<PAGE>
As filed with the Securities and Exchange Commission on April 27, 2000
Registration No. 333 - 7509
811 - 7689
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No.
---
Post-Effective Amendment No. 9
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and
REGISTRATION STATEMENT UNDER THE [X]
INVESTMENT COMPANY ACT OF 1940
Amendment No. 21
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PFL RETIREMENT BUILDER VARIABLE ANNUITY ACCOUNT
-----------------------------------------------
(Exact Name of Registrant)
PFL LIFE INSURANCE COMPANY
--------------------------
(Name of Depositor)
4333 Edgewood Road N.E., Cedar Rapids, Iowa 52499-0001
(Address of Depositor's Principal Executive Offices)
Depositor's Telephone Number, including Area Code
(319) 297-8468
Frank A. Camp, Esquire
PFL Life Insurance Company
4333 Edgewood Road, N.E.
Cedar Rapids, Iowa 52499-0001
(Name and Address of Agent for Service)
Copy to:
Frederick R. Bellamy, Esquire
Sutherland, Asbill and Brennan L.L.P.
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004-2404
<PAGE>
Title of Securities Being Registered:
Flexible Premium Variable Annuity Policies
------------------------
------------------------
It is proposed that this filing will become effective:
immediately upon filing pursuant to paragraph (b) of Rule 485.
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X on May 1, 2000 pursuant to paragraph (b) of Rule 485.
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60 days after filing pursuant to paragraph (a)(1) of Rule 485
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on ___________ pursuant to paragraph (a)(1) of Rule 485
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If appropriate, check the following box:
This post-effective amendment designates a new effective date
---
for a previously filed post-effective amendment.
<PAGE>
RETIREMENT
INCOME BUILDER
VARIABLE ANNUITY
Issued Through
PFL RETIREMENT BUILDER VARIABLE ANNUITY ACCOUNT
by
PFL LIFE INSURANCE COMPANY
Prospectus
May 1, 2000
This prospectus and the mutual fund prospectuses give you important
information about the policies and the mutual funds. Please read them
carefully before you invest and keep them for future reference.
If you would like more information about the Retirement Income Builder
Variable Annuity policy, you can obtain a free copy of the Statement of
Additional Information (SAI) dated May 1, 2000. Please call us at (800) 525-
6205 or write us at: PFL Life Insurance Company, Financial Markets Division,
Variable Annuity Department, 4333 Edgewood Road N.E., Cedar Rapids, Iowa,
52499-0001. A registration statement, including the SAI, has been filed with
the Securities and Exchange Commission (SEC) and is incorporated herein by
reference. 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
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 policies and the mutual funds:
. are not bank deposits
. are not federally insured
. are not endorsed by any bank or government agency
. are not guaranteed to achieve their goal
. are subject to risks, including loss of premium
The Securities and Exchange Commission has not approved or disapproved these
securities, or passed upon the adequacy of this prospectus. Any representation
to the contrary is a criminal offense.
This flexible premium annuity policy has many investment choices. There is a
fixed account, which offers interest at rates that are guaranteed by PFL Life
Insurance Company (PFL); and fourteen mutual fund portfolios offered by the
underlying funds listed below. You can choose any combination of these
investment choices. You bear the entire investment risk for all amounts you
put in the mutual fund portfolios.
MANAGED BY FIDELITY MANAGEMENT & RESEARCH COMPANY:
Variable Insurance Products Fund
(VIP) - Initial Class
Fidelity - VIP Money Market
Fidelity - VIP High Income
Fidelity - VIP Equity-Income
Fidelity - VIP Growth
Fidelity - VIP Overseas
Variable Insurance Products Fund II
(VIP II) - Initial Class
Fidelity - VIP II Investment Grade Bond
Fidelity - VIP II Asset Manager
Fidelity - VIP II Asset Manager: Growth
Fidelity - VIP II Index 500
Fidelity - VIP II Contrafund(R)
Variable Insurance Products Fund III
(VIP III) - Initial Class
Fidelity - VIP III Balanced
Fidelity - VIP III Growth & Income
Fidelity - VIP III Growth Opportunities
Fidelity - VIP III Mid Cap
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS Page
<S> <C>
GLOSSARY OF TERMS.......................................................... 3
SUMMARY.................................................................... 4
ANNUITY POLICY FEE TABLE................................................... 8
EXAMPLES................................................................... 10
1. THE ANNUITY POLICY...................................................... 11
2. PURCHASE................................................................ 11
Policy Issue Requirements................................................ 11
Premium Payments......................................................... 11
Initial Premium Requirements............................................. 11
Additional Premium Payments.............................................. 12
Maximum Total Premium Payments........................................... 12
Allocation of Premium Payments........................................... 12
Policy Value............................................................. 12
3. INVESTMENT CHOICES...................................................... 12
The Separate Account..................................................... 12
The Fixed Account........................................................ 13
Transfers................................................................ 13
4. PERFORMANCE............................................................. 14
5. EXPENSES................................................................ 15
Surrender Charges........................................................ 15
Excess Interest Adjustment............................................... 15
Mortality and Expense Risk Fee........................................... 15
Administrative Charges................................................... 16
Premium Taxes............................................................ 16
Federal, State and Local Taxes........................................... 16
Transfer Fee............................................................. 16
Family Income Protector.................................................. 16
Portfolio Management Fees................................................ 16
6. ACCESS TO YOUR MONEY.................................................... 16
Surrenders............................................................... 16
Delay of Payment and Transfers........................................... 17
Excess Interest Adjustment............................................... 17
7. ANNUITY PAYMENTS (THE INCOME PHASE)..................................... 17
Annuity Payment Options.................................................. 18
8. DEATH BENEFIT........................................................... 19
When We Pay A Death Benefit.............................................. 19
When We Do Not Pay A Death Benefit....................................... 20
Amount of Death Benefit.................................................. 20
</TABLE>
<TABLE>
<S> <C>
Guaranteed Minimum Death Benefit.......................................... 20
Adjusted Partial Withdrawal............................................... 21
9. TAXES.................................................................... 21
Annuity Policies in General............................................... 21
Qualified and Nonqualified Policies....................................... 21
Withdrawals--Qualified Policies........................................... 22
Withdrawals--403(b) Policies.............................................. 22
Diversification and Distribution Requirements............................. 22
Withdrawals--Nonqualified Policies........................................ 22
Taxation of Death Benefit Proceeds........................................ 23
Annuity Payments.......................................................... 23
Transfers, Assignments or Exchanges of Policies........................... 23
Possible Tax Law Changes.................................................. 24
10. ADDITIONAL FEATURES..................................................... 24
Systematic Payout Option.................................................. 24
Family Income Protector................................................... 24
Nursing Care and Terminal Condition Withdrawal Option..................... 26
Unemployment Waiver....................................................... 26
Telephone Transactions.................................................... 26
Dollar Cost Averaging Program............................................. 27
Asset Rebalancing......................................................... 27
11. OTHER INFORMATION....................................................... 27
Ownership................................................................. 27
Assignment................................................................ 27
PFL Life Insurance Company................................................ 28
The Separate Account...................................................... 28
Mixed and Shared Funding.................................................. 28
Reinstatements............................................................ 28
Voting Rights............................................................. 29
Distributor of the Policies............................................... 29
Variations in Policy Provisions........................................... 29
IMSA...................................................................... 29
Legal Proceedings......................................................... 29
Financial Statements...................................................... 29
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION................ 29
APPENDIX A
Condensed Financial Information............................................. 30
APPENDIX B
Historical Performance Data................................................. 34
</TABLE>
2
<PAGE>
GLOSSARY OF TERMS
Accumulation Unit -- An accounting unit of measure used in calculating the
policy value in the separate account before the annuity commencement date.
Annuitant -- The person during whose life any annuity payments involving life
contingencies will continue.
Annuity Commencement Date -- The date upon which annuity payments are to
commence. The annuity commencement date may not be later than the last day of
the policy month starting after the annuitant attains age 85, except as
expressly allowed by PFL. In no event will this date be later than the last day
of the month following the month in which the annuitant attains age 95. The
annuity commencement date may be required to be earlier for qualified policies.
Annuity Payment Option -- A method of receiving a stream of annuity payments
selected by the owner.
Cash Value -- The policy value increased or decreased by an excess interest
adjustment, less the annual service charge, and less any applicable surrender
charge, premium taxes and family income protector rider fee.
Cumulative Free Percentage -- The percentage (as applied to the policy value)
which is available free of any surrender charge.
Excess Interest Adjustment -- A positive or negative adjustment to amounts
withdrawn upon partial or full surrenders from the fixed account guaranteed
period options, or to amounts applied to annuity payment options. The
adjustment reflects changes in the interest rates declared by PFL since the
date any payment was received by (or an amount was transferred to) the
guaranteed period option. The excess interest adjustment can either decrease or
increase the amount to be received by the owner upon full surrender or
commencement of annuity payments, depending upon whether there has been an
increase or decrease in interest rates, respectively.
Fixed Account -- One or more investment choices under the policy that are part
of PFL's general assets and are not in the separate account.
Guaranteed Period Options -- The various guaranteed interest rate periods of
the fixed account which PFL may offer and into which premium payments may be
paid or amounts transferred.
Owner -- The person who may exercise all rights and privileges under the
policy. The owner during the lifetime of the annuitant and prior to the annuity
commencement date is the person designated as the owner or a successor owner in
the information that we require to issue a policy.
Policy Value -- On or before the annuity commencement date, the policy value is
equal to the owner's:
. premium payments; minus
. partial withdrawals (including the net effect of any applicable excess
interest adjustments and/or surrender charges on such withdrawals); plus
. interest credited in the fixed account; plus or minus
. accumulated gains or losses in the separate account; minus
. service charges, rider fees, premium taxes and transfer fees, if any.
Separate Account -- The Retirement Income Builder Variable Annuity division of
the PFL Retirement Builder Variable Annuity Account. The PFL Retirement Builder
Variable Annuity Account is a separate account established and registered as a
unit investment trust under the Investment Company Act of 1940, as amended (the
"1940 Act"), to which premium payments under the policies may be allocated.
Subaccount -- A subdivision within the separate account, the assets of which
are invested in a specified portfolio of the underlying funds.
(Note: The SAI contains a more extensive Glossary.)
3
<PAGE>
SUMMARY
The sections in this summary correspond to sections in this prospectus, which
discuss the topics in more detail.
1.THE ANNUITY POLICY
The flexible premium variable annuity policy offered by PFL Life Insurance
Company (PFL, we, us or our) provides a way for you to invest on a tax-deferred
basis in the following investment choices: subaccounts of the separate account,
and a fixed account of PFL. The policy is intended to accumulate money for
retirement or other long-term investment purposes.
This policy offers fourteen subaccounts that are listed in Section 3. Each
subaccount invests exclusively in shares of one of the portfolios of the
underlying funds. The policy value may depend on the investment experience of
the selected subaccounts. Therefore, you bear the entire investment risk with
respect to all policy value in any subaccount. You could lose the amount that
you invest.
The fixed account offers an interest rate that PFL guarantees. We guarantee to
return your investment with interest credited for all amounts allocated to the
fixed account.
You can transfer money between any of the investment choices within certain
limits. We reserve the right to impose a $10 fee for each transfer in excess of
12 transfers per policy year.
The policy, like all deferred annuity policies, has two phases: the
"accumulation phase" and the "income phase." During the accumulation phase,
earnings accumulate on a tax-deferred basis and are taxed as ordinary income
when you take them out of the policy. The income phase occurs when you begin
receiving regular payments from your policy. The money you can accumulate
during the accumulation phase will largely determine the income payments you
receive during the income phase.
2.PURCHASE
You can buy this policy with $2,000 or more under most circumstances. You can
add as little as $50 at any time during the accumulation phase.
3.INVESTMENT CHOICES
You can allocate your premium payments to one or more of the following
investment choices described in the underlying fund prospectuses:
Fidelity - VIP Money Market - Initial Class
Fidelity - VIP Equity-Income - Initial Class
Fidelity - VIP Growth - Initial Class
Fidelity - VIP High Income - Initial Class
Fidelity - VIP Overseas - Initial Class
Fidelity - VIP II Asset Manager - Initial Class
Fidelity - VIP II Investment Grade Bond - Initial Class
Fidelity - VIP II Asset Manager: Growth - Initial Class
Fidelity - VIP II Index 500 - Initial Class
Fidelity - VIP II Contrafund(R) - Initial Class
Fidelity - VIP III Balanced - Initial Class
Fidelity - VIP III Growth & Income -Initial Class
Fidelity - VIP III Growth Opportunities - Initial Class
Fidelity - VIP III Mid Cap - Initial Class
Depending upon their investment performance, you can make or lose money in any
of these subaccounts.
You can also allocate your premium payments to the fixed account.
4.PERFORMANCE
The value of the policy will vary up or down depending upon the investment
performance of the subaccounts you choose. We provide performance information
in Appendix B and in the SAI. This data does not indicate future performance.
5.EXPENSES
No deductions are made from premium payments at the time you buy the policy so
that the full amount of each premium payment is invested in one or more of your
investment choices.
We may deduct a surrender charge of up to 6.0% of premium payments withdrawn
within five
4
<PAGE>
years after the premium is paid. However, after the tenth policy year, no
surrender charges apply, regardless of when you made your last premium payment.
To calculate surrender charges, we consider the premium you paid to come out
before any earnings.
Full surrenders and partial withdrawals from a guaranteed period option of the
fixed account may also be subject to an excess interest adjustment, which may
increase or decrease the amount you receive. This adjustment may also apply to
amounts applied to an annuity payment option from a guaranteed period option of
the fixed account.
We deduct daily mortality and expense risk fees and administrative charges of
either 1.25% or 1.40% per year from the assets in each subaccount, depending on
the guaranteed minimum death benefit you choose.
During the accumulation phase, we deduct an annual service charge of no more
than $30 from the policy value on each policy anniversary and at the time of
surrender. The charge is waived if either the policy value or the sum of all
premium payments, minus all partial withdrawals, is at least $50,000.
We will deduct state premium taxes, which currently range from 0% to 3.50%,
upon total surrender, payment of a death benefit, or when annuity payments
begin.
