of the Life with Emergency Cash SM benefit. The
Life with Emergency Cash SM benefit will continue through age 100 of the
annuitant.
The amount you surrender must be at least 25% of the Life with Emergency
Cash SM benefit. We will provide you with a Life with Emergency Cash SM benefit
schedule as a rider to the contract that will assist you in determining the
amount you have available to surrender.
The Life with Emergency Cash SM benefit is also a death benefit that is paid
upon the death of the annuitant.
For qualified contracts the death benefit ceases at the date the annuitant
reaches the IRS age limitation (determined at the contract issue date).
See "SURRENDER VALUE."
You should consult a tax advisor before requesting a full or partial surrender.
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12. Joint and Survivor Life Annuity with Emergency Cash SM. This option
provides annuity payments to the annuitant and the secondary annuitant while
both are living. You can only receive variable payments under this option.
After the death of either the annuitant or the secondary annuitant, we will
continue to provide the full amount of annuity payments to the survivor. With
the Life with Emergency Cash SM feature, you are able to surrender all or a
portion of the Life with Emergency Cash SM benefit. The Life with Emergency
Cash SM benefit will continue through age 100 of the younger of the annuitant
and the secondary annuitant.
The amount you surrender must be at least 25% of the Life with Emergency
Cash SM benefit. We will provide you with a Life with Emergency Cash SM benefit
schedule as a rider to the contract that will assist you in determining the
amount you have available to surrender.
The Life with Emergency Cash SM benefit is also a death benefit that is paid
upon the death of the last annuitant. We will provide a Life with Emergency
Cash SM benefit schedule as a rider to the contract.
For qualified contracts the death benefit ceases at the date of the IRS joint
age limitation (determined at the contract issue date.)
See "SURRENDER VALUE."
You should consult a tax advisor before requesting a full or partial surrender.
Other payment options may be made available.
PLEASE NOTE CAREFULLY THAT IF:
. you choose a Single Life Annuity, 100% Joint and Survivor Life Annuity,
Joint and Survivor Life Annuity with Reduced Annuity Payments to the
Secondary Annuitant, and Joint and Last Survivor Annuity; and
. the annuitant(s) dies before the due date of the second annuity payment;
THEN:
. we may make only the one payment.
Please also note that the federal income tax laws may limit your payment
options where the contract is used as a qualified contract.
3. PURCHASE
Contract Issue Requirements
PFL will issue a contract only IF:
. PFL receives all information needed to issue the contract (all the
information on the order form); and
. PFL receives your entire premium payment.
Premium Payment
The minimum premium for a contract is $25,000. Amounts less than $25,000 may be
accepted with approval from our home office. You cannot make additional premium
payments.
You will allocate the premium to variable, fixed, or to a combination of
variable and fixed payment options. We apply your premium to the contract
within two business days after receipt (at the Administrative and Service
Office) of the later of the premium and a properly completed order form.
If the order form is incomplete, we will request the necessary information. If
the information is not provided within five days, we will return the premium
unless we obtain your specific consent to let us keep it until the order form
is completed.
The date we credit the premium and issue the contract is called the contract
issue date. On the contract issue date, we allocate the premium (net of any
premium tax deduction) as you specify in the order form.
You should make checks for premium payments payable only to PFL Life Insurance
Company and send them to the Administrative and Service Office. Your check must
be honored in order for us to pay any associated payments and benefits due
under the contract.
Allocation of Premium Payment
We will invest the amount of your premium that you allocate to the subaccounts
of the separate account in the designated subaccount(s) on the contract issue
date. You must allocate percentages that are whole numbers, not fractions. Your
allocations must equal 100%.
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Variable Annuity Units
Any portion of your premium allocated to the subaccounts will be used to
purchase variable annuity units. We will determine the number of variable
annuity units based upon:
. the premium reduced by any premium taxes,
. the annuitant's age and sex (and the age and sex of the secondary annuitant,
if any),
. the payment option you choose,
. the frequency of payments you choose,
. the AIR you choose,
. the first payment date, and
. the variable annuity unit value of the subaccounts you initially select.
The number of variable annuity units allocated to each subaccount will not
change unless you transfer among the subaccounts, transfer from variable to
fixed annuity payments or receive cash through a surrender (if allowed).
However, if you choose a joint and survivor payment option and benefits are
reduced due to the death of one of the annuitants, the number of variable
annuity units will be reduced at that time.
We calculate the amount of your variable annuity payment on the variable
annuity payment calculation date by taking the number of variable annuity units
in each subaccount and multiplying them by the variable annuity unit value of
each subaccount. This calculation is performed for each subaccount, and the sum
of the subaccount calculations will equal the amount of your variable annuity
payment.
The variable annuity unit value in a particular subaccount on any valuation day
is equal to:
. the variable annuity unit value for that subaccount on the immediately
preceding valuation day; multiplied by
. the net investment factor for that subaccount for the valuation period;
multiplied by
. the daily factor for the valuation period.
The daily factor for the valuation period (the period of time beginning at the
close of business each valuation day and ending at the close of business on the
next valuation day) is a discount factor that reflects the AIR. Please refer to
the Statement of Additional Information.
The net investment factor used to calculate the variable annuity unit value for
each subaccount for the valuation period is determined by dividing (a) by (b)
and subtracting (c) from the result, where:
(a) is the net result of:
. the net asset value of a portfolio share held in that subaccount determined
as of the end of the current valuation period, plus
. 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
. a per share credit or charge for any taxes reserved for, which we determine
to have resulted from the investment operation of the subaccount.
(b) is the net asset value of a portfolio share held in that subaccount
determined as of the end of the immediately preceding valuation period; and
(c) is an amount representing the separate account charge (shown in the
contract specifications section of the contract).
4. INVESTMENT CHOICES
The Separate Account
The separate account currently consists of fourteen subaccounts.
The Underlying Funds. The subaccounts invest in shares of the underlying funds.
Fidelity Management & Research Company provides investment advice and
administrative services for all of the underlying funds offered through this
contract. The following subaccounts are currently offered:
VARIABLE INSURANCE PRODUCTS FUND (VIP):
VIP Money Market
VIP High Income
VIP Equity-Income
VIP Growth
VIP Overseas
VARIABLE INSURANCE PRODUCTS FUND II (VIP II):
VIP II Investment Grade Bond
VIP II Asset Manager
VIP II Asset Manager: Growth
VIP II Index 500
VIP II Contrafund
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VARIABLE INSURANCE PRODUCTS FUND III (VIP III):
VIP III Balanced
VIP III Growth & Income
VIP III Growth Opportunities
VIP III Mid Cap
The general public may not purchase these underlying funds. The investment
objectives and policies may be similar to other portfolios and mutual funds
managed by the same investment adviser or manager that are sold directly to the
public. You should not expect that the investment results of the other
portfolios and mutual funds will be comparable to those of the underlying
funds.
Detailed information about the underlying portfolios may be found in their
current prospectuses. This includes a description of each portfolio's
investment objectives, policies, and strategies. These prospectuses are
attached to this prospectus. You should read the prospectuses for each of the
underlying funds carefully before you invest. PFL may receive expense
reimbursements or other revenues from the funds or FMR. The amount of these
reimbursements or revenues, if any, may be based on the amount of assets that
PFL (or its affiliates) or the separate account invests in the underlying
funds.
The investment objectives and policies of certain portfolios are similar to the
investment objectives and policies of other portfolios that may be managed by
the same investment advisor or manager. The investment results of the
portfolios, however, may differ from the results of such other portfolios.
There can be no assurance, and no representation is made, that the investment
results of any of the portfolios will be comparable to the investment results
of any other portfolio, even if the other portfolio has the same investment
advisor or manager.
Transfers
You may transfer all or a part of the value of variable annuity payments to
fixed annuity payments by telephoning us or providing us with a notice you have
signed or an electronic notice that gives us the facts that we need. If you
transfer from variable annuity payments to fixed annuity payments, the fixed
annuity payments will be a continuation of the payment option under which the
variable annuity payments were being made, or a continuation of the fixed
payment option that may already exist.
For example, if you received variable annuity payments for two years under a 10
Year Certain and Life Option and elect to transfer to fixed annuity payments,
your payment option would be an 8 Year Certain and Life Option. If your
variable payment option is Life with Emergency Cash SM, the fixed payment
option will be Life only, Life with Premium Refund or Life with Period Certain.
The period certain cannot be greater than the annuitant's remaining life
expectancy determined at the contract issue date. (Life with Emergency Cash SM
is only available with variable annuity payments.)
Transfers from variable to fixed annuity payments may have tax consequences.
You should consult a tax advisor before making a transfer from variable to
fixed annuity payments.
You may not transfer from fixed to variable annuity payments.
Transfers are made using the variable annuity unit values for the end of the
day when we receive your request (that is, at the end of the valuation period
during which we receive your request).
You may transfer amounts among subaccounts by telephoning us or by providing us
with a notice you have signed or an electronic notice that gives us the facts
that we need.
We reserve the right to impose transfer charges.
The percent of the allocation in each subaccount will change over time with its
investment performance. You should periodically review the allocations in light
of market conditions and financial objectives.
5. EXPENSES
The following are all the charges made under the contract.
Separate Account Charge
A daily charge is deducted from the assets of each subaccount for our
assumption of mortality and expense risks, and our administration expenses. If
the
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amount you allocate to variable annuity payments is less than $50,000, a daily
mortality and expense risk charge will be deducted at an effective annual rate
of 1.20%; otherwise, the mortality and expense risk charge will be 1.00%.
An administration expense charge will also be deducted daily from the assets of
each subaccount at an effective annual rate of 0.15%. We guarantee that the
mortality and expense risk and administrative charges will never increase.
The mortality risk arises from our obligation to provide annuity income for
your life (and the life of the secondary annuitant, if any) no matter how long
that might be. The expense risk results from our obligation to cover the cost
of issuing and administering the contracts, no matter how long we may incur
such cost or how large that cost may be. The administration expense charge is
for the costs of administering the contracts. We may earn a profit from the
separate account charge (and expect to do so). Any profit can be used for
distribution expenses or for any other purpose.
Expenses of the Funds
The portfolios are charged management fees and incur operating expenses. The
effect of these fees and expenses is reflected in the performance of the
portfolios underlying the subaccounts, and therefore affects the variable
annuity unit value. See the attached prospectuses for a description of the
portfolios' fees and expenses.
Premium Taxes
Some states charge a premium tax based on the amount of your premium. State
premium taxes currently range from 0% to 3.5%. In addition, some counties,
cities or towns may charge additional premium taxes. If you live in a place
that has premium taxes, any amount needed to provide for the applicable premium
taxes is deducted from your premium. We allocate the remainder of your premium
to the subaccounts and/or to the purchase of fixed annuity payments.
Other Taxes
We reserve the right to charge for certain taxes (other than premium taxes)
that may be incurred due to the contracts or the separate account. Currently,
we do not charge for any other taxes.
Surrender Value
There is no express or calculable surrender charge for surrenders from variable
annuity payments under the contract. Surrenders from variable annuity payments
are generally not permitted, unless you select the Certain Only or Life With
Emergency Cash payment option. For a discussion of surrender value, see
"SURRENDER VALUE".
Transfer Fee
There is currently no charge for transfers. We reserve the right to charge $15
for each transfer over six per contract year (all transfers made simultaneously
will be treated as a single request).
6. TAXES
NOTE: PFL has prepared the following information on federal income taxes as a
general discussion of the subject. It is not intended as tax advice to any
individual. You should consult your own tax adviser about your own
circumstances. PFL has included an additional discussion regarding taxes in the
Statement of Additional Information.
Annuity Policies in General
Deferred annuity policies are a way of setting aside money for future needs
like retirement. Congress recognized how important saving for retirement is and
provided special rules in the Internal Revenue Code for annuities.
Simply stated, these rules provide that generally you will not be taxed on the
earnings, if any, on the money held in your annuity policy until you take the
money out. This is referred to as tax deferral. There are different rules as to
how you will be taxed depending on how you take the money out and the type of
policy--qualified or nonqualified (discussed below).
You will not be taxed on increases in the value of your policy until a
distribution occurs--either as a withdrawal or as annuity payments.
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When a non-natural person (e.g., corporation or certain other entities other
than tax-qualified trusts) owns a nonqualified policy, the policy will
generally not be treated as an annuity for tax purposes.
Qualified and Nonqualified Policies
If you purchase the policy under an individual retirement annuity, a pension
plan, or specially sponsored program, your policy is referred to as a qualified
policy.
Qualified policies are issued in connection with the following plans:
. Individual Retirement Annuity (IRA): A traditional IRA allows individuals to
make contributions, which may be deductible, to the Contract. A 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.
. Tax-Sheltered Annuity (403(b) Plan): A 403(b) Plan may be made available to
employees of certain public school systems and tax-exempt organizations and
permits contributions to the Contract on a pre-tax basis.
. Corporate Pension and Profit-Sharing and H.R. 10 Plan: Employers and self-
employed individuals can establish pension or profit-sharing plans for their
employees or themselves and make contributions to the Contract on a pre-tax
basis.
. Deferred Compensation Plan (457 Plan): Certain governmental and tax-exempt
organizations can establish a plan to defer compensation on behalf of their
employees through contributions to the Contract.
If you purchase the policy as an individual and not under an individual
retirement annuity, 403(b) plan, 457 plan, or pension or profit sharing plan,
your policy is referred to as a nonqualified policy.
Withdrawals--Nonqualified Policies
If you make a withdrawal from your policy before the annuity commencement date,
the Internal Revenue Code treats that withdrawal as first coming from earnings
and then from your premium payments. When you make a withdrawal you are taxed
on the amount of the withdrawal that is earnings. (The excess interest
adjustment resulting from the withdrawal may affect the amount on which you are
taxed.) Different rules apply for annuity payments. See "Annuity Payments"
below.
The Internal Revenue Code also provides that withdrawn earnings may be subject
to a penalty. The amount of the penalty is equal to 10% of the amount that is
includable in income. Some withdrawals will be exempt from the penalty. They
include any amounts:
. paid on or after the taxpayer reaches age 59 1/2;
. paid after the taxpayer dies;
. paid if the taxpayer becomes totally disabled (as that term is defined in
the Internal Revenue Code);
. paid in a series of substantially equal payments made annually (or more
frequently) under a lifetime annuity;
. paid under an immediate annuity; or
. which come from premium payments made prior to August 14, 1982.
All deferred non-qualified annuity policies that are issued by AUSA Life (or
its affiliates) to the same owner during any calendar year are treated as one
annuity for purposes of determining the amount includable in the owner's income
when a taxable distributions occurs.
Withdrawals--Qualified Policies
The above information describing the taxation of nonqualified policies does not
apply to qualified policies. There are special rules that govern with respect
to qualified policies. Generally, these rules restrict:
. the amount that can be contributed to the policy during any year; and
. the time when amounts can be paid from the policies.
In addition, a penalty tax may be assessed on amounts withdrawn from the policy
prior to the date you reach age 59 1/2, unless you meet one of the exceptions
to this rule. You may also be required to begin taking minimum distributions
from the policy by a certain rule. The terms of the plan may limit the rights
otherwise available to you under the policies.
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We have provided more information in the Statement of Additional Information.
You should consult your legal counsel or tax adviser if you are considering
purchasing a policy for use with any retirement plan.
Withdrawals--403(b) Policies
The Internal Revenue Code limits the withdrawal of premium payments from
certain 403(b) policies. Withdrawals can generally only be made when an owner:
. reaches age 59 1/2;
. leaves his/her job;
. dies;
. becomes disabled (as that term is defined in the Internal Revenue Code); or
. in the case of hardship. However, in the case of hardship, the owner can
only withdraw the premium payments and not any earnings.
Diversification and Distribution Requirements
The Internal Revenue Code provides that the underlying investments for a
variable annuity must satisfy certain diversification requirements in order to
be treated as an annuity policy. The policy must also meet certain distribution
requirements at the death of an owner in order to be treated as an annuity
policy. These diversification and distribution requirements are discussed in
the Statement of Additional Information. PFL may modify the policy to attempt
to maintain favorable tax treatment.
Taxation of Death Benefit Proceeds
Amounts may be distributed from the policy because of the death of an owner or
the annuitant. Generally, such amounts are includable in the income of the
recipient:
. if distributed in a lump sum, these amounts are taxed in the same manner as
a full surrender; or
. if distributed under an annuity payment option, these amounts are taxed in
the same manner as annuity payments.
For these purposes, the "investment in the contract" is not affected by the
owner's or annuitant's death. That is, the "investment in the contract" remains
generally the total premium payments, less amounts received, which were not
includable in gross income.
Annuity Payments
Although the tax consequences may vary depending on the annuity payment option
you select, in general, for nonqualified and certain qualified policies, only a
portion of the annuity payments you receive will be includable in your gross
income.
In general, the excludable portion of each annuity payment you receive will be
determined as follows:
. Fixed payments--by dividing the "investment in the contract" on the annuity
commencement date by the total expected value of the annuity payments for
the term of the payments. This is the percentage of each annuity payment
that is excludable.
. Variable payments--by dividing the "investment in the contract" on the
annuity commencement date by the total number of expected periodic payments.
This is the amount of each annuity payment that is excludable.
The remainder of each annuity payment is includable in gross income. Once the
"investment in the contract" has been fully recovered, the full amount of any
additional annuity payments is includable in gross income.
If you select more than one annuity payment option, special rules govern the
allocation of the policy's entire "investment in the contract" to each such
option, for purposes of determining the excludable amount of each payment
received under that option. We advise you to consult a competent tax adviser as
to the potential tax effects of allocating amounts to any particular annuity
payment option.
If, after the annuity commencement date, annuity payments stop because an
annuitant died, the excess (if any) of the "investment in the contract" as of
the annuity commencement date over the aggregate amount of annuity payments
received that was excluded from gross income is generally allowable as a
deduction for your last taxable year.
Transfers, Assignments or Exchanges of Policies
A transfer of ownership or assignment of a policy, the designation of an
annuitant or other beneficiary who is not also the owner, the selection of
certain annuity commencement dates, or a change of
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annuitant, may result in certain income or gift tax consequences to the owner
that are beyond the scope of this discussion. An owner contemplating any such
transfer, assignment, selection, or change should contact a competent tax
adviser in respect to the potential tax effects of such a transaction.
Possible Tax Law Changes
Although the likelihood of legislative changes in uncertain, there is always
the possibility that the tax treatment of the policy could change by
legislation or otherwise. You should consult a tax adviser with respect to
legislative developments and their effect on the policy.
7. SURRENDER VALUE
Surrenders
You may not surrender any portion of a contract unless either the Certain Only
or Life with Emergency Cash SM payment option is selected. No other payment
option allows surrenders. If you elect a Certain Only payment option the
surrender value is the present value of the remaining payments. If you select
the Life with Emergency Cash SM payment option, we will provide you with a Life
with Emergency Cash SM benefit schedule that will allow you to determine how
much is available to surrender.
If a partial surrender is made, it must be at least 25% of the full surrender
value and all future payments will be reduced. Surrenders may have adverse tax
consequences.
You should consult with your tax advisor before requesting a full or partial
surrender.
Surrender Value
In the cases when the contract can be surrendered (i.e., Certain Only or Life
with Emergency Cash SM options) the determination of a surrender value depends
on specific individual circumstances such as the annuitant's age and sex, the
number of annuitants, the amount of the current payment (when the surrender is
requested), and the number of payments already made, as well as other factors
such as the time value of money and expenses (which are heavily weighted
towards the first year). In determining your surrender value, we must calculate
the present value of your remaining payments recognizing these factors. Present
value is the value in today's dollars assigned to an amount of money in the
future, based on some estimated interest rate.
For fixed annuity payments, the surrender value is 98% of the present value of
the remaining payments recognizing the above factors (using PFL's established
interest rates in effect at the time of the surrender).
For variable annuity payments, the surrender value will also depend on the AIR
chosen and the actual returns of your subaccounts. The surrender value is the
present value of future payments (which are assumed to be equal to the most
recent payment) calculated using an interest rate that recognizes all of the
factors. There is no surrender charge. We will use a maximum interest rate of
4.5% (if you have a 3.5% AIR) or 6% (if you have a 5% AIR). Setting maximum
interest rates protect you, the contract owner, because the higher the interest
rates the lower the surrender value.
If the Life with Emergency Cash SM option is selected, please refer to the
Emergency Cash SM benefit schedule in your contract rider for the information
you need to determine your surrender value.
8. PERFORMANCE
Performance information for the subaccounts may appear in reports and
advertising. The performance information is based on adjusted historical
investment experience of the subaccounts and the underlying funds and does not
indicate or represent future performance.
Total returns of the subaccounts may be advertised. Total returns are based on
the overall dollar or percentage change in value of a hypothetical investment.
Total return quotations reflect changes in portfolio share price, the automatic
reinvestment by the separate account of all distributions and the deduction of
applicable annuity charges.
A cumulative total return reflects performance over a stated period of time. An
average annual total return reflects the hypothetical annually compounded
return that would have produced the same
18
<PAGE>
cumulative total return if the performance had been constant over the entire
period. Because average annual total returns tend to smooth out variations in a
subaccount's returns, you should recognize that they are not the same as actual
year-by-year results.
Some subaccounts may also advertise yield. These measures reflect the income
generated by an investment in the subaccount over a specified period of time.
This income is annualized and shown as a percentage. Yields do not take into
account capital gains or losses.
The VIP Money Market Subaccount may advertise its current and effective yield.
Current yield reflects the income generated by an investment in the subaccount
over a seven day period. Effective yield is calculated in a similar manner
except that income earned is assumed to be reinvested. The VIP II Investment
Grade Bond and the VIP High Income Subaccounts may advertise a 30 day yield
which reflects the income generated by an investment in the subaccount over a
30 day period.
Appendix A contains performance information that you may find useful. It is
divided into various parts, depending upon the type of performance information
shown. Future performance will vary and future results will not be the same as
the results shown.
9. DEATH BENEFIT
If the owner dies before the first annuity payment, the premium (plus or minus
investment performance) will be paid as a death benefit. More information on
how we pay it is in the Statement of Additional Information.
If an owner, who may or may not also be an annuitant, dies on or after the
annuity starting date, we will pay the remaining portion of the annuity
payments due under the contract, if any, in the same manner and frequency (at
least as rapidly) as under the method of distribution used before such owner's
death.
If the deceased owner's surviving spouse is the sole successor owner, then on
such owner's death such surviving spouse may elect to become the sole owner
under the contract and to continue the contract as his or her own.
If a non-natural person is named as an owner, then the primary annuitant, as
defined in the Code, shall be treated as an owner solely for the purposes of
the distribution at death rules. The entire interest in the contract must be
distributed upon the annuitant's death, if the annuitant dies prior to the
first payment date.
If the deceased owner was also the annuitant, then the annuitant's beneficiary
is entitled to the proceeds described above in this section (unless the
deceased owner's surviving spouse is the sole successor owner). If no person is
named as the beneficiary, the owner's estate shall be deemed the beneficiary.
Note carefully. In instances where the owner's estate is deemed to be the
successor owner or beneficiary, it may be necessary to open a probate estate in
order to exercise ownership rights to, or receive death proceeds from, the
contract. If no probate estate is opened because the owner has precluded the
opening of a probate estate by means of a trust or other instrument, unless we
have received written notice of the trust as a successor owner or beneficiary
prior to the owner's death, that trust may not exercise ownership rights to, or
receive death proceeds from, the contract.
In all events, distributions upon the death of an owner will comply with
section 72(s) of the Code.
10. OTHER INFORMATION
PFL Life Insurance Company
PFL Life Insurance Company was incorporated under the laws of the State of Iowa
on April 19, 1961 as NN Investors Life Insurance Company, Inc. It sells life
and health insurance and annuity contracts. PFL is a wholly-owned indirect
subsidiary of AEGON USA, Inc. All of the stock of AEGON USA, Inc., is
indirectly owned by AEGON N.V. of The Netherlands, the securities of which are
publicly traded. AEGON N.V., a holding company, conducts its business through
subsidiary companies engaged primarily in the insurance business. PFL is
licensed in the District of Columbia, Guam, and in all states except New York.
All obligations arising under the policies, including the promise to make
annuity payments, are general corporate obligations of PFL.
19
<PAGE>
The Separate Account
PFL established a separate account, called the PFL Retirement Builder Variable
Annuity Account, under the laws of the State of Iowa on March 29, 1996. The
separate account receives and currently invests the premium payments under the
contracts that are allocated to it for investment only in shares of the
Variable Insurance Products Fund, the Variable Insurance Products Fund II, and
the Variable Insurance Products Fund III. Fidelity Management & Research
Company manages these funds.
The separate account is registered with the SEC as a unit investment trust
under the Investment Company Act of 1940. However, the SEC does not supervise
the management, the investment practices, or the policies of the separate
account or PFL. The obligations to pay the benefits due under the contract are
PFL's responsibility.
The assets of the separate account are held in PFL's name on behalf of the
separate account and belong to PFL. However, those assets that underlie the
contracts are not chargeable with liabilities arising out of any other business
PFL may conduct.
Information about the separate account can be reviewed and copied at the SEC's
Public Reference Room in Washington, D.C. You may obtain information about the
operation of the public reference room by calling the Commission at 1-800-SEC-
0330. In addition, the SEC maintains a web site (http://www.sec.gov) that
contains other information regarding the separate account.
Voting Rights
PFL will vote all shares of the underlying funds in accordance with
instructions we receive from you and other owners that have voting interests in
the portfolios. We will send you and other owners written requests for
instructions on how to vote those shares. When we receive those instructions,
we will vote all of the shares in proportion to those instructions. If,
however, we determine that we are permitted to vote the shares in our own
right, we may do so.
Each person having a voting interest will receive proxy material, reports, and
other materials relating to the appropriate portfolio.