If you elect the "family income protector" rider, there is an annual fee during
the accumulation phase of 0.30% of the minimum annuitization value. If you
receive annuity payments under the rider, then during the income phase there is
a guaranteed payment fee at an annual rate of 1.25% of the daily net asset
value in the separate account.
The value of the net assets of the mutual fund subaccounts will reflect the
management fee and other expenses incurred by the underlying fund portfolios.
6.ACCESS TO YOUR MONEY
You can take out $500 or more anytime during the accumulation phase (except
under certain
qualified policies). You may take out up to 10% of the policy value free of
surrender charges each policy year. The percentage that may be taken free of
surrender charges is referred to as the cumulative free percentage. Also,
withdrawals from the fixed account up to this percentage will not be subject to
an excess interest adjustment. Any cumulative free percentage that is not taken
in one year is carried forward and is available to be taken in the following
policy year. Amounts withdrawn in excess of the cumulative free percentage may
be subject to a surrender charge and excess interest adjustment. You may also
have to pay income tax and a tax penalty on any money you take out.
Access to amounts held in qualified policies may be restricted or prohibited.
7. ANNUITY PAYMENTS (THE INCOME PHASE)
The policy allows you to receive income under one of five annuity payment
options. You may choose from fixed payment options, variable payment options,
or a combination of both. If you select a variable payment option, the dollar
amount of your payments may go up or down.
8.DEATH BENEFIT
If you are both the owner and the annuitant and you die before the income phase
begins, then your beneficiary will receive a death benefit.
Naming different persons as owner and annuitant can affect whether the death
benefit is payable and to whom amounts will be paid. Use care when naming
owners, annuitants and beneficiaries, and consult your agent if you have
questions.
You may choose one of the following guaranteed minimum death benefits:
.5% Annually Compounding
.Annual Step-Up
.Return of Premium
Charges are lower for the Return of Premium Death Benefit than they are for the
other two.
If the owner is not the annuitant, no death benefit is paid if the owner dies.
5
<PAGE>
9.TAXES
Your earnings, if any, are not taxed until you take them out. If you take money
out during the accumulation phase, earnings come out first for federal tax
purposes, and are taxed as ordinary income. If you are younger than 59 1/2 when
you take money out, you may be charged a 10% federal penalty tax on the
earnings. Payments during the income phase may be considered partly a return of
your original investment so that part of each payment would not be taxable as
income.
10.ADDITIONAL FEATURES
This policy has additional features that might interest you. These include the
following:
. You can arrange to have money automatically sent to you monthly, quarterly,
semi-annually, or annually while your policy is in the accumulation phase.
This feature is referred to as the "systematic payout option." Amounts you
receive may be included in your gross income, and in certain circumstances,
may be subject to penalty taxes.
. You can elect an optional rider that guarantees you a minimum annuitization
value. This feature is called the "family income protector." There is an
extra charge for this rider and the rider may vary by state.
. Under certain medically related circumstances, we will allow you to
surrender or partially withdraw your policy value without a surrender charge
and excess interest adjustment. This feature is called the "nursing care and
terminal condition withdrawal option."
. Under certain unemployment circumstances, you may withdraw all or a portion
of the policy value free of surrender charges and excess interest
adjustments. This feature is called the "unemployment waiver."
. You may make transfers and/or change the allocation of additional premium
payments by telephone.
. You can arrange to have a certain amount of money (at least $500)
automatically transferred from the fixed account, either monthly or
quarterly, to your choice of subaccounts. This feature is called "dollar
cost averaging."
. We will, upon your request, automatically transfer amounts among the
subaccounts on a regular basis to maintain a desired allocation of the
policy value among the various subaccounts. This feature is called "asset
rebalancing."
These features are not available in all states and may not be suitable for your
particular situation.
11.OTHER INFORMATION
Right to Cancel Period. You may return your policy for a refund. The amount of
time you have to return the policy will depend on the state where the policy
was issued. It is generally only 20 days. The amount of the refund will
generally be the policy value. PFL will pay the refund within 7 days after it
receives written notice of cancellation and the returned policy. The policy
will then be deemed void. In some states you may have more or less than 20 days
to return a policy, or receive a refund of more (or less) than the policy
value.
No Probate. Usually, when the annuitant dies, the person you choose as your
beneficiary will receive the death benefit under this policy without going
through probate. State laws vary on how the amount that may be paid is treated
for estate tax purposes.
Who should purchase the policy? This policy is designed for people seeking
long-term tax-deferred accumulation of assets, generally for retirement or
other long-term purposes; and for persons who have maximized their use of other
retirement savings methods, such as 401(k) plans. The tax-deferred feature is
most attractive to people in high federal and state tax brackets. The tax
deferral features of variable annuities are unnecessary when purchased to fund
a qualified plan. You should not buy this policy if you are looking for a
short-term investment or if you cannot take the risk of losing the money that
you put in.
6
<PAGE>
There are various fees and charges associated with variable annuities. You
should consider whether the features and benefits of this policy, such as the
opportunity for lifetime income payments, a guaranteed death benefit, the
guaranteed level of certain charges, and the family income protector, make this
policy appropriate for your needs.
Financial Statements. Financial statements for PFL and the subaccounts are in
the SAI.
12.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
You may check your policy at www.pfllife.com/fmd. Follow the logon procedures.
You will need your pre-assigned Personal Identification Number ("PIN") to
access information about your policy.
7
<PAGE>
ANNUITY POLICY FEE TABLE
Separate Account Annual Expenses
Policy Owner Transaction Expenses (as a percentage of average account
value)
<TABLE>
- ------------------------------------------
<S> <C>
Sales Load On Purchase
Payments................ 0
Maximum Surrender Charge
(as a % of Premium
Payments
Surrendered)(/1/)(/2/).. 6%
Annual Service
Charge(/2/)............. $30 Per Policy
Transfer Fee(/2/)........ Currently No Fee
</TABLE>
<TABLE>
<S> <C>
Mortality and Expense Risk Fees(/3/).. 1.25%
Administrative Charge................. 0.15%
-----
TOTAL SEPARATE ACCOUNT
ANNUAL EXPENSES....................... 1.40%
</TABLE>
- -------------------------------------------------------------------------------
Portfolio Annual Expenses(/4/)
(as a percentage of average net assets and after expense reimbursements)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Other Rule Total Portfolio
Management Fees Expenses 12b-1 Fees Annual Expenses
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fidelity - VIP Money
Market - Initial
Class.................. 0.18% 0.09% - 0.27%
Fidelity - VIP High
Income - Initial
Class.................. 0.58% 0.11% - 0.69%
Fidelity - VIP Equity-
Income - Initial
Class(/5/)............. 0.48% 0.09% - 0.57%
Fidelity - VIP Growth -
Initial Class(/5/).... 0.58% 0.08% - 0.66%
Fidelity - VIP
Overseas -
Initial Class(/5/).... 0.73% 0.18% - 0.91%
Fidelity - VIP II
Investment Grade Bond -
Initial Class......... 0.43% 0.11% - 0.54%
Fidelity - VIP II Asset
Manager - Initial
Class(/5/)............. 0.53% 0.10% - 0.63%
Fidelity - VIP II
Contrafund(R) - Initial
Class(/5/)............. 0.58% 0.13% - 0.71%
Fidelity - VIP II Asset
Manager: Growth -
Initial Class(/5/).... 0.58% 0.09% - 0.67%
Fidelity - VIP II Index
500 - Initial
Class(/6/)............. 0.24% 0.04% - 0.28%
Fidelity - VIP III
Balanced -
Initial Class(/5/).... 0.43% 0.14% - 0.57%
Fidelity - VIP III
Growth Opportunities -
Initial Class(/5/).... 0.58% 0.11% - 0.69%
Fidelity - VIP III
Growth & Income -
Initial Class(/5/).... 0.48% 0.12% - 0.60%
Fidelity - VIP III Mid
Cap -
Initial Class(/6/).... 0.57% 0.40% - 0.97%
</TABLE>
8
<PAGE>
(/1/) The surrender charge and transfer fee, if any are imposed, apply to each
policy, regardless of how policy value is allocated among the separate
account and the fixed account. The service charge is the lesser of $30 or
2% of the policy value. It applies to both the fixed account and the
separate account, and is assessed on a pro rata basis relative to each
account's policy value as a percentage of the policy's total policy value.
There is no fee for the first 12 transfers per year. For additional
transfers, PFL may charge a fee of $10 per transfer, but currently does
not charge for any transfers. Separate account annual expenses do not
apply to the fixed account.
(/2/) The surrender charge is decreased based on the number of years since the
premium payment was made, from 6% in the year in which the premium payment
was made to 0% in the sixth year after the premium payment was made.
However, after the tenth policy year, no surrender charges apply,
regardless of when you made your last premium payment. If applicable, a
surrender charge will only be applied to withdrawals that exceed the
amount available under certain listed exceptions.
(/3/) Mortality and expense risk fees shown (1.25%) are for the "5% Annually
Compounding Death Benefit" and the "Annual Step-Up Death Benefit." This
reflects a fee that is 0.15% higher than the 1.10% corresponding fee for
the "Return of Premium Death Benefit."
(/4/) The fee table information relating to the underlying funds was provided to
PFL by the underlying funds, their investment advisers or managers, and
PFL has not independently verified such information. Actual future
expenses of the portfolios may be greater or less than those shown in the
Table.
(/5/) A portion of the brokerage commissions that certain funds pay was used to
reduce fund expenses. In addition, certain funds, or Fidelity Management &
Research Company 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 a portion of each applicable
fund's expenses. The total operating expenses presented in the table are
shown without these reductions. With these reductions, the total operating
expenses presented in the table would have been: 0.56%--VIP Equity Income;
0.65%--VIP Growth; 0.87% VIP Overseas; 0.62%--VIP II Asset Manager;
0.70%--VIP II Asset Manager: Growth; 0.65%--VIP II Contrafund; 0.55%--VIP
III Balanced; 0.68%--VIP III Growth Opportunities; and 0.59%--VIP III
Growth & Income.
(/6/) Fidelity Management & Research Company agreed to reimburse a portion of
Index 500 Portfolio's and Mid Cap Portfolio's expenses during the period.
The expenses presented in the table are shown with this reimbursement.
Without this reimbursement, the Portfolios' management fee, other expenses
and total expenses would have been: 0.24%, 0.10%, 0.34%--Index 500 and
0.57%, 2.77% and 3.34%--Mid Cap, respectively.
9
<PAGE>
EXAMPLES
You would pay the following expenses on a $1,000 investment, assuming a
hypothetical 5% annual return on assets, assuming the entire policy value is in
the applicable subaccount, and assuming the family income protector rider has
not been selected:
The expenses reflect different mortality and expense risk fees depending on
which death benefit you select:
A = Return of Premium Death Benefit (1.10% charge)
B = 5% Annually Compounding Death Benefit or the Annual Step-Up Death Benefit
(1.25% charge)
<TABLE>
<CAPTION>
If the policy is If the policy is
surrendered annuitized at the end of
at the end of the the applicable time period
applicable or if the policy is still
time period. in the accumulation phase.
-----------------------------------------------------
1 3 5 10 1 3 5 10
Subaccounts Year Years Years Years Year Years Years Years
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Fidelity--VIP Money
Market A $70 $ 90 $ 94 $188 $16 $50 $ 86 $188
---------------------------------------------------------
Initial Class B $71 $ 95 $102 $205 $18 $55 $ 94 $205
- -------------------------------------------------------------------------------------
Fidelity--VIP High
Income A $74 $103 $116 $233 $20 $63 $108 $233
---------------------------------------------------------
Initial Class B $76 $108 $124 $249 $22 $67 $116 $249
- -------------------------------------------------------------------------------------
Fidelity--VIP Equity-
Income A $73 $ 99 $110 $221 $19 $59 $102 $221
---------------------------------------------------------
Initial Class B $74 $104 $118 $236 $21 $64 $110 $236
- -------------------------------------------------------------------------------------
Fidelity--VIP Growth A $74 $102 $115 $230 $20 $62 $106 $230
---------------------------------------------------------
Initial Class B $75 $107 $123 $246 $22 $67 $114 $246
- -------------------------------------------------------------------------------------
Fidelity--VIP Overseas A $76 $110 $128 $256 $23 $70 $119 $256
---------------------------------------------------------
Initial Class B $78 $115 $135 $271 $24 $74 $127 $271
- -------------------------------------------------------------------------------------
Fidelity--VIP II
Investment Grade Bond A $73 $ 99 $109 $217 $19 $58 $100 $217
---------------------------------------------------------
Initial Class B $74 $103 $116 $233 $20 $63 $108 $233
- -------------------------------------------------------------------------------------
Fidelity--VIP II Asset
Manager A $74 $101 $113 $227 $20 $61 $105 $227
---------------------------------------------------------
Initial Class B $75 $106 $121 $243 $21 $66 $113 $243
- -------------------------------------------------------------------------------------
Fidelity--VIP II Asset
Manager: Growth A $74 $103 $115 $231 $20 $62 $107 $231
---------------------------------------------------------
Initial Class B $75 $107 $123 $247 $22 $67 $115 $247
- -------------------------------------------------------------------------------------
Fidelity--VIP II
Contrafund(R) A $74 $104 $117 $235 $21 $63 $109 $235
---------------------------------------------------------
Initial Class B $76 $108 $125 $251 $22 $68 $117 $251
- -------------------------------------------------------------------------------------
Fidelity--VIP II Index
500 A $70 $ 90 $ 95 $189 $16 $50 $ 87 $189
---------------------------------------------------------
Initial Class B $72 $ 95 $103 $206 $18 $55 $ 95 $206
- -------------------------------------------------------------------------------------
Fidelity--VIP III
Balanced A $73 $ 99 $110 $221 $19 $59 $102 $221
---------------------------------------------------------
Initial Class B $74 $104 $118 $236 $21 $64 $110 $236
- -------------------------------------------------------------------------------------
Fidelity--VIP III Growth
Opportunities A $74 $103 $116 $233 $20 $63 $108 $233
---------------------------------------------------------
Initial Class B $76 $108 $124 $249 $22 $67 $116 $249
- -------------------------------------------------------------------------------------
Fidelity--VIP III Growth
& Income A $73 $100 $112 $224 $19 $60 $103 $224
---------------------------------------------------------
Initial Class B $75 $105 $120 $239 $21 $65 $111 $239
- -------------------------------------------------------------------------------------
Fidelity--VIP III Mid
Cap A $77 $112 $131 $262 $23 $71 $122 $262
---------------------------------------------------------
Initial Class B $78 $116 $138 $277 $25 $76 $130 $277
</TABLE>
The above table will assist you in understanding the costs and expenses that
you will bear, directly or indirectly. These include the 1999 expenses of the
underlying fund portfolios. In addition to the expenses listed above, premium
taxes may be applicable.