Distributor of the Contracts
AFSG Securities Corporation is the principal underwriter of the contracts. Like
PFL, it is an indirect wholly-owned subsidiary of AEGON USA, Inc. It is located
at 4333 Edgewood Road N.E., Cedar Rapids, IA 52499-0001. AFSG Securities
Corporation is registered as a broker/dealer under the Securities Exchange Act
of 1934. It is a member of the National Association of Securities Dealers, Inc.
(NASD). It was incorporated in Pennsylvania in 1986.
Commissions of up to 6% of premium payments will be paid to broker/dealers who
sell the contracts under agreements with AFSG Securities Corporation. These
commissions are not deducted from premium payments. In addition, certain
production, persistency and managerial bonuses may be paid. PFL may also pay
compensation to banks and other financial institutions for their services in
connection with the sale and servicing of the contracts.
Non-participating Contract
The contract does not participate or share in the profits or surplus earnings
of PFL. No dividends are payable on the contract.
Variations in Contract Provisions
Certain provisions of the contracts may vary from the descriptions in this
prospectus in order to comply with different state laws. See your contract for
variations since any such state variations will be included in your contract or
in riders or endorsements attached to your contract.
Year 2000 Matters
In May 1996, PFL Life Insurance Company (PFL) adopted and presently has in
place a Year 2000 Project Plan (the "Plan") to review and analyze existing
hardware and software systems, as well as voice and data communications
systems, to determine if they are Year 2000 compliant. As of March 1, 1999,
substantially all of PFL's mission-critical systems are Year 2000 compliant.
The Year 2000 Project Plan remains on track as PFL continues with the
validation of its mission-critical and non-mission-critical systems, including
revalidation testing in 1999. In addition, PFL has undertaken aggressive
initiatives to test all systems that interface
20
<PAGE>
with any third parties and other business partners. All of these steps are
aimed at allowing current operations to remain unaffected by the year 2000 date
change.
As of the date of this prospectus, PFL has identified and made available what
it believes are the appropriate resources of hardware, people, and dollars,
including the engagement of outside third parties, to ensure that the Plan will
be completed.
The actions taken by management under The Year 2000 Project Plan are intended
to significantly reduce PFL's risk of a material business interruption based on
the Year 2000 issues. It should be noted that the Year 2000 computer problem,
and its resolution, is complex and multifaceted, and any company's success
cannot be conclusively known until the Year 2000 is reached. In spite of its
efforts or results, PFL's ability to function unaffected to and through the
Year 2000 may be adversely affected by actions, or failure to act, of third
parties beyond our knowledge or control.
This statement is a Year 2000 Readiness Disclosure pursuant to Section 3(9) of
the Year 2000 Information and Readiness Disclosure Act, 15 U.S.C. Section 1
(1998).
IMSA
PFL is a member of the Insurance Marketplace Standards Association (IMSA). IMSA
members subscribe to a set of ethical standards involving the sales and service
of individually sold life insurance and annuities. As a member, we may use the
IMSA logo and language in advertisements.
Delay of Payments
PFL may be permitted to delay any payments from the separate account if:
. the New York Stock Exchange is closed other than for usual weekends or
holidays or trading on the Exchange is otherwise restricted; or
. an emergency exists as defined by the SEC or the SEC requires that trading
be restricted; or
. the SEC permits a delay for the protection of owners.
In addition, transfers of amounts from 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.
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION
Glossary of Terms
The Contract--General Provisions
Federal Tax Matters
Investment Experience
State Regulation of PFL
Administration
Records and Reports
Distribution of the Contracts
Other Products
Custody of Assets
Historical Performance Data
Legal Matters
Independent Auditors
Other Information
Financial Statements
21
<PAGE>
APPENDIX A
HISTORICAL PERFORMANCE DATA
The following graph is showing 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 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 5%
AIR, the premium needed would be $74,639. If the purchaser were female, the
premium necessary would be $81,847. 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.
* * *
22
<PAGE>
VIP MONEY MARKET PORTFOLIO
[MONEY MARKET PORTFOLIO MONTHLY PAYMENT CHART APPEARS HERE]
Chart Specifications:
. 5% AIR
. $500 initial monthly annuity payment
. Fund inception date--March 1982
<TABLE>
<CAPTION>
Adjusted Historical
Year Average Annual Total
Monthly Payment Adjusted Return*
Amounts at End Historical Annual (Periods Ended
of Years Total Return* 12/31/1998)
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1982 $521 N/A 1 Year 4.07%
- --------------------------------------------------------------------------------------
1983 $535 7.69% 5 Years 3.90%
- --------------------------------------------------------------------------------------
1984 $555 8.99% 10 Years 4.27%
- --------------------------------------------------------------------------------------
1985 $564 6.67% Since Inception 5.39%
- --------------------------------------------------------------------------------------
1986 $565 5.28%
- ----------------------------------------------------------------------------------
1987 $565 5.03%
- ----------------------------------------------------------------------------------
1988 $570 5.95%
- ----------------------------------------------------------------------------------
1989 $585 7.72%
- ----------------------------------------------------------------------------------
1990 $594 6.62%
- ----------------------------------------------------------------------------------
1991 $592 4.69%
- ----------------------------------------------------------------------------------
1992 $578 2.51%
- ----------------------------------------------------------------------------------
1993 $561 1.86%
- ----------------------------------------------------------------------------------
1994 $550 2.87%
- ----------------------------------------------------------------------------------
1995 $547 4.47%
- ----------------------------------------------------------------------------------
1996 $542 4.00%
- ----------------------------------------------------------------------------------
1997 $537 4.08%
- ----------------------------------------------------------------------------------
1998 $532 4.07%
</TABLE>
* The subaccount had not began operations as of the date of this prospectus.
Historical returns for periods prior to that date are total returns for the
VIP Money Market Portfolio, adjusted to reflect the 1.35% separate account
charge.
23
<PAGE>
VIP HIGH INCOME PORTFOLIO
["HIGH INCOME PORTFOLIO MONTHLY PAYMENT CHART APPEARS HERE"]
Chart Specifications:
. 5% AIR
. $500 initial monthly annuity payment
. Fund inception date--September 1985
<TABLE>
<CAPTION>
Adjusted Historical
Average
Monthly Payment Adjusted Annual Total Return*
Amounts at End Historical Annual (Periods Ended
Year of Years Total Return* 12/31/1998)
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1982 N/A N/A 1 Year (5.61)%
- ---------------------------------------------------------------------------------
1983 N/A N/A 5 Years 7.34%
- ---------------------------------------------------------------------------------
1984 N/A N/A 10 Years 9.58%
- ---------------------------------------------------------------------------------
1985 $522 N/A Since Inception 9.60%
- ---------------------------------------------------------------------------------
1986 $577 16.12%
- ---------------------------------------------------------------------------------
1987 $549 (0.13)%
- ---------------------------------------------------------------------------------
1988 $577 10.29%
- ---------------------------------------------------------------------------------
1989 $519 (5.56)%
- ---------------------------------------------------------------------------------
1990 $476 (3.71)%
- ---------------------------------------------------------------------------------
1991 $605 33.48%
- ---------------------------------------------------------------------------------
1992 $699 21.41%
- ---------------------------------------------------------------------------------
1993 $792 18.91%
- ---------------------------------------------------------------------------------
1994 $733 (2.86)%
- ---------------------------------------------------------------------------------
1995 $830 19.00%
- ---------------------------------------------------------------------------------
1996 $889 12.50%
- ---------------------------------------------------------------------------------
1997 $983 16.10%
- ---------------------------------------------------------------------------------
1998 $884 (5.61)%
</TABLE>
* The subaccount had not began operations as of the date of this prospectus.
Historical returns for periods prior to that date are total returns for the
VIP High Income Portfolio, adjusted to reflect the 1.35% separate account
charge.
24
<PAGE>
VIP EQUITY-INCOME PORTFOLIO
["EQUITY-INCOME PORTFOLIO MONTHLY PAYMENT CHART APPEARS HERE"]
Chart Specifications:
.5% AIR
.$500 initial monthly annuity payment
.Fund inception date--October 1986
<TABLE>
<CAPTION>
Adjusted Historical
Average Annual Total
Monthly Payment Adjusted Return*
Amounts at End Historical Annual (Periods Ended
Year of Years Total Return* 12/31/1998)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1982 N/A N/A 1 Year 10.14%
- --------------------------------------------------------------------------------
1983 N/A N/A 5 Years 17.19%
- --------------------------------------------------------------------------------
1984 N/A N/A 10 Years 14.08%
- --------------------------------------------------------------------------------
1985 N/A N/A Since Inception 12.89%
- --------------------------------------------------------------------------------
1986 $494 N/A
- --------------------------------------------------------------------------------
1987 $458 (2.76)%
- --------------------------------------------------------------------------------
1988 $529 21.34%
- --------------------------------------------------------------------------------
1989 $583 15.78%
- --------------------------------------------------------------------------------
1990 $464 (16.43)%
- --------------------------------------------------------------------------------
1991 $574 29.71%
- --------------------------------------------------------------------------------
1992 $630 15.41%
- --------------------------------------------------------------------------------
1993 $700 16.63%
- --------------------------------------------------------------------------------
1994 $704 5.64%
- --------------------------------------------------------------------------------
1995 $894 33.31%
- --------------------------------------------------------------------------------
1996 $960 12.75%
- --------------------------------------------------------------------------------
1997 $1156 26.41%
- --------------------------------------------------------------------------------
1998 $1213 %
</TABLE>
* The subaccount had not began operations as of the date of this prospectus.
Historical returns for periods prior to that date are total returns for the
VIP Equity-Income Portfolio, adjusted to reflect the 1.35% separate account
charge.
25
<PAGE>
VIP GROWTH PORTFOLIO
("Growth Portfolio Monthly Payment Chart Appears here")
Chart Specifications:
.5% AIR
.$500 initial monthly annuity payment
.Fund inception date--October 1986
<TABLE>
<CAPTION>
Monthly Payment Adjusted Adjusted Historical Average
Amounts at End Historical Annual Annual Total Return*
Year of Years Total Return* (Periods Ended 12/31/1998)
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1982 N/A N/A 1 Year 37.64%
- -----------------------------------------------------------------------------
1983 N/A N/A 5 Years 20.12%
- -----------------------------------------------------------------------------
1984 N/A N/A 10 Years 17.81%
- -----------------------------------------------------------------------------
1985 N/A N/A Since Inception 15.80%
- -----------------------------------------------------------------------------
1986 $ 494 N/A
- -----------------------------------------------------------------------------
1987 $ 481 2.18%
- -----------------------------------------------------------------------------
1988 $ 523 14.25%
- -----------------------------------------------------------------------------
1989 $ 646 29.66%
- -----------------------------------------------------------------------------
1990 $ 536 (12.93)%
- -----------------------------------------------------------------------------
1991 $ 733 43.59%
- -----------------------------------------------------------------------------
1992 $ 753 7.86%
- -----------------------------------------------------------------------------
1993 $ 845 17.78%
- -----------------------------------------------------------------------------
1994 $ 793 (1.36)%
- -----------------------------------------------------------------------------
1995 $1009 33.57%
- -----------------------------------------------------------------------------
1996 $1088 13.17%
- -----------------------------------------------------------------------------
1997 $1262 21.84%
- -----------------------------------------------------------------------------
1998 $1654 37.64%
</TABLE>
* The subaccount had not began operations as of the date of this prospectus.
Historical returns for periods prior to that date are total returns for the
VIP Growth Portfolio, adjusted to reflect the 1.35% separate account charge.
26
<PAGE>
VIP OVERSEAS PORTFOLIO
[OVERSEAS PORTFOLIO/MONTHLY PAYMENT CHART APPEARS HERE]
Chart Specifications:
.5% AIR
.$500 initial monthly annuity payment
.Fund inception date--January 1987
<TABLE>
<CAPTION>
Monthly Payment Adjusted Adjusted Historical Average
Year Amounts at End Historical Annual Annual Total Return*
of Years Total Return* (Periods Ended 12/31/1998)
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1982 N/A N/A 1 Year 11.25%
- ----------------------------------------------------------------------------
1983 N/A N/A 5 Years 8.24%
- ----------------------------------------------------------------------------
1984 N/A N/A 10 Years 8.61%
- ----------------------------------------------------------------------------
1985 N/A N/A Since Inception 7.14%
- ----------------------------------------------------------------------------
1986 N/A N/A
- ----------------------------------------------------------------------------
1987 $446 N/A
- ----------------------------------------------------------------------------
1988 $453 6.68%
- ----------------------------------------------------------------------------
1989 $538 24.61%
- ----------------------------------------------------------------------------
1990 $497 (3.06)%
- ----------------------------------------------------------------------------
1991 $505 6.72%
- ----------------------------------------------------------------------------
1992 $424 (11.92)%
- ----------------------------------------------------------------------------
1993 $546 35.42%
- ----------------------------------------------------------------------------
1994 $522 0.37%
- ----------------------------------------------------------------------------
1995 $538 8.22%
- ----------------------------------------------------------------------------
1996 $572 11.70%
- ----------------------------------------------------------------------------
1997 $600 10.07%
- ----------------------------------------------------------------------------
1998 $636 11.25%
</TABLE>
* The subaccount had not began operations as of the date of this prospectus.
Historical returns for periods prior to that date are total returns for the
VIP Overseas Portfolio, adjusted to reflect the 1.35% separate account
charge.
27
<PAGE>
VIP II INVESTMENT GRADE BOND PORTFOLIO
[INVESTMENT GRADE BOND PORTFOLIO/MONTHLY PAYMENT CHART APPEARS HERE]
Chart Specifications:
.5% AIR
.$500 initial monthly annuity payment
.Fund inception date--June 1989
<TABLE>
<CAPTION>
Monthly Payment Adjusted Adjusted Historical Average
Year Amounts at End Historical Annual Annual Total Return*
of Years Total Return* (Periods Ended 12/31/1998)
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1982 N/A N/A 1 Year 7.39%
- ----------------------------------------------------------------------------
1983 N/A N/A 5 Years 5.28%
- ----------------------------------------------------------------------------
1984 N/A N/A 10 Years N/A
- ----------------------------------------------------------------------------
1985 N/A N/A Since Inception 6.90%
- ----------------------------------------------------------------------------
1986 N/A N/A
- ----------------------------------------------------------------------------
1987 N/A N/A
- ----------------------------------------------------------------------------
1988 N/A N/A
- ----------------------------------------------------------------------------
1989 $514 N/A
- ----------------------------------------------------------------------------
1990 $512 4.71%
- ----------------------------------------------------------------------------
1991 $561 14.94%
- ----------------------------------------------------------------------------
1992 $562 5.23%
- ----------------------------------------------------------------------------
1993 $586 9.48%
- ----------------------------------------------------------------------------
1994 $530 (5.04)%
- ----------------------------------------------------------------------------
1995 $584 15.76%
- ----------------------------------------------------------------------------
1996 $566 1.80%
- ----------------------------------------------------------------------------
1997 $580 7.61%
- ----------------------------------------------------------------------------
1998 $594 7.39%
</TABLE>
* The subaccount had not began operations as of the date of this prospectus.
Historical returns for periods prior to that date are total returns for the
VIP II Investment Grade Bond Portfolio, adjusted to reflect the 1.35%
separate account charge.
28
<PAGE>
VIP II ASSET MANAGER PORTFOLIO
[ASSET MANAGER PORTFOLIO/MONTHLY PAYMENT CHART APPEARS HERE]
Chart Specifications:
.5% AIR
.$500 initial monthly annuity payment
.Fund inception date--May 1990
<TABLE>
<CAPTION>
Monthly Payment Adjusted Adjusted Historical Average
Amounts at End Historical Annual Annual Total Return*
Year of Years Total Return* (Periods Ended 12/31/1998)
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1982 N/A N/A 1 Year 13.52%
- -----------------------------------------------------------------------------
1983 N/A N/A 5 Years 10.32%
- -----------------------------------------------------------------------------
1984 N/A N/A 10 Years N/A%
- -----------------------------------------------------------------------------
1985 N/A N/A Since Inception 12.27%
- -----------------------------------------------------------------------------
1986 N/A N/A
- -----------------------------------------------------------------------------
1987 N/A N/A
- -----------------------------------------------------------------------------
1988 N/A N/A
- -----------------------------------------------------------------------------
1989 N/A N/A
- -----------------------------------------------------------------------------
1990 $504 N/A
- -----------------------------------------------------------------------------
1991 $581 20.93
- -----------------------------------------------------------------------------
1992 $610 10.38%
- -----------------------------------------------------------------------------
1993 $694 19.44%
- -----------------------------------------------------------------------------
1994 $613 (7.35)%
- -----------------------------------------------------------------------------
1995 $673 15.40%
- -----------------------------------------------------------------------------
1996 $725 13.07%
- -----------------------------------------------------------------------------
1997 $822 19.05%
- -----------------------------------------------------------------------------
1998 $888 13.52%
</TABLE>
* The subaccount had not began operations as of the date of this prospectus.
Historical returns for periods prior to that date are total returns for the
VIP II Asset Manager Portfolio, adjusted to reflect the 1.35% separate
account charge.
29
<PAGE>
VIP II ASSET MANAGER: GROWTH PORTFOLIO
[ASSET MANAGER GROWTH PORTFOLIO/MONTHLY PAYMENT CHART APPEARS HERE]
Chart Specifications:
.5% AIR
.$500 initial monthly annuity payment
.Fund inception date--January 1995
<TABLE>
<CAPTION>
Monthly Payment Adjusted Adjusted Historical Average
Year Amounts at End Historical Annual Annual Total Return*
of Years Total Return* (Periods Ended 12/31/1998)
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1982 N/A N/A 1 Year 16.00%
- ----------------------------------------------------------------------------
1983 N/A N/A 5 Years N/A
- ----------------------------------------------------------------------------
1984 N/A N/A 10 Years N/A
- ----------------------------------------------------------------------------
1985 N/A N/A Since Inception 19.86%
- ----------------------------------------------------------------------------
1986 N/A N/A
- ----------------------------------------------------------------------------
1987 N/A N/A
- ----------------------------------------------------------------------------
1988 N/A N/A
- ----------------------------------------------------------------------------
1989 N/A N/A
- ----------------------------------------------------------------------------
1990 N/A N/A
- ----------------------------------------------------------------------------
1991 N/A N/A
- ----------------------------------------------------------------------------
1992 N/A N/A
- ----------------------------------------------------------------------------
1993 N/A N/A
- ----------------------------------------------------------------------------
1994 N/A N/A
- ----------------------------------------------------------------------------
1995 $579 N/A
- ----------------------------------------------------------------------------
1996 $653 18.33%
- ----------------------------------------------------------------------------
1997 $767 23.41%
- ----------------------------------------------------------------------------
1998 $848 16.00%
</TABLE>
* The subaccount had not began operations as of the date of this prospectus.
Historical returns for periods prior to that date are total returns for the VIP
II Asset Manager: Growth Portfolio, adjusted to reflect the 1.35% separate
account charge.
30
<PAGE>
VIP II INDEX 500 PORTFOLIO
[INDEX 500 PORTFOLIO/MONTHLY PAYMENT CHART APPEARS HERE]
Chart Specifications:
.5% AIR
.$500 initial monthly annuity payment
.Fund inception date--August 1992
<TABLE>
<CAPTION>
Monthly Payment Adjusted Adjusted Historical Average
Amounts at End Historical Annual Annual Total Return*
Year of Years Total Return* (Periods Ended 12/31/1998)
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1982 N/A N/A 1 Year 26.62%
- -----------------------------------------------------------------------------
1983 N/A N/A 5 Years 22.08%
- -----------------------------------------------------------------------------
1984 N/A N/A 10 Years N/A
- -----------------------------------------------------------------------------
1985 N/A N/A Since Inception 19.44%
- -----------------------------------------------------------------------------
1986 N/A N/A
- -----------------------------------------------------------------------------
1987 N/A N/A
- -----------------------------------------------------------------------------
1988 N/A N/A
- -----------------------------------------------------------------------------
1989 N/A N/A
- -----------------------------------------------------------------------------
1990 N/A N/A
- -----------------------------------------------------------------------------
1991 N/A N/A
- -----------------------------------------------------------------------------
1992 $ 517 N/A
- -----------------------------------------------------------------------------
1993 $ 533 8.27%
- -----------------------------------------------------------------------------
1994 $ 506 (0.32)%
- -----------------------------------------------------------------------------
1995 $ 652 35.36%
- -----------------------------------------------------------------------------
1996 $ 753 21.18%
- -----------------------------------------------------------------------------
1997 $ 939 30.94%
- -----------------------------------------------------------------------------
1998 $1132 26.62%
</TABLE>
* The subaccount had not began operations as of the date of this prospectus.
Historical returns for periods prior to that date are total returns for the
VIP II Index 500 Portfolio, adjusted to reflect the 1.35% separate account
charge.
31
<PAGE>
VIP II CONTRAFUND PORTFOLIO
[CONTRAFUND PORTFOLIO/MONTHLY PAYMENT CHART APPEARS HERE]
Chart Specifications:
. 5% AIR
.$500 initial monthly annuity payment
.Fund inception date--January 1995
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Monthly Payment Adjusted Adjusted Historical Average Annual
Amounts at End Historical Annual Total Return*
Year of Years Total Return* (Periods Ended 12/31/1998)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1982 N/A N/A 1 Year 28.25%
- ------------------------------------------------------------------------------------------------------------------------------------
1983 N/A N/A 5 Years N/A
- ------------------------------------------------------------------------------------------------------------------------------------
1984 N/A N/A 10 Years N/A
- ------------------------------------------------------------------------------------------------------------------------------------
1985 N/A N/A Since Inception 27.03%
- ------------------------------------------------------------------------------------------------------------------------------------
1986 N/A N/A
- ------------------------------------------------------------------------------------------------------------------------------------
1987 N/A N/A
- ------------------------------------------------------------------------------------------------------------------------------------
1988 N/A N/A
- ------------------------------------------------------------------------------------------------------------------------------------
1989 N/A N/A
- ------------------------------------------------------------------------------------------------------------------------------------
1990 N/A N/A
- ------------------------------------------------------------------------------------------------------------------------------------
1991 N/A N/A
- ------------------------------------------------------------------------------------------------------------------------------------
1992 N/A N/A
- ------------------------------------------------------------------------------------------------------------------------------------
1993 N/A N/A
- ------------------------------------------------------------------------------------------------------------------------------------
1994 N/A N/A
- ------------------------------------------------------------------------------------------------------------------------------------
1995 $ 658 N/A
- ------------------------------------------------------------------------------------------------------------------------------------
1996 $ 750 19.68%
- ------------------------------------------------------------------------------------------------------------------------------------
1997 $ 875 22.49%
- ------------------------------------------------------------------------------------------------------------------------------------
1998 $1069 28.25%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* The subaccount had not began operations as of the date of this prospectus.
Historical returns for periods prior to that date are total returns for the
VIP II Contrafund Portfolio, adjusted to reflect the 1.35% separate account
charge.
32
<PAGE>
VIP III BALANCED PORTFOLIO
[BALANCED PORTFOLIO/MONTHLY PAYMENT CHART APPEARS HERE]
Chart Specifications:
. 5% AIR
.$500 initial monthly annuity payment
.Fund inception date--January 1995
<TABLE>
<CAPTION>
Monthly Payment Adjusted Adjusted Historical Average Annual
Year Amounts at End Historical Annual Total Return*
of Years Total Return* (Periods Ended 12/31/1998)
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1982 N/A N/A 1 Year 16.07%
- ---------------------------------------------------------------------------
1983 N/A N/A 5 Years N/A
- ---------------------------------------------------------------------------
1984 N/A N/A 10 Years N/A
- ---------------------------------------------------------------------------
1985 N/A N/A Since Inception 14.38%
- ---------------------------------------------------------------------------
1986 N/A N/A
- ---------------------------------------------------------------------------
1987 N/A N/A
- ---------------------------------------------------------------------------
1988 N/A N/A
- ---------------------------------------------------------------------------
1989 N/A N/A
- ---------------------------------------------------------------------------
1990 N/A N/A
- ---------------------------------------------------------------------------
1991 N/A N/A
- ---------------------------------------------------------------------------
1992 N/A N/A
- ---------------------------------------------------------------------------
1993 N/A N/A
- ---------------------------------------------------------------------------
1994 N/A N/A
- ---------------------------------------------------------------------------
1995 $541 N/A
- ---------------------------------------------------------------------------
1996 $565 9.60%
- ---------------------------------------------------------------------------
1997 $636 18.36%
- ---------------------------------------------------------------------------
1998 $703 16.07%
</TABLE>
* The subaccount had not began operations as of the date of this prospectus.
Historical returns for periods prior to that date are total returns for the
VIP III Balanced Portfolio, adjusted to reflect the 1.35% separate account
charge.
33
<PAGE>
VIP III GROWTH & INCOME PORTFOLIO
[GROWTH AND INCOME PORTFOLIO/MONTHLY PAYMENT CHART APPEARS HERE]
Chart Specifications:
. 5% AIR
.$500 initial monthly annuity payment
.Fund inception date--December 1996
<TABLE>
<CAPTION>
Monthly Payment Adjusted Adjusted Historical Average Annual
Amounts at End Historical Annual Total Return*
Year of Years Total Return* (Periods Ended 12/31/1998)
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1982 N/A N/A 1 Year 27.87%
- ---------------------------------------------------------------------------
1983 N/A N/A 5 Years N/A
- ---------------------------------------------------------------------------
1984 N/A N/A 10 Years N/A
- ---------------------------------------------------------------------------
1985 N/A N/A Since Inception 26.83%
- ---------------------------------------------------------------------------
1986 N/A N/A
- ---------------------------------------------------------------------------
1987 N/A N/A
- ---------------------------------------------------------------------------
1988 N/A N/A
- ---------------------------------------------------------------------------
1989 N/A N/A
- ---------------------------------------------------------------------------
1990 N/A N/A
- ---------------------------------------------------------------------------
1991 N/A N/A
- ---------------------------------------------------------------------------
1992 N/A N/A
- ---------------------------------------------------------------------------
1993 N/A N/A
- ---------------------------------------------------------------------------
1994 N/A N/A
- ---------------------------------------------------------------------------
1995 N/A N/A
- ---------------------------------------------------------------------------
1996 $500 N/A
- ---------------------------------------------------------------------------
1997 $599 25.77%
- ---------------------------------------------------------------------------
1998 $729 27.87%
</TABLE>
* The subaccount had not began operations as of the date of this prospectus.