The examples should not be considered a representation of past or future
expenses, and actual expenses may be greater or lesser than those shown. The
assumed 5% annual return is hypothetical and should not be considered a
representation of past or future annual returns, which may be greater or less
than the assumed rate.
In these examples, the annual $30 service charge is reflected as a charge of
0.063593% based on an average policy value of $47,175.00.
These examples do not reflect the annual fee of 0.30% of the minimum
annuitization value for the family income protector rider. The above expense
figures would be approximately $3 per year higher if you elected that rider.
Financial Information. Condensed financial information for the subaccounts is
in Appendix A to this prospectus.
10
<PAGE>
1. THE ANNUITY POLICY
This prospectus describes the Retirement Income Builder Variable Annuity policy
offered by PFL Life Insurance Company.
An annuity is a policy between you, the owner, and an insurance company (in
this case PFL), where the insurance company promises to pay you an income in
the form of annuity payments. These payments begin on a designated date,
referred to as the annuity commencement date. Until the annuity commencement
date, your annuity is in the accumulation phase and the earnings (if any) are
tax deferred. Tax deferral means you generally are not taxed on your annuity
until you take money out of your annuity. After the annuity commencement date,
your annuity switches to the income phase.
The policy is a flexible premium variable annuity. You can use the policy to
accumulate funds for retirement or other long-term financial planning purposes.
The policy is a "flexible premium" policy because after you purchase it, you
can generally make additional investments of any amount of $50 or more, until
the annuity commencement date. But you are not required to make any additional
investments.
The policy is a "variable" annuity because the value of your investments can go
up or down based on the performance of your investment choices. If you invest
in the variable annuity portion of the policy, the amount of money you are able
to accumulate in your policy during the accumulation phase depends upon the
performance of your investment choices. The amount of annuity payments you
receive during the income phase from the variable annuity portion of your
policy also depends upon the investment performance of your investment choices
for the income phase. However, if you annuitize under the family income
protector rider, then PFL will guarantee a minimum amount of your annuity
payments. There is an extra charge for this rider.
The policy also contains a fixed account. The fixed account offers interest at
rates that we
guarantee will not decrease during the selected guaranteed period. There may be
different interest rates for each different guaranteed period that you select.
2.PURCHASE
Policy Issue Requirements
PFL will not issue a policy unless:
. PFL receives all information needed to issue the policy;
. PFL receives a minimum initial premium payment; and
. The annuitant and any joint owner are age 84 or younger.
We reserve the right to reject any application or premium payment.
Premium Payments
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 PFL to pay any associated payments and benefits due
under the policy.
Initial Premium Requirements
The initial premium payment for most policies must be at least $2,000. There is
no minimum initial premium payment for policies issued under section 403(b) of
the Internal Revenue Code; however, your premium must be received within 90
days of the policy date or your policy will be canceled. We will credit your
initial premium payment to your policy within two business days after the day
we receive it and your complete policy information. If we are unable to credit
your initial premium payment, we will contact you within five business days and
explain why. We will also return your initial premium payment at that time
unless you tell us to keep it and credit it as soon as possible.
The date on which we credit your initial premium payment to your policy is the
policy date. The policy date is used to determine policy years, policy months
and policy anniversaries.
11
<PAGE>
Additional Premium Payments
You are not required to make any additional premium payments. However, you can
make additional premium payments as often as you like during the lifetime of
the annuitant and during the accumulation phase. Additional premium payments
must be at least $50. We will credit additional premium payments to your policy
as of the business day we receive your premium and required information.
Additional premium payments must be received before the New York Stock Exchange
closes to get same-day pricing of the additional premium payment.
Maximum Total Premium Payments
We allow premium payments up to a total of $1,000,000 without prior approval.
Allocation of Premium Payments
When you purchase a policy, we will allocate your premium payment to the
investment choices you select. Your allocation must be in whole percentages and
must total 100%. We will allocate additional premium payments the same way,
unless you request a different allocation.
If you allocate your premium payment to the dollar cost averaging fixed
account, you must give us instructions regarding the subaccount(s) to which
transfers are to be made or we cannot accept your premium payment.
You may change allocations for future additional premium payments by sending us
written instructions or by telephone, subject to the limitations described
below under "Telephone Transactions." The allocation change will apply to
premium payments received after the date we receive the change request.
Policy Value
You should expect your policy value to change from valuation period to
valuation period. A valuation period begins at the close of trading on the New
York Stock Exchange on each business day and ends at the close of trading on
the next succeeding business day. A business day is each day that the New York
Stock Exchange is open. The New York Stock Exchange generally closes at 4:00
p.m. eastern time. Holidays are generally not business days.
3.INVESTMENT CHOICES
The Separate Account
The Retirement Income Builder Variable Annuity separate account currently
consists of fourteen subaccounts.
The subaccounts invest in shares of the underlying fund portfolios. Fidelity
Management & Research Company provides investment advice and administrative
services for all of the underlying fund portfolios offered through this policy.
The following investment choices are currently offered through this policy:
VARIABLE INSURANCE PRODUCTS FUND
(VIP)--INITIAL CLASS
Fidelity--VIP Money Market Portfolio
Fidelity--VIP High Income Portfolio
Fidelity--VIP Equity-Income Portfolio
Fidelity--VIP Growth Portfolio
Fidelity--VIP Overseas Portfolio
VARIABLE INSURANCE PRODUCTS FUND II
(VIP II)--INITIAL CLASS:
Fidelity--VIP II Investment Grade Bond Portfolio
Fidelity--VIP II Asset Manager Portfolio
Fidelity--VIP II Asset Manager: Growth Portfolio
Fidelity--VIP II Index 500 Portfolio
Fidelity--VIP II Contrafund(R) Portfolio
VARIABLE INSURANCE PRODUCTS FUND III
(VIP III)--INITIAL CLASS:
Fidelity--VIP III Balanced Portfolio
Fidelity--VIP III Growth & Income Portfolio
Fidelity--VIP III Growth Opportunities Portfolio
Fidelity--VIP III Mid Cap Portfolio
The general public may not purchase shares of these underlying fund portfolios.
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
12
<PAGE>
the investment results of these underlying fund portfolios to be the same as
those of other portfolios or mutual funds.
More detailed information, including an explanation of the portfolios'
investment objectives, may be found in the current prospectuses for the
underlying fund portfolios, which are attached to this prospectus. You should
read the prospectuses for each of the underlying fund portfolios carefully
before you invest.
We may receive expense reimbursements or other revenues from the underlying
funds or their managers. The amount of these reimbursements or revenues, if
any, may be different for different funds or portfolios, and may be based on
the amount of assets that PFL or the separate account invests in the underlying
fund portfolios.
We do not guarantee that any of the subaccounts will always be available for
premium payments, allocations, or transfers. See the SAI for more information
concerning the possible addition, deletion or substitution of investments.
The Fixed Account
Premium payments allocated and amounts transferred to the fixed account become
part of PFL's general account. Interests in the general account have not been
registered under the Securities Act of 1933 (the "1933 Act"), nor is the
general account registered as an investment company under the 1940 Act.
Accordingly, neither the general account nor any interests therein are
generally subject to the provisions of the 1933 or 1940 Acts. PFL has been
advised that the staff of the SEC has not reviewed the disclosures in this
prospectus which relate to the fixed account.
We guarantee that the interest credited to the fixed account will not be less
than 3% per year. At the end of a guaranteed period option you selected, the
value in that guaranteed period option will automatically be transferred into a
new guaranteed period option of the same length (or the next shorter period if
the same period is no longer offered) at the current interest rate for that
period. You can transfer to another investment choice by giving us notice
within 30 days before the end of the expiring guaranteed period.
Surrenders or partial withdrawals from a guaranteed period option of the fixed
account are subject to an excess interest adjustment. This adjustment may
increase or decrease the amount of interest credited to your policy. The excess
interest adjustment will not decrease the interest credited to your policy
below 3% per year, however. You bear the risk that we will not credit interest
greater than 3% per year. We determine credited rates, which are guaranteed for
at least one year, in our sole discretion.
If you select the fixed account, your money will be placed with PFL's other
general assets. The amount of money you are able to accumulate in the fixed
account during the accumulation phase depends upon the total interest credited.
The amount of annuity payments you receive during the income phase from the
fixed portion of your policy will remain level for the entire income phase.
Transfers
During the accumulation phase, you may make transfers to or from any subaccount
or the fixed account as often as you wish within certain limitations.
Transfers from a guaranteed period option of the fixed account are limited to
the following:
. Within 30 days prior to the end of the guaranteed period you must notify us
that you wish to transfer the amount in the guaranteed period option to
another investment choice. No excess interest adjustment will apply.
. Transfers of amounts equal to interest credited on a monthly, quarterly,
semi-annual or annual basis. This may affect your overall interest-crediting
rate, because transfers are deemed to come from the oldest premium payment
first.
Otherwise, you cannot transfer out of the fixed account.
13
<PAGE>
There are no transfers permitted out of the dollar cost averaging fixed account
option except through the dollar cost averaging program.
Each transfer must be at least $500, or the entire subaccount value. Transfers
of guaranteed period option amounts equal to interest credited must be at least
$50. If less than $500 remains, then we reserve the right to include that
amount in the transfer. Transfers must be received while the New York Stock
Exchange is open to get same-day pricing of the transaction.
During the income phase of your policy, you may transfer values out of any
subaccount up to four times per policy year. However, you cannot transfer
values out of the fixed account in this phase. The minimum amount that can be
transferred during this phase is the lesser of $10 of monthly income, or the
entire monthly income of the annuity units in the subaccount from which the
transfer is being made.
Transfers may be made by telephone, subject to the limitations described below
under "Telephone Transactions."
Currently, there is no charge for transfers and no limit on the number of
transfers during the accumulation phase. However, in the future, the number of
transfers permitted may be limited and a $10 charge per transfer may apply. We
reserve the right to prohibit transfers to the fixed account if we are
crediting an effective annual interest rate of 3.0% (the guaranteed minimum).
The policy you are purchasing was not designed for professional market timing
organizations or other persons that use programmed, large, or frequent
transfers. The use of such transfers may be disruptive to an underlying fund
portfolio. We reserve the right to reject any premium payment or transfer
request from any person, if, in our judgment, an underlying fund portfolio
would be unable to invest effectively in accordance with its investment
objectives and policies or would otherwise be potentially adversely affected or
if an underlying portfolio would reject our purchase order.
4.PERFORMANCE
PFL periodically advertises performance of the various investment portfolios.
We may disclose at least four different kinds of performance. First, we may
calculate performance by determining the percentage change in the value of an
accumulation unit by dividing the increase (decrease) for that unit by the
value of the accumulation unit at the beginning of the period. This performance
number reflects the deduction of the mortality and expense risk fees and
administrative charges. It does not reflect the deduction of any applicable
premium taxes or surrender charges. The deduction of any applicable premium
taxes or surrender charges would reduce the percentage increase or make greater
any percentage decrease.
Second, any advertisement will also include total return figures, which reflect
the deduction of the mortality and expense risk fees, administrative charges
and surrender charges.
Third, for periods starting prior to the date the policies were first offered,
the performance will be based on the historical performance of the
corresponding investment portfolios for the periods commencing from the date on
which the particular investment portfolio was made available through the
separate account.
Fourth, in addition, for certain investment portfolios, performance may be
shown for the period commencing from the inception date of the investment
portfolio. These figures should not be interpreted to reflect actual historical
performance of the separate account.
We also may, from time to time, include in our advertising and sales materials,
tax deferred compounding charts and other hypothetical illustrations, which may
include comparisons of currently taxable and tax deferred investment programs,
based on selected tax brackets.
Appendix B contains performance information that you may find useful. It is
divided into various parts, depending upon the type of performance information
shown. Future performance will vary and future results will not be the same as
the results shown.
14
<PAGE>
5.EXPENSES
There are charges and expenses associated with your policy that reduce the
return on your investment in the policy.
Surrender Charges
During the accumulation phase, you can withdraw part or all of the cash value.
Cash value is the policy value increased or decreased by any excess interest
adjustment, less the annual service charge, and less any applicable surrender
charge, premium taxes and family income protector rider fees. We may deduct a
surrender charge to compensate us for expenses relating to policy sales,
including commissions to registered representatives and other promotional
expenses.
You can withdraw up to 10% of your policy value each year free of surrender
charges. This free amount is cumulative and is referred to as the cumulative
free percentage and is determined at the time of the withdrawal. If you
withdraw money in excess of the cumulative free percentage, you might have to
pay a surrender charge, which is a contingent deferred sales charge, on the
excess amount. The following schedule shows the surrender charges that apply
during the five years following each premium payment:
<TABLE>
<CAPTION>
Surrender Charge
Number of Years Since (as a percentage of
Premium Payment Date premium withdrawn)
- ------------------------------------------------------------------------------
<S> <C>
0-1 6%
- ------------------------------------------------------------------------------
1-2 6%
- ------------------------------------------------------------------------------
2-3 6%
- ------------------------------------------------------------------------------
3-4 4%
- ------------------------------------------------------------------------------
4-5 2%
- ------------------------------------------------------------------------------
5 or more 0%
</TABLE>
For example, assume your policy value is $100,000 at the beginning of policy
year 2 and you withdraw $30,000. Since that amount is more than your cumulative
free percentage of 20% that is available at that time, you would pay a
surrender charge of $600 on the remaining $10,000 (6% of $30,000-$20,000).
You receive the full amount of a requested partial withdrawal because we deduct
any surrender charge and any applicable excess interest adjustment from your
remaining policy value. You receive your cash value upon full surrender.
For surrender charge purposes, the oldest premium is considered to be withdrawn
first. After the tenth policy year, no surrender charges apply, regardless of
when you made your last premium payment.
Keep in mind that withdrawals may be taxable, and if made before age 59 1/2,
may be subject to a 10% federal penalty tax. For tax purposes, withdrawals are
considered to come from earnings first.
Surrender charges are waived if you withdraw money under the nursing care and
terminal condition withdrawal option or the unemployment waiver.
Excess Interest Adjustment
Withdrawals of cash value from the fixed account may be subject to an excess
interest adjustment. This adjustment could retroactively reduce the interest
credited in the fixed account to the guaranteed minimum of 3% per year. See the
"Excess Interest Adjustment" section of this prospectus.
Mortality and Expense Risk Fee
We charge a fee as compensation for bearing certain mortality and expense risks
under the policy. Examples include a guarantee of annuity rates, the death
benefits, certain expenses of the policy, and assuming the risk that the
current charges will be insufficient in the future to cover costs of
administering the policy. For the Return of Premium Death Benefit the mortality
and expense risk fee is at an annual rate of 1.10% of assets. During the
accumulation phase, for the 5% Annually Compounding Death Benefit and the
Annual Step-Up Death Benefit, the mortality and expense risk fee is at an
annual rate of 1.25% of assets. During the income phase, the mortality and
expense risk fee for these benefits is at an annual rate of 1.10% of assets.
This annual fee is assessed daily based on the net asset value of each
subaccount.
15
<PAGE>
If this charge does not cover our actual costs, we absorb the loss. Conversely,
if the charge more than covers actual costs, the excess is added to our
surplus. We expect to profit from this charge. We may use our profit or surplus
for any proper purpose, including distribution expenses.
Administrative Charges
We deduct an annual administrative charge to cover the costs of administering
the policies. This charge is equal to an annual rate of 0.15% of the daily net
asset value of the separate account.
In addition, an annual service charge of $30 (but not more than 2% of the
policy value) is charged on each policy anniversary and at surrender. The
service charge is waived if your policy value or the sum of your premiums, less
all partial withdrawals, is at least $50,000.
Premium Taxes
Some states assess premium taxes on the premium payments you make. We currently
do not deduct for these taxes at the time you make a premium payment. However,
we will deduct the total amount of premium taxes, if any, from the policy value
when:
. you elect to begin receiving annuity payments;
. you surrender the policy; or
. you die and a death benefit is paid (you must also be the annuitant for the
death benefit to be paid).
Generally, premium taxes range from 0% to 3.50%, depending on the state.
Federal, State and Local Taxes
We may in the future deduct charges from the policy for any taxes we incur
because of the policy. However, no deductions are being made at the present
time.
Transfer Fee
Currently there is no charge for transfers. However, if you make more than 12
transfers per year before the annuity commencement date, we reserve the right
to charge $10 for each additional transfer. Premium payments, asset rebalancing
and dollar cost averaging transfers are not considered transfers. All transfer
requests made at the same time are treated as a single request.
Family Income Protector
If you elect the family income protector, there is an annual rider fee during
the accumulation phase of 0.30% of the minimum annuitization value, and a
guaranteed payment fee during the income phase of 1.25% of the daily net asset
value if you annuitize under the rider. The annual rider fee is also deducted
upon a complete withdrawal.
Portfolio Management Fees
The value of the assets in each subaccount will reflect the fees and expenses
paid by the underlying fund. A list of these expenses is found in the "Fee
Table" section of this prospectus. See the prospectuses for the underlying
funds for more information.
6.ACCESS TO YOUR MONEY
During the accumulation phase, you can have access to the money in your policy
in several ways:
. by making a withdrawal (either a complete or partial withdrawal); or
. by taking systematic payouts.
Surrenders
If you want to make a complete withdrawal, you will receive:
. the value of your policy; plus or minus
. any excess interest adjustment; minus:
. any applicable surrender charges, premium taxes, service charges and family
income protector rider fees.
If you want to take a partial withdrawal, in most cases it must be for at least
$500. Unless you tell us otherwise, we will take the withdrawal from each of
the investment choices in proportion to the policy value.
You may take out up to 10% of the policy value free of surrender charges each
policy year. The
16
<PAGE>
free amount is cumulative so any free amount not taken one year is available to
be taken the following year free of surrender charges.
Remember that any withdrawal you take will reduce the policy value, and might
reduce the amount of the death benefit. See Section 8, Death Benefit, for more
details.
Withdrawals may be subject to a surrender charge. Withdrawals from the fixed
account may also be subject to an excess interest adjustment. Income taxes,
federal tax penalties and certain restrictions may apply to any withdrawals you
make.
Withdrawals from qualified policies may be restricted or prohibited.
During the income phase, you will receive annuity payments under the annuity
payment option you select; however, you generally may not take any other
withdrawals, either complete or partial.
Delay of Payment and Transfers
Payment of any amount due from the separate account for a surrender, a death
benefit, or the death of the owner of a nonqualified policy, will generally
occur within seven business days from the date PFL receives all required
information. PFL may defer such payment from the separate account if:
. the New York Stock Exchange is closed other than for usual weekends or
holidays or trading on the Exchange is otherwise restricted; or
. an emergency exists as defined by the SEC or the SEC requires that trading be
restricted; or
. the SEC permits a delay for the protection of owners.
In addition, transfers of amounts from the subaccounts may be deferred under
these circumstances.
Pursuant to the requirements of certain state laws, we reserve the right to
defer payment of the cash value from the fixed account for up to six months. We
may defer payment of any amount until your premium check has cleared your bank.
Excess Interest Adjustment
Money that you withdraw from a guaranteed period option of the fixed account
before the end of its guaranteed period (the number of years you specified the
money would remain in a guaranteed period option of the fixed account) may be
subject to an excess interest adjustment. At the time you request a withdrawal,
if interest rates set by PFL have risen since the date of the initial
guarantee, the excess interest adjustment will result in a lower cash value on
surrender. However, if interest rates have fallen since the date of the initial
guarantee, the excess interest adjustment will result in a higher cash value on
surrender.
Any amount withdrawn in excess of the cumulative free percentage available is
generally subject to an excess interest adjustment.
There will be no excess interest adjustment on any of the following:
. lump sum withdrawals of the cumulative free percentage available;
. nursing care and terminal condition withdrawals;
. unemployment withdrawals;
. periodic withdrawals of cumulative interest credited;
. withdrawals to satisfy any minimum distribution requirements; and
. systematic payout option payments, which do not exceed the cumulative
interest credited.
Please note that in these circumstances, you will not receive a higher cash
value if interest rates have fallen, nor will you receive a lower cash value if
interest rates have risen.
7.ANNUITY PAYMENTS (THE INCOME PHASE)
You choose the annuity commencement date. You can change this date by giving us
written notice 30 days before the current annuity commencement date. The new
annuity commencement date must be at least 30 days after we receive notice of
the change. The latest annuity commencement date generally cannot be after the
policy month following the month in
17
<PAGE>
which the annuitant attains age 85. We may allow a later annuity commencement
date, but in no event will that date be later than the last day of the policy
month following the month in which the annuitant attains age 95.
Election of Annuity Payment Option. Before the annuity commencement date, if
the annuitant is alive, you may choose an annuity payment option or change your
election. If the annuitant dies before the annuity commencement date, the
beneficiary may elect to receive the death benefit in a lump sum or under one
of the annuity payment options (unless you become the new annuitant).
Unless you specify otherwise, the annuitant will receive the annuity payments.
After the annuitant's death, the beneficiary will receive any remaining
guaranteed payments.
Annuity Payment Options
The policy provides five annuity payment options that are described below. You
may choose any combination of annuity payment options. We will use your
"adjusted policy value" to provide these annuity payments. The adjusted policy
value is the policy value increased or decreased by any applicable excess
interest adjustment. If the adjusted policy value on the annuity commencement
date is less than $2,000, PFL reserves the right to pay it in one lump sum in
lieu of applying it under an annuity payment option. You can receive payments
monthly, quarterly, semi-annually, or annually. (We reserve the right to change
the frequency if payments would be less than $50.)
Unless you choose to receive variable payments under annuity payment options 3
or 5, the amount of each payment will be set on the annuity commencement date
and will not change. You may, however, choose to receive variable payments
under payment options 3 and 5. The dollar amount of the first variable payment
will be determined in accordance with the annuity payment rates set forth in
the applicable table contained in the policy. The dollar amount of additional
variable payments will vary based on the investment performance of the
subaccount(s) that you select. The dollar amount of each variable payment after
the first may increase, decrease or remain constant. If the actual investment
performance exactly matched the assumed investment return of 5% at all times,
the amount of each variable annuity payment would remain equal. If actual
investment performance exceeds the assumed investment return, the amount of the
variable annuity payments would increase. Conversely, if actual investment
performance is lower than the assumed investment return, the amount of the
variable annuity payments would decrease.
A charge for premium taxes and an excess interest adjustment may be made when
annuity payments begin. The annuity payment options are explained below.
Options 1, 2, and 4 are fixed only. Options 3 and 5 can be fixed or variable.
Payment Option 1--Interest Payments. We will pay the interest on the amount we
use to provide annuity payments in equal payments, or this amount may be left
to accumulate for a period of time you and PFL agree to. You and PFL will agree
on withdrawal rights when you elect this option.
Payment Option 2--Income for a Specified Period. We will make level payments
only for the fixed period you choose. No funds will remain at the end.
Payment Option 3--Life Income. You may choose between:
Fixed Payments
. No Period Certain--We will make level payments only during the annuitant's
lifetime.
. 10 Years Certain--We will make level payments for the longer of the
annuitant's lifetime or ten years.
. Guaranteed Return of Policy Proceeds--We will make level payments for the
longer of the annuitant's lifetime or until the total dollar amount of
payments we made to you equals the amount applied to this option.
Variable Payments
. No Period Certain--Payments will be made only during the lifetime of the
annuitant.
. 10 Years Certain--Payments will be made for the longer of the annuitant's
lifetime or ten years.
18
<PAGE>
Payment Option 4--Income of a Specified Amount. Payments are made for any
specified amount until the amount applied to this option, with interest, is
exhausted. This will be a series of level payments followed by a smaller final
payment.
Payment Option 5--Joint and Survivor Annuity. You may choose between:
Fixed Payments
. Payments are made during the joint lifetime of the annuitant and a joint
annuitant of your selection. Payments will be made as long as either person
is living.
Variable Payments
. Payments are made during the joint lifetime of the annuitant and a joint
annuitant of your selection. Payments will be made as long as either person
is living.
Other annuity payment options may be arranged by agreement with PFL. Certain
annuity payment options may not be available in all states.
NOTE CAREFULLY:
IF:
. you choose Life Income with No Period Certain or a Joint and Survivor
Annuity; and
. the annuitant(s) dies before the due date of the second (third, fourth, etc.)
annuity payment;
THEN:
. we may make only one (two, three, etc.) annuity payments.
IF:
. you choose Income for a Specified Period, Life Income with 10 years Certain,
Life Income with Guaranteed Return of Policy Proceeds, or Income of a
Specified Amount; and
. the person receiving payments dies prior to the end of the guaranteed period;
THEN:
. the remaining guaranteed payments will be continued to that person's
beneficiary, or their present value may be paid in a single sum.
We will not pay interest on amounts represented by uncashed annuity payment
checks if the postal or other delivery service is unable to deliver checks to
the payee's address of record. The person receiving payments is responsible for
keeping PFL informed of their current address.
8.DEATH BENEFIT
We will pay a death benefit to your beneficiary, under certain circumstances,
if the annuitant dies during the accumulation phase and the annuitant was also
an owner. (If the annuitant was not an owner, a death benefit may or may not be
paid. See below.) The beneficiary may choose an annuity payment option, or may
choose to receive a lump sum.
When We Pay A Death Benefit
Before the Annuity Commencement Date
We will pay a death benefit to your beneficiary IF:
. you are both the annuitant and the owner of the policy; and
. you die before the annuity commencement date.
If the only beneficiary is your surviving spouse, then he or she may elect to
continue the policy as the new annuitant and owner, instead of receiving the
death benefit. All future surrender charges will be waived.
We will also pay a death benefit to your beneficiary IF:
. you are not the annuitant; and
. the annuitant dies before the annuity commencement date; and
. you specifically requested that the death benefit be paid upon the
annuitant's death.
Distribution requirements apply to the policy value upon the death of any
owner. These requirements are detailed in the SAI.
After the Annuity Commencement Date
The death benefit payable, if any, on or after the annuity commencement date
depends on the annuity payment option selected.
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IF:
. you are not the annuitant; and
. you die on or after the annuity commencement date; and
. the entire interest in the policy has not been paid to you;
THEN:
. the remaining portion of such interest in the policy will be distributed at
least as rapidly as under the method of distribution being used as of the
date of your death.
When We Do Not Pay A Death Benefit
No death benefit is paid in the following cases:
IF:
. you are not the annuitant; and
. the annuitant dies prior to the annuity commencement date; and
. you did not specifically request that the death benefit be paid upon the
annuitant's death;
THEN:
. you will become the new annuitant and the policy will continue.
IF:
. you are not the annuitant; and
. you die prior to the annuity commencement date;
THEN:
. the new owner (unless it is your spouse) must generally surrender the policy
within five years of your death for the policy value increased or decreased
by an excess interest adjustment.
Note carefully. If the owner does not name a contingent owner, the owner's
estate will become the new owner. If no probate estate is opened (because, for
example, the owner has precluded the opening of a probate estate by means of a
trust or other instrument), and PFL has not received written notice of the
trust as a successor owner signed prior to the owner's death, then that trust
may not exercise ownership rights to the policy. It may be necessary to open a
probate estate in order to exercise ownership rights to the policy if no
contingent owner is named in a written notice PFL receives.