Historical returns for periods prior to that date are total returns for the
VIP III Growth & Income Portfolio, adjusted to reflect the 1.35% separate
account charge.
34
<PAGE>
VIP III GROWTH OPPORTUNITIES PORTFOLIO
[GROWTH OPPORTUNITIES PORTFOLIO/MONTHLY PAYMENT CHART APPEARS HERE]
Chart Specifications:
. 5% AIR
.$500 initial monthly annuity payment
.Fund inception date--January 1995
<TABLE>
<CAPTION>
Monthly Payment Adjusted Adjusted Historical Average Annual
Amounts at End Historical Annual Total Return*
Year of Years Total Return* (Periods Ended 12/31/1998)
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1982 N/A N/A 1 Year 22.96%
- ---------------------------------------------------------------------------
1983 N/A N/A 5 Years N/A
- ---------------------------------------------------------------------------
1984 N/A N/A 10 Years N/A
- ---------------------------------------------------------------------------
1985 N/A N/A Since Inception 24.43%
- ---------------------------------------------------------------------------
1986 N/A N/A
- ---------------------------------------------------------------------------
1987 N/A N/A
- ---------------------------------------------------------------------------
1988 N/A N/A
- ---------------------------------------------------------------------------
1989 N/A N/A
- ---------------------------------------------------------------------------
1990 N/A N/A
- ---------------------------------------------------------------------------
1991 N/A N/A
- ---------------------------------------------------------------------------
1992 N/A N/A
- ---------------------------------------------------------------------------
1993 N/A N/A
- ---------------------------------------------------------------------------
1994 N/A N/A
- ---------------------------------------------------------------------------
1995 $629 N/A
- ---------------------------------------------------------------------------
1996 $706 17.88%
- ---------------------------------------------------------------------------
1997 $841 24.99%
- ---------------------------------------------------------------------------
1998 $985 22.96%
</TABLE>
* The subaccount had not began operations as of the date of this prospectus.
Historical returns for periods prior to that date are total returns for the
VIP III Growth Opportunities Portfolio, adjusted to reflect the 1.35%
separate account charge.
35
<PAGE>
VIP III MID CAP PORTFOLIO
[MID CAP PORTFOLIO/MONTHLY PAYMENT CHART APPEARS HERE]
Chart Specifications:
. 5% AIR
.$500 initial monthly annuity payment
.Fund inception date--December 1998
<TABLE>
<CAPTION>
Monthly Payment Adjusted Adjusted Historical Average Annual
Amounts at End Historical Annual Total Return*
Year of Years Total Return* (Periods Ended 12/31/1998)
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1982 N/A N/A 1 Year N/A
- ---------------------------------------------------------------------------
1983 N/A N/A 5 Years N/A
- ---------------------------------------------------------------------------
1984 N/A N/A 10 Years N/A
- ---------------------------------------------------------------------------
1985 N/A N/A Since Inception 3.09%
- ---------------------------------------------------------------------------
1986 N/A N/A
- ---------------------------------------------------------------------------
1987 N/A N/A
- ---------------------------------------------------------------------------
1988 N/A N/A
- ---------------------------------------------------------------------------
1989 N/A N/A
- ---------------------------------------------------------------------------
1990 N/A N/A
- ---------------------------------------------------------------------------
1991 N/A N/A
- ---------------------------------------------------------------------------
1992 N/A N/A
- ---------------------------------------------------------------------------
1993 N/A N/A
- ---------------------------------------------------------------------------
1994 N/A N/A
- ---------------------------------------------------------------------------
1995 N/A N/A
- ---------------------------------------------------------------------------
1996 N/A N/A
- ---------------------------------------------------------------------------
1997 N/A N/A
- ---------------------------------------------------------------------------
1998 $515 3.09%
</TABLE>
* The subaccount had not began operations as of the date of this prospectus.
Historical returns for periods prior to that date are total returns for the
VIP III Mid Cap Portfolio, adjusted to reflect the 1.35% separate account
charge.
36
<PAGE>
Additional Fund Information
Fidelity Management & Research Company (FMR) is the investment advisor for the
underlying funds. FMR is a registered investment advisor under the Investment
Advisors Act of 1940. FMR is the original Fidelity company and was founded in
1946. It provides numerous mutual funds and other clients with investment
research and portfolio management services. It maintains a large staff of
experienced investment personnel and a full complement of related support
facilities. As of December 31, 1998, it advised funds having more than 39
million shareholder accounts with a total value of more than $694 billion. FMR
charges the portfolios an investment management fee. These fees are part of the
portfolios' operating expenses. See the attached prospectuses for the
underlying funds for discussions of the Underlying funds' expenses.
There is no assurance that any of the portfolios will achieve its investment
objective.
PFL may receive expense reimbursements or other revenues from the funds or FMR.
The amount of these reimbursements or revenues, if any, may be based on the
amount of assets that PFL (or its affiliates) or the separate account invests
in the underlying funds.
The underlying funds' prospectuses should be read carefully before any decision
is made concerning the allocation of the premium to a particular subaccount.
An investment in the separate account, or in any portfolio, including the VIP
Money Market Portfolio, is not insured or guaranteed by the U.S. government or
any government agency.
The investment objectives and policies of certain portfolios are similar to the
investment objectives and policies of other portfolios that may be managed by
the same investment advisor or manager. The investment results of the
portfolios, however, may differ from the results of such other portfolios.
There can be no assurance, and no representation is made, that the investment
results of any of the portfolios will be comparable to the investment results
of any other portfolio, even if the other portfolio has the same investment
advisor or manager.
Addition, Deletion, or Substitution of Investments. We cannot and do not
guarantee that any of the subaccounts will always be available to receive
premium allocations or transfers. We retain the right, subject to any
applicable law, to make certain changes in the separate account and its
investments. We reserve the right to eliminate the shares of any portfolio held
by a subaccount and to substitute shares of another portfolio of the funds or
of another registered open-end management investment company for the shares of
any portfolio, if the shares of the portfolio are no longer available for
investment or, if in our judgment, investment in any portfolio would be
inappropriate in view of the purposes of the separate account. To the extent
required by the 1940 Act, substitutions of shares attributable to an owner's
interest in a subaccount will not be made without prior notice to the owner and
the prior approval of the SEC. Nothing contained herein shall prevent the
separate account from purchasing other securities for other series or classes
of variable annuity contracts or from effecting an exchange between series or
classes of variable annuity contracts on the basis of requests made by owners.
New subaccounts may be established when, in our sole discretion, marketing,
tax, investment or other conditions warrant. Any new subaccounts may be made
available to existing owners on a basis to be determined by us. Each additional
subaccount will purchase shares in a mutual fund portfolio or other investment
vehicle. We may also eliminate one or more subaccounts if, in our sole
discretion, marketing, tax, investment or other conditions warrant such change.
In the event any subaccount is eliminated, we will notify owners and request a
reallocation of the amounts invested in the eliminated subaccount. If no such
reallocation is provided by the owner, we will reinvest the amounts invested in
the eliminated subaccount in the subaccount that invests in the Money Market
Portfolio (or in a similar portfolio of money market instruments) or in another
subaccount, if appropriate.
37
<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 underlying funds are available to separate
accounts offering variable annuity and variable life products of other
participating insurance companies, as well as to the separate account and other
separate accounts we establish. Although we do not anticipate any disadvantages
to this, there is a possibility that a material conflict may arise between the
interest of the separate account and one or more of the other separate accounts
participating in an underlying fund. A conflict may occur due to a change in
law affecting the operations of variable life insurance and variable annuity
separate accounts, differences in the voting instructions we receive and
instructions received by other companies, or some other reason. In the event of
a conflict, it is possible that the separate account might be required to
withdraw its investment in the underlying funds. In the event of any conflict,
we will take any steps necessary to protect owners, annuitants, secondary
annuitants and beneficiaries.
38
<PAGE>
APPENDIX B
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 which 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 $47,198; the entire premium was allocated to
variable annuity payments; the AIR is 5%; the payment option is Single Life
Annuity; a 79 year old male, and separate account charges of 1.35% and average
portfolio expenses of 0.63%. 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 (1.98)%, 4.02%, and 8.02%,
respectively).
[HYPOTHETICAL ILLUSTRATION CHART APPEARS HERE]
39
<PAGE>
Monthly Payments Assuming Different Gross Portfolio Returns
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Monthly Payment at the
End of Contract Year Gross Portfolio Returns*
----------------------------------------------------------------
0.0% 6.0% 10.0%
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assumed First Monthly Payment $500 $500 $500
1 $467 $495 $514
2 $436 $491 $529
3 $407 $486 $544
4 $380 $482 $560
5 $354 $477 $576
6 $331 $473 $593
7 $309 $468 $610
8 $288 $464 $627
9 $269 $460 $645
10 $251 $455 $664
11 $235 $451 $683
12 $219 $447 $703
13 $204 $443 $723
14 $191 $438 $744
15 $178 $434 $765
16 $166 $430 $787
17 $155 $426 $810
18 $145 $422 $833
19 $135 $418 $857
20 $126 $414 $882
</TABLE>
* The corresponding net returns are (1.98)%, 4.02%, and 8.02%.
40
<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 $47,198; the entire premium was allocated
to variable annuity payments; the payment option is a single Life Annuity; 79
year old male; separate account charges of 1.35%; average portfolio expenses of
0.63%; 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.
[MONTHLY PAYMENT AMOUNTS CHART APPEARS HERE]
41
<PAGE>
Monthly Payments Assuming Different AIRs
(Net Portfolio Return = 6%, Gross Portfolio Return = 7.98%)
<TABLE>
- -------------------------------------------------------------------------------------------
<CAPTION>
Monthly Payment at the End of Year AIR
------------------------------------------------------
3.5% 5%
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Assumed First Monthly Payment $455 $500
1 $466 $505
2 $477 $510
3 $489 $514
4 $501 $519
5 $513 $524
6 $525 $529
7 $538 $534
8 $551 $539
9 $564 $545
10 $578 $550
11 $592 $555
12 $606 $560
13 $621 $566
14 $636 $571
15 $651 $576
16 $667 $582
17 $683 $587
18 $699 $593
19 $716 $599
20 $733 $604
</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.
42
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PFL IMMEDIATE INCOME BUILDER
Issued through
PFL RETIREMENT BUILDER VARIABLE
ANNUITY ACCOUNT
Offered by
PFL LIFE INSURANCE COMPANY
4333 Edgewood Road, N.E.
Cedar Rapids, Iowa 52499-0001
This Statement of Additional Information expands upon subjects discussed in
the current prospectus for the PFL Immediate Income Annuity Contract offered
by PFL Life Insurance Company. You may obtain a copy of the prospectus dated
May 1, 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: May 1, 1999
1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
GLOSSARY OF TERMS.......................................................... 3
THE CONTRACT--GENERAL PROVISIONS........................................... 4
Transfers................................................................ 4
Delay of Transfers....................................................... 4
Entire Contract.......................................................... 4
Assignment............................................................... 5
Beneficiary.............................................................. 5
Change of Beneficiary.................................................... 5
Incontestability......................................................... 5
Misstatement of Age or Sex............................................... 5
Modification of Contract................................................. 5
Nonparticipating......................................................... 5
Owner.................................................................... 5
Proof of Death........................................................... 6
Proof of Survival........................................................ 6
Death Before First Payment Date.......................................... 6
Protection of Proceeds................................................... 6
FEDERAL TAX MATTERS........................................................ 6
Tax Status of the Contract............................................... 6
Diversification Requirements............................................. 6
Owner Control............................................................ 7
Required Distributions................................................... 7
Taxation of PFL.......................................................... 8
INVESTMENT EXPERIENCE...................................................... 8
Annuity Unit Value and Annuity Payment Rates............................. 8
STATE REGULATION OF PFL.................................................... 10
ADMINISTRATION............................................................. 10
RECORDS AND REPORTS........................................................ 10
DISTRIBUTION OF THE CONTRACTS.............................................. 10
OTHER PRODUCTS............................................................. 11
CUSTODY OF ASSETS.......................................................... 11
HISTORICAL PERFORMANCE DATA................................................ 11
Money Market Yields...................................................... 11
Other Subaccount Yields.................................................. 12
Total Returns............................................................ 12
Other Performance Data................................................... 13
Adjusted Hypothetical Performance Data................................... 13
LEGAL MATTERS.............................................................. 13
INDEPENDENT AUDITORS....................................................... 13
OTHER INFORMATION.......................................................... 14
FINANCIAL STATEMENTS....................................................... 14
</TABLE>
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.
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 (or Fidelity Management &
Research Company believes) 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. No change in or waiver of any provision of the contract is
valid unless the change or waiver is signed by the President or Secretary of
PFL.
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Assignment
The option to assign is only available for non-tax qualified annuities. Only
you may make an assignment of this contract. You must notify us in writing to
assign this contract. No change will apply to any action taken by us before
the written notice was received. We are not responsible for the validity or
the effect of an assignment.
Beneficiary
The beneficiary is named in the contract specifications section of the
contract or in a subsequent endorsement. More than one beneficiary may be
named. The rights of any beneficiary will be subject to all the provisions of
the contract. You may impose other limitations with our consent.
If any primary or contingent beneficiary dies before the annuitant, that
beneficiary's interest in this contract ends with that beneficiary's death.
Only those beneficiaries living at the time of the annuitant's death will be
eligible to receive their share of the death benefits. In the event no
contingent beneficiaries have been named and all primary beneficiaries have
died before the death benefits become payable, the owner(s) will become the
beneficiary(ies) unless elected otherwise. If both primary and contingent
beneficiaries have been named, payment will be made to the named primary
beneficiaries living at the time the death proceeds become payable. If there
is more than one beneficiary and you failed to specify their interest, they
will share equally. Payment will be made to the named contingent
beneficiary(ies) only if all primary beneficiaries have died before the death
benefits become payable. If any primary beneficiary is alive at the time the
death benefits become payable, but dies before receiving their payment, their
share will be paid to their estate.
Change of Beneficiary
You may change the beneficiary while the annuitant is living, unless an
irrevocable one has been named. Change is made by written notice. The change
takes effect on the date the written notice was signed, and the written notice
must have been postmarked on or before the date of the annuitant's death. No
change will apply to any annuity payment made before the written notice was
received. We may require return of the contract for endorsement before making
a change.
Incontestability
The contract is incontestable from the contract issue date.
Misstatement of Sex or Age
If the age or sex of any annuitant has been misstated, the annuity payments
will be those which the premium paid would have purchased for the correct age
and sex. Any underpayment made by us will be paid with the next annuity
payment. Any overpayment made by us will be deducted from future annuity
payments. Any underpayment or overpayment will include interest at 5% per
year, from the date of the incorrect payment to the date of the adjustment.
Modification of Contract
No change in the contract is valid unless made in writing.
Nonparticipating
Your contract is nonparticipating. This means we do not pay dividends on it.
Your contract will not share in our profits or surplus earnings.
Owner
You, the owner, are named in the contract specifications section. You may,
while any annuitant is living, exercise all rights granted by the contract.
These rights are subject to the rights of any assignee or living irrevocable
beneficiary. "Irrevocable" means that you have given up your right to change
the beneficiary named.
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Unless we have been notified of a community or marital property interest in
the contract, we will rely on our good faith belief that no such interest
exists and will assume no responsibility for inquiry.
Proof of Death
Any beneficiary claiming an interest in the contract must provide us in
writing with due proof of death of the payee/annuitant and/or secondary
annuitant (if any). We will not be responsible for annuity payments made
before we receive due proof of death at the Administrative and Service Office.
Proof of Survival
If annuity payments under the contract depend on a person being alive on a
given date, proof of survival may be required by us prior to making annuity
payments.
Death Before First Payment Date
If any owner, who is an annuitant, dies before the first payment date, the
amount of the death proceeds is the premium plus or minus the investment
performance of the subaccounts. If any owner, who is not an annuitant, dies
before the first payment date, the successor owner may direct the owner's
interest in the contract to be distributed as follows:
. one cash lump sum to be distributed within five years of the deceased
owner's death; or
. annuitize the value of the annuity payments over the lifetime of the
successor owner with payments to begin within one year of the owner's
death; or
. annuitize the value of the annuity payments over a period that does not
exceed the life expectancy of the successor owner, as defined by the
Internal Revenue Code of 1986, as amended (Code), with payments to begin
within one year of the owner's death.
If the deceased owner was also an annuitant, the annuitant's beneficiary is
entitled to the benefit described above. If no person is named as the
successor owner, the owner's estate shall be deemed the successor owner.
Non-natural successor owners may only choose a lump sum distribution. For
qualified contracts, any option chosen must meet the requirements of the Code.
Protection of Proceeds
Unless you so direct by filing written notice with us, no beneficiary may
assign payments under the contract before the same are due. To the extent
permitted by law, no payments under the contract will be subject to the claims
of creditors of any beneficiary.
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
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<PAGE>
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
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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 Starting Date,
the entire interest in the contract will be distributed within five years
after the date of the contract owner's death. These requirements will be
considered satisfied as to any portion of the contract owner's interest that
is payable to or for the benefit of a "designated beneficiary," and that is
distributed over the life of such designated beneficiary or over a period not
extending beyond the life expectancy of that beneficiary, provided that such
distributions begin within one year of that contract owner's death. The
"designated beneficiary" for these purposes is the person who becomes the new
owner of the contract upon a contract owner's death and must be a natural
person. However, if the contract owner's sole designated beneficiary is the
surviving spouse of the contract owner, the contract may be continued with the
surviving spouse as the new contract owner. The Code further provides that if
the contract owner is not an individual, the primary annuitant shall be
treated as the contract owner for purposes of making distributions that are
required to be made upon the death of the 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.
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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 investment return. 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;
(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.
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<PAGE>
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/(1.055) /\ (/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
V = 20.1973
Then, the variable annuity units is equal to U = P/V
= $700/20.1973
= 34.6581 units
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<PAGE>
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.
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.
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OTHER PRODUCTS
We make other variable annuity contracts available that may also be funded
through the separate account. These variable annuity contracts may have
different features, such as different investment options or charges.
CUSTODY OF ASSETS
The assets of each of the subaccounts of the separate account are held by us.
The assets of each of the subaccounts of the separate account are segregated
and held separate and apart from the assets of the other subaccounts and from
our general account assets. We maintain records of all purchases and
redemptions of shares of the underlying funds held by each of the subaccounts.
Additional protection for the assets of the separate account is afforded by
our fidelity bond, presently in the amount of $5,000,000, covering the acts of
our officers and employees.
HISTORICAL PERFORMANCE DATA
Money Market Yields
We may from time to time disclose the current annualized yield of the Money
Market Subaccount for a 7-day period in a manner which does not take into
consideration any realized or unrealized gains or losses on shares of the
portfolio securities. This current annualized yield is computed by determining
the net change (exclusive of realized gains and losses on the sale of
securities and unrealized appreciation and depreciation and income other than
investment income) at the end of the 7-day period in the value of a
hypothetical account having a balance of 1 unit at the beginning of the 7-day
period, dividing such net change in account value by the value of the account
at the beginning of the period to determine the base period return, and
annualizing this quotient on a 365-day basis. The net change in account value
reflects (i) net income from the portfolio attributable to the hypothetical
account; and (ii) charges and deductions imposed under a contract that are
attributable to the hypothetical account. The charges and deductions include
the per unit charges for the hypothetical account for the separate account
charge. Current Yield will be calculated according to the following formula:
Current Yield = ((NCS x ES)/UV) x (365/7)
Where:
NCS = the net change in the value of the portfolio (exclusive of realized
gains and losses on the sale of securities and unrealized appreciation
and depreciation and income other than investment income) for the 7-day
period attributable to a hypothetical account having a balance of 1
subaccount unit.
ES = per unit expenses of the subaccount for the 7-day period.
UV = the unit value on the first day of the 7-day period.
Because of the charges and deductions imposed under a contract, the yield for
the Money Market Subaccount will be lower than the yield for the Money Market
Portfolio. The yield calculations do not reflect the effect of any premium
taxes or surrender charges that may be applicable to a particular contract.
We may also disclose the effective yield of the Money Market Subaccount for
the same 7-day period, determined on a compounded basis. The effective yield
is calculated by compounding the base period return according to the following
formula:
Effective Yield = (1 + ((NCS-ES)/UV))/365///7/-1
Where:
NCS = the net change in the value of the account (exclusive of realized gains
and losses on the sale of securities and unrealized appreciation and
depreciation and income other than investment income) for the 7-day
period attributable to a hypothetical account having a balance of 1
subaccount unit.
ES = per unit expenses of the subaccount for the 7-day period.
UV = the unit value on the first day of the 7-day period.
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The yield on amounts held in the Money Market Subaccount normally will
fluctuate on a daily basis. Therefore, the disclosed yield for any given past
period is not an indication or representation of future yields or rates of
return. The Money Market Subaccount actual yield is affected by changes in
interest rates on money market securities, average portfolio maturity of the
Money Market Portfolio, the types and quality of portfolio securities held by
the Money Market Portfolio and its operating expenses.
Other Subaccount Yields
We may from time to time advertise or disclose the current annualized yield of
one or more of the subaccounts of the separate account (except the Money
Market Subaccount) for 30-day periods. The annualized yield of a subaccount
refers to income generated by the subaccount over a specific 30-day period.
Because the yield is annualized, the yield generated by a subaccount during
the 30-day period is assumed to be generated each 30-day period over a 12-
month period. The yield is computed by: (i) dividing the net investment income
of the subaccount less subaccount expenses for the period, by (ii) the maximum
offering price per unit on the last day of the period times the daily average
number of units outstanding for the period, compounding that yield for a 6-
month period, and (iv) multiplying that result by 2. Expenses attributable to
the subaccount include the separate account charge. The 30-day yield is
calculated according to the following formula:
Yield = 2 x ((((NI-ES)/(U x UV)) + 1)/6/-1)
Where:
NI = net investment income of the subaccount for the 30-day period attributable
to the subaccount's unit.
ES = expenses of the subaccount for the 30-day period.
U = the average number of units outstanding.
UV = the unit value at the close (highest) of the last day in the 30-day period.
Because of the charges imposed by the separate account, the yield for a
subaccount of the separate account will be lower than the yield for its
corresponding portfolio. The yield calculations do not reflect the effect of
any premium taxes or surrender charges that may be applicable to a particular
contract.
The yield on amounts held in the subaccounts of the separate account normally
will fluctuate over time. Therefore, the disclosed yield for any given past
period is not an indication or representation of future yields or rates of
return. A subaccount's actual yield is affected by the types and quality of
its investments and its operating expenses.
Total Returns
We may from time to time also advertise or disclose total returns for one or
more of the subaccounts of the separate account for various periods of time.
One of the periods of time will include the period measured from the date the
subaccount commenced operations. When a subaccount has been in operation for
1, 5 and 10 years, respectively, the total return for these periods will be
provided. Total returns for other periods of time may from time to time also
be disclosed. Total returns represent the average annual compounded rates of
return that would equate an initial investment of $1,000 to the redemption
value of that investment as of the last day of each of the periods. The ending
date for each period for which total return quotations are provided will be
for the most recent month end practicable, considering the type and media of
the communication and will be stated in the communication.
Total returns will be calculated using subaccount unit values which we
calculate on each business day based on the performance of the subaccount's
underlying portfolio, and the deduction for the separate account charge. Total
return
12
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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.
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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.
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FINANCIAL STATEMENTS--STATUTORY BASIS
PFL LIFE INSURANCE COMPANY
Years ended December 31, 1998, 1997 and 1996
with Report of Independent Auditors
<PAGE>
PFL LIFE INSURANCE COMPANY
FINANCIAL STATEMENTS--STATUTORY BASIS
Years ended December 31, 1998, 1997 and 1996
Contents
<TABLE>
<S> <C>
Report of Independent Auditors.............................................. 1
Audited Financial Statements
Balance Sheets--Statutory Basis........................................... 2
Statements of Operations--Statutory Basis................................. 3
Statements of Changes in Capital and Surplus--Statutory Basis............. 4
Statements of Cash Flows--Statutory Basis................................. 5
Notes to Financial Statements--Statutory Basis............................ 6
Statutory-Basis Financial Statement Schedules
Summary of Investments--Other Than Investments in Related Parties......... 24
Supplementary Insurance Information....................................... 25
Reinsurance............................................................... 26
</TABLE>
<PAGE>
[LETTERHEAD OF ERNST & YOUNG LLP APPEARS HERE]
Report of Independent Auditors
The Board of Directors
PFL Life Insurance Company
We have audited the accompanying statutory-basis balance sheets of PFL Life
Insurance Company as of December 31, 1998 and 1997, and the related statutory-
basis statements of operations, changes in capital and surplus, and cash flows
for each of the three years in the period ended December 31, 1998. Our audits
also included the accompanying statutory-basis financial statement schedules
required by Article 7 of Regulation S-X. These financial statements and
schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
As described in Note 1 to the financial statements, the Company presents its
financial statements in conformity with accounting practices prescribed or
permitted by the Insurance Division, Department of Commerce, of the State of
Iowa, which practices differ from generally accepted accounting principles.
The variances between such practices and generally accepted accounting
principles also are described in Note 1. The effects on the financial
statements of these variances are not reasonably determinable but are presumed
to be material.
In our opinion, because of the effects of the matters described in the
preceding paragraph, the financial statements referred to above do not present
fairly, in conformity with generally accepted accounting principles, the
financial position of PFL Life Insurance Company at December 31, 1998 and
1997, or the results of its operations or its cash flows for each of the three
years in the period ended December 31, 1998.