Amount of Death Benefit
Death benefit provisions may differ from state to state. The death benefit may
be paid as a lump sum or as annuity payments. The amount of the death benefit
depends on the guaranteed minimum death benefit option you chose when you
bought the policy. The death benefit will be the greatest of:
. policy value on the date we receive the required information; or
. cash value on the date we receive the required information (this could be
more than the policy value if there is a positive excess interest adjustment
that exceeds the surrender charge); or
. guaranteed minimum death benefit, if any, (discussed below), plus premium
payments, less partial withdrawals from the date of death to the date the
death benefit is paid.
Guaranteed Minimum Death Benefit
On the policy application, you generally may choose one of the three guaranteed
minimum death benefit options listed below.
After the policy is issued, you cannot make an election and the death benefit
cannot be changed.
A.Return of Premium Death Benefit
The Return of Premium Death Benefit is the total premium payments, less any
adjusted partial withdrawals (discussed below) as of the date of death.
The Return of Premium Death Benefit will be in effect if you do not choose one
of the other options on the policy application. After the policy is issued, you
cannot make an election and the death benefit cannot be changed.
B.5% Annually Compounding Death Benefit
The 5% Annually Compounding Death Benefit is total premium payments, less any
adjusted partial withdrawals, plus interest at an effective annual rate of 5%
from the premium payment date or withdrawal date to the date of death (but not
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later than your 81st birthday). There is an extra charge for this death
benefit.
The 5% Annually Compounding Death Benefit is not available if the owner or
annuitant is 81 or older on the policy date.
C.Annual Step-Up Death Benefit
On each policy anniversary before your 81st birthday, a new "stepped-up" death
benefit is determined and becomes the guaranteed minimum death benefit for that
policy year. The death benefit is equal to:
. the largest policy value on the policy date or on any policy anniversary
before you reach age 81; plus
. any premium payments you have made since then; minus
. any adjusted partial withdrawals we have paid to you since then.
The Annual Step-Up Death Benefit is not available if the owner or annuitant is
81 or older on the policy date.
There is an extra charge for this death benefit.
IF, under all three death benefit options:
. the surviving spouse elects to continue the policy instead of receiving the
death benefit; and
. the guaranteed minimum death benefit is greater than the policy value;
THEN:
. we will increase the policy value to be equal to the guaranteed minimum
death benefit. This increase is made only at the time the surviving spouse
elects to continue the policy.
Adjusted Partial Withdrawal
When you request a partial withdrawal, your guaranteed minimum death benefit
will be reduced by an amount called the adjusted partial withdrawal. Under
certain circumstances, the adjusted partial withdrawal may be more than the
amount of your withdrawal request. It is also possible that if a death benefit
is paid after you have made a partial withdrawal, then the total amount paid
could be less than the total premium payments. We have included a detailed
explanation of this adjustment in the SAI.
9.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
SAI.
Annuity Policies in General
Deferred annuity policies are a way of setting aside money for future needs
like retirement. Congress recognized how important saving for retirement is and
provided special rules in the Internal Revenue Code for annuities.
Simply stated, these rules provide that generally you will not be taxed on the
earnings, if any, on the money held in your annuity policy until you take the
money out. This is referred to as tax deferral. There are different rules as to
how you will be taxed depending on how you take the money out and the type of
policy--qualified or nonqualified (discussed below).
You will not be taxed on increases in the value of your policy until a
distribution occurs--either as a withdrawal or as annuity payments.
When a non-natural person (e.g., corporation or certain other entities other
than tax-qualified trusts) owns a nonqualified policy, the policy will
generally not be treated as an annuity for tax purposes.
Qualified and Nonqualified Policies
If you purchase the policy under an individual retirement annuity, a pension
plan, or specially sponsored program, your policy is referred to as a qualified
policy.
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
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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 - Qualified Policies
The information herein 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 date. The terms of the plan may limit the rights
otherwise available to you under the policies. We have provided more
information in the SAI.
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 withdrawal 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
. declares 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 SAI. PFL may modify the policy to attempt to maintain favorable tax
treatment.
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. The tax treatment of excess interest adjustments is uncertain. You
should consult a tax adviser if a withdrawal results in an excess interest
adjustment.) Different rules apply for annuity payments. See "Annuity Payments"
below.
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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 an owner 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 PFL (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.
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). The same tax treatment applies to any amounts
distributed after an owner's death.
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 payee or other beneficiary who is not also the owner,
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the selection of certain annuity commencement dates, or a change of 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 with
respect to the potential tax effects of such a transaction.
Possible Tax Law Changes
Although the likelihood of legislative changes is 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
legal developments and their effect on the policy.
10.ADDITIONAL FEATURES
Systematic Payout Option
You can select at any time (during the accumulation phase) to receive regular
payments from your policy by using the systematic payout option. Under this
option, you can receive up to 10% (annually) of your policy's value free of
surrender charges. Payments can be made monthly, quarterly, semi-annually, or
annually. Each payment must be at least $50, and cannot exceed the cumulative
free percentage divided by the number of payments per year. Monthly and
quarterly payments must be made by electronic funds transfer directly to your
checking or savings account. There is no charge for this benefit.
Family Income Protector
The family income protector may vary by state and may not be available in all
states.
The family income protector assures you of a minimum level of income in the
future by guaranteeing a minimum annuitization value (discussed below) after 10
years. You may elect to purchase this benefit, which guarantees the total
amount you will have to apply to a family income protector payment option and
which guarantees a minimum for the amounts of those payments once you begin to
receive them. By electing this benefit, you can participate in the gains of the
underlying variable investment options you select while knowing that you are
guaranteed a minimum level of income in the future, regardless of the
performance of the underlying variable investment options.
You can annuitize under the family income protector (subject to the conditions
described below) at the greater of the adjusted policy value or the minimum
annuitization value.
Minimum Annuitization Value. The minimum annuitization value is:
. the policy value on the date the rider is issued; plus
. any additional premium payments; minus
. an adjustment for any withdrawals made after the date the rider is issued;
. which is accumulated at the annual growth rate written on page one of the
rider; minus
. any premium taxes.
The annual growth rate is currently 6% per year; PFL may, at its discretion,
change the rate in the future, but the rate will never be less than 3% per
year. Once the rider is added to your policy, the annual growth rate will not
vary during the life of that rider. Withdrawals may reduce the minimum
annuitization value on a basis greater than dollar-for-dollar. See the SAI for
more information.
The minimum annuitization value may only be used to annuitize using the family
income protector payment options and may not be used with any of the annuity
payment options listed in section 7 of this prospectus. The family income
protector payment options are:
. Life Income - An election may be made for "No Period Certain" or "10 Years
Certain". In the event of the death of the annuitant prior to the end of the
chosen period certain, the remaining period certain payments will be
continued to the beneficiary.
. Joint and Full Survivor - An election may be made for "No Period Certain" or
"10 Years Certain". Payments will be made as long as either the annuitant or
joint annuitant is living. In the event of the death of both the annuitant
and joint annuitant prior to the end of the chosen period certain, the
remaining period certain payments will be continued to the beneficiary.
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The minimum annuitization value is used solely to calculate the family income
protector annuity payments. The family income protector does not establish or
guarantee policy value or guarantee performance of any investment option.
Because this benefit is based on conservative actuarial factors, the level of
lifetime income that it guarantees may be less than the level that would be
provided by application of the policy value at otherwise applicable annuity
factors. Therefore, the family income protector should be regarded as a safety
net. The costs of annuitizing under the family income protector include the
guaranteed payment fee, and also the lower payout levels inherent in the
annuity tables used for those minimum payouts.
In addition to the annual growth rate, other benefits and fees under the rider
(the rider fee, the fee waiver threshold, the guaranteed payment fee, and the
waiting period before the family income protector can be exercised) are also
guaranteed not to change after the rider is added. However, all of these
benefit specifications may change if you elect to upgrade the minimum
annuitization value.
Minimum Annuitization Value Upgrade. You can upgrade your minimum annuitization
value to the policy value within 30 days after any policy anniversary before
your 85th birthday (earlier if required by state law). For your convenience, we
will put the last date to upgrade on page one of the rider.
If you upgrade:
. the current rider will terminate and a new one will be issued with its own
specified guaranteed benefits and fees;
. the new rider's specified benefits and fees may not be as advantageous as
before; and
. you will have a new ten year waiting period before you can exercise the
family income protector.
It generally will not be to your advantage to upgrade unless your policy value
exceeds your minimum annuitization value on the applicable policy anniversary.
Conditions of Exercise of the Family Income Protector. You can only annuitize
using the family income protector within the 30 days after the tenth or later
policy anniversary after the family income protector is elected or, in the case
of an upgrade of the minimum annuitization value, the tenth or later policy
anniversary following the upgrade. PFL may, at its discretion, change the
waiting period before the family income protector can be exercised in the
future. You cannot, however, annuitize using the family income protector after
the policy anniversary after your 94th birthday (earlier if required by state
law). For your convenience, we will put the first and last date to annuitize
using the family income protector on page one of the rider.
Note Carefully - If you annuitize at any time other than indicated above, you
cannot use the family income protector.
Guaranteed Minimum Stabilized Payments. Annuity payments under the family
income protector are guaranteed to never be less than the initial annuity
payment. See the SAI for information concerning the calculation of the initial
payment.
The payments will also be "stabilized" or held constant during each policy
year. During the first policy year after annuitizing using the family income
protector, each stabilized payment will equal the initial payment. On each
policy anniversary thereafter, the stabilized payment will increase or decrease
depending on the performance of the investment options you selected (but will
never be less than the initial payment), and then be held constant at that
amount for that policy year. The stabilized payment on each policy anniversary
will equal the greater of the initial payment or the payment supportable by the
annuity units in the selected investment options. See the SAI for additional
information concerning stabilized payments.
Family Income Protector Rider Fee. A rider fee, currently 0.30% of the minimum
annuitization value on the policy anniversary, is charged annually prior to
annuitization. We will also charge this fee if you make a complete withdrawal.
The rider fee is deducted from each variable investment option in proportion to
the amount of policy value in each subaccount.
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The rider fee on any given policy anniversary will be waived if the policy
value exceeds the fee waiver threshold. The fee waiver threshold currently is
two times the minimum annuitization value. PFL may, at its discretion, change
the fee waiver threshold in the future, but it will never be greater than two
and one-half times the minimum annuitization value.
Guaranteed Payment Fee. A guaranteed payment fee, currently equal to an
effective annual rate of 1.25% of the daily net asset value in the separate
account, is reflected in the amount of the variable payments you receive if you
annuitize under the family income protector rider. The guaranteed payment fee
is included on page one of the rider.
Termination. The family income protector is irrevocable. You have the option
not to use the benefit, but we will not refund any fees you have paid. The
family income protector will terminate upon the earliest of the following:
. annuitization (you will still get guaranteed minimum stabilized payments if
you annuitize using the minimum annuitization value under the family income
protector),
. upgrade of the minimum annuitization value (although a new rider will be
issued),
. termination of your policy, or
. 30 days after the policy anniversary after your 94th birthday (earlier if
required by state law).
Nursing Care and Terminal Condition Withdrawal Option
No surrender charges or excess interest adjustment will apply if you or your
spouse has been:
. confined in a hospital or nursing facility for 30 days in a row; or
. diagnosed with a terminal condition (usually a life expectancy of 12 months
or less).
This benefit is also available to the annuitant or annuitant's spouse if the
owner is not a natural person.
You may exercise this benefit at any time (during the accumulation phase) and
there is no charge for this benefit.
This benefit may not be available in all states. See the policy or endorsement
for details and conditions.
Unemployment Waiver
No surrender charges or excess interest adjustment will apply to withdrawals if
you or your spouse is unemployed. In order to qualify, you (or your spouse,
whichever is applicable) must have been:
. employed full time for at least two years prior to becoming unemployed; and
. employed full time on the policy date; and
. unemployed for at least 60 days in a row at the time of withdrawal; and
. must have a minimum cash value at the time of withdrawal of $5,000.
You must provide written proof from your State's Department of Labor, which
verifies that you qualify for and are receiving unemployment benefits at the
time of withdrawal.
You may exercise this benefit at any time (during the accumulation phase) and
there is no charge for this benefit.
This benefit is also available to the annuitant or annuitant's spouse if the
owner is not a natural person. This benefit may not be available in all states.
See the policy for details.
Telephone Transactions
You may make transfers and change the allocation of additional premium payments
by telephone IF:
. you select the "Telephone Transfer/Reallocation Authorization" box in the
policy application or enrollment information; or
. you later complete an authorization form.
You will be required to provide certain information for identification purposes
when requesting a transaction by telephone and we may record your telephone
call. We may also require written confirmation of your request. We will not be
liable for following telephone requests that we believe are genuine.
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Telephone requests must be received while the New York Stock Exchange is open
to get same-day pricing of the transaction. We may discontinue this option at
any time.
Dollar Cost Averaging Program
During the accumulation phase, you may instruct us to automatically transfer
money from the dollar cost averaging fixed account option into one or more
variable subaccounts. There is no charge for this program.
Complete and clear instructions must be received before a dollar cost averaging
program will begin. The instructions must include:
. the subaccounts into which money from the dollar cost averaging fixed
account (or other subaccount(s) used for dollar cost averaging) is to be
transferred; and
. either the dollar amount to transfer monthly or quarterly (each transfer
must be at least $500) or the number of transfers (minimum of 6 monthly or 4
quarterly and maximum of 24 monthly or 8 quarterly).
Transfers must begin within 30 days. We will make the transfers on the 28th day
of the applicable month. You may change your allocations at anytime.
Only one dollar cost averaging program can run at one time. This means that any
addition to a dollar cost averaging program must change either the length of
the program or the dollar amount of the transfers. New instructions must be
received each time there is an addition to a dollar cost averaging program.
Any amount in the dollar cost averaging fixed account (or other subaccount(s)
used for dollar cost averaging) for which we have not received complete and
clear instructions will remain in the dollar cost averaging fixed account (or
other such subaccount) until we receive the instructions. If we have not
received complete and clear instructions within 30 days, the interest credited
in the dollar cost averaging fixed account may be adjusted downward, but not
below the guaranteed effective annual interest rate of 3%.