However, in our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of PFL Life Insurance
Company at December 31, 1998 and 1997, and the results of its operations and
its cash flows for each of the three years in the period ended December 31,
1998 in conformity with accounting practices prescribed or permitted by the
Insurance Division, Department of Commerce, of the State of Iowa. Also, in our
opinion, the related financial statement schedules, when considered in
relation to the basic statutory-basis financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
/s/ Ernst & Young LLP
Des Moines, Iowa
February 19, 1999
1
<PAGE>
PFL LIFE INSURANCE COMPANY
BALANCE SHEETS--STATUTORY BASIS
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
December 31
---------------------
1998 1997
---------- ----------
ADMITTED ASSETS
---------------
<S> <C> <C>
Cash and invested assets:
Cash and short-term investments............................ $ 83,289 $ 23,939
Bonds...................................................... 4,822,442 4,913,144
Stocks:
Preferred................................................ 14,754 2,750
Common (cost: 1998--$34,731; 1997--$33,058).............. 49,448 42,345
Affiliated entities (cost: 1998--$8,060; 1997--$10,798).. 5,613 8,031
Mortgage loans on real estate.............................. 1,012,433 935,207
Real estate, at cost less accumulated depreciation ($9,500
in 1998; $8,655 in 1997):
Home office properties................................... 8,056 8,283
Properties acquired in satisfaction of debt.............. 11,778 11,814
Investment properties.................................... 44,325 36,416
Policy loans............................................... 60,058 57,136
Other invested assets...................................... 76,482 29,864
---------- ----------
Total cash and invested assets......................... 6,188,678 6,068,929
Premiums deferred and uncollected........................... 15,318 16,101
Accrued investment income................................... 65,308 69,662
Receivable from affiliate................................... 643 --
Federal income taxes recoverable............................ 639 --
Transfers from separate accounts............................ 70,866 60,193
Other assets................................................ 29,511 37,624
Separate account assets..................................... 3,348,611 2,517,365
---------- ----------
Total admitted assets.................................. $9,719,574 $8,769,874
========== ==========
<CAPTION>
LIABILITIES AND CAPITAL AND SURPLUS
-----------------------------------
<S> <C> <C>
Liabilities:
Aggregate reserves for policies and contracts:
Life..................................................... $1,357,175 $ 884,018
Annuity.................................................. 3,925,293 4,204,125
Accident and health...................................... 205,736 169,328
Policy and contract claim reserves:
Life..................................................... 9,101 8,635
Accident and health...................................... 48,906 57,713
Other policyholders' funds................................. 162,266 143,831
Remittances and items not allocated........................ 19,690 153,745
Asset valuation reserve.................................... 91,588 69,825
Interest maintenance reserve............................... 50,575 30,287
Federal income taxes payable............................... -- 1,889
Short-term notes payable to affiliates..................... 9,421 16,400
Other liabilities.......................................... 76,766 75,070
Payable for securities..................................... 57,645 --
Payable to affiliates...................................... -- 13,240
Separate account liabilities............................... 3,342,884 2,512,406
---------- ----------
Total liabilities...................................... 9,357,046 8,340,512
Commitments and contingencies
Capital and surplus:
Common stock, $10 par value, 500 shares authorized, 266
issued and outstanding.................................... 2,660 2,660
Paid-in surplus............................................ 154,282 154,282
Unassigned surplus......................................... 205,586 272,420
---------- ----------
Total capital and surplus.............................. 362,528 429,362
---------- ----------
Total liabilities and capital and surplus.............. $9,719,574 $8,769,874
========== ==========
</TABLE>
See accompanying notes.
2
<PAGE>
PFL LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS--STATUTORY BASIS
(Dollars in thousands)
<TABLE>
<CAPTION>
Year Ended December 31
----------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Premiums and other considerations, net
of reinsurance:
Life.................................. $ 516,111 $ 202,435 $ 204,872
Annuity............................... 667,920 657,695 725,966
Accident and health................... 178,593 207,982 227,862
Net investment income................... 446,984 446,424 428,337
Amortization of interest maintenance re-
serve.................................. 8,656 3,645 2,434
Commissions and expense allowances on
reinsurance ceded...................... 32,781 49,859 73,931
---------- ---------- ----------
1,851,045 1,568,040 1,663,402
Benefits and expenses:
Benefits paid or provided for:
Life and accident and health bene-
fits................................. 135,184 146,583 147,024
Surrender benefits.................... 732,796 658,071 512,810
Other benefits........................ 152,209 126,495 101,288
Increase (decrease) in aggregate
reserves for policies and contracts:
Life.................................. 473,158 149,575 140,126
Annuity............................... (278,665) (203,139) 188,002
Accident and health................... 36,407 30,059 26,790
Other................................. 17,550 16,998 19,969
---------- ---------- ----------
1,268,639 924,642 1,136,009
Insurance expenses:
Commissions............................. 136,569 157,300 177,466
General insurance expenses.............. 48,018 57,571 57,282
Taxes, licenses and fees................ 19,166 8,715 13,889
Net transfers to separate accounts...... 265,702 297,480 171,785
Other expenses.......................... 1,016 119 526
---------- ---------- ----------
470,471 521,185 420,948
---------- ---------- ----------
1,739,110 1,445,827 1,556,957
---------- ---------- ----------
Gain from operations before federal income
tax expense and net realized capital
gains (losses) on investments............ 111,935 122,213 106,445
Federal income tax expense................ 49,835 43,381 41,177
---------- ---------- ----------
Gain from operations before net realized
capital gains (losses) on investments.... 62,100 78,832 65,268
Net realized capital gains (losses) on
investments (net of related federal
income taxes and amounts transferred to
interest maintenance reserve)............ 3,398 7,159 (3,503)
---------- ---------- ----------
Net income................................ $ 65,498 $ 85,991 $ 61,765
========== ========== ==========
</TABLE>
See accompanying notes.
3
<PAGE>
PFL LIFE INSURANCE COMPANY
STATEMENTS OF CHANGES IN CAPITAL AND SURPLUS--STATUTORY BASIS
(Dollars in thousands)
<TABLE>
<CAPTION>
Total
Capital
Common Paid-in Unassigned and
Stock Surplus Surplus Surplus
------ -------- ---------- ---------
<S> <C> <C> <C> <C>
Balance at January 1, 1996............... $2,660 $154,129 $ 220,739 $ 377,528
Net income............................. -- -- 61,765 61,765
Change in net unrealized capital
gains................................. -- -- 2,351 2,351
Change in non-admitted assets.......... -- -- (148) (148)
Change in asset valuation reserve...... -- -- (10,930) (10,930)
Dividend to stockholder................ -- -- (20,000) (20,000)
Prior period adjustment................ -- -- 5,025 5,025
Surplus effect of sales of divisions... -- -- (384) (384)
Surplus effect of ceding commissions
associated with the sale of a
division.............................. -- -- 29 29
Amendment of reinsurance agreement..... -- -- 421 421
Change in liability for reinsurance in
unauthorized companies................ -- -- 2,690 2,690
------ -------- --------- ---------
Balance at December 31, 1996............. 2,660 154,129 261,558 418,347
Capital contribution................... -- 153 -- 153
Net income............................. -- -- 85,991 85,991
Change in net unrealized capital
gains................................. -- -- 3,592 3,592
Change in non-admitted assets.......... -- -- (481) (481)
Change in asset valuation reserve...... -- -- (14,974) (14,974)
Dividend to stockholder................ -- -- (62,000) (62,000)
Surplus effect of sale of a division... -- -- (161) (161)
Surplus effect of ceding commissions
associated with the sale of a
division.............................. -- -- 5 5
Amendment of reinsurance agreement..... -- -- 389 389
Surplus effect of reinsurance
agreement............................. -- -- 402 402
Change in liability for reinsurance in
unauthorized companies................ -- -- (1,901) (1,901)
------ -------- --------- ---------
Balance at December 31, 1997............. 2,660 154,282 272,420 429,362
Net income............................. -- -- 65,498 65,498
Change in net unrealized capital
gains................................. -- -- 4,504 4,504
Change in non-admitted assets.......... -- -- (260) (260)
Change in asset valuation reserve...... -- -- (21,763) (21,763)
Dividend to stockholder................ -- -- (120,000) (120,000)
Increase in liability for reinsurance
in unauthorized companies............. -- -- 2,036 2,036
Tax benefit on stock options
exercised............................. -- -- 2,476 2,476
Change in surplus in separate
accounts.............................. -- -- 675 675
------ -------- --------- ---------
Balance at December 31, 1998............. $2,660 $154,282 $ 205,586 $ 362,528
====== ======== ========= =========
</TABLE>
See accompanying notes.
4
<PAGE>
PFL LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS--STATUTORY BASIS
(Dollars in thousands)
<TABLE>
<CAPTION>
Year Ended December 31
-------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Operating Activities
Premiums and other considerations, net
of reinsurance......................... $ 1,396,428 $ 1,119,936 $ 1,240,748
Net investment income................... 469,246 452,091 431,456
Life and accident and health claims..... (138,249) (154,383) (147,556)
Surrender benefits and other fund
withdrawals............................ (732,796) (658,071) (512,810)
Other benefits to policyholders......... (152,167) (126,462) (101,254)
Commissions, other expenses and other
taxes.................................. (197,135) (225,042) (248,321)
Net transfers to separate accounts...... (276,375) (319,146) (210,312)
Federal income taxes.................... (72,176) (47,909) (35,551)
Cash paid in conjunction with an
amendment of a reinsurance agreement... -- (4,826) (5,812)
Cash received in connection with a
reinsurance agreement.................. -- 1,477 --
Other, net.............................. (93,095) 89,693 (41,677)
Net cash provided by operating
activities............................. 203,681 127,358 368,911
Investing Activities
Proceeds from investments sold, matured
or repaid:
Bonds and preferred stocks............ 3,347,174 3,284,095 2,112,831
Common stocks......................... 34,564 34,004 27,214
Mortgage loans on real estate......... 192,210 138,162 74,351
Real estate........................... 5,624 6,897 18,077
Cash received from ceding commissions
associated with the sale of a
division............................. -- 8 45
Other................................. 7,210 57,683 22,568
----------- ----------- -----------
3,586,782 3,520,849 2,255,086
Cost of investments acquired:
Bonds and preferred stocks............ (3,251,822) (3,411,442) (2,270,105)
Common stocks......................... (36,379) (37,339) (29,799)
Mortgage loans on real estate......... (257,039) (159,577) (324,381)
Real estate........................... (11,458) (2,013) (222)
Policy loans.......................... (2,922) (2,922) (1,539)
Cash paid in association with the sale
of a division........................ -- (591) (662)
Other................................. (44,514) (15,674) (6,404)
----------- ----------- -----------
(3,604,134) (3,629,558) (2,633,112)
----------- ----------- -----------
Net cash used in investing activities... (17,352) (108,709) (378,026)
Financing Activities
Issuance (repayment) of short-term
intercompany notes payable............. $ (6,979) $ 16,400 $ --
Capital contribution.................... -- 153 --
Dividends to stockholder................ (120,000) (62,000) (20,000)
----------- ----------- -----------
Net cash used in financing activities... (126,979) (45,447) (20,000)
----------- ----------- -----------
Increase (decrease) in cash and short-
term investments....................... 59,350 (26,798) (29,115)
Cash and short-term investments at
beginning of year...................... 23,939 50,737 79,852
----------- ----------- -----------
Cash and short-term investments at end
of year................................ $ 83,289 $ 23,939 $ 50,737
=========== =========== ===========
</TABLE>
See accompanying notes.
5
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS
(Dollars in thousands)
December 31, 1998
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
PFL Life Insurance Company ("the Company") is a stock life insurance company
and is a wholly-owned subsidiary of First AUSA Life Insurance Company ("First
AUSA"), which, in turn, is a wholly-owned subsidiary of AEGON USA, Inc.
("AEGON"). AEGON is an indirect wholly-owned subsidiary of AEGON N.V., a
holding company organized under the laws of The Netherlands.
In connection with the sale of certain affiliated business units, the
Company has assumed various blocks of business from these former affiliates
through mergers. In addition, the Company has canceled or entered into several
coinsurance and reinsurance agreements with affiliates and non-affiliates. The
following is a description of those transactions:
. During 1996, the Company sold its North Richland Hills, Texas health
administrative operations known as The Insurance Center. The transaction
resulted in the transfer of substantially all employees and office
facilities to United Insurance Companies, Inc. ("UICI"). All inforce
business will continue to be shared by UICI and the Company and its
affiliates through the existing coinsurance agreements. After a short
transition period, all new business produced by United Group Association,
an independent insurance agency, will be written by the insurance
subsidiaries of UICI and will not be shared with the Company and its
affiliates through coinsurance arrangements. As a result of the sale,
during 1996 the Company transferred $123 in assets, substantially all of
which was cash, and $70 of liabilities. The difference between the assets
and liabilities of $(53) plus a tax credit of $19 was charged directly to
unassigned surplus. During 1997, the Company transferred $591 in assets,
substantially all of which was cash and $343 of liabilities. The difference
between the assets and liabilities of $(248) net of a tax credit of $87 was
charged directly to unassigned surplus.
. On January 1, 1994, the Company entered into an agreement with a non-
affiliate reinsurer to annually increase reinsurance ceded (primarily group
health business) by 2 1/2% through 1997. As a result, during 1996, the
Company transferred $5,991 in assets, including $5,812 of cash and short-
term investments and liabilities of $6,146. The difference between the
assets and liabilities of $155, plus a tax credit of $266 was credited
directly to unassigned surplus. During 1997, the Company transferred $5,045
in assets, including $4,826 of cash and short-term investments, and
liabilities of $5,164. The difference between the assets and liabilities of
$119 plus a tax credit of $270 was credited directly to unassigned surplus.
. During 1993, the Company sold the Oakbrook Division (primarily group health
business). The initial transfer of risk occurred through an indemnity
reinsurance agreement. The policies will then be assumed by the reinsurer
by novation as state regulatory and policyholder approvals are received.
During 1996, the Company paid $539 in association with this sale; the
payment, net of a tax credit of $189, was charged directly to unassigned
surplus. In addition, the Company received from the third party
administrator a ceding commission of one percent of the premiums collected
between January 1, 1994 and December 31, 1996. As a result of the sale, in
1996, the Company received $45 for ceding commissions; the commissions net
of the related tax effect of $(16) were charged directly to unassigned
surplus. Also, during 1996, the Company paid $539 in association with this
sale; this payment, net of a tax credit of $189, was charged directly to
unassigned surplus. In 1997,
6
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS--(Continued)
the Company received $8 for ceding commissions; the commissions net of the
related tax effect of $3 were credited directly to unassigned surplus.
. During 1997, the Company entered into a reinsurance agreement with a non-
affiliate. As a result of the agreement, the Company received $1,480 of
assets, including $1,477 of cash and short-term securities, and $861 of
liabilities. The difference between the assets and liabilities of $619, net
of a tax effect of $217 was credited directly to unassigned surplus.
Nature of Business
The Company sells individual non-participating whole life, endowment and
term contracts, as well as a broad line of single fixed and flexible premium
annuity products. In addition, the Company offers group life, universal life,
and individual and specialty health coverages. The Company is licensed in 49
states and the District of Columbia. Sales of the Company's products are
primarily through the Company's agents and financial institutions.
Basis of Presentation
The preparation of financial statements of insurance companies requires
management to make estimates and assumptions that affect amounts reported in
the financial statements and accompanying notes. Actual results could differ
from those estimates.
Significant estimates and assumptions are utilized in the calculation of
aggregate policy reserves, policy and contract claim reserves, guaranty fund
assessment accruals and valuation allowances on investments. It is reasonably
possible that actual experience could differ from the estimates and
assumptions utilized which could have a material impact on the financial
statements.
The accompanying financial statements have been prepared on the basis of
accounting practices prescribed or permitted by the Insurance Division,
Department of Commerce, of the State of Iowa ("Insurance Department"), which
practices differ in some respects from generally accepted accounting
principles. The more significant of these differences are as follows: (a)
bonds are generally reported at amortized cost rather than segregating the
portfolio into held-to-maturity (reported at amortized cost), available-for-
sale (reported at fair value), and trading (reported at fair value)
classifications; (b) acquisition costs of acquiring new business are charged
to current operations as incurred rather than deferred and amortized over the
life of the policies; (c) policy reserves on traditional life products are
based on statutory mortality rates and interest which may differ from reserves
based on reasonable assumptions of expected mortality, interest, and
withdrawals which include a provision for possible unfavorable deviation from
such assumptions; (d) policy reserves on certain investment products use
discounting methodologies based on statutory interest rates rather than full
account values; (e) reinsurance amounts are netted against the corresponding
asset or liability rather than shown as gross amounts on the balance sheet;
(f) deferred income taxes are not provided for the difference between the
financial statement and income tax bases of assets and liabilities; (g) net
realized gains or losses attributed to changes in the level of interest rates
in the market are deferred and amortized over the remaining life of the bond
or mortgage loan, rather than recognized as gains or losses in the statement
of operations when the sale is completed; (h) potential declines in the
estimated realizable value of investments are provided for through the
establishment of a formula-determined statutory investment reserve (reported
as a liability), changes to which are charged directly to surplus, rather than
through recognition in the statement of operations for declines in value, when
such declines are judged to be other than temporary; (i) certain assets
designated as "non-admitted assets" have been charged to surplus rather than
being reported as assets; (j) revenues for universal life and investment
products
7
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS--(Continued)
consist of premiums received rather than policy charges for the cost of
insurance, policy administration charges, amortization of policy initiation
fees and surrender charges assessed; (k) pension expense is recorded as
amounts are paid; (l) adjustments to federal income taxes of prior years are
charged or credited directly to unassigned surplus, rather than reported as a
component of expense in the statement of operations; (m) gains or losses on
dispositions of business are charged or credited directly to unassigned
surplus rather than being reported in the statement of operations; and (n) a
liability is established for "unauthorized reinsurers" and changes in this
liability are charged or credited directly to unassigned surplus. The effects
of these variances have not been determined by the Company but are presumed to
be material.
In 1998, the National Association of Insurance Commissioners ("NAIC")
adopted codified statutory accounting principles ("Codification").
Codification will likely change, to some extent, prescribed statutory
accounting practices and may result in changes to the accounting practices
that the Company uses to prepare its statutory-basis financial statements.
Codification will require adoption by the various states before it becomes the
prescribed statutory basis of accounting for insurance companies domesticated
within those states. Accordingly, before Codification becomes effective for
the Company, the State of Iowa must adopt Codification as the prescribed basis
of accounting on which domestic insurers must report their statutory-basis
results to the Insurance Department. At this time, it is unclear whether the
State of Iowa will adopt Codification. However, based on current guidance,
management believes that the impact of Codification will not be material to
the Company's statutory-basis financial statements.
Cash and Cash Equivalents
For purposes of the statements of cash flows, the Company considers all
highly liquid investments with remaining maturity of one year or less when
purchased to be cash equivalents.
Investments
Investments in bonds (except those to which the Securities Valuation Office
of the NAIC has ascribed a value), mortgage loans on real estate and short-
term investments are reported at cost adjusted for amortization of premiums
and accrual of discounts. Amortization is computed using methods which result
in a level yield over the expected life of the investment. The Company reviews
its prepayment assumptions on mortgage and other asset-backed securities at
regular intervals and adjusts amortization rates retrospectively when such
assumptions are changed due to experience and/or expected future patterns.
Investments in preferred stocks in good standing are reported at cost.
Investments in preferred stocks not in good standing are reported at the lower
of cost or market. Common stocks of unaffiliated and affiliated companies,
which includes shares of mutual funds and real estate investment trusts, are
carried at market value. Real estate is reported at cost less allowances for
depreciation. Depreciation is computed principally by the straight-line
method. Policy loans are reported at unpaid principal. Other invested assets
consist principally of investments in various joint ventures and are recorded
at equity in underlying net assets. Other "admitted assets" are valued,
principally at cost, as required or permitted by Iowa Insurance Laws.
Net realized capital gains and losses are determined on the basis of
specific identification and are recorded net of related federal income taxes.
The Asset Valuation Reserve ("AVR") is established by the Company to provide
for potential losses in the event of default by issuers of certain invested
assets. These amounts are determined using a formula prescribed by the NAIC
and are reported as a liability. The formula for the AVR provides for a
corresponding adjustment for realized gains and losses. Under
8
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS--(Continued)
a formula prescribed by the NAIC, the Company defers, in the Interest
Maintenance Reserve ("IMR"), the portion of realized gains and losses on sales
of fixed income investments, principally bonds and mortgage loans,
attributable to changes in the general level of interest rates and amortizes
those deferrals over the remaining period to maturity of the security.
Interest income is recognized on an accrual basis. The Company does not
accrue income on bonds in default, mortgage loans on real estate in default
and/or foreclosure or which are delinquent more than twelve months, or on real
estate where rent is in arrears for more than three months. Further, income is
not accrued when collection is uncertain. At December 31, 1998, 1997 and 1996,
the Company excluded investment income due and accrued of $102, $177 and
$1,541, respectively, with respect to such practices.
The Company uses interest rate swaps and caps as part of its overall
interest rate risk management strategy for certain life insurance and annuity
products. The Company entered into several interest rate swap contracts to
modify the interest rate characteristics of the underlying liabilities. The
net interest effect of such swap transactions is reported as an adjustment of
interest income from the hedged items as incurred.
The Company has entered into an interest rate cap agreement to hedge the
exposure of changing interest rates. The cash flows from the interest rate cap
will help offset losses that might occur from changes in interest rates. The
cost of such agreement is included in interest expense ratably during the life
of the agreement. Income received as a result of the cap agreement will be
recognized in investment income as earned. Unamortized cost of the agreements
is included in other invested assets.
Aggregate Policy Reserves
Life, annuity and accident and health benefit reserves are developed by
actuarial methods and are determined based on published tables based on
statutorily specified interest rates and valuation methods that will provide,
in the aggregate, reserves that are greater than or equal to the minimum
required by law.
The aggregate policy reserves for life insurance policies are based
principally upon the 1941, 1958 and 1980 Commissioners' Standard Ordinary
Mortality and American Experience Mortality Tables. The reserves are
calculated using interest rates ranging from 2.00 to 6.00 percent and are
computed principally on the Net Level Premium Valuation and the Commissioners'
Reserve Valuation Methods. Reserves for universal life policies are based on
account balances adjusted for the Commissioners' Reserve Valuation Method.
Deferred annuity reserves are calculated according to the Commissioners'
Annuity Reserve Valuation Method including excess interest reserves to cover
situations where the future interest guarantees plus the decrease in surrender
charges are in excess of the maximum valuation rates of interest. Reserves for
immediate annuities and supplementary contracts with life contingencies are
equal to the present value of future payments assuming interest rates ranging
from 2.50 to 11.25 percent and mortality rates, where appropriate, from a
variety of tables.
Accident and health policy reserves are equal to the greater of the gross
unearned premiums or any required midterminal reserves plus net unearned
premiums and the present value of amounts not yet due on both reported and
unreported claims.
9
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS--(Continued)
Policy and Contract Claim Reserves
Claim reserves represent the estimated accrued liability for claims reported
to the Company and claims incurred but not yet reported through the statement
date. These reserves are estimated using either individual case-basis
valuations or statistical analysis techniques. These estimates are subject to
the effects of trends in claim severity and frequency. The estimates are
continually reviewed and adjusted as necessary as experience develops or new
information becomes available.
Separate Accounts
Assets held in trust for purchases of variable annuity contracts and the
Company's corresponding obligation to the contract owners are shown separately
in the balance sheets. The assets in the separate accounts are valued at
market. Income and gains and losses with respect to the assets in the separate
accounts accrue to the benefit of the policyholders and, accordingly, the
operations of the separate accounts are not included in the accompanying
financial statements. The separate accounts do not have any minimum guarantees
and the investment risks associated with market value changes are borne
entirely by the policyholders. The Company received variable contract premiums
of $345,319, $281,095 and $227,864 in 1998, 1997 and 1996, respectively. All
variable account contracts are subject to discretionary withdrawal by the
policyholder at the market value of the underlying assets less the current
surrender charge.
Stock Option Plan
AEGON N.V. sponsors a stock option plan for eligible employees of the
Company. Under this plan, certain employees have indicated a preference to
immediately sell shares received as a result of their exercise of the stock
options; in these situations, AEGON N.V. has settled such options in cash
rather than issuing stock to these employees. These cash settlements are paid
by the Company, and AEGON N.V. subsequently reimburses the Company for such
payments. Under statutory accounting principles, the Company does not record
any expense related to this plan, as the expense is recognized by AEGON N.V.
However, the Company is allowed to record a deduction in the consolidated tax
return filed by the Company and certain affiliates. The tax benefit of this
deduction has been credited directly to surplus.
Reclassifications
Certain reclassifications have been made to the 1997 and 1996 financial
statements to conform to the 1998 presentation.
2. FAIR VALUES OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standard ("SFAS") No. 107, Disclosures
about Fair Value of Financial Instruments, requires disclosure of fair value
information about financial instruments, whether or not recognized in the
statutory-basis balance sheet, for which it is practicable to estimate that
value. SFAS No. 119, Disclosures about Derivative Financial Instruments and
Fair Value of Financial Instruments, requires additional disclosure about
derivatives. In cases where quoted market prices are not available, fair
values are based on estimates using present value or other valuation
techniques. Those techniques are significantly affected by the assumptions
used, including the discount rate and estimates of future cash flows. In that
regard, the derived fair value estimates cannot be substantiated by
comparisons to independent markets and, in many cases, could not be realized
in immediate settlement of the instrument. SFAS No. 107 and No. 119 exclude
certain financial instruments and all nonfinancial instruments from their
disclosure requirements and allow companies to forego the
10
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS--(Continued)
disclosures when those estimates can only be made at excessive cost.
Accordingly, the aggregate fair value amounts presented do not represent the
underlying value of the Company.
The following methods and assumptions were used by the Company in estimating
its fair value disclosures for financial instruments:
Cash and short-term investments: The carrying amounts reported in the
balance sheet for these instruments approximate their fair values.
Investment securities: Fair values for fixed maturity securities
(including redeemable preferred stocks) are based on quoted market prices,
where available. For fixed maturity securities not actively traded, fair
values are estimated using values obtained from independent pricing
services or, in the case of private placements, are estimated by
discounting expected future cash flows using a current market rate
applicable to the yield, credit quality, and maturity of the investments.
The fair values for equity securities, including affiliated mutual funds
and real estate investment trusts, are based on quoted market prices.
Mortgage loans and policy loans: The fair values for mortgage loans are
estimated utilizing discounted cash flow analyses, using interest rates
reflective of current market conditions and the risk characteristics of the
loans. The fair value of policy loans is assumed to equal their carrying
value.
Investment contracts: Fair values for the Company's liabilities under
investment-type insurance contracts are estimated using discounted cash
flow calculations, based on interest rates currently being offered for
similar contracts with maturities consistent with those remaining for the
contracts being valued.
Interest rate cap and interest rate swaps: Estimated fair value of the
interest rate cap is based upon the latest quoted market price. Estimated
fair value of interest rate swaps are based upon the pricing differential
for similar swap agreements.
Fair values for the Company's insurance contracts other than investment
contracts are not required to be disclosed. However, the fair values of
liabilities under all insurance contracts are taken into consideration in the
Company's overall management of interest rate risk, which minimizes exposure
to changing interest rates through the matching of investment maturities with
amounts due under insurance contracts.
11
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS--(Continued)
The following sets forth a comparison of the fair values and carrying values
of the Company's financial instruments subject to the provisions of SFAS No.
107 and No. 119:
<TABLE>
<CAPTION>
December 31
-------------------------------------------
1998 1997
--------------------- ---------------------
Carrying Carrying
Value Fair Value Value Fair Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Admitted Assets
Cash and short-term investments.... $ 83,289 $ 83,289 $ 23,939 $ 23,939
Bonds.............................. 4,822,442 4,900,516 4,913,144 5,046,527
Preferred stocks................... 14,754 14,738 2,750 8,029
Common stocks...................... 49,448 49,448 42,345 42,345
Affiliated common stock............ 5,613 5,613 8,031 8,031
Mortgage loans on real estate...... 1,012,433 1,089,315 935,207 983,720
Policy loans....................... 60,058 60,058 57,136 57,136
Interest rate cap.................. 4,445 725 5,618 1,513
Interest rate swaps................ 1,916 6,667 -- 2,546
Separate account assets............ 3,348,611 3,348,611 2,517,365 2,517,365
Liabilities
Investment contract liabilities.... 4,084,683 4,017,509 4,345,181 4,283,461
Separate account liabilities....... 3,271,005 3,213,251 2,452,205 2,452,205
</TABLE>
3. INVESTMENTS
The carrying value and estimated fair value of investments in debt securities
were as follows:
<TABLE>
<CAPTION>
Gross Gross
Carrying Unrealized Unrealized Estimated
Value Gains Losses Fair Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
December 31, 1998
Bonds:
United States Government and
agencies........................ $ 150,085 $ 2,841 $ 321 $ 152,605
State, municipal and other
government...................... 62,948 918 1,651 62,215
Public utilities................. 139,732 5,053 2,555 142,230
Industrial and miscellaneous..... 2,068,086 78,141 34,493 2,111,734
Mortgage and other asset-backed
securities...................... 2,401,591 45,185 15,044 2,431,732
---------- -------- ------- ----------
4,822,442 132,138 54,064 4,900,516
Preferred stocks................... 14,754 75 91 14,738
---------- -------- ------- ----------
$4,837,196 $132,213 $54,155 $4,915,254
========== ======== ======= ==========
</TABLE>
12
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS--(Continued)
<TABLE>
<CAPTION>
Gross Gross
Carrying Unrealized Unrealized Estimated
Value Gains Losses Fair Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
December 31, 1997
Bonds:
United States Government and
agencies........................ $ 188,241 $ 2,562 $ 21 $ 190,782
State, municipal and other
government...................... 61,532 2,584 1,774 62,342
Public utilities................. 121,582 5,384 2,952 124,014
Industrial and miscellaneous..... 1,955,587 85,233 7,752 2,033,068
Mortgage and other asset-backed
securities...................... 2,586,202 55,382 5,263 2,636,321
---------- -------- ------- ----------
4,913,144 151,145 17,762 5,046,527
Preferred stocks................... 2,750 5,279 -- 8,029
---------- -------- ------- ----------
$4,915,894 $156,424 $17,762 $5,054,556
========== ======== ======= ==========
</TABLE>
The carrying value and estimated fair value of bonds at December 31, 1998,
by contractual maturity, are shown below. Expected maturities may differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Carrying Estimated
Value Fair Value
---------- ----------
<S> <C> <C>
Due in one year or less............................... $ 151,747 $ 148,410
Due after one year through five years................. 1,211,064 1,232,329
Due after five years through ten years................ 753,543 761,787
Due after ten years................................... 304,497 326,258
---------- ----------
2,420,851 2,468,784
Mortgage and other asset-backed securities............ 2,401,591 2,431,732
---------- ----------
$4,822,442 $4,900,516
========== ==========
</TABLE>
A detail of net investment income is presented below:
<TABLE>
<CAPTION>
Year Ended December 31
--------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Interest on bonds and notes......................... $374,478 $373,496 $364,356
Dividends on equity investments..................... 1,357 1,460 1,436
Interest on mortgage loans.......................... 77,960 80,266 69,418
Rental income on real estate........................ 6,553 7,501 9,526
Interest on policy loans............................ 4,080 3,400 3,273
Other investment income............................. 2,576 613 1,799
-------- -------- --------
Gross investment income............................. 467,004 466,736 449,808
Investment expenses................................. 20,020 20,312 21,471
-------- -------- --------
Net investment income............................... $446,984 $446,424 $428,337
======== ======== ========
</TABLE>
13
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS--(Continued)
Proceeds from sales and maturities of debt securities and related gross
realized gains and losses were as follows:
<TABLE>
<CAPTION>
Year Ended December 31
----------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Proceeds.................................... $3,347,174 $3,284,095 $2,112,831
========== ========== ==========
Gross realized gains........................ $ 48,760 $ 30,094 $ 19,876
Gross realized losses....................... (8,072) (17,265) (19,634)
---------- ---------- ----------
Net realized gains.......................... $ 40,688 $ 12,829 $ 242
========== ========== ==========
</TABLE>
At December 31, 1998, investments with an aggregate carrying value of
$5,935,160 were on deposit with regulatory authorities or were restrictively
held in bank custodial accounts for the benefit of such regulatory authorities
as required by statute.
Realized investment gains (losses) and changes in unrealized gains (losses)
for investments are summarized below:
<TABLE>
<CAPTION>
Realized
---------------------------
Year Ended December 31
---------------------------
1998 1997 1996
-------- -------- -------
<S> <C> <C> <C>
Debt securities................................... $ 40,688 $ 12,829 $ 242
Short-term investments............................ 1,533 (19) (197)
Equity securities................................. (879) 6,972 1,798
Mortgage loans on real estate..................... 12,637 2,252 (5,530)
Real estate....................................... 3,176 4,252 1,210
Other invested assets............................. (2,523) 1,632 12
-------- -------- -------
54,632 27,918 (2,465)
Tax effect........................................ (22,290) (10,572) (1,235)
Transfer to interest maintenance reserve.......... (28,944) (10,187) 197
-------- -------- -------
Net realized gains (losses)....................... $ 3,398 $ 7,159 $(3,503)
======== ======== =======
</TABLE>
<TABLE>
<CAPTION>
Change in Unrealized
---------------------------
Year Ended December 31
---------------------------
1998 1997 1996
-------- ------- ---------
<S> <C> <C> <C>
Debt securities.................................. $(60,604) $40,289 $(115,867)
Equity securities................................ 5,750 5,653 2,929
-------- ------- ---------
Change in unrealized appreciation
(depreciation).................................. $(54,854) $45,942 $(112,938)
======== ======= =========
</TABLE>
Gross unrealized gains and gross unrealized losses on equity securities were
as follows:
<TABLE>
<CAPTION>
December 31
-------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Unrealized gains..................................... $15,980 $10,356 $ 9,590
Unrealized losses.................................... (3,710) (3,836) (8,723)
------- ------- -------
Net unrealized gains................................. $12,270 $ 6,520 $ 867
======= ======= =======
</TABLE>
14
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS--(Continued)
During 1998, the Company issued mortgage loans with interest rates ranging
from 5.88% to 7.86%. The maximum percentage of any one mortgage loan to the
value of the underlying real estate at origination was 90% for commercial
loans and 95% for residential loans. Mortgage loans with a carrying value of
$245 were non-income producing for the previous twelve months. Accrued
interest of $89 related to these mortgage loans was excluded from investment
income. The Company requires all mortgaged properties to carry fire insurance
equal to the value of the underlying property.
At December 31, 1998 and 1997, the Company held a mortgage loan loss reserve
in the asset valuation reserve of $16,104 and $11,985, respectively. The
mortgage loan portfolio is diversified by geographic region and specific
collateral property type as follows:
Geographic Distribution
<TABLE>
<CAPTION>
December 31
-------------
1998 1997
----- -----
<S> <C> <C>
South Atlantic............................ 32% 29%
E. North Central.......................... 16 12
Pacific................................... 15 15
Mountain.................................. 10 10
Middle Atlantic........................... 10 7
W. South Central.......................... 6 9
W. North Central.......................... 5 6
E. South Central.......................... 3 8
New England............................... 3 4
</TABLE>
Property Type Distribution
<TABLE>
<CAPTION>
December 31
-------------
1998 1997
----- -----
<S> <C> <C>
Retail.................................... 35% 35%
Office.................................... 30 31
Industrial................................ 21 6
Apartment................................. 12 14
Other..................................... 2 14
</TABLE>
At December 31, 1998, the Company had no investments (excluding U.S.
Government guaranteed or insured issues) which individually represented more
than ten percent of capital and surplus and the asset valuation reserve.
The Company utilizes a variety of off-balance sheet financial instruments as
part of its efforts to hedge and manage fluctuations in the market value of
its investment portfolio attributable to changes in general interest rate
levels and to manage duration mismatch of assets and liabilities. These
instruments include interest rate exchange agreements (swaps and caps),
options, and commitments to extend credit and all involve elements of credit
and market risks in excess of the amounts recognized in the accompanying
financial statements at a given point in time. The contract or notional
amounts of those instruments reflect the extent of involvement in the various
types of financial instruments.
The Company's exposure to credit risk is the risk of loss from a
counterparty failing to perform according to the terms of the contract. That
exposure includes settlement risk (i.e., the risk that the
15
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS--(Continued)
counterparty defaults after the Company has delivered funds or securities
under terms of the contract) that would result in an accounting loss and
replacement cost risk (i.e., the cost to replace the contract at current
market rates should the counterparty default prior to settlement date). Credit
loss exposure resulting from nonperformance by a counterparty for commitments
to extend credit is represented by the contractual amounts of the instruments.
At December 31, 1998 and 1997, the Company's outstanding financial
instruments with on and off-balance sheet risks, shown in notional amounts,
are summarized as follows:
<TABLE>
<CAPTION>
Notional Amount
-----------------
1998 1997
-------- --------
<S> <C> <C>
Derivative securities:
Interest rate swaps:
Receive fixed--pay floating............................... $100,000 $100,000
Receive floating (uncapped)--pay floating (capped)........ 53,011 67,229
Receive floating (LIBOR)--pay floating (S&P).............. 60,000 --
Interest rate cap agreements................................ 500,000 500,000
</TABLE>
4. REINSURANCE
The Company reinsures portions of risk on certain insurance policies which
exceed its established limits, thereby providing a greater diversification of
risk and minimizing exposure on larger risks. The Company remains contingently
liable with respect to any insurance ceded, and this would become an actual
liability in the event that the assuming insurance company became unable to
meet its obligation under the reinsurance treaty.
Reinsurance assumption and cession treaties are transacted primarily with
affiliates. Premiums earned reflect the following reinsurance assumed and
ceded amounts:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Direct premiums............................. $1,533,822 $1,312,446 $1,457,450
Reinsurance assumed......................... 2,366 2,038 1,796
Reinsurance ceded........................... (173,564) (246,372) (300,546)
---------- ---------- ----------
Net premiums earned......................... $1,362,624 $1,068,112 $1,158,700
========== ========== ==========
</TABLE>
The Company received reinsurance recoveries in the amount of $173,297,
$183,638 and $168,155 during 1998, 1997 and 1996, respectively. At December
31, 1998 and 1997, estimated amounts recoverable from reinsurers that have
been deducted from policy and contract claim reserves totaled $47,956 and
$60,437, respectively. The aggregate reserves for policies and contracts were
reduced for reserve credits for reinsurance ceded at December 31, 1998 and
1997 of $2,163,905 and $2,434,130, respectively.
At December 31, 1998, amounts recoverable from unauthorized reinsurers of
$55,379 (1997--$73,080) and reserve credits for reinsurance ceded of $49,835
(1997--$78,838) were associated with a single reinsurer and its affiliates.
The Company holds collateral under these reinsurance agreements in the form of
trust agreements totaling $106,226 at December 31, 1998 that can be drawn on
for amounts that remain unpaid for more than 120 days.
16
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS--(Continued)
5. INCOME TAXES
For federal income tax purposes, the Company joins in a consolidated tax
return filing with certain affiliated companies. Under the terms of a tax-
sharing agreement between the Company and its affiliates, the Company computes
federal income tax expense as if it were filing a separate income tax return,
except that tax credits and net operating loss carryforwards are determined on
the basis of the consolidated group. Additionally, the alternative minimum tax
is computed for the consolidated group and the resulting tax, if any, is
allocated back to the separate companies on the basis of the separate
companies' alternative minimum taxable income.
Federal income tax expense differs from the amount computed by applying the
statutory federal income tax rate to gain from operations before federal
income tax expense and net realized capital gains (losses) on investments for
the following reasons:
<TABLE>
<CAPTION>
Year Ended December 31
-------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Computed tax at federal statutory rate (35%)......... $39,177 $42,775 $37,256
Tax reserve adjustment............................... 607 2,004 2,211
Excess tax depreciation.............................. (223) (392) (384)
Deferred acquisition costs--tax basis................ 11,827 4,308 5,583
Prior year under (over) accrual...................... 1,750 (1,016) (499)
Dividend received deduction.......................... (1,053) (941) (454)
Charitable contribution.............................. -- (848) --
Other items--net..................................... (2,250) (2,509) (2,536)
------- ------- -------
Federal income tax expense........................... $49,835 $43,381 $41,177
======= ======= =======
</TABLE>
Prior to 1984, as provided for under the Life Insurance Company Tax Act of
1959, a portion of statutory income was not subject to current taxation but
was accumulated for income tax purposes in a memorandum account referred to as
the policyholders' surplus account. No federal income taxes have been provided
for in the financial statements on income deferred in the policyholders'
surplus account ($20,387 at December 31, 1998). To the extent dividends are
paid from the amount accumulated in the policyholders' surplus account, net
earnings would be reduced by the amount of tax required to be paid. Should the
entire amount in the policyholders' surplus account become taxable, the tax
thereon computed at current rates would amount to approximately $7,135.
The Company's federal income tax returns have been examined and closing
agreements have been executed with the Internal Revenue Service through 1987.
During 1996, there was a $5,025 prior period adjustment to the tax accrual.
This included a $2,100 writeoff of an intangible asset for tax purposes, and a
federal income tax refund of $1,829 for tax years 1984 through 1986 and
related interest of $1,686, net of a tax effect of $590. An examination is
underway for years 1993 through 1995.
6. POLICY AND CONTRACT ATTRIBUTES
A portion of the Company's policy reserves and other policyholders' funds
(including separate account liabilities) relates to liabilities established on
a variety of the Company's products that are not subject to significant
mortality or morbidity risk; however, there may be certain restrictions placed
upon
17
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS--(Continued)
the amount of funds that can be withdrawn without penalty. The amount of
reserves on these products, by withdrawal characteristics, are summarized as
follows:
<TABLE>
<CAPTION>
December 31
-------------------------------------
1998 1997
------------------ ------------------
Percent Percent
of of
Amount Total Amount Total
---------- ------- ---------- -------
<S> <C> <C> <C> <C>
Subject to discretionary withdrawal with
market value adjustment................. $ 82,048 1% $ 8,912 0%
Subject to discretionary withdrawal at
book value less surrender charge........ 515,778 5 755,300 8
Subject to discretionary withdrawal at
market value............................ 3,211,896 34 2,454,845 27
Subject to discretionary withdrawal at
book value (minimal or no charges or
adjustments)............................ 5,519,265 58 5,821,049 63
Not subject to discretionary withdrawal
provision............................... 228,030 2 203,522 2
---------- --- ---------- ---
9,557,017 100% 9,243,628 100%
Less reinsurance ceded................... 2,124,769 2,372,495
---------- ----------
Total policy reserves on annuities and
deposit fund liabilities................ $7,432,248 $6,871,134
========== ==========
</TABLE>
A reconciliation of the amounts transferred to and from the separate accounts
is presented below:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Transfers as reported in the summary of operations
of the separate accounts statement:
Transfers to separate accounts.................... $345,319 $281,095 $227,864
Transfers from separate accounts.................. 79,808 9,819 75,172
-------- -------- --------
Net transfers to separate accounts.................. 265,511 271,276 152,692
Reconciling adjustments--charges for investment
management, administration fees and contract
guarantees......................................... 191 26,204 19,093
-------- -------- --------
Transfers as reported in the summary of operations
of the life, accident and health annual statement.. $265,702 $297,480 $171,785
======== ======== ========
</TABLE>
18
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS--(Continued)
Reserves on the Company's traditional life products are computed using mean
reserving methodologies. These methodologies result in the establishment of
assets for the amount of the net valuation premiums that are anticipated to be
received between the policy's paid-through date to the policy's next
anniversary date. At December 31, 1998 and 1997, these assets (which are
reported as premiums deferred and uncollected) and the amounts of the related
gross premiums and loadings, are as follows:
<TABLE>
<CAPTION>
Gross Loading Net
------- ------- -------
<S> <C> <C> <C>
December 31, 1998
Life and annuity:
Ordinary direct first year business................ $ 3,346 $2,500 $ 846
Ordinary direct renewal business................... 21,435 6,365 15,070
Group life direct business......................... 1,171 536 635
Reinsurance ceded.................................. (1,367) (44) (1,323)
------- ------ -------
24,585 9,357 15,228
Accident and health:
Direct............................................. 108 -- 108
Reinsurance ceded.................................. (18) -- (18)
------- ------ -------
Total accident and health............................ 90 -- 90
------- ------ -------
$24,675 $9,357 $15,318
======= ====== =======
December 31, 1997
Life and annuity:
Ordinary direct first year business................ $ 2,316 $1,698 $ 618
Ordinary direct renewal business................... 22,724 6,834 15,890
Group life direct business......................... 1,523 646 877
Reinsurance ceded.................................. (1,464) (81) (1,383)
------- ------ -------
25,099 9,097 16,002
Accident and health:
Direct............................................. 148 -- 148
Reinsurance ceded.................................. (49) -- (49)
------- ------ -------
Total accident and health............................ 99 -- 99
------- ------ -------
$25,198 $9,097 $16,101
======= ====== =======
</TABLE>
At December 31, 1998 and 1997, the Company had insurance in force
aggregating $44,233 and $69,271, respectively, in which the gross premiums are
less than the net premiums required by the standard valuation standards
established by the Insurance Division, Department of Commerce, of the State of
Iowa. The Company established policy reserves of $998 and $1,128 to cover
these deficiencies at December 31, 1998 and 1997, respectively.
7. DIVIDEND RESTRICTIONS
The Company is subject to limitations, imposed by the State of Iowa, on the
payment of dividends to its parent company. Generally, dividends during any
twelve-month period may not be paid, without prior regulatory approval, in
excess of the greater of (a) 10 percent of statutory capital and surplus as of
the preceding December 31, or (b) statutory gain from operations for the
preceding year. Subject to
19
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS--(Continued)
the availability of unassigned surplus at the time of such dividend, the
maximum payment which may be made in 1999, without the prior approval of
insurance regulatory authorities, is $62,100.
The Company paid dividends to its parent of $120,000, $62,000 and $20,000 in
1998, 1997 and 1996, respectively.
8. RETIREMENT AND COMPENSATION PLANS
The Company's employees participate in a qualified benefit pension plan
sponsored by AEGON. The Company has no legal obligation for the plan. The
Company recognizes pension expense equal to its allocation from AEGON. The
pension expense is allocated among the participating companies based on the
FASB No. 87 expense as a percent of salaries. The benefits are based on years
of service and the employee's compensation during the highest five consecutive
years of employment. Pension expense aggregated $380, $422 and $1,056 for the
years ended December 31, 1998, 1997 and 1996, respectively. The plan is
subject to the reporting and disclosure requirements of the Employee
Retirement and Income Security Act of 1974.
The Company's employees also participate in a contributory defined
contribution plan sponsored by AEGON which is qualified under Section 401(k)
of the Internal Revenue Service Code. Employees of the Company who customarily
work at least 1,000 hours during each calendar year and meet the other
eligibility requirements, are participants of the plan. Participants may elect
to contribute up to fifteen percent of their salary to the plan. The Company
will match an amount up to three percent of the participant's salary.
Participants may direct all of their contributions and plan balances to be
invested in a variety of investment options. The plan is subject to the
reporting and disclosure requirements of the Employee Retirement and Income
Security Act of 1974. Expense related to this plan was $233, $226 and $297 for
the years ended December 31, 1998, 1997 and 1996, respectively.
AEGON sponsors supplemental retirement plans to provide the Company's senior
management with benefits in excess of normal pension benefits. The plans are
noncontributory, and benefits are based on years of service and the employee's
compensation level. The plans are unfunded and nonqualified under the Internal
Revenue Service Code. In addition, AEGON has established incentive deferred
compensation plans for certain key employees of the Company. AEGON also
sponsors an employee stock option plan for individuals employed at least three
years and a stock purchase plan for its producers, with the participating
affiliated companies establishing their own eligibility criteria, producer
contribution limits and company matching formula. These plans have been
accrued or funded as deemed appropriate by management of AEGON and the
Company.
In addition to pension benefits, the Company participates in plans sponsored
by AEGON that provide postretirement medical, dental and life insurance
benefits to employees meeting certain eligibility requirements. Portions of
the medical and dental plans are contributory. The expenses of the
postretirement plans calculated on the pay-as-you-go basis are charged to
affiliates in accordance with an intercompany cost sharing arrangement. The
Company expensed $62, $62 and $184 for the years ended December 31, 1998, 1997
and 1996, respectively.
9. RELATED PARTY TRANSACTIONS
The Company shares certain offices, employees and general expenses with
affiliated companies.
The Company receives data processing, investment advisory and management,
marketing and administration services from certain affiliates. During 1998,
1997 and 1996, the Company paid $18,706, $18,705 and $17,028, respectively,
for these services, which approximates their costs to the affiliates.
20
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS--(Continued)
Payables to affiliates bear interest at the thirty-day commercial paper rate
of 4.95% at December 31, 1998. During 1998, 1997 and 1996, the Company paid
net interest of $1,491, $1,188 and $174, respectively, to affiliates.
During 1997, the Company received a capital contribution of $153 in cash
from its parent.
At December 31, 1998 and 1997, the Company has short-term notes payable to
an affiliate of $9,421 and $16,400, respectively. Interest on these notes
accrues at rates ranging from 5.13% to 5.52% at December 31, 1998 and at 5.60%
at December 31, 1997.
During 1998, the Company issued life insurance policies to certain
affiliated companies, covering the lives of certain employees of those
affiliates. Premiums of $174,000 related to these policies were recognized
during the year, and aggregate reserves for policies and contracts are
$181,720 at December 31, 1998.
10. COMMITMENTS AND CONTINGENCIES
The Company is a party to legal proceedings incidental to its business.
Although such litigation sometimes includes substantial demands for
compensatory and punitive damages, in addition to contract liability, it is
management's opinion, after consultation with counsel and a review of
available facts, that damages arising from such demands will not be material
to the Company's financial position.
The Company is subject to insurance guaranty laws in the states in which it
writes business. These laws provide for assessments against insurance
companies for the benefit of policyholders and claimants in the event of
insolvency of other insurance companies. Assessments are charged to operations
when received by the Company except where right of offset against other taxes
paid is allowed by law; amounts available for future offsets are recorded as
an asset on the Company's balance sheet. Potential future obligations for
unknown insolvencies are not determinable by the Company. The future
obligation has been based on the most recent information available from the
National Organization of Life and Health Insurance Guaranty Associations. The
Company has established a reserve of $17,901 and $17,700 and an offsetting
premium tax benefit of $7,631 and $7,984 at December 31, 1998 and 1997,
respectively, for its estimated share of future guaranty fund assessments
related to several major insurer insolvencies. The guaranty fund expense
(benefit) was $1,985, $(975) and $2,617 for December 31, 1998, 1997 and 1996,
respectively.
11. YEAR 2000 (UNAUDITED)
The term Year 2000 issue generally refers to the improper processing of
dates and incorrect date calculations that might occur in computer software
and hardware and embedded systems as the Year 2000 is approached. The use of
computer programs that rely on two-digit date fields to perform computations
and decision-making functions may cause systems to malfunction when processing
information involving dates after 1999. For example, any computer software
that has date-sensitive coding might recognize a code of 00 as the year 1900
rather than the year 2000.
The Company has developed a Year 2000 Project Plan (the "Plan") to address
the Year 2000 issue as it affects the Company's internal IT ("Information
Technology") and non-IT systems, and to assess Year 2000 issues relating to
third parties with whom the Company has critical relationships.