Dollar cost averaging buys more accumulation units when prices are low and
fewer accumulation units when prices are high. It does not guarantee profits or
assure that you will not experience a loss. You should consider your ability to
continue the dollar cost averaging program during all economic conditions.
We may credit different interest rates for dollar cost averaging programs of
varying time periods. If you discontinue the dollar cost averaging program
before its completion, then the interest credited on amounts in the dollar cost
averaging fixed account may be adjusted downward, but not below the minimum
guaranteed effective annual interest rate of 3%.
Asset Rebalancing
During the accumulation phase you can instruct us to automatically rebalance
the amounts in your subaccounts to maintain your desired asset allocation. This
feature is called asset rebalancing and can be started and stopped at any time
free of charge. However, we will not rebalance if you are in the dollar cost
averaging program or if you request any other transfer. If you request a
transfer, we will honor the requested transfer and discontinue asset
rebalancing. New instructions are required to start asset rebalancing. Asset
rebalancing ignores amounts in the fixed account. You can choose to rebalance
monthly, quarterly, semi-annually, or annually.
11.OTHER INFORMATION
Ownership
You, as owner of the policy, exercise all rights under the policy. You can
change the owner at any time by notifying us in writing. An ownership change
may be a taxable event.
Assignment
You can also assign the policy any time during your lifetime. PFL will not be
bound by the assignment until we receive written notice of the assignment. We
will not be liable for any payment or other action we take in accordance with
the policy before we receive notice of the assignment. There may be limitations
on your
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ability to assign a qualified policy. An assignment may have tax consequences.
PFL Life Insurance Company
PFL Life Insurance Company was incorporated under the laws of the State of Iowa
on April 19, 1961 as NN Investors Life Insurance Company, Inc. It is engaged in
the sale of life and health insurance and annuity policies. PFL is a
Transamerica Company and a wholly-owned indirect subsidiary of AEGON USA, Inc.
which conducts most of its operations through subsidiary companies engaged in
the insurance business or in providing non-insurance financial services. All of
the stock of AEGON USA, Inc., is indirectly owned by AEGON N.V. of The
Netherlands, the securities of which are publicly traded. AEGON N.V., a holding
company, conducts its business through subsidiary companies engaged primarily
in the insurance business. PFL is licensed in the District of Columbia, Guam,
and in all states except New York.
All obligations arising under the policies, including the promise to make
annuity payments, are general corporate obligations of PFL.
The Separate Account
PFL established a separate account, called the PFL Retirement Builder Variable
Annuity Account, under the laws of the State of Iowa on March 29, 1996. The
Retirement Income Builder Variable Annuity divisions of the separate account
receive and currently invest the premium payments that are allocated to the
separate account for investment in shares of the underlying mutual fund
portfolios.
The separate account is registered with the SEC as a unit investment trust
under the 1940 Act. However, the SEC does not supervise the management, the
investment practices, or the policies of the separate account or PFL. Income,
gains and losses, whether or not realized, from assets allocated to the
separate account are, in accordance with the policies, credited to or charged
against the separate account without regard to PFL's other income, gains or
losses.
The assets of the separate account are held in PFL's name on behalf of the
separate account and belong to PFL. However, those assets that underlie the
policies are not chargeable with liabilities arising out of any other business
PFL may conduct. The separate account includes other subaccounts that are not
available under these policies.
Mixed and Shared Funding
Before making a decision concerning the allocation of premium payments to a
particular subaccount, please read the prospectuses for the underlying funds.
The underlying funds are not limited to selling their shares to this separate
account and can accept investments from any separate account or qualified
retirement plan. Since the underlying fund portfolios are available to
registered separate accounts offering variable annuity products of PFL, as well
as variable annuity and variable life products of other insurance companies,
and qualified retirement plans, there is a possibility that a material conflict
may arise between the interests of this separate account and one or more of the
other accounts of another participating insurance company. In the event of a
material conflict, the affected insurance companies, including PFL, agree to
take any necessary steps to resolve the matter. This includes removing their
separate accounts from the underlying funds. See the prospectuses for the
underlying funds for more details.
Reinstatements
You may exchange your policy for one issued by another life insurance company
(sometimes referred to as a 1035 Exchange or a trustee-to-trustee transfer).
You may also request us to reinstate your policy after such an exchange by
returning the same total dollar amount of funds to the applicable investment
choices. The dollar amount will be used to purchase new accumulation units at
the then current price. Because of changes in market value, your new
accumulation units may be worth more or less than the units you previously
owned. We recommend that you consult a tax professional to explain the possible
tax consequences of exchanges and/or reinstatements.
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Voting Rights
PFL will vote all shares of the underlying funds in accordance with
instructions we receive from you and other owners that have voting interests in
the portfolios. We will send you and other owners written requests for
instructions on how to vote those shares. When we receive those instructions,
we will vote all of the shares in proportion to those instructions. If,
however, we determine that we are permitted to vote the shares in our own
right, we may do so.
Each person having a voting interest will receive proxy material, reports, and
other materials relating to the appropriate portfolio.
Distributor of the Policies
AFSG Securities Corporation is the principal underwriter of the policies. Like
PFL, it is a Transamerica Company and 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. Commissions of up to 5% of premium payments will be
paid to broker/dealers who sell the policies under agreements with AFSG
Securities Corporation. These commissions are not deducted from premium
payments. In addition, certain production, persistency and managerial bonuses
may be paid. PFL may also pay compensation to banks and other financial
institutions for their services in connection with the sale and servicing of
the policies.
Variations in Policy Provisions
Certain provisions of the policies may vary from the descriptions in this
prospectus in order to comply with different state laws. See your policy for
variations since any such state variations will be included in your policy or
in riders or endorsements attached to your policy.
IMSA
PFL is a member of the Insurance Marketplace Standards Association (IMSA). IMSA
is an independent, voluntary organization of life insurance companies. It
promotes high ethical standards in the sales and advertising of individual life
insurance and annuity products. Companies must undergo a rigorous self and
independent assessment of their practices to become a member of IMSA. The IMSA
logo in our sales literature shows our ongoing commitment to these standards.
Legal Proceedings
There are no legal proceedings to which the separate account is a party or to
which the assets of the account are subject. PFL, like other life insurance
companies, is involved in lawsuits. In some class action and other lawsuits
involving other insurers, substantial damages have been sought and/or material
settlement payments have been made. Although the outcome of any litigation
cannot be predicted with certainty, PFL believes that at the present time there
are no pending or threatened lawsuits that are reasonably likely to have a
material adverse impact on the separate account or PFL.
Financial Statements
The financial statements of PFL and the subaccounts are included in the SAI.
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION
Glossary of Terms
The Policy - General Provisions
Certain Federal Income Tax Consequences
Investment Experience
Family Income Protector - Additional Information
Historical Performance Data
Published Ratings
State Regulation of PFL
Administration
Records and Reports
Distribution of the Policies
Voting Rights
Other Products
Custody of Assets
Legal Matters
Independent Auditors
Other Information
Financial Statements
29
<PAGE>
APPENDIX A
CONDENSED FINANCIAL INFORMATION
The accumulation unit values and the number of accumulation units outstanding
for each subaccount from the date of inception are shown in the following
tables.
5% Annually Compounding Death Benefit or Annual Step-Up Death Benefit
(Total Separate Account Annual Expenses: 1.40%)
<TABLE>
<CAPTION>
Accumulation Accumulation Number of
Unit Value Unit Value Accumulation Units
at Beginning of Year at End of Year at End of Year
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Fidelity - VIP Money
Market Subaccount -
Initial Class
1999................... $1.081944 $1.122247 3,595,011.090
1998................... $1.040117 $1.081944 2,988,629.347
1997(/1/).............. $1.000000 $1.040117 1,504,396.531
- -------------------------------------------------------------------------------
Fidelity - VIP High
Income Subaccount -
Initial Class
1999................... $1.097571 $1.170692 4,482,422.581
1998................... $1.163294 $1.097571 3,341,320.094
1997(/1/).............. $1.000000 $1.163294 713,496.095
- -------------------------------------------------------------------------------
Fidelity - VIP Equity-
Income Subaccount -
Initial Class
1999................... $1.400941 $1.469045 10,707,066.298
1998................... $1.272579 $1.400941 7,455,271.936
1997(/1/).............. $1.000000 $1.272579 2,325,232.286
- -------------------------------------------------------------------------------
Fidelity - VIP Growth
Subaccount - Initial
Class
1999................... $1.692203 $2.293625 9,247,629.984
1998................... $1.230106 $1.692203 4,143,718.939
1997(/1/).............. $1.000000 $1.230106 1,450,130.335
- -------------------------------------------------------------------------------
Fidelity - VIP Overseas
Subaccount - Initial
Class
1999................... $1.235851 $1.738346 2,678,314.067
1998................... $1.111441 $1.235851 1,721,436.380
1997(/1/).............. $1.000000 $1.111441 702,293.009
- -------------------------------------------------------------------------------
Fidelity - VIP II
Investment Grade Bond
Subaccount - Initial
Class
1999................... $1.159355 $1.131353 8,338,500.843
1998................... $1.080052 $1.159355 4,223,443.679
1997(/1/).............. $1.000000 $1.080052 1,020,909.375
- -------------------------------------------------------------------------------
Fidelity - VIP II Asset
Manager Subaccount -
Initial Class
1999................... $1.354149 $1.483581 4,898,492.947
1998................... $1.193482 $1.354149 3,561,799.239
1997(/1/).............. $1.000000 $1.193482 1,048,640.321
- -------------------------------------------------------------------------------
Fidelity - VIP II Asset
Manager: Growth
Subaccount - Initial
Class
1999................... $1.434634 $1.630703 2,713,217.130
1998................... $1.237304 $1.434634 2,011,876.137
1997(/1/).............. $1.000000 $1.237304 937,197.160
</TABLE>
30
<PAGE>
5% Annually Compounding Death Benefit or Annual Step-Up Death Benefit
(continued)
(Total Separate Account Annual Expenses: 1.40%)
continued. . . . . .
<TABLE>
<CAPTION>
Accumulation Accumulation Number of
Unit Value Unit Value Accumulation Units
at Beginning of Year at End of Year at End of Year
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Fidelity - VIP II Index
500 Subaccount - Initial
Class
1999................... $1.665101 $1.978931 18,039,827.853
1998................... $1.315713 $1.665101 9,688,729.936
1997(/1/).............. $1.000000 $1.315713 3,420,336.530
- --------------------------------------------------------------------------------
Fidelity - VIP II
Contrafund(R)
Subaccount - Initial
Class
1999................... $1.585759 $1.943178 8,952,339.715
1998................... $1.237079 $1.585759 5,025,033.251
1997(/1/).............. $1.000000 $1.237079 1,948,498.226
- --------------------------------------------------------------------------------
Fidelity - VIP III
Balanced Subaccount -
Initial Class
1999................... $1.329025 $1.370279 6,434,001.920
1998................... $1.145544 $1.329025 3,032,873.614
1997(/1/).............. $1.000000 $1.145544 280,038.882
- --------------------------------------------------------------------------------
Fidelity - VIP III
Growth & Income
Subaccount - Initial
Class
1999................... $1.580209 $1.701273 8,516,426.400
1998................... $1.236456 $1.580209 4,746,215.367
1997(/2/).............. $1.000000 $1.236456 479,129.254
- --------------------------------------------------------------------------------
Fidelity - VIP III
Growth Opportunities
Subaccount - Initial
Class
1999................... $1.508883 $1.551609 5,869,614.476
1998................... $1.227778 $1.508883 2,898,237.147
1997(/2/).............. $1.000000 $1.227778 791,157.687
- --------------------------------------------------------------------------------
Fidelity - VIP III Mid
Cap Subaccount - Initial
Class
1999(/3/).............. $1.000000 $1.348563 362,572.170
</TABLE>
31
<PAGE>
Return of Premium Death Benefit
(Total Separate Account Annual Expenses: 1.25%)
<TABLE>
<CAPTION>
Accumulation Unit Value Accumulation Unit Value Number of Accumulation
at Beginning of Year at End of Year Units at End of Year
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fidelity - VIP Money
Market Subaccount -
Initial Class
1999................... $1.085122 $1.127218 3,006,556.098
1998................... $1.041652 $1.085122 1,952,491.941
1997(/1/).............. $1.000000 $1.041652 1,538,095.590
- -----------------------------------------------------------------------------------------------
Fidelity - VIP High
Income Subaccount -
Initial Class
1999................... $1.100826 $1.175901 5,698,937.906
1998................... $1.165012 $1.100826 3,973,865.276
1997(/1/).............. $1.000000 $1.165012 790,218.659
- -----------------------------------------------------------------------------------------------
Fidelity - VIP Equity -
Income Subaccount -
Initial Class
1999................... $1.405087 $1.475588 8,812,337.781
1998................... $1.274458 $1.405087 6,154,860.923
1997(/1/).............. $1.000000 $1.274458 1,955,419.658
- -----------------------------------------------------------------------------------------------
Fidelity - VIP Growth
Subaccount -
Initial Class
1999................... $1.697223 $2.303843 7,259,072.666
1998................... $1.231921 $1.697223 3,459,954.944
1997(/1/).............. $1.000000 $1.231921 1,653,392.152
- -----------------------------------------------------------------------------------------------
Fidelity - VIP Overseas
Subaccount -
Initial Class
1999................... $1.239514 $1.746083 1,581,467.826
1998................... $1.113081 $1.239514 1,077,780.755
1997(/1/).............. $1.000000 $1.113081 560,955.405
- -----------------------------------------------------------------------------------------------
Fidelity - VIP II
Investment Grade Bond
Subaccount - Initial
Class
1999................... $1.162796 $1.136386 8,979,062.305
1998................... $1.081642 $1.162796 4,681,970.439
1997(/1/).............. $1.000000 $1.081642 894,679.948
- -----------------------------------------------------------------------------------------------
Fidelity - VIP II Asset
Manager Subaccount -
Initial Class
1999................... $1.358156 $1.490174 5,000,398.493
1998................... $1.195229 $1.358156 3,008,465.716
1997(/1/).............. $1.000000 $1.195229 713,379.802
- -----------------------------------------------------------------------------------------------
Fidelity - VIP II Asset
Manager: Growth
Subaccount - Initial
Class
1999................... $1.438856 $1.637912 2,517,202.713
1998................... $1.239118 $1.438856 1,655,971.767
1997(/1/).............. $1.000000 $1.239118 465,131.055
- -----------------------------------------------------------------------------------------------
Fidelity - VIP II Index
500 Subaccount -
Initial Class
1999................... $1.670024 $1.987714 16,867,472.950
1998................... $1.317652 $1.670024 8,270,753.106
1997(/1/).............. $1.000000 $1.317652 2,083,207.545
</TABLE>
32
<PAGE>
Return of Premium Death Benefit
(Total Separate Account Annual Expenses: 1.25%)
(continued). . . . . .