The Plan for addressing internal systems generally includes an assessment of
internal IT and non-IT systems and equipment affected by the Year 2000 issue;
definition of strategies to address affected
21
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS--(Continued)
systems and equipment; remediation of identified systems and equipment;
internal testing and certification that each internal system is Year 2000
compliant; and a review of existing and revised business resumption and
contingency plans to address potential Year 2000 issues. The Company has
remediated and tested substantially all of its mission-critical internal IT
systems as of December 31, 1998. The Company continues to remediate and test
certain non-critical internal IT systems, internal non-IT systems and will
continue with a revalidation testing program throughout 1999.
The Company's Year 2000 issues are more complex because a number of its
systems interface with other systems not under the Company's control. The
Company's most significant interfaces and uses of third-party vendor systems
are in the bank, financial services and trust areas. The Company utilizes
various banks to handle numerous types of financial and sales transactions.
Several of these banks also provide trustee and custodial services for the
Company's investment holdings and transactions. These services are critical to
a financial services company such as the Company as its business centers
around cash receipts and disbursements to policyholders and the investment of
policyholder funds. The Company has received written confirmation from its
vendor banks regarding their status on Year 2000. The banks indicate their
dedication to resolving any Year 2000 issues related to their systems and
services prior to December 31, 1999. The Company anticipates that a
considerable effort will be necessary to ensure that its corrected or new
systems can properly interface with those business partners with whom it
transmits and receives data and other information (external systems). The
Company has undertaken specific testing regimes with these third-party
business partners and expects to continue working with its business partners
on any interfacing of systems. However, the timing of external system
compliance cannot currently be predicted with accuracy because the
implementation of Year 2000 readiness will vary from one company to another.
The Company does have some exposure to date-sensitive embedded technology
such as micro-controllers, but the Company views this exposure as minimal.
Unlike other industries that may be equipment intensive, like manufacturing,
the Company is a life insurance, and financial services organization providing
insurance annuities and pension products to its customers. As such, the
primary equipment and electronic devices in use are computers and telephone-
related equipment. This type of hardware can have date-sensitive embedded
technology which could have Year 2000 problems. Because of this exposure, the
Company has reviewed its computer hardware and telephone systems, with
assistance from the applicable vendors, and has upgraded, or replaced, or is
in the process of replacing any equipment that will not properly process date-
sensitive data in the Year 2000 or beyond.
For the Company, a reasonably likely worst case scenario might include one
or more of the Company's significant policyholder systems being non-compliant.
Such an event could result in a material disruption of the Company's
operations. Specifically, a number of the Company's operations could
experience an interruption in the ability to collect and process premiums or
deposits, process claim payments, accurately maintain policyholder
information, accurately maintain accounting records, and/or perform adequate
customer service. Should the worst case scenario occur, it could, dependent
upon its duration, have a material impact on the Company's business and
financial condition. Simple failures can be repaired and returned to
production within a matter of hours with no material impact. Unanticipated
failures with a longer service disruption period could have a more serious
impact. For this reason, the Company is placing significant emphasis on risk
management and Year 2000 business resumption contingency planning in 1999 by
modifying its existing business resumption and disaster recovery plans to
address potential Year 2000 issues.
The actions taken by management under the Year 2000 Project Plans are
intended to significantly reduce the Company's risk of a material business
interruption based on the Year 2000 issues. It should
22
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS--(Continued)
be noted that the Year 2000 computer problem, and its resolution, is complex
and multifaceted, and any company's success cannot be conclusively known until
the Year 2000 is reached. In spite of its efforts or results, the Company's
ability to function unaffected to and through the Year 2000 may be adversely
affected by actions (or failure to act) of third parties beyond our knowledge
or control. It is anticipated that there may be problems that will have to be
resolved in the ordinary course of business on and after the Year 2000.
However, the Company does not believe that the problems will have a material
adverse affect on the Company's operations or financial condition.
23
<PAGE>
PFL LIFE INSURANCE COMPANY
SUMMARY OF INVESTMENTS--OTHER THAN
INVESTMENTS IN RELATED PARTIES
December 31, 1998
(Dollars in thousands)
SCHEDULE I
<TABLE>
<CAPTION>
Amount at Which
Market Shown in the
Type of Investment Cost(1) Value Balance Sheet
------------------ ---------- ---------- ---------------
<S> <C> <C> <C>
Fixed Maturities
Bonds:
United States Government and government
agencies and authorities.............. $ 926,370 $ 943,313 $ 926,370
States, municipalities and political
subdivisions.......................... 107,975 114,146 107,975
Foreign governments.................... 54,670 53,950 54,670
Public utilities....................... 139,732 142,230 139,732
All other corporate bonds.............. 3,593,695 3,646,877 3,593,695
Redeemable preferred stock............... 14,754 14,738 14,754
---------- ---------- ----------
Total fixed maturities................... 4,837,196 4,915,254 4,837,196
Equity Securities
Common stocks:
Affiliated entities.................... 8,060 5,613 5,613
Banks, trust and insurance............. 5,935 7,193 7,193
Industrial, miscellaneous and all
other................................. 28,796 42,255 42,255
---------- ---------- ----------
Total equity securities.................. 42,791 55,061 55,061
Mortgage loans on real estate............ 1,012,433 1,012,433
Real estate.............................. 52,381 52,381
Real estate acquired in satisfaction of
debt.................................... 11,778 11,778
Policy loans............................. 60,058 60,058
Other long-term investments.............. 76,482 76,482
Cash and short-term investments.......... 83,289 83,289
---------- ----------
Total investments........................ $6,176,408 $6,188,678
========== ==========
</TABLE>
- -------------------------
(1) Original cost of equity securities and, as to fixed maturities, original
cost reduced by repayments and adjusted for amortization of premiums or
accrual of discounts.
24
<PAGE>
PFL LIFE INSURANCE COMPANY
SUPPLEMENTARY INSURANCE INFORMATION
(Dollars in thousands)
SCHEDULE III
<TABLE>
<CAPTION>
Future Benefits,
Policy Claims
Benefits Policy and Net Losses and Other
and Unearned Contract Premium Investment Settlement Operating Premiums
Expenses Premiums Liabilities Revenue Income* Expenses Expenses* Written
---------- -------- ----------- ---------- ---------- ---------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Year Ended December 31,
1998
Individual life......... $1,355,283 $ -- $ 8,976 $ 514,194 $ 85,258 $ 545,720 $ 87,455 --
Individual health....... 94,294 9,631 12,123 68,963 8,004 48,144 30,442 $ 68,745
Group life and health... 93,405 10,298 36,908 111,547 11,426 82,690 54,352 108,769
Annuity................. 3,925,293 -- -- 667,920 342,296 592,085 298,222 --
---------- ------- ------- ---------- -------- ---------- --------
$5,468,275 $19,929 $58,007 $1,362,624 $446,984 $1,268,639 $470,471
========== ======= ======= ========== ======== ========== ========
Year Ended December 31,
1997
Individual life......... $ 882,003 $ -- $ 8,550 $ 200,175 $ 75,914 $ 211,921 $ 36,185 --
Individual health....... 62,033 9,207 12,821 63,548 5,934 37,706 29,216 $ 63,383
Group life and health... 88,211 11,892 44,977 146,694 11,888 103,581 91,568 143,580
Annuity................. 4,204,125 -- -- 657,695 352,688 571,434 364,216 --
---------- ------- ------- ---------- -------- ---------- --------
$5,236,372 $21,099 $66,348 $1,068,112 $446,424 $ 924,642 $521,185
========== ======= ======= ========== ======== ========== ========
Year Ended December 31,
1996
Individual life......... $ 734,350 $ -- $ 7,240 $ 202,082 $ 66,538 $ 197,526 $ 38,067 --
Individual health....... 39,219 8,680 13,631 55,871 5,263 32,903 29,511 $ 55,678
Group life and health... 78,418 14,702 53,486 174,781 12,877 105,459 122,953 171,320
Annuity................. 4,408,419 -- -- 725,966 343,659 800,121 230,417 --
---------- ------- ------- ---------- -------- ---------- --------
$5,260,406 $23,382 $74,357 $1,158,700 $428,337 $1,136,009 $420,948
========== ======= ======= ========== ======== ========== ========
</TABLE>
- -------------
* Allocations of net investment income and other operating expenses are based
on a number of assumptions and estimates, and the results would change if
different methods were applied.
25
<PAGE>
PFL LIFE INSURANCE COMPANY
REINSURANCE
(Dollars in thousands)
SCHEDULE IV
<TABLE>
<CAPTION>
Assumed Percentage
Ceded to From of Amount
Gross Other Other Net Assumed
Amount Companies Companies Amount to Net
---------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Year Ended December 31,
1998
Life insurance in force.. $6,384,095 $438,590 $39,116 $5,984,621 .6%
========== ======== ======= ========== ===
Premiums:
Individual life........ $ 515,164 $ 3,692 $ 2,366 $ 513,838 .5%
Individual health...... 76,438 7,475 -- 68,963 --
Group life and health.. 255,848 144,301 -- 111,547 --
Annuity................ 686,372 18,096 -- 668,276 --
---------- -------- ------- ---------- ---
$1,533,822 $173,564 $ 2,366 $1,362,624 .2%
========== ======== ======= ========== ===
Year Ended December 31,
1997
Life insurance in force.. $5,025,027 $420,519 $35,486 $4,639,994 .8%
========== ======== ======= ========== ===
Premiums:
Individual life........ $ 201,691 $ 3,554 $ 2,038 $ 200,175 1.0%
Individual health...... 73,593 10,045 -- 63,548 --
Group life and health.. 339,269 192,575 -- 146,694 --
Annuity................ 697,893 40,198 -- 657,695 --
---------- -------- ------- ---------- ---
$1,312,446 $246,372 $ 2,038 $1,068,112 .2%
========== ======== ======= ========== ===
Year Ended December 31,
1996
Life insurance in force.. $4,863,416 $477,112 $30,685 $4,416,989 .7%
========== ======== ======= ========== ===
Premiums:
Individual life........ $ 204,144 $ 3,858 $ 1,796 $ 202,082 .9%
Individual health...... 68,699 12,828 -- 55,871 --
Group life and health.. 390,296 215,515 -- 174,781 --
Annuity................ 794,311 68,345 -- 725,966 --
---------- -------- ------- ---------- ---
$1,457,450 $300,546 $ 1,796 $1,158,700 .2%
========== ======== ======= ========== ===
</TABLE>
26
<PAGE>
PFL Immediate Income Builder
Separate Account Financials
The PFL Immediate Income Builder Annuity did not commence operations as of
December 31, 1998, therefore there are no separate account financials available.
<PAGE>
PART C OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements
All required financial statements are included in Part B of this
Registration Statement.
(b) Exhibits:
(1) (a) Resolution of the Board of Directors of PFL Life Insurance
Company authorizing establishment of the Separate Account.
/1/
(2) Not Applicable.
(3) (a) Principal Underwriting Agreement by and between PFL Life
Insurance Company, on its own behalf and on behalf of the
Separate Account, and AFSG Securities Corporation./4/
(b) Form of Broker/Dealer Supervision and Sales Agreement by
and between AFSG Securities Corporation and the
Broker/Dealer./4/
(4) (a) Form of Contract for the PFL Immediate Income Annuity./7/
(5) (a) Form of Application for the PFL Immediate Income Annuity.
/7/
(6) (a) Articles of Incorporation of PFL Life Insurance Company./1/
(b) ByLaws of PFL Life Insurance Company./1/
(7) Not Applicable.
(8) (a) Participation Agreement by and between Variable Insurance
Product Funds and Variable Insurance Products Fund II,
Fidelity Distributors Corporation, and PFL Life Insurance
Company, and Addendums thereto./2/
(b) Participation Agreement between Variable Insurance Products
Fund III, Fidelity Distributors Corporation, and PFL Life
Insurance Company./3/
(c) Amended Schedule A to Participation Agreement by and
between Variable Insurance Product Funds and Variable
Insurance Products Fund II, Fidelity Distributors
Corporation, and PFL Life Insurance Company./8/
<PAGE>
(d) Amended Schedule A to Participation Agreement between
Variable Insurance Products Fund III, Fidelity Distributors
Corporation, and PFL Life Insurance Company./8/
(9) Opinion and Consent of Counsel./6/
(10) (a) Consent of Independent Auditors./8/
(10) (b) Opinion and Consent of Actuary./7/
(11) Not applicable.
(12) Not applicable.
(13) Performance Data Calculations./8/
(14) Powers of Attorney. (Patrick S. Baird, Craig D. Vermie,
William L. Busler, Douglas C. Kolsrud, Robert J. Kontz)/1/
(Brenda K. Clancy)/2/ (Larry N. Norman)/5/
/1/ Incorporated herein by reference to the Initial filing of Registrants
Form N-4 Registration Statement (File No. 333-7509) on July 3, 1996.
/2/ Incorporated herein by reference to the Registrants filing of Pre-
Effective Amendment No. 1 to Form N-4 Registration Statement (File No.
333-7509) on December 6, 1996.
/3/ Incorporated herein by reference to the Registrant's filing of Post-
Effective Amendment No. 1 to Form N-4 Registration Statement (File No.
333-7509) on April 29, 1997.
/4/ Incorporated herein by reference to the Registrant's filing of Post-
Effective Amendment No. 4 to Form N-4 Registration Statement (File No.
333-7509) on April 30, 1998.
/5/ Incorporated herein by reference to the Registrant's filing of Post-
Effective Amendment No. 5 to Form N-4 Registration Statement (File No.
333-7509) on July 16, 1998.
/6/ Filed with the initial Form N-4 Registration Statement (File No. 333-
61063) on August 10, 1998.
/7/ Filed with Pre-Effective Amendment No. 1 to Form N-4 Registration
Statement (File No. 333-61063) on December 11, 1998.
/8/ Filed herewith.
<PAGE>
Item 25. Directors and Officers of the Depositor (PFL Life Insurance Company)
<TABLE>
<CAPTION>
Name and Business Address Principal Positions and Offices with
- ------------------------- ------------------------------------
Depositor
---------
<S> <C>
William L. Busler Director, Chairman of the Board and
4333 Edgewood Road, N.E. President
Cedar Rapids, Iowa 52499-0001
Patrick S. Baird Director, Senior Vice President and Chief
4333 Edgewood Road, N.E. Operating Officer
Cedar Rapids, Iowa 52499-0001
Craig D. Vermie Director, Vice President, Secretary and
4333 Edgewood Road, N.E. General Counsel
Cedar Rapids, Iowa 52499-0001
Douglas C. Kolsrud Director, Senior Vice President, Chief
4333 Edgewood Road, N.E. Investment Officer and Corporate Actuary
Cedar Rapids, Iowa 52499-0001
Larry N. Norman Director and Executive Vice President
4333 Edgewood Road, N.E.
Cedar Rapids, Iowa 52499-0001
Robert J. Kontz Vice President and Corporate Controller
4333 Edgewood Road, N.E.
Cedar Rapids, Iowa 52499-0001
Brenda K. Clancy Vice President, Treasurer and Chief Financial
4333 Edgewood Road, N.E. Officer
Cedar Rapids, Iowa 52499-0001
</TABLE>
Item 26. Persons Controlled by or Under Common Control with the Depositor or
Registrant
<TABLE>
<CAPTION>
Jurisdiction of Percent of Voting
Name Incorporation Securities Owned Business
- ---- ------------- ----------------- --------
<S> <C> <C> <C>
AEGON N.V. Netherlands 53.63% of Vereniging Holding company
Corporation AEGON Netherlands
Membership Association
Groninger Financieringen B.V. Netherlands 100% of AEGON N.V. Holding company
Corporation Netherlands Corporation
AEGON Netherland N.V. Netherlands 100% of AEGON N.V. Holding company
Corporation Netherlands Corporation
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
AEGON Nevak Holding B.V. Netherlands 100% of AEGON N.V. Holding company
Corporation Netherlands Corporation
AEGON International N.V. Netherlands 100% of AEGON N.V. Holding company
Corporation Netherlands Corporation
Voting Trust Delaware Voting Trust
Trustees:
K.J. Storm
Donald J. Shepard
H.B. Van Wijk
Dennis Hersch
AEGON U.S. Holding Delaware 100% of Voting Trust Holding company
Corporation
Short Hills Management New Jersey 100% of AEGON U.S. Holding company
Company Holding Corporation
CORPA Reinsurance New York 100% of AEGON U.S. Holding company
Company Holding Corporation
AEGON Management Indiana 100% of AEGON U.S. Holding company
Company Holding Corporation
RCC North America Inc. Delaware 100% of AEGON U.S. Holding company
Holding Corporation
AEGON USA, Inc. Iowa 100% AEGON U.S. Holding company
Holding Corporation
AUSA Holding Company Maryland 100% AEGON USA, Inc. Holding company
Monumental General Insurance Maryland 100% AUSA Holding Co. Holding company
Group, Inc.
Trip Mate Insurance Kansas 100% Monumental General Sale/admin. of travel
Agency, Inc. Insurance Group, Inc. insurance
Monumental General Maryland 100% Monumental General Provides management
Administrators, Inc. Insurance Group, Inc. srvcs. to unaffiliated
third party
administrator
Executive Management and Maryland 100% Monumental General Provides actuarial
Consultant Services, Inc. Administrators, Inc. consulting services
Monumental General Mass Maryland 100% Monumental General Marketing arm for
Marketing, Inc. Insurance Group, Inc. sale of mass marketed
insurance coverages
Diversified Investment Delaware 100% AUSA Holding Co. Registered investment
advisor
Advisors, Inc.
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Diversified Investors Delaware 100% Diversified Broker-Dealer
Securities Corp. Investment Advisors, Inc.
AEGON USA Securities, Inc. Iowa 100% AUSA Holding Co. Broker-Dealer
Supplemental Ins. Tennessee 100% AUSA Holding Co. Insurance
Division, Inc.
Creditor Resources, Inc. Michigan 100% AUSA Holding Co. Credit insurance
CRC Creditor Resources Canada 100% Creditor Insurance agency
Canadian Dealer Network Inc. Resources, Inc.
AEGON USA Investment Iowa 100% AUSA Holding Co. Investment advisor
Management, Inc.
AEGON USA Realty Iowa 100% AUSA Holding Co. Provides real estate
Advisors, Inc. administrative and real
estate investment services
Quantra Corporation Delaware 100% AEGON USA Realty Real estate and financial
Advisors, Inc. software production and
sales
Quantra Software Delaware 100% Quantra Corporation Manufacture and sell
Corporation mortgage loan and security
management software
Landauer Realty Advisors, Inc. Iowa 100% AEGON USA Realty Real estate counseling
Advisors, Inc.
Landauer Associates, Inc. Delaware 100% AEGON USA Realty Real estate counseling
Advisors, Inc.
Realty Information Iowa 100% AEGON USA Realty Information Systems for
Systems, Inc. Advisors, Inc. real estate investment
management
AEGON USA Realty Iowa 100% AEGON USA Real estate management
Management, Inc Realty Advisors, Inc.
USP Real Estate Investment Iowa 21.89% First AUSA Real estate investment
Life Ins. Co. trust
Trust 13.11% PFL Life Ins. Co.
4.86% Bankers United
Life Assurance Co.
RCC Properties Limited Iowa AEGON USA Realty Limited Partnership
Partnership Advisors Inc. is General
Partner and 5% owner.
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
AUSA Financial Markets, Inc. Iowa 100% AUSA Holding Co. Marketing
Endeavor Investment Advisors California 49.9% AUSA Financial General Partnership
Markets, Inc.
Universal Benefits Corporation Iowa 100% AUSA Holding Co. Third party administrator
Investors Warranty of Iowa 100% AUSA Holding Co. Provider of automobile
America, Inc. extended maintenance
contracts
Massachusetts Fidelity Trust Co. Iowa 100% AUSA Holding Co. Trust company
Money Services, Inc. Delaware 100% AUSA Holding Co. Provides financial
counseling for employees
and agents of affiliated
companies
Zahorik Company, Inc. California 100% AUSA Holding Co. Broker-Dealer
ZCI, Inc. Alabama 100% Zahorik Company,Inc. Insurance agency
AEGON Asset Management Delaware 100% AUSA Holding Co. Registered investment
advisor
Services, Inc.
Intersecurities, Inc. Delaware 100% AUSA Holding Co. Broker-Dealer
Associated Mariner Financial Michigan 100% Intersecurities,Inc. Holding co./management
Group, Inc. services
Mariner Financial Services, Inc. Michigan 100% Associated Mariner Broker/Dealer
Financial Group, Inc.
Mariner Planning Corporation Michigan 100% Mariner Financial Financial planning
Services, Inc.
Associated Mariner Agency, Inc. Michigan 100% Associated Mariner Insurance agency
Financial Group, Inc.
Associated Mariner Agency Hawaii 100% Associated Mariner Insurance agency
of Hawaii, Inc. Agency, Inc.
Associated Mariner Ins. Agency Massachusetts 100% Associated Mariner Insurance agency
of Massachusetts, Inc. Agency, Inc.
Associated Mariner Agency Ohio 100% Associated Mariner Insurance agency
Ohio, Inc. Agency, Inc.
Associated Mariner Agency Texas 100% Associated Mariner Insurance agency
Texas, Inc. Agency, Inc.
Associated Mariner Agency New Mexico 100% Associated Mariner Insurance agency
New Mexico, Inc. Agency, Inc.
Mariner Mortgage Corp. Michigan 100% Associated Mariner Mortgage origination
Financial Group, Inc.
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Idex Investor Services, Inc. Florida 100% AUSA Holding Co. Shareholder services
Idex Management, Inc. Delaware 50% AUSA Holding Co. Investment advisor
50% Janus Capital Corp.
IDEX Series Fund Massachusetts Various Mutual fund
First AUSA Life Insurance Maryland 100% AEGON USA, Inc. Insurance holding
company
Company
AUSA Life Insurance New York 100% First AUSA Life Insurance
Company, Inc. Insurance Company
Life Investors Insurance Iowa 100% First AUSA Life Insurance
Company of America Ins. Co.
Life Investors Delaware 100% LIICA Purchases, own, and hold
Alliance, LLC 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 Marketing
Group, Inc. Co.
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, Inc. settlements
Southwest Equity Life Ins. Co. Arizona 100% of Common Voting Insurance
Stock
First AUSA Life Ins. Co.
Iowa Fidelity Life Insurance Co. Arizona 100% of Common Voting Insurance
Stock
First AUSA Life Ins. Co.
Western Reserve Life Assurance Ohio 100% First AUSA Life Insurance
Co. of Ohio Ins. Co.
WRL Series Fund, Inc. Maryland Various Mutual fund
WRL Investment Services, Inc. Florida 100% Western Reserve Life Provides administration for
Assurance Co. of Ohio affiliated mutual fund
WRL Investment Florida 100% Western Reserve Life Registered investment
Management, Inc. Assurance Co. of Ohio
Aegon Equity Florida 100% Western Reserve Life Insurance Agency
Group, Inc. Assurance Co. of Ohio
ISI Insurance Agency, Inc. California 100% Western Reserve Life Insurance agency
Assurance Co. of Ohio
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
ISI Insurance Agency Ohio 100% ISI Insurance Insurance agency
of Ohio, Inc. Agency Inc.
ISI Insurance Agency Texas 100% ISI Insurance Insurance agency
of Texas, Inc. Agency Inc.
ISI Insurance Agency Massachusetts 100% ISI Insurance Insurance Agency
of Massachusetts, Inc. Agency Inc.
Monumental Life Insurance Maryland 100% First AUSA Life Insurance
Co. Ins. Co.
AEGON Special Markets Maryland 100% Monumental Life Marketing
Group, Inc. Ins. Co.
Monumental General Maryland 100% First AUSA Life Insurance
Casualty Co. Ins. Co.
United Financial Services, Maryland 100% First AUSA Life General agency
Inc. Ins. Co.
Bankers Financial Life Arizona 100% First AUSA Life Insurance
Ins. Co. Ins. Co.
The Whitestone Corporation Maryland 100% First AUSA Life Insurance agency
Ins. Co.
Cadet Holding Corp. Iowa 100% First AUSA Life Holding company
Ins. Co.
Commonwealth General Delaware 100% AEGON USA, Inc. Holding company
Corporation ("CGC")
PB Series Trust Massachusetts N/A Mutual fund
Monumental Agency Group, Kentucky 100% CGC Provider of srvcs. to ins.
Inc. cos.
Benefit Plans, Inc. Delaware 100% CGC TPA for Peoples Security
Life Insurance Company
Durco Agency, Inc. Virginia 100% Benefit Plans, General agent
Inc.
Commonwealth General Kentucky 100% CGC Administrator of structured
Assignment Corporation settlements
AFSG Securities Pennsylvania 100% CGC Broker-Dealer
Corporation
PB Investment Advisors, Delaware 100% CGC Registered investment
Inc. advisor
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Diversified Financial Delaware 100% CGC Provider of investment,
Products Inc. marketing and admin.
services to ins. cos.
AEGON USA Real Estate Delaware 100% Diversified Real estate and mortgage
Services, Inc. Financial holding company
Products Inc.
Capital Real Estate Delaware 100% CGC Furniture and equipment
Development Corporation lessor
Capital General Development Delaware 100% CGC Holding company
Corporation
Ammest Realty Corporation Texas 100% Peoples Security Special purpose
Life Insurance Company subsidiary
JMH Operating Company, Inc. Mississippi 100% Peoples Security Real estate holdings
Life 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 Delaware 100% CGC Real estate holdings
Corporation
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Capital Broadway Kentucky 100% CGC Real estate holdings
Corporation
Southlife, Inc. Tennessee 100% CGC Investment subsidiary
Ampac Insurance Agency, Pennsylvania 100% CGC Provider of management
Inc. (EIN 23-1720755) support services
National Home Life Pennsylvania 100% Ampac Insurance Special-purpose subsidiary
Corporation Agency, Inc.