<TABLE>
<CAPTION>
Accumulation Unit Value Accumulation Unit Value Number of Accumulation
at Beginning of Year at End of Year Units at End of Year
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fidelity - VIP II
Contrafund(R)
Subaccount -Initial
Class
1999................... $1.590458 $1.951816 6,635,336.504
1998................... $1.238907 $1.590458 3,910,309.755
1997(/1/).............. $1.000000 $1.238907 1,157,189.672
- -----------------------------------------------------------------------------------------------
Fidelity - VIP III
Balanced Subaccount -
Initial Class
1999................... $1.332300 $1.375701 6,318,466.775
1998................... $1.146670 $1.332300 3,111,696.936
1997(/2/).............. $1.000000 $1.146670 184,894.892
- -----------------------------------------------------------------------------------------------
Fidelity - VIP III
Growth & Income
Subaccount - Initial
Class
1999................... $1.584114 $1.708000 7,210,251.573
1998................... $1.237676 $1.584114 3,639,176.416
1997(/2/).............. $1.000000 $1.237676 295,288.778
- -----------------------------------------------------------------------------------------------
Fidelity - VIP III
Growth Opportunities
Subaccount - Initial
Class
1999................... $1.512606 $1.557744 4,816,401.648
1998................... $1.228996 $1.512606 2,924,155.413
1997(/2/).............. $1.000000 $1.228996 856,473.567
- -----------------------------------------------------------------------------------------------
Fidelity - VIP III Mid
Cap Subaccount -
Initial Class
1999(/3/).............. $1.000000 $1.349887 104,783.145
</TABLE>
(/1/)Period from January 2, 1997 through December 31, 1997.
(/2/)Period from May 1, 1997 through December 31, 1997.
(/3/)Period from May 3, 1999 through December 31, 1999.
33
<PAGE>
APPENDIX B
HISTORICAL PERFORMANCE DATA
Standardized Performance Data
PFL may advertise historical yields and total returns for the subaccounts of
the separate account. These figures are based on historical earnings and are
calculated according to guidelines from the SEC. They do not indicate future
performance.
Fidelity--VIP Money Market Subaccount. The yield of the Fidelity--VIP Money
Market Subaccount for a policy refers to the annualized income generated by an
investment under a policy in the subaccount over a specified seven-day period.
The yield is calculated by assuming that the income generated for that seven-
day period is generated each seven-day period over a 52-week period and is
shown as a percentage of the investment. The effective yield is calculated
similarly but, when annualized, the income earned by an investment under a
policy in the subaccount is assumed to be reinvested. The effective yield will
be slightly higher than the yield because of the compounding effect of this
assumed reinvestment.
Other Subaccounts. The yield of a subaccount of the separate account (other
than the Fidelity--VIP Money Market Subaccount) for a policy refers to the
annualized income generated by an investment under a policy in the subaccount
over a specified 30-day period. The yield is calculated by assuming that the
income generated by the investment during that 30-day period is generated each
30-day period over a 12-month period and is shown as a percentage of the
investment.
The total return of a subaccount of the separate account refers to return
quotations assuming an investment under a policy has been held in the
subaccount for various periods of time including a period measured from the
date the subaccount commenced operations. When a subaccount has been in
operation for 1, 5, and 10 years, respectively, the total return for these
periods will be provided. The total return quotations for a subaccount will
represent the average annual compounded rates of return that equate an initial
investment of $1,000 in the subaccount to the redemption value of that
investment as of the last day of each of the periods for which total return
quotations are provided.
The yield and total return calculations for a subaccount do not reflect the
effect of any premium taxes that may be applicable to a particular policy and
they do not reflect the rider charge for the optional family income protector.
The yield calculations also do not reflect the effect of any surrender charge
that may be applicable to a particular policy. To the extent that any or all of
a premium tax and/or surrender charge is applicable to a particular policy, the
yield and/or total return of that policy will be reduced. For additional
information regarding yields and total returns calculated using the standard
formats briefly summarized above, please refer to the SAI, a copy of which may
be obtained from the administrative and service office upon request.
Based on the method of calculation described in the SAI, the average annual
total returns for periods from inception of the subaccounts to December 31,
1999, and for the one and five year periods ended December 31, 1999 are shown
in Table 1 below. Total returns shown reflect deductions for the mortality and
expense risk fee and the administrative charges. Performance figures may
reflect the 1.25% mortality and expense risk fee for the 5% Annually
Compounding and Annual Step-Up Death Benefits, or the 1.10% mortality and
expense risk fee for the Return of Premium Death Benefit. Standard total return
calculations will reflect the effect of surrender charges that may be
applicable to a particular period.
34
<PAGE>
TABLE 1
Standard Average Annual Total Returns
(Assuming A Surrender Charge and No Family Income Protector)
5% Annually Compounding Death Benefit or Annual Step-Up Death Benefit
(Total Separate Account Annual Expenses: 1.40%)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1 Year 5 Year Inception of the Subaccount
Ended Ended Subaccount Inception
Subaccount 12/31/99 12/31/99 to 12/31/99 Date
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fidelity - VIP High Income -
Initial Class............... 1.88% N/A 4.16% January 2, 1997
Fidelity - VIP Equity-Income -
Initial Class............... 0.06% N/A 12.77% January 2, 1997
Fidelity - VIP Growth -
Initial Class............... 31.10% N/A 31.52% January 2, 1997
Fidelity - VIP Overseas -
Initial Class............... 36.28% N/A 19.55% January 2, 1997
Fidelity - VIP II Investment
Grade Bond - Initial Class .. (7.31%) N/A 2.91% January 2, 1997
Fidelity - VIP II Asset
Manager - Initial Class ..... 4.81% N/A 13.15% January 2, 1997
Fidelity - VIP II Asset
Manager: Growth -
Initial Class ............... 8.97% N/A 16.93% January 2, 1997
Fidelity - VIP II
Contrafund(R) - Initial
Class ....................... 17.95% N/A 24.24% January 2, 1997
Fidelity - VIP II Index 500 -
Initial Class............... 14.21% N/A 25.02% January 2, 1997
Fidelity - VIP III Balanced -
Initial Class............... (1.72%) N/A 11.37% May 1, 1997
Fidelity -
VIP III Growth Opportunities
- Initial Class............. (2.00%) N/A 16.91% May 1, 1997
Fidelity - VIP III Growth &
Income - Initial Class....... 2.89% N/A 21.18% May 1, 1997
Fidelity - VIP III Mid Cap -
Initial Class............... N/A N/A 29.54% May 3, 1999
- ----------------------------------------------------------------------------------
Return of Premium Death Benefit
(Total Separate Account Annual Expenses: 1.25%)
- ----------------------------------------------------------------------------------
<CAPTION>
1 Year 5 Year Inception of the Subaccount
Ended Ended Subaccount Inception
Subaccount 12/31/99 12/31/99 to 12/31/99 Date
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fidelity - VIP High Income -
Initial Class............... 2.04% N/A 4.32% January 2, 1997
Fidelity - VIP Equity-Income -
Initial Class............... 0.21% N/A 12.94% January 2, 1997
Fidelity - VIP Growth -
Initial Class............... 31.31% N/A 31.72% January 2, 1997
Fidelity - VIP Overseas -
Initial Class............... 36.50% N/A 19.73% January 2, 1997
Fidelity - VIP II Investment
Grade Bond - Initial Class .. (7.16%) N/A 3.07% January 2, 1997
Fidelity - VIP II Asset
Manager - Initial Class...... 4.97% N/A 13.33% January 2, 1997
Fidelity - VIP II Asset
Manager: Growth -
Initial Class ............... 9.14% N/A 17.11% January 2, 1997
Fidelity - VIP II
Contrafund(R) - Initial
Class ....................... 18.13% N/A 24.43% January 2, 1997
Fidelity - VIP II Index 500 -
Initial Class............... 14.39% N/A 25.21% January 2, 1997
Fidelity - VIP III Balanced -
Initial Class............... (1.57%) N/A 11.54% May 1, 1997
Fidelity - VIP III Growth
Opportunities -
Initial Class................ (1.84%) N/A 17.09% May 1, 1997
Fidelity - VIP III Growth &
Income - Initial Class....... 3.05% N/A 21.36% May 1, 1997
Fidelity - VIP III Mid Cap -
Initial Class............... N/A N/A 29.73% May 3, 1999
</TABLE>
Non-Standardized Performance Data
In addition to the standardized data discussed above, similar performance data
for other periods may also be shown.
PFL may also advertise or disclose average annual total return or other
performance data in non-standard formats for a subaccount of the separate
account. The non-standardized performance data may assume that no surrender
charge is applicable, and may also make other assumptions such as the amount
invested in a subaccount, differences in time periods to be shown, or the
effect of partial withdrawals or annuity payments.
All non-standardized performance data will be advertised only if the
standardized performance data is also disclosed. For additional information
regarding the calculation of other performance data, please refer to the SAI.
The non-standardized average annual total return figures shown in Table 2 are
based on the assumption that the policy is not surrendered, and therefore the
surrender charge is not imposed. Also Table 2 does not reflect the rider charge
for the optional family income protector.
35
<PAGE>
TABLE 2
Non-Standard Average Annual Total Returns
(Assuming No Surrender Charge or Family Income Protector)
5% Annually Compounding Death Benefit or Annual Step-Up Death Benefit
(Total Separate Account Annual Expenses: 1.40%)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1 Year 5 Year Inception of the Subaccount
Ended Ended Subaccount Inception
Subaccount 12/31/99 12/31/99 to 12/31/99 Date
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fidelity - VIP High
Income - Initial Class.... 6.66% N/A 5.40% January 2, 1997
Fidelity - VIP Equity-
Income - Initial Class.... 4.86% N/A 13.71% January 2, 1997
Fidelity - VIP Growth -
Initial Class............ 35.54% N/A 31.95% January 2, 1997
Fidelity - VIP Overseas -
Initial Class............ 40.66% N/A 20.28% January 2, 1997
Fidelity - VIP II
Investment Grade Bond -
Initial Class............ 13.67% N/A 17.74% January 2, 1997
Fidelity - VIP II Asset
Manager - Initial Class... 9.56% N/A 14.08% January 2, 1997
Fidelity - VIP II Asset
Manager: Growth -
Initial Class............ 13.67% N/A 17.74% January 2, 1997
Fidelity - VIP II
Contrafund(R) - Initial
Class..................... 22.54% N/A 24.84% January 2, 1997
Fidelity - VIP II Index
500 - Initial Class....... 18.85% N/A 25.60% January 2, 1997
Fidelity - VIP III
Balanced - Initial Class.. 3.10% N/A 12.53% May 1, 1997
Fidelity - VIP III Growth
Opportunities - Initial
Class..................... 2.83% N/A 17.89% May 1, 1997
Fidelity - VIP III Growth &
Income - Initial Class.... 7.66% N/A 22.03% May 1, 1997
Fidelity - VIP III Mid
Cap - Initial Class....... N/A N/A 34.86% May 3, 1999
- -------------------------------------------------------------------------------
Return of Premium Death Benefit
(Total Separate Account Annual Expenses: 1.25%)
- -------------------------------------------------------------------------------
<CAPTION>
1 Year 5 Year Inception of the Subaccount
Ended Ended Subaccount Inception
Subaccount 12/31/99 12/31/99 to 12/31/99 Date
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fidelity - VIP High
Income - Initial Class.... 6.82% N/A 5.56% January 2, 1997
Fidelity - VIP Equity-
Income - Initial Class.... 5.02% N/A 13.87% January 2, 1997
Fidelity - VIP Growth -
Initial Class............ 35.74% N/A 32.14% January 2, 1997
Fidelity - VIP Overseas -
Initial Class............ 40.87% N/A 20.46% January 2, 1997
Fidelity - VIP II
Investment Grade Bond -
Initial Class............ (2.27%) N/A 4.36% January 2, 1997
Fidelity - VIP II Asset
Manager - Initial Class... 9.72% N/A 14.25% January 2, 1997
Fidelity - VIP II Asset
Manager: Growth -
Initial Class............ 13.83% N/A 17.91% January 2, 1997
Fidelity - VIP II
Contrafund(R) - Initial
Class..................... 22.72% N/A 25.02% January 2, 1997
Fidelity - VIP II Index
500 - Initial Class....... 19.02% N/A 25.79% January 2, 1997
Fidelity - VIP III
Balanced - Initial Class.. 3.26% N/A 12.70% May 1, 1997
Fidelity - VIP III Growth
Opportunities - Initial
Class..................... 2.98% N/A 18.07% May 1, 1997
Fidelity - VIP III Growth &
Income - Initial Class.... 7.82% N/A 22.21% May 1, 1997
Fidelity - VIP III Mid
Cap - Initial Class....... N/A N/A 34.99% May 3, 1999
</TABLE>
Adjusted Historical Performance Data. The following performance data is
historic performance data for the underlying portfolios since their inception
reduced by some or all of the fees and charges under the policy. Such adjusted
historic performance includes data that precedes the inception dates of the
subaccounts. This data is designed to show the performance that would have
resulted if the policy had been in existence during that time, based on the
performance of the applicable portfolio and the assumption that the applicable
subaccount was in existence for the same period as the portfolio with a level
of charges equal to those currently assessed under the policies. This data is
not intended to indicate future performance.