Compass Rose Development Pennsylvania 100% Ampac Insurance Special-purpose subsidiary
Corporation Agency, Inc.
Frazer Association Illinois 100% Ampac Insurance TPA license-holder
Consultants, Inc. Agency, Inc.
Valley Forge Associates, Pennsylvania 100% Ampac Insurance Furniture & equipment
Inc. Agency, Inc. lessor
Veterans Benefits Plans, Pennsylvania 100% Ampac Insurance Administrator of group
Inc. Agency, Inc. insurance programs
Veterans Insurance Delaware 100% Ampac Insurance Special-purpose subsidiary
Services, Inc. Agency, Inc.
Financial Planning Dist. Columbia 100% Ampac Insurance Special-purpose subsidiary
Services, Inc. Agency, Inc.
Academy Insurance Group, Delaware 100% CGC Holding company
Inc.
Academy Life Insurance Co. Missouri 100% Academy Insurance Insurance company
Group, Inc.
Pension Life Insurance New Jersey 100% Academy Insurance Insurance company
Company of America Group, Inc.
Academy Services, Inc. Delaware 100% Academy Insurance Special-purpose subsidiary
Group, Inc.
Ammest Development Corp. Kansas 100% Academy Insurance Special-purpose subsidiary
Inc. Group, Inc.
Ammest Insurance Agency, California 100% Academy Insurance General agent
Inc. Group, Inc.
Ammest Massachusetts Massachusetts 100% Academy Insurance Special-purpose subsidiary
Insurance Agency, Inc. Group, Inc.
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Ammest Realty, Inc. Pennsylvania 100% Academy Insurance Special-purpose subsidiary
Group, Inc.
Ampac, Inc. Texas 100% Academy Insurance Managing general agent
Group, Inc.
Ampac Insurance Agency, Pennsylvania 100% Academy Insurance Special-purpose subsidiary
Inc. (EIN 23-2364438) Group, Inc.
Data/Mark Services, Inc. Delaware 100% Academy Insurance Provider of mgmt. services
Group, Inc.
Force Financial Group, Inc. Delaware 100% Academy Insurance Special-purpose subsidiary
Group, Inc.
Force Financial Services, Massachusetts 100% Force Fin. Group, Special-purpose subsidiary
Inc. Inc.
Military Associates, Inc. Pennsylvania 100% Academy Insurance Special-purpose subsidiary
Group, Inc.
NCOA Motor Club, Inc. Georgia 100% Academy Insurance Automobile club
Group, Inc.
NCOAA Management Company Texas 100% Academy Insurance Special-purpose subsidiary
Group, Inc.
Unicom Administrative Pennsylvania 100% Academy Insurance Provider of admin. services
Services, Inc. Group, Inc.
Unicom Administrative Germany 100% Unicom Provider of admin. services
Services, GmbH Administrative Services,
Inc.
Capital Liberty, L.P. Delaware 79.2% Commonwealth Life Holding Company
Insurance Company
19.8% Peoples Security
Life Insurance Company
1% CGC
Commonwealth General LLC Turks & 100% CGC Special-purpose subsidiary
Caicos Islands
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Peoples Benefit Life Missouri 3.7% CGC Insurance company
Insurance Company 20% Capital Liberty, L.P.
76.3% Monumental
Life Insurance Co.
Veterans Life Insurance Co. Illinois 100% Peoples Benefit Insurance company
Life Insurance Company
Peoples Benefit Services, Pennsylvania 100% Veterans Life Ins. Special-purpose subsidiary
Inc. Co.
</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
<PAGE>
The directors and officers of AFSG Securities Corporation are as follows:
<TABLE>
<CAPTION>
<S> <C>
Larry N. Norman Sarah J. Stange
Director and President Director and Vice President
Frank A. Camp Bob Warner
Director and Secretary Assistant Compliance Officer
Lisa Wachendorf Linda Gilmer
Vice President and Chief Compliance Officer Treasurer/Controller
Debra C. Cubero Priscilla Hechler
Vice President Assistant Secretary and Assistant Vice President
Emily Bates Thomas Pierpan
Assistant Treasurer Assistant Secretary and Assistant Vice President
Clifton Flenniken Darin D. Smith
Assistant Treasurer Assistant Secretary and Assistant Vice President
</TABLE>
The principal business address of each person listed is AFSG Securities
Corporation, 4333 Edgewood Road, N.E., Cedar Rapids, IA 52499-0001.
Commissions and Other Compensation Received by Principal Underwriter.
- --------------------------------------------------------------------
AFSG Securities Corporation, the broker/dealer, received $0 from the Registrant
from May 1, 1998 through December 31, 1998, for its services in distributing the
Policies. AEGON USA Securities, Inc., its predecessor, received $0 from the
Registrant from January 1, 1998 through April 30, 1998, for its services in
distributing the Policies. No other commission or compensation was received by
the principal underwriter, directly or indirectly, from the Registrant during
the fiscal year.
AFSG Securities Corporation serves as the principal underwriter for the PFL
Endeavor VA Separate Account, the PFL Retirement Builder Variable Annuity
Account, the PFL Life Variable Annuity Account A, the PFL Wright Variable
Annuity Account and the AUSA Endeavor Variable Annuity Account. These accounts
are separate accounts of PFL Life Insurance Company or AUSA Life Insurance
Company, Inc. AFSG Securities Corporation also serves as principal underwriter
for Separate Account I, Separate Account II, Separate Account IV and Separate
Account V of Peoples Benefit Life Insurance Company, and for Separate Account B
and Separate Account C of AUSA Life Insurance Company, Inc.
<PAGE>
Item 30. Location of Accounts and Records
The records required to be maintained by Section 31(a) of the Investment Company
Act of 1940 and Rules 31a-1 to 31a-3 promulgated thereunder, are maintained by
PFL Life Insurance Company at 4333 Edgewood Road, N.E., Cedar Rapids, Iowa
52499-0001.
Item 31. Management Services.
All management Contracts are discussed in Part A or Part B.
Item 32. Undertakings
(a) Registrant undertakes that it will file a post-effective amendment to
this registration statement as frequently as necessary to ensure that the
audited financial statements in the registration statement are never more
than 16 months old for so long as Premiums under the Contract may be
accepted.
(b) Registrant undertakes that it will include either (i) a postcard or
similar written communication affixed to or included in the Prospectus
that the applicant can remove to send for a Statement of Additional
Information or (ii) a space in the Policy application that an applicant
can check to request a Statement of Additional Information.
(c) Registrant undertakes to deliver any Statement of Additional Information
and any financial statements required to be made available under this
Form promptly upon written or oral request to PFL at the address or phone
number listed in the Prospectus.
(d) PFL Life Insurance Company hereby represents that the fees and charges
deducted under the contracts, in the aggregate, are reasonable in
relation to the services rendered, the expenses expected to be incurred,
and the risks assumed by PFL Life Insurance Company.
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant hereby certifies that this Amendment to the Registration
Statement meets the requirements for effectiveness pursuant to paragraph (b) of
Rule 485 and has caused this Registration Statement to be signed on its behalf,
in the City of Cedar Rapids and State of Iowa, on this 27th day of April, 1999.
PFL RETIREMENT BUILDER
VARIABLE ANNUITY ACCOUNT
PFL LIFE INSURANCE COMPANY
Depositor
/s/ William L. Busler
--------------------------------
William L. Busler
President
As required by the Securities Act of 1933, this Registration Statement has been
signed by the following persons in the capacities and on the duties indicated.
<TABLE>
<CAPTION>
Signatures Title Date
- ---------- ----- ----
<S> <C> <C>
/s/ Patrick S. Baird Director April 27, 1999
- -------------------------
Patrick S. Baird
/s/ Craig D. Vermie Director April 27, 1999
- -------------------------
Craig D. Vermie
/s/ William L. Busler Director April 27, 1999
- -------------------------
William L. Busler (Principal Executive Officer)
/s/ Larry N. Norman Director April 27, 1999
- -------------------------
Larry N. Norman
/s/ Douglas C. Kolsrud Director April 27, 1999
- -------------------------
Douglas C. Kolsrud
/s/ Robert J. Kontz Vice President and April 27, 1999
- -------------------------
Robert J. Kontz Corporate Controller
/s/ Brenda K. Clancy Treasurer April 27, 1999
- -------------------------
Brenda K. Clancy
</TABLE>
<PAGE>
REGISTRATION NO.
333-61063
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________
EXHIBITS
TO
FORM N-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
FOR
PFL IMMEDIATE INCOME ANNUITY
_______________
<PAGE>
EXHIBIT INDEX
-------------
EXHIBIT NO. DESCRIPTION OF EXHIBIT PAGE NO.*
- ----------- ---------------------- ---------
(8)(c) Amended Schedule A to Participation Agreement by and
between Variable Insurance Products Funds and Variable
Insurance Products Fund II, Fidelity Distributors
Corporation and PFL Life Insurance Company.
(8)(d) Amended Schedule A to Participation Agreement by and
between Variable Insurance Products Fund III, Fidelity
Distributors Corporation and PFL Life Insurance
Company.
(10)(a) Consent of Independent Auditors
(13) Performance Data Calculations
_________________
* Page numbers included only in manually executed original.
<PAGE>
EXHIBIT (8)(C)
--------------
Amended Schedule A to Participation Agreement by and
between Variable Insurance Products Funds and Variable
Insurance Products Fund II, Fidelity Distributors
Corporation and PFL Life Insurance Company.
<PAGE>
PARTICIPATION AGREEMENT ADDENDUM
SCHEDULE A
----------
Accounts
--------
This Schedule shall be effective as of the date of the last signature below, and
replaces and supersedes Schedule A to the Participation Agreement dated April 1,
1991 (as amended) among the Variable Insurance Products Fund, Fidelity
Distributors Corporation and PFL Life Insurance Company.
<TABLE>
<CAPTION>
Date of Resolutions of
Company's Board which
Name of Contracts Name of Accounts established the Accounts
----------------- ---------------- ------------------------
<S> <C> <C>
Fidelity Income Plus Fidelity Variable Annuity August 24, 1979 (by an
Individual Variable Annuity Account affiliate subsequently
Contracts acquired by the Company)
PFL Retirement Builder PFL Retirement Builder
Individual Variable Annuity Variable Annuity Account March 29, 1996
Contracts
PFL Retirement Builder PFL Retirement Builder
Immediate Variable Annuity Variable Annuity Account March 29, 1996
Contracts
Portfolio Select Individual PFL Retirement Builder
Variable Annuity Contracts Variable Annuity Account March 29, 1996
</TABLE>
In witness whereof, we have hereunto set our hand as of the dates indicated:
PFL Life Insurance Company Variable Insurance Products Fund
By: /s/ [SIGNATURE ILLEGIBLE] By: /s/ [SIGNATURE ILLEGIBLE]
------------------------------ ---------------------------------
Title: President Title: Senior Vice President
--------------------------- ------------------------------
Date: 3/12/99 Date: 3/9/99
--------------------------- ------------------------------
Fidelity Distributors Corporation
By: /s/ [SIGNATURE ILLEGIBLE]
------------------------------
Title: Vice President
---------------------------
Date: 3/4/99
---------------------------
<PAGE>
PARTICIPATION AGREEMENT ADDENDUM
SCHEDULE A
----------
Accounts
--------
This Schedule shall be effective as of the date of the last signature below, and
replaces and supersedes Schedule A to the Participation Agreement dated April 1,
1991 (as amended) among Variable Insurance Products Fund II, Fidelity
Distributors Corporation and PFL Life Insurance Company.
<TABLE>
<CAPTION>
Date of Resolutions of
Company's Board which
Name of Contracts Name of Accounts established the Accounts
----------------- ---------------- ------------------------
<S> <C> <C>
Fidelity Income Plus Fidelity Variable August 24, 1979 (by an
Individual Variable Annuity Annuity Account affiliate subsequently
Contracts acquired by the Company)
PFL Retirement Builder PFL Retirement Builder
Individual Variable Annuity Variable Annuity Account March 29, 1996
Contracts
PFL Retirement Builder PFL Retirement Builder
Immediate Variable Annuity Variable Annuity Account March 29, 1996
Contracts
Portfolio Select Individual PFL Retirement Builder
Variable Annuity Contracts Variable Annuity Account March 29, 1996
</TABLE>
In witness whereof, we have hereunto set our hand as of the dates indicated:
PFL Life Insurance Company Variable Insurance Products Fund II
By: /s/ [SIGNATURE ILLEGIBLE] By: /s/ [SIGNATURE ILLEGIBLE]
----------------------------- ----------------------------------
Title: President Title: Senior Vice President
-------------------------- -------------------------------
Date: 3/12/99 Date: 3/9/99
-------------------------- -------------------------------
Fidelity Distributors Corporation
By: /s/ [SIGNATURE ILLEGIBLE]
-----------------------------
Title: Vice President
--------------------------
Date: 3/4/99
--------------------------
<PAGE>
EXHIBIT (8)(D)
--------------
Amended Schedule A to Participation Agreement by and
between Variable Insurance Products Fund III, Fidelity
Distributors Corporation and PFL Life Insurance Company.
<PAGE>
PARTICIPATION AGREEMENT ADDENDUM
SCHEDULE A
----------
Separate Accounts and Associated Contracts
------------------------------------------
This Schedule shall be effective as of the date of the last signature below, and
replaces and supersedes Schedule A to the Participation Agreement dated March
21, 1997 among Variable Insurance Products Fund III, Fidelity Distributors
Corporation and PFL Life Insurance Company.
<TABLE>
<CAPTION>
Date of Resolutions of
Company's Board which
Name of Contracts Name of Accounts established the Accounts
----------------- ---------------- ------------------------
<S> <C> <C>
Fidelity Income Plus Fidelity Variable Annuity August 24, 1979 (by an
Individual Variable Annuity Account affiliate subsequently
Contracts acquired by the Company)
PFL Retirement Builder PFL Retirement Builder
Individual Variable Annuity Variable Annuity Account March 29, 1996
Contracts
PFL Retirement Builder PFL Retirement Builder
Immediate Variable Annuity Variable Annuity Account March 29, 1996
Contracts
Portfolio Select Individual PFL Retirement Builder
Variable Annuity Contracts Variable Annuity Account March 29, 1996
</TABLE>
In witness whereof, we have hereunto set our hand as of the dates indicated:
PFL Life Insurance Company Variable Insurance Products Fund III
By: /s/ [SIGNATURE ILLEGIBLE]^^ By: /s/ [SIGNATURE ILLEGIBLE]^^
------------------------------ ---------------------------
Title: President By: Senior Vice President
--------------------------- ---------------------------
Date: 3/12/99 Date: 3/9/99
---------------------------- -------------------------
Fidelity Distributors Corporation
By: /s/ [SIGNATURE ILLEGIBLE]^^
------------------------------
Title: Vice President
---------------------------
Date: 3/4/99
---------------------------
<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 Post-Effective Amendment
No. 2 to the Registration Statement (Form N-4 No. 333-61063) and related
Prospectus of PFL Retirement Builder Variable Annuity Account.
Des Moines, Iowa
April 27, 1999
<PAGE>
EXHIBIT 13
----------
Performance Data Calculations
<PAGE>
DATE OF REPORT 12/31/98 VIA HYPOTHETICAL PERFORMANCE RETURNS #DIV/01 = N/A
ONE YEAR PRIOR 12/31/97
THREE YEAR PRIOR 12/31/95 UNIT VALUES REFLECT THE 135 BPS OF M/E
FIVE YEAR PRIOR 12/31/93
TEN YEAR PRIOR 12/31/88 NO ANNUAL CONTRACT CHARGE
<TABLE>
<CAPTION>
2 3 4 5 6 7 8
VIP VIP VIP VIP VIP VIP II VIP II
Equity Growth High Money Overseas Asset Mngr Asset Mngr
Income Income Market Growth
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Fund Inception Date 10/8/86 10/8/86 9/11/85 3/31/82 1/27/87 5/29/90 1/3/95
Fund Inception AUV 10 10 10 10 10 10 10
Total 1 Year 10.14% 37.64% -5.61% 4.07% 11.25% 13.52% 16.00%
Total 3 Year 56.98% 89.79% 23.29% 12.65% 36.77% 52.80% 69.40%
Total 5 Year 121.06% 150.07% 42.52% 21.06% 48.55% 63.38% #DIV/0!
Total 10 Year 273.46% 415.02% 149.75% 51.98% 128.42% #DIV/0! #DIV/0!
Total Since Inception 340.59% 501.20% 238.52% 141.11% 127.59% 170.30% 106.06%
Ave. Annual 1 Year 10.14% 37.64% -5.61% 4.07% 11.25% 13.52% 16.00%
Ave. Annual 3 Year 16.22% 23.81% 7.23% 4.05% 11.00% 15.18% 19.21%
Ave. Annual 5 Year 17.19% 20.12% 7.34% 3.90% 8.24% 10.32% #DIV/0!
Ave. Annual 10 Year 14.08% 17.81% 9.58% 4.27% 8.61% #DIV/0! #DIV/0!
Ave. Annual Since Inception 12.89% 15.80% 9.60% 5.39% 7.14% 12.27% 19.86%
1997 26.41% 21.84% 16.10% 4.08% 10.07% 19.05% 23.41%
1996 12.75% 13.17% 12.50% 4.00% 11.70% 13.07% 18.33%
1995 33.31% 33.57% 19.00% 4.47% 8.22% 15.40% N/A
1994 5.64% -1.36% -2.86% 2.87% 0.37% -7.35% N/A
<CAPTION>
9 10 11 12 13 14
VIP II VIP II VIP II VIP III VIP III VIP III
Contrafund Index 500 Inv Grade Balanced Growth Growth
Bond & Income Opportunities
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Fund Inception Date 1/3/95 8/27/92 6/5/89 1/3/95 12/31/96 1/3/95
Fund Inception AUV 10 10 10 10 10 10
Total 1 Year 28.25% 26.62% 7.39% 16.07% 27.87% 22.96%
Total 3 Year 88.03% 100.92% 17.64% 50.57% #DIV/0! 81.17%
Total 5 Year #DIV/0! 171.11% 29.32% #DIV/0! #DIV/0! #DIV/0!
Total 10 Year #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0!
Total Since Inception 159.88% 208.59% 89.41% 70.96% 60.82% 139.27%
Ave. Annual 1 Year 28.25% 26.62% 7.39% 16.07% 27.87% 22.96%
Ave. Annual 3 Year 23.43% 26.18% 5.56% 14.62% #DIV/0! 21.91%
Ave. Annual 5 Year #DIV/0! 22.08% 5.28% #DIV/0! #DIV/0! #DIV/0!
Ave. Annual 10 Year #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0!
Ave. Annual Since Inception 27.03% 19.44% 6.90% 14.38% 26.83% 24.43%
1997 22.49% 30.94% 7.61% 18.36% 25.77% 24.99%
1996 19.66% 21.18% 1.80% 9.60% N/A 17.88%
1995 N/A 35.36% 15.76% N/A N/A N/A
1994 N/A -0.32% - 5.04% N/A N/A N/A
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
VIP VIP VIP VIP VIP VIP II VIP II
Equity Growth High Money Overseas Asset Mngr Asset Mngr
Income Income Market Growth
Fund Inception Date 10/8/86 10/8/86 9/11/85 3/31/82 1/27/97 5/29/90 1/3/95
Fund Inception AUV 10 10 10 10 10 10 10
<S> <C> <C> <C> <C> <C> <C> <C>
03/31/1982 10.000000
04/30/1982 10.099069
05/31/1982 10.194044
06/30/1982 10.307233
07/31/1982 10.413203
08/31/1982 10.511705
09/30/1982 10.594054
10/31/1982 10.668468
11/30/1982 10.746590
12/31/1982 10.816706
01/31/1983 10.882303
02/28/1983 10.939896
03/31/1983 11.003741
04/30/1983 11.064474
05/31/1983 11.130348
06/30/1983 11.194077
07/31/1983 11.262762
08/31/1983 11.345171
09/30/1983 11.421707
10/31/1983 11.500133
11/30/1983 11.575137
12/31/1983 11.648350
01/31/1984 11.727931
02/29/1984 11.800691
03/31/1984 11.878304
04/30/1984 11.963370
05/31/1984 12.051420
06/30/1984 12.147087
07/31/1984 12.236684
08/31/1984 12.335279
09/30/1984 12.425705
10/31/1984 12.529630
11/30/1984 12.615168
12/31/1984 12.695380
01/31/1985 12.770669
02/28/1985 12.836133
03/31/1985 12.905704
04/30/1985 12.984884
05/31/1985 13.058810
06/30/1985 13.127809
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
07/31/1985 13.192891
08/31/1985 13.253787
09/30/1985 10.01684 13.328423
10/31/1985 10.131 13.399395
11/30/1985 10.26347 13.466662
12/31/1985 10.59799 13.541817
01/31/1986 10.71712 13.614258
02/28/1986 11.06858 13.678432
03/31/1986 11.32894 13.747823
04/30/1986 11.50862 13.811004
05/31/1986 11.67136 13.870282
06/30/1986 11.81567 13.931465
07/31/1986 11.75545 13.991738
08/31/1986 11.78981 14.049551
09/30/1986 11.87652 14.100526
10/31/1986 10.10129 9.991294 12.21773 14.152842
11/30/1986 10.31067 10.20078 12.24374 14.203473
12/31/1986 9.998674 9.998722 12.30679 14.256382
01/31/1987 11.12405 11.05432 12.74183 14.311302 9.992998
02/28/1987 11.37148 11.59064 12.94915 14.358624 9.992662
03/31/1987 11.64657 11.76598 13.05023 14.411132 10.43009
04/30/1987 11.34377 11.75295 12.62796 14.464264 11.17636
05/31/1987 11.40149 11.81989 12.50064 14.524206 11.00512
06/30/1987 11.62553 12.15337 12.75675 14.583086 10.45518
07/31/1987 12.05482 12.62526 12.75585 14.645391 10.32401
08/31/1987 12.3726 12.98716 12.84716 14.707771 11.22491
09/30/1987 12.0994 12.82438 12.38379 14.770127 10.96474
10/31/1987 9.726269 9.993834 11.77155 14.836091 8.665959
11/30/1987 9.28022 9.281697 12.10881 14.902196 8.73515
12/31/1987 9.722978 10.21714 12.29057 14.973869 9.339551
01/31/1988 10.42588 10.43808 12.68323 15.044227 9.010116
02/29/1988 10.93027 11.27193 13.05026 15.104333 9.23914
03/31/1988 10.72761 11.15847 12.94144 15.168940 9.646914
04/30/1988 10.89361 11.28718 13.02908 15.232102 9.795771
05/31/1988 11.02676 11.17353 12.99439 15.298755 9.605318
06/30/1988 11.6415 11.71246 13.23989 15.367395 9.425939
07/31/1988 11.60798 11.64988 15.73904 15.443161 9.346446
08/31/1988 11.39386 11.35564 13.29643 15.522234 9.008185
09/30/1988 11.7196 11.66273 13.38858 15.603646 9.384062
10/31/1988 11.90831 11.67933 13.51945 15.688770 9.788383
11/30/1988 11.70387 11.55677 13.45283 15.773335 9.955207
12/31/1988 11.79754 11.67321 13.55469 15.864427 9.963761
01/31/1989 12.51193 12.48503 13.85558 15.966968 10.24762
02/28/1989 12.43484 12.21383 13.90951 16.057512 10.41411
03/31/1989 12.68976 12.56884 13.71353 16.164236 10.39278
04/30/1989 13.16609 13.22016 13.54749 16.272570 10.6887
05/31/1989 13.54118 13.67661 13.78273 16.382374 10.28042
06/30/1989 13.53544 13.4807 14.17769 16.487209 10.21966
07/31/1989 14.30857 14.66905 14.05318 16.592535 11.17409
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
08/31/1989 14.52194 14.90277 13.95504 16.694530 11.08254
09/30/1989 14.34301 15.0167 13.44909 16.795969 11.75908
10/31/1989 13.4994 14.57931 12.85473 16.892347 11.10667
11/30/1989 13.56154 14.8028 12.85142 16.987974 11.69303
12/31/1989 13.65971 15.13566 12.80121 17.089623 12.41543
01/31/1990 12.72164 14.24086 12.50022 17.181925 12.23422
02/28/1990 12.78384 14.36209 12.29421 17.268226 11.93619
03/31/1990 12.79056 14.52138 12.15071 17.368342 12.37368
04/30/1990 12.33293 14.08241 12.17307 17.458104 12.42822
05/31/1990 13.13429 15.31204 12.41025 17.555315 13.22575 10.1246486
06/30/1990 12.98935 15.61421 12.59646 17.652955 13.51427 10.1824399
07/31/1990 12.65675 15.34948 12.77299 17.745553 14.17184 10.1607515
08/31/1990 11.63229 13.7518 12.5439 17.840794 12.71303 9.81587752
09/30/1990 10.7181 12.32282 12.23068 17.933881 11.49225 9.59982316
10/31/1990 10.43226 11.86805 11.91845 18.029799 12.54828 9.63731933
11/30/1990 11.16797 12.81606 12.18653 18.123357 12.14585 10.0955208
12/31/1990 11.4149 13.17931 12.32619 18.220292 12.0349 10.3766964
01/31/1991 12.01356 14.04159 12.59125 18.315617 12.14712 10.8610498
02/28/1991 12.82797 15.07407 13.27539 18.395194 12.54358 11.2747411
03/31/1991 13.0801 15.51245 13.73119 18.467298 12.16337 11.444486
04/30/1991 13.12584 15.34975 14.20207 18.549243 12.41639 11.6026764
05/31/1991 13.83073 16.2394 14.3943 18.621049 12.43187 11.8515414
06/30/1991 13.39781 15.29429 14.70775 18.690876 11.81543 11.666955
07/31/1991 13.9858 16.42917 15.2286 18.758131 12.30528 11.9053576
08/31/1991 14.30274 17.19245 15.36816 18.822493 12.29209 12.153902
09/30/1991 14.15118 17.25425 15.74783 18.891652 12.81897 12.1897269
10/31/1991 14.40822 17.60425 16.24868 18.953752 12.89328 12.2564583
11/30/1991 13.73607 16.73483 16.386 19.013259 12.41741 12.0426051
12/31/1991 14.80635 18.92449 16.45285 19.074403 12.84419 12.5485774
01/31/1992 14.98918 20.05739 17.3121 19.130367 12.97649 12.6940895
02/29/1992 15.46016 20.456 17.92243 19.175483 12.69283 12.9273479
03/31/1992 15.25258 19.17898 18.48023 19.223315 12.42019 12.8806124
04/30/1992 15.7132 18.40692 18.59037 19.265531 13.17848 13.0550253
05/31/1992 15.82194 18.23098 18.79413 19.303425 13.7379 13.1771955
06/30/1992 15.66485 17.50196 18.9767 19.344306 13.45502 13.1511869
07/31/1992 16.12665 18.15746 19.32685 19.382183 12.59119 13.3555349
08/31/1992 15.75511 17.63843 19.71331 19.418272 12.46839 13.298511
09/30/1992 15.90114 17.92996 19.89555 19.451989 11.95264 13.3671549
10/31/1992 16.07376 18.6041 19.57705 19.484247 11.12339 13.3731872
11/30/1992 16.63813 19.82435 19.79526 19.517867 11.05175 13.6490789
12/31/1992 17.08845 20.4114 19.97599 19.553555 11.31376 13.8516381
01/31/1993 17.56686 20.79216 20.50868 19.586722 11.61519 14.0650824
02/28/1993 17.94307 20.34223 20.83715 19.616522 11.83056 14.1823713
03/31/1993 18.45557 21.12806 21.29233 19.650138 12.63631 14.5663098
04/30/1993 18.35846 20.88387 21.40875 19.679944 13.46157 14.6368535
05/31/1993 18.67148 22.41692 21.70628 19.707375 13.73707 14.8705907
06/30/1993 18.86824 22.62049 22.23861 19.739683 13.38142 14.9713659
07/31/1993 19.10392 22.53256 22.43328 19.768633 13.89437 15.1383216
08/31/1993 19.81171 23.63659 22.64573 19.798960 14.62393 15.5625276
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
09/30/1993 19.71408 24.0496 22.7002 19.827191 14.52826 15.556062
10/31/1993 19.87314 24.25366 23.21228 19.854526 15.03871 15.959005
11/30/1993 19.50263 23.24426 23.40315 19.885039 14.38648 15.918673
12/31/1993 19.93086 24.04094 23.75296 19.916510 15.3206 16.544538
01/31/1994 20.7853 24.61719 24.51772 19.947349 16.30205 17.050991
02/28/1994 20.2289 24.33803 24.46301 19.975081 15.99786 16.49215
03/31/1994 19.36003 23.20515 23.61147 20.009304 15.5829 15.698608
04/30/1994 20.00602 23.3238 23.34806 20.044768 16.08136 15.693002
05/31/1994 20.17266 22.75601 23.36374 20.090101 15.86446 15.808889
06/30/1994 20.02578 21.57447 23.25149 20.136984 15.67885 15.489282
07/31/1994 20.67284 22.29944 23.31291 20.184600 16.0768 15.740945
08/31/1994 21.71054 23.53593 23.28455 20.241451 16.24461 16.090198
09/30/1994 21.33107 23.22451 23.43097 20.296633 15.80302 15.882707
10/31/1994 21.74424 24.1408 23.18915 20.355807 16.10966 15.942586
11/30/1994 21.00994 23.15037 22.97018 20.417832 15.48245 15.691127
12/31/1994 21.05467 23.71511 23.07311 20.487364 15.37672 15.328769
01/31/1995 21.35908 23.23945 23.28193 20.565126 14.72139 15.21092 10.021275
02/28/1995 22.15097 24.1773 24.0565 20.636387 14.74488 15.44148 10.16077
03/31/1995 22.89004 25.02667 24.32834 20.716676 15.18172 15.627611 10.288841
04/30/1995 23.50265 25.84406 25.0163 20.789189 15.59955 15.860261 10.547404
05/31/1995 24.18182 26.81894 25.6292 20.874594 15.79707 16.044293 10.683905
06/30/1995 24.50228 29.16027 25.66967 20.951836 15.90737 16.161939 11.099825
07/31/1995 25.41663 32.00837 26.25929 21.027293 16.6158 16.718304 11.49452
08/31/1995 25.70616 32.36423 26.43532 21.108272 16.13582 16.901845 11.997486
09/30/1995 26.53157 33.16823 26.84162 21.180218 16.35371 17.09745 12.163066
10/31/1995 26.19515 32.79182 27.06129 21.259303 16.01146 16.852599 11.68314
11/30/1995 27.29805 32.73375 27.16827 21.333054 16.17946 17.271549 11.878038
12/31/1995 28.06729 31.67743 27.45754 21.403721 16.64009 17.689667 12.164159
01/31/1996 28.8491 32.1385 28.06252 21.484371 16.94219 18.049305 12.428346
02/29/1996 28.91549 33.18146 28.49612 21.552814 16.96159 17.981667 12.458329
03/31/1996 29.18746 33.2725 28.38955 21.617867 17.20195 18.152657 12.668511
04/30/1996 29.53454 34.53686 28.78118 21.690611 17.66074 18.323149 12.952327
05/31/1996 29.81856 35.57598 29.14551 21.759424 17.64997 18.444574 13.139762
06/30/1996 29.51402 34.84239 29.26366 21.822032 17.76039 18.591579 13.178959
07/31/1996 28.04058 32.13687 29.12961 21.898271 17.21319 18.260421 12.834078
08/31/1996 28.58378 33.06107 29.51849 21.968084 17.32279 18.27555 12.915139
09/30/1996 29.77553 35.24306 30.35253 22.042074 17.80856 18.919335 13.430416
10/31/1996 30.22388 35.12141 30.21839 22.115248 17.60986 19.383135 13.806713
11/30/1996 32.21086 37.03206 30.50688 22.183483 18.50977 20.320623 14.690463
12/31/1996 31.64634 35.84861 30.89097 22.259863 18.58693 20.001432 14.39401
01/31/1997 32.84329 37.86692 31.27478 22.334064 18.56567 20.580691 14.992461
02/28/1997 33.173 36.96752 31.80944 22.400138 18.9764 20.737209 15.119763
03/31/1997 31.9029 34.85495 30.78548 22.473110 19.127 19.925165 14.389187
04/30/1997 32.99853 36.4921 31.23132 22.546893 19.26719 20.583746 14.976103
05/31/1997 35.00554 38.98041 32.50168 22.621939 20.44931 21.547556 15.868267
06/30/1997 36.59183 40.53668 33.04974 22.699314 21.49924 22.095522 16.320385
07/31/1997 39.21876 43.53447 34.20767 22.777541 22.20369 23.347232 17.405058
08/31/1997 37.3388 41.8077 34.46303 22.850419 20.50922 22.684468 16.840813
09/30/1997 39.34571 44.18128 35.64192 22.931368 21.99331 23.38772 17.442246
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
10/31/1997 37.86331 42.46607 35.28334 23.009741 20.42948 22.976478 17.008542
11/28/1997 39.21048 43.63688 35.51142 23.081400 20.31234 23.482447 17.480346
12/31/1997 40.00349 43.67808 35.86454 23.168363 20.45818 23.811034 17.763287
01/31/1998 39.86045 44.21809 36.64303 23.247640 21.10642 23.863968 17.743664
02/28/1998 42.38682 47.49237 36.88223 23.320252 22.27203 24.913156 18.808803
03/31/1998 44.29881 49.1018 37.61026 23.403143 23.25534 25.605786 19.483657
04/30/1998 44.24975 50.0077 37.71683 23.4805348 23.88281 25.547365 19.401016
05/31/1998 43.48572 48.67058 37.40998 23.5554405 23.82289 25.384925 19.185008
06/30/1998 43.92322 51.69008 37.33621 23.6390689 23.56604 25.849702 19.613293
07/31/1998 42.79178 52.68248 37.50031 23.7203695 23.72184 25.655419 19.420461
08/31/1998 36.21062 44.03143 32.82456 23.8015434 19.38234 23.292533 16.954038
09/30/1998 38.29324 48.52855 32.46404 23.8805365 19.33818 24.043729 17.566891
10/31/1998 41.08366 51.90059 31.54486 23.9574071 21.08095 25.061825 18.663631
11/30/98 42.77267 55.45112 34.09683 24.034613 22.29611 25.987230 19.575232
12/31/98 44.05896 60.11956 33.85217 24.110707 22.75895 27.029675 20.606049
1/31/99 43.87189 64.91422 34.81257 24.180722 23.06297 27.639567 21.188001
2/28/99 43.29288 61.66212 34.62928 24.246598 22.42806 26.978564 20.617624
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
VIP II VIP II VIP II VIP III VIP III VIP III VIP III
Contrafund Index 500 Inv Grade Balanced Growth Growth Mid Cap
Bond & Income Opportunities
<S> <C> <C> <C> <C> <C> <C>
1/3/95 8/27/92 6/5/89 1/3/95 12/31/96 1/3/95 12/28/98
10 10 10 10 10 10 10
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
08/31/1989 14.52194 14.90277 13.95504 16.694530 11.08254 10.277100
09/30/1989 14.34301 15.0167 13.44909 16.795969 11.75908 10.306400
10/31/1989 13.4994 14.57931 12.85473 16.892347 11.10667 10.454089
11/30/1989 13.56154 14.8028 12.85142 16.987974 11.69303 10.532679
12/31/1989 13.65971 15.13566 12.80121 17.089623 12.41543 10.564022
01/31/1990 12.72164 14.24086 12.50022 17.181925 12.23422 10.527347
02/28/1990 12.78384 14.36209 12.29421 17.268226 11.93619 10.576333
03/31/1990 12.79056 14.52138 12.15071 17.368342 12.37368 10.596780
04/30/1990 12.33293 14.08241 12.17307 17.458104 12.42822 10.589222
05/31/1990 13.13429 15.31204 12.41025 17.555315 13.22575 10.124649 10.743737
06/30/1990 12.98935 15.61421 12.59646 17.652955 13.51427 10.18244 10.818570
07/31/1990 12.65675 15.34948 12.77299 17.745553 14.17184 10.160752 10.911224
08/31/1990 11.63229 13.7518 12.5439 17.840794 12.71303 9.8158775 10.897720
09/30/1990 10.7181 12.32282 12.23068 17.933881 11.49225 9.5998232 10.928789
10/31/1990 10.43226 11.86805 11.91845 18.029799 12.54828 9.6373193 10.916555
11/30/1990 11.16797 12.81606 12.18653 18.123357 12.14585 10.095521 10.970446
12/31/1990 11.4149 13.17931 12.32619 18.220292 12.0349 10.376696 11.061218
01/31/1991 12.01356 14.04159 12.59125 18.315617 12.14712 10.86105 11.082056
02/28/1991 12.82797 15.07407 13.27539 18.395194 12.54358 11.274741 11.181988
03/31/1991 13.0801 15.51245 13.73119 18.467298 12.16337 11.444486 11.359156
04/30/1991 13.12584 15.34975 14.20207 18.549243 12.41639 11.602676 11.512625
05/31/1991 13.83073 16.2394 14.3943 18.621049 12.43187 11.851541 11.588311
06/30/1991 13.39781 15.29429 14.70775 18.690876 11.81543 11.666955 11.586346
07/31/1991 13.9858 16.42917 15.2286 18.758131 12.30528 11.905358 11.684130
08/31/1991 14.30274 17.19245 15.36816 18.822493 12.29209 12.153902 11.948345
09/30/1991 14.15118 17.25425 15.74783 18.891652 12.81897 12.189727 12.122199
10/31/1991 14.40822 17.60425 16.24868 18.953752 12.89328 12.256458 12.230241
11/30/1991 13.73607 16.73483 16.386 19.013259 12.41741 12.042605 12.360134
12/31/1991 14.80635 18.92449 16.45285 19.074403 12.84419 12.548577 12.714215
01/31/1992 14.98918 20.05739 17.3121 19.130367 12.97649 12.69409 12.573531
02/29/1992 15.46016 20.456 17.92243 19.175483 12.69283 12.927348 12.629333
03/31/1992 15.25258 19.17898 18.48023 19.223315 12.42019 12.880612 12.591461
04/30/1992 15.7132 18.40692 18.59037 19.265531 13.17848 13.055025 12.669292
05/31/1992 15.82194 18.23098 18.79413 19.303425 13.7379 13.177195 12.850519
06/30/1992 15.66485 17.50196 18.9767 19.344306 13.45502 13.151187 12.984146
07/31/1992 16.12665 18.15746 19.32685 19.382183 12.59119 13.355535 13.232252
08/31/1992 15.75511 17.63843 19.71331 19.418272 12.46839 13.298511 10 13.297028
09/30/1992 15.90114 17.92996 19.89555 19.451989 11.95264 13.367155 10.05232 13.442001
10/31/1992 16.07376 18.6041 19.57705 19.484247 11.12339 13.373187 10.06297 13.256205
11/30/1992 16.63813 19.82435 19.79526 19.517867 11.05175 13.649079 10.39411 13.206921
12/31/1992 17.08845 20.4114 19.97599 19.553555 11.31376 13.851638 10.51342 13.378677
01/31/1993 17.56686 20.79216 20.50868 19.586722 11.61519 14.065082 10.57801 13.644699
02/28/1993 17.94307 20.34223 20.83715 19.616522 11.83056 14.182371 10.71432 13.862113
03/31/1993 18.45557 21.12806 21.29233 19.650138 12.63631 14.56631 10.93701 13.906113
04/30/1993 18.35846 20.88387 21.40875 19.679944 13.46157 14.636853 10.65538 13.975844
05/31/1993 18.67148 22.41692 21.70628 19.707375 13.73707 14.870591 10.92147 13.985717
06/30/1993 18.86824 22.62049 22.23861 19.739683 13.38142 14.971366 10.93599 14.235578
07/31/1993 19.10392 22.53256 22.43328 19.768633 13.89437 15.138322 10.87407 14.316764
08/31/1993 19.81171 23.63659 22.64573 19.798960 14.62393 15.562528 11.27248 14.554049
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
09/30/1993 19.71408 24.0496 22.7002 19.827191 14.52826 15.556062 11.16863 14.610475
10/31/1993 19.87314 24.25366 23.21228 19.854526 15.03871 15.959005 11.38461 14.667310
11/30/1993 19.50263 23.24426 23.40315 19.885039 14.38648 15.918673 11.26019 14.577588
12/31/1993 19.93086 24.04094 23.75296 19.916510 15.3206 16.544538 11.38246 14.647416
01/31/1994 20.7853 24.61719 24.51772 19.947349 16.30205 17.050991 11.75296 14.796392
02/28/1994 20.2289 24.33803 24.46301 19.975081 15.99786 16.49215 11.42272 14.538710
03/31/1994 19.36003 23.20515 23.61147 20.009304 15.5829 15.698608 10.91398 14.190441
04/30/1994 20.00602 23.3238 23.34806 20.044768 16.08136 15.693002 11.03261 14.047804
05/31/1994 20.17266 22.75601 23.36374 20.090101 15.86446 15.808889 11.19043 13.993033
06/30/1994 20.02578 21.57447 23.25149 20.136984 15.67885 15.489282 10.9056 13.939406
07/31/1994 20.67284 22.29944 23.31291 20.184600 16.0768 15.740945 11.25325 14.153084
08/31/1994 21.71054 23.53593 23.28455 20.241451 16.24461 16.090198 11.68767 14.148545
09/30/1994 21.33107 23.22451 23.43097 20.296633 15.80302 15.882707 11.39105 13.980839
10/31/1994 21.74424 24.1408 23.18915 20.355807 16.10966 15.942586 11.63087 13.977524
11/30/1994 21.00994 23.15037 22.97018 20.417832 15.48245 15.691127 11.19551 13.987331
12/31/1994 21.05467 23.71511 23.07311 20.487364 15.37672 15.328769 11.34658 13.908492
01/31/1995 21.35908 23.23945 23.28193 20.565126 14.72139 15.21092 10.021275 9.891012 11.63357 14.094104
02/28/1995 22.15097 24.1773 24.0565 20.636387 14.74488 15.44148 10.16077 10.38143 12.06705 14.351358
03/31/1995 22.89004 25.02667 24.32834 20.716676 15.18172 15.627611 10.288841 10.88964 12.40574 14.426214
04/30/1995 23.50265 25.84406 25.0163 20.789189 15.59955 15.860261 10.547404 11.46787 12.75734 14.606670
05/31/1995 24.18182 26.81894 25.6292 20.874594 15.79707 16.044293 10.683905 11.70335 13.24282 15.174315
06/30/1995 24.50228 29.16027 25.66967 20.951836 15.90737 16.161939 11.099825 12.45796 13.5284 15.274444
07/31/1995 25.41663 32.00837 26.25929 21.027293 16.6158 16.718304 11.49452 13.40959 13.96383 15.205070
08/31/1995 25.70616 32.36423 26.43532 21.108272 16.13582 16.901845 11.997486 13.56326 13.98242 15.369195
09/30/1995 26.53157 33.16823 26.84162 21.180218 16.35371 17.09745 12.163066 13.84677 14.55175 15.495230
10/31/1995 26.19515 32.79182 27.06129 21.259303 16.01146 16.852599 11.68314 13.54252 14.48573 15.683941
11/30/1995 27.29805 32.73375 27.16827 21.333054 16.17946 17.271549 11.878038 13.77541 15.09951 15.899183
12/31/1995 28.06729 31.67743 27.45754 21.403721 16.64009 17.689667 12.164159 13.82149 15.35895 16.101144
01/31/1996 28.8491 32.1385 28.06252 21.484371 16.94219 18.049305 12.428346 13.91535 15.86582 16.185153
02/29/1996 28.91549 33.18146 28.49612 21.552814 16.96159 17.981667 12.458329 13.95098 15.99686 15.872658
03/31/1996 29.18746 33.2725 28.38955 21.617867 17.20195 18.152657 12.668511 14.3898 16.14365 15.733161
04/30/1996 29.53454 34.53686 28.78118 21.690611 17.66074 18.323149 12.952327 14.84718 16.35062 15.620880
05/31/1996 29.81856 35.57598 29.14551 21.759424 17.64997 18.444574 13.139762 15.00142 16.74885 15.575548
06/30/1996 29.51402 34.84239 29.26366 21.822032 17.76039 18.591579 13.178959 14.86469 16.80257 15.747855
07/31/1996 28.04058 32.13687 29.12961 21.898271 17.21319 18.260421 12.834078 14.15355 16.03885 15.769571
08/31/1996 28.58378 33.06107 29.51849 21.968084 17.32279 18.27555 12.915139 14.67975 16.35034 15.738444
09/30/1996 29.77553 35.24306 30.35253 22.042074 17.80856 18.919335 13.430416 15.28491 17.24581 15.976332
10/31/1996 30.22388 35.12141 30.21839 22.115248 17.60986 19.383135 13.806713 15.73817 17.7014 16.306932
11/30/1996 32.21086 37.03206 30.50688 22.183483 18.50977 20.320623 14.690463 16.66161 19.00827 16.557482
12/31/1996 31.64634 35.84861 30.89097 22.259863 18.58693 20.001432 14.39401 16.54224 18.61214 16.390806
01/31/1997 32.84329 37.86692 31.27478 22.334064 18.56567 20.580691 14.992461 17.1622 19.72607 16.412229
02/28/1997 33.173 36.96752 31.80944 22.400138 18.9764 20.737209 15.119763 16.66837 19.85324 16.416965
03/31/1997 31.9029 34.85495 30.78548 22.473110 19.127 19.925165 14.389187 16.21793 19.0059 16.227891
04/30/1997 32.99853 36.4921 31.23132 22.546893 19.26719 20.583746 14.976103 16.58979 20.11392 16.450920
05/31/1997 35.00554 38.98041 32.50168 22.621939 20.44931 21.547556 15.868267 17.59613 21.31406 16.560137
06/30/1997 36.59183 40.53668 33.04974 22.699314 21.49924 22.095522 16.320385 18.34366 22.22527 16.739235
07/31/1997 39.21876 43.53447 34.20767 22.777541 22.20369 23.347232 17.405058 19.89714 23.96605 17.172203
08/31/1997 37.3388 41.8077 34.46303 22.850419 20.50922 22.684468 16.840813 19.31415 22.60003 16.998588
09/30/1997 39.34571 44.18128 35.64192 22.931368 21.99331 23.38772 17.442246 20.59718 23.79463 17.232283
<CAPTION>
<S> <C> <C>
09/30/1993
10/31/1993
11/30/1993
12/31/1993
01/31/1994
02/28/1994
03/31/1994
04/30/1994
05/31/1994
06/30/1994
07/31/1994
08/31/1994
09/30/1994
10/31/1994
11/30/1994
12/31/1994
01/31/1995 9.987315 10.05731507
02/28/1995 10.18438 10.36438005
03/31/1995 10.25162 10.55096729
04/30/1995 10.37907 10.91741828
05/31/1995 10.59582 11.42380703
06/30/1995 10.7231 11.77008922
07/31/1995 10.85931 12.15618039
08/31/1995 10.89626 12.23279763
09/30/1995 10.99338 12.43845945
10/31/1995 10.86039 12.5243189
11/30/1995 11.17656 12.88016396
12/31/1995 11.35429 13.20735542
01/31/1996 11.43267 13.39493605
02/29/1996 11.2764 13.38196314
03/31/1996 11.1816 13.33771101
04/30/1996 11.20858 13.54727751
05/31/1996 11.32742 13.84670946
06/30/1996 11.39552 13.95349983
07/31/1996 11.16764 13.54470052
08/31/1996 11.2358 13.62194242
09/30/1996 11.71121 14.2759636
10/31/1996 12.02393 14.85846202
11/30/1996 12.65173 15.9774874
12/31/1996 12.44428 10 15.5685075
01/31/1997 12.57249 10.103027 15.86746549
02/28/1997 12.77022 10.112235 16.00223447
03/31/1997 12.39883 9.6578729 15.16805159
04/30/1997 12.85331 10.167961 15.84378332
05/31/1997 13.368880 10.757427 16.86500827
06/30/1997 13.842191 11.296066 17.40540215
07/31/1997 14.598831 12.196849 18.726635
08/31/1997 13.902526 11.565134 17.9956135
09/30/1997 14.444324 12.159601 18.72509024
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
10/31/1997 37.86331 42.46607 35.28334 23.009741 20.42948 22.976478 17.008542 19.952 22.98122 17.437870
11/28/1997 39.21048 43.63688 35.51142 23.081400 20.31234 23.482447 17.480346 19.92123 23.99676 17.462048
12/31/1997 40.00349 43.67808 35.86454 23.168363 20.45818 23.811034 17.763287 20.26303 24.3705 17.637496
01/31/1998 39.86045 44.21809 36.64303 23.247640 21.10642 23.863968 17.743664 20.22029 24.60973 17.842514
02/28/1998 42.38682 47.49237 36.88223 23.320252 22.27203 24.913156 18.808803 21.66878 26.33169 17.811581
03/31/1998 44.29881 49.1018 37.61026 23.403143 23.25534 25.605786 19.483657 22.69635 27.63198 17.864397
04/30/1998 44.24975 50.0077 37.71683 23.4805348 23.88281 25.547365 19.401016 22.88589 27.87483 17.93314
05/31/1998 43.48572 48.67058 37.40998 23.5554405 23.82289 25.384925 19.185008 22.32524 27.34705 18.07609
06/30/1998 43.92322 51.69008 37.33621 23.6390689 23.56604 25.849702 19.613293 23.49843 28.42825 18.20198
07/31/1998 42.79178 52.68248 37.50031 23.7203695 23.72184 25.655419 19.420461 23.50366 28.08805 18.22526
08/31/1998 36.21062 44.03143 32.82456 23.8015434 19.38234 23.292533 16.954038 19.96097 23.99418 18.42475
09/30/1998 38.29324 48.52855 32.46404 23.8805365 19.33818 24.043729 17.566891 21.10237 25.50934 18.85919
10/31/1998 41.08366 51.90059 31.54486 23.9574071 21.08095 25.061825 18.663631 21.77201 27.55116 18.73571
11/30/1998 42.77267 55.45112 34.09683 24.034613 22.29611 25.987230 19.575232 23.19553 29.17830 18.87527
12/31/1998 44.05896 60.11956 33.85217 24.110707 22.75895 27.029675 20.606049 25.98810 30.85851 18.94141
1/31/1999 43.87189 64.91422 34.81257 24.180722 23.06297 27.639567 21.188001 27.44730 32.06254 19.08126
2/28/99 43.29288 61.66212 34.62928 24.246598 22.42806 26.978564 20.617624 26.40828 31.02161 18.73337
<CAPTION>
<S> <C> <C> <C> <C>
10/31/1997 0 14.123880 11.802953 18.32897246
11/28/1997 8 14.453348 12.31894 18.95744793
12/31/1997 6 14.728944 12.576755 19.45979423
01/31/1998 4 14.873964 12.632874 19.51872962
02/28/1998 1 15.412042 13.484184 20.71860397
03/31/1998 7 15.973248 14.152777 21.33917657
04/30/1998 16.08412 14.137101 21.20992865
05/31/1998 16.0664 13.910657 21.03891769
06/30/1998 16.41134 14.606771 21.52033362
07/31/1998 16.38189 14.48989 21.56937019
08/31/1998 14.59267 12.421816 18.74911918
09/30/1998 15.40746 13.337673 19.8831638
10/31/1998 15.95438 14.361317 21.38160493
11/30/98 16.53135 15.26246 22.729293
12/31/98 17.09642 16.08183 23.927432 10.308890
1/31/99 17.26851 16.42239 24.120595 10.507048
2/28/99 16.94402 16.09094 22.960214 9.926868
</TABLE>