For instance, as shown in Table 3, PFL may disclose average annual total
returns for the portfolios reduced by all fees and charges under the policy, as
if the policy had been in existence since the inception of the portfolio. Such
fees and charges include the mortality and expense risk fee, administrative
charge and surrender charges. Table 3 assumes that the policy is not
surrendered, and therefore the surrender charge is not deducted. Also, Table 3
does not reflect the rider charge for the optional family income protector.
36
<PAGE>
The following information is also based on the method of calculation described
in the Statement of Additional Information. The adjusted historical average
annual total returns for periods ended December 31, 1999, were as follows:
TABLE 3
Adjusted Historical Average Annual Total Returns(/1/)
(Assuming No Surrender Charge or Family Income Protector)
5% Annually Compounding Death Benefit or Annual Step-Up Death Benefit
(Total Separate Account Annual Expenses: 1.40%)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Corresponding
10 Year Portfolio
Portfolio 1 Year 5 Year or Inception Inception Date
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fidelity - VIP High Income -
Initial Class................ 6.66% 9.35% 10.89%+ September 19, 1985
Fidelity - VIP Equity-Income -
Initial Class................ 4.86% 16.98% 12.91%+ October 9, 1986
Fidelity - VIP Growth - Initial
Class......................... 35.54% 27.95% 18.28%+ October 9, 1986
Fidelity - VIP Overseas -
Initial Class................ 40.66% 15.75% 9.89%+ January 28, 1987
Fidelity - VIP II Investment
Grade Bond - Initial Class.... (2.42%) 5.81% 5.71%+ December 5, 1988
Fidelity - VIP II Asset
Manager - Initial Class....... 9.56% 14.03% 11.58%+ December 5, 1988
Fidelity - VIP II Asset
Manager: Growth - Initial
Class......................... 13.67% N/A 18.51% January 3, 1995
Fidelity - VIP II
Contrafund(R) - Initial
Class......................... 22.54% N/A 25.98% January 3, 1995
Fidelity - VIP II Index 500 -
Initial Class................ 18.85% 26.40% 19.41% August 27, 1992
Fidelity - VIP III Balanced -
Initial Class................ 3.10% N/A 11.94% January 3, 1995
Fidelity - VIP III Growth
Opportunities - Initial
Class......................... 2.83% N/A 19.84% January 3, 1995
Fidelity - VIP III Growth &
Income - Initial Class........ 7.66% N/A 20.45% December 31, 1996
Fidelity - VIP III Mid Cap -
Initial Class................ 46.99% N/A 51.02% December 28, 1998
- -------------------------------------------------------------------------------
Return of Premium Death Benefit
(Total Separate Account Annual Expenses: 1.25%)
- -------------------------------------------------------------------------------
<CAPTION>
Corresponding
10 Year Portfolio
Portfolio 1 Year 5 Year or Inception Inception Date
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fidelity - VIP High Income -
Initial Class................ 6.82% 9.51% 11.05%+ September 19, 1985
Fidelity - VIP Equity-Income -
Initial Class................ 5.02% 17.15% 13.08%+ October 9, 1986
Fidelity - VIP Growth - Initial
Class......................... 35.74% 28.14% 18.46%+ October 9, 1986
Fidelity - VIP Overseas -
Initial Class................ 40.87% 15.92% 10.05%+ January 28, 1987
Fidelity - VIP II Investment
Grade Bond - Initial Class.... (2.27%) 5.97% 5.86%+ December 5, 1988
Fidelity - VIP II Asset
Manager - Initial Class....... 9.72% 14.20% 11.75%+ December 5, 1988
Fidelity - VIP II Asset
Manager: Growth - Initial
Class......................... 13.83% N/A 18.68% January 3, 1995
Fidelity - VIP II
Contrafund(R) - Initial
Class......................... 22.72% N/A 26.17% January 3, 1995
Fidelity - VIP II Index 500 -
Initial Class................ 19.02% 26.59% 19.58% August 27, 1992
Fidelity - VIP III Balanced -
Initial Class................ 3.26% N/A 12.11% January 3, 1995
Fidelity - VIP III Growth
Opportunities - Initial
Class......................... 2.98% N/A 20.02% January 3, 1995
Fidelity - VIP III Growth &
Income - Initial Class........ 7.82% N/A 20.63% December 31, 1996
Fidelity - VIP III Mid Cap -
Initial Class................ 47.21% N/A 51.24% December 28, 1998
</TABLE>
+ Ten Year Date
(/1/) The calculation of total return performance for periods prior to inception
of the subaccounts reflects deductions for the mortality and expense risk
fee and administrative charge on a monthly basis, rather than a daily
basis. The monthly deduction is made at the beginning of each month and
generally approximates the performance that would have resulted if the
subaccounts had actually been in existence since the inception of the
portfolio.
37
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
RETIREMENT INCOME BUILDER
VARIABLE ANNUITY
Issued through
PFL RETIREMENT BUILDER VARIABLE
ANNUITY ACCOUNT
Offered by
PFL LIFE INSURANCE COMPANY
4333 Edgewood Road, N.E.
Cedar Rapids, Iowa 52499-0001
This Statement of Additional Information expands upon subjects discussed in the
current prospectus for the Retirement Income Builder Variable Annuity offered
by PFL Life Insurance Company. You may obtain a copy of the prospectus dated
May 1, 2000, by calling 1-800-525-6205, or by writing to the Administrative and
Service Office, Financial Markets Division-Variable Annuity Dept., 4333
Edgewood Road, N.E., Cedar Rapids, Iowa 52499-0001. The prospectus sets forth
information that a prospective investor should know before investing in a
policy. Terms used in the current prospectus for the policy are incorporated in
this Statement of Additional Information.
This Statement of Additional Information (SAI) is not a prospectus and should
be read only in conjunction with the prospectuses for the policy and for the
underlying fund portfolios.
Dated: May 1, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
GLOSSARY OF TERMS.......................................................... 3
THE POLICY--GENERAL PROVISIONS............................................. 6
Owner.................................................................... 6
Entire Policy............................................................ 6
Misstatement of Age or Sex............................................... 6
Addition, Deletion or Substitution of Investments........................ 7
Excess Interest Adjustment............................................... 7
Reallocation of Annuity Units After the Annuity Commencement Date........ 11
Annuity Payment Options.................................................. 12
Death Benefit............................................................ 13
Death of Owner........................................................... 15
Assignment............................................................... 15
Evidence of Survival..................................................... 15
Non Participating........................................................ 15
Amendments............................................................... 15
Employee and Agent Purchases............................................. 16
CERTAIN FEDERAL INCOME TAX CONSEQUENCES.................................... 16
Tax Status of the Policy................................................. 16
Taxation of PFL.......................................................... 20
INVESTMENT EXPERIENCE...................................................... 20
Accumulation Units....................................................... 20
Annuity Unit Value and Annuity Payment Rates............................. 22
FAMILY INCOME PROTECTOR--ADDITIONAL INFORMATION............................ 25
HISTORICAL PERFORMANCE DATA................................................ 28
Money Market Yields...................................................... 28
Other Subaccount Yields.................................................. 29
Total Returns............................................................ 30
Other Performance Data................................................... 30
Adjusted Historical Performance Data..................................... 31
PUBLISHED RATINGS.......................................................... 31
STATE REGULATION OF PFL.................................................... 31
ADMINISTRATION............................................................. 31
RECORDS AND REPORTS........................................................ 31
DISTRIBUTION OF THE POLICIES............................................... 32
VOTING RIGHTS.............................................................. 32
OTHER PRODUCTS............................................................. 33
CUSTODY OF ASSETS.......................................................... 33
LEGAL MATTERS.............................................................. 33
INDEPENDENT AUDITORS....................................................... 33
OTHER INFORMATION.......................................................... 33
FINANCIAL STATEMENTS....................................................... 33
</TABLE>
-2-
<PAGE>
GLOSSARY OF TERMS
Accumulation Unit--An accounting unit of measure used in calculating the policy
value in the separate account before the annuity commencement date.
Adjusted Policy Value--An amount equal to the policy value increased or
decreased by any excess interest adjustments applied at the time of surrender
or on the annuity commencement date.
Administrative and Service Office--Financial Markets Division Variable Annuity
Department, 4333 Edgewood Road, N.E., Cedar Rapids, Iowa 52499-0001.
Annuitant--The person during whose life any annuity payments involving life
contingencies will continue.
Annuity Commencement Date--The date upon which annuity payments are to
commence. The annuity commencement date may not be later than the last day of
the policy month starting after the annuitant attains age 85, except as
expressly allowed by PFL. In no event will this date be later than the last day
of the policy month following the month in which the annuitant attains age 95.
The annuity commencement date may be required to be earlier for qualified
policies.
Annuity Payment Option--A method of receiving a stream of annuity payments
selected by the owner.
Annuity Unit--An accounting unit of measure used in the calculation of the
amount of the second and each subsequent variable annuity payment.
Application--A written application, order form, or any other information
received electronically or otherwise upon which the policy is issued and/or is
reflected on the data or specifications page.
Beneficiary--The person who has the right to the death benefit set forth in the
policy.
Business Day--A day when the New York Stock Exchange is open for business.
Cash Value--The policy value increased or decreased by any excess interest
adjustment, less the annual service charge, and less any applicable surrender
charge, premium taxes, and family income protector rider fee.
Code--The Internal Revenue Code of 1986, as amended.
Cumulative Free Percentage--The percentage (as applied to the policy value)
which is available free of any surrender charge.
Excess Interest Adjustment ("EIA")--A positive or negative adjustment to
amounts withdrawn upon partial or full surrenders from the fixed account
guaranteed period options, or to amounts applied to annuity payment options.
The adjustment reflects changes in the interest rates declared by PFL since the
date any payment was received by (or an amount was transferred to) the
guaranteed period option. The excess interest adjustment can either decrease or
increase the amount to be received by the owner upon full surrender or
commencement of annuity payments, depending upon whether there has been an
increase or decrease in interest rates, respectively.
Excess Partial Withdrawal--The portion of a partial withdrawal (surrender) that
exceeds the cumulative free percentage.
Fixed Account--One or more investment choices under the policy that are part of
PFL's general assets and are not in the separate account.
-3-
<PAGE>
Guaranteed Period Options--The various guaranteed interest rate periods of the
fixed account which PFL may be offer and into which premium payments may be
paid or amounts transferred.
Nonqualified Policy--A policy other than a qualified policy.
Owner--The person who may exercise all rights and privileges under the policy.
The owner during the lifetime of the annuitant and prior to the annuity
commencement date is the person designated as the owner or a successor owner in
the information that we require to issue a policy.
Policy Value--On or before the annuity commencement date, the policy value is
equal to the owner's:
. premium payments; minus
. partial withdrawals (including the net effect of any applicable excess
interest adjustments and/or surrender charges on such withdrawals); plus
. interest credited in the fixed account; plus or minus
. accumulated gains or losses in the separate account; minus
. service charges, premium taxes, rider fees and transfer fees, if any.
Policy Year--A policy year begins on the policy date in which the policy
becomes effective and on each anniversary thereof.
Premium Payment--An amount paid to PFL by the owner or on the owner's behalf as
consideration for the benefits provided by the policy.
Qualified Policy--A policy issued in connection with retirement plans that
qualify for special federal income tax treatment under the Code.
Separate Account--The Retirement Income Builder II Variable Annuity division of
the PFL Retirement Builder Variable Annuity Account, a separate account
established and registered as a unit investment trust under the Investment
Company Act of 1940, as amended (the "1940 Act"), to which premium payments
under the policies may be allocated.
Service Charge--There is an annual service charge on each policy anniversary
(and a charge at the time of surrender during any policy year) for policy
maintenance and related administrative expenses. This annual charge is $30, but
in no event will this charge be more than 2% of the policy value.
Subaccount--A subdivision within the separate account, the assets of which are
invested in a specified portfolio of the underlying funds.
Successor Owner--A person appointed by the owner to succeed to ownership of the
policy in the event of the death of the owner who is not the annuitant before
the annuity commencement date.
Surrender Charge--The applicable contingent deferred sales charge, assessed on
certain full surrenders or partial withdrawals of premium payments to cover
expenses relating to the sale of the policies.
Underlying Funds--The designated portfolios of: (1) Variable Insurance Products
Fund ("VIP"); (2) the Variable Insurance Products Fund II ("VIP II") the
Variable Insurance Products Fund III ("VIP II"); and (3) the Variable Insurance
Products Fund III ("VIP III"), managed by Fidelity Management & Research
Company.
-4-
<PAGE>
Valuation Period--The period of time from one determination of accumulation
unit and annuity unit values to the next subsequent determination of values.
Such determinations shall be made on each business day.
Variable Annuity Payment(s)--Payment(s) made pursuant to an annuity payment
option which fluctuate as to dollar amount or payment term in relation to the
investment performance of the specified subaccounts within the separate
account.
Written Notice--Written notice, signed by the owner, that gives PFL the
information it requires and is received at the administrative and service
office. For some transactions, PFL may accept an electronic notice such as
telephone instructions. Such electronic notice must meet the requirements PFL
establishes for such notices.
-5-
<PAGE>
In order to supplement the description in the prospectus, the following
provides additional information about PFL and the policy, which may be of
interest to a prospective purchaser.
THE POLICY--GENERAL PROVISIONS
Owner
The policy shall belong to the owner upon issuance of the policy after
completion of an application and delivery of the initial premium payment. While
the annuitant is living, the owner may: (1) assign the policy; (2) surrender
the policy; (3) amend or modify the policy with PFL's consent; (4) receive
annuity payments or name a payee to receive the payments; and (5) exercise,
receive and enjoy every other right and benefit contained in the policy. The
exercise of these rights may be subject to the consent of any assignee or
irrevocable beneficiary; and of the owner's spouse in a community or marital
property state.
Unless PFL has been notified of a community or marital property interest in the
policy, it will rely on its good faith belief that no such interest exists and
will assume no responsibility for inquiry.
A successor owner can be named in the application or in a written notice. The
successor owner will become the new owner upon your death, if you predecease
the annuitant. If no successor owner survives you and you predeceases the
annuitant, your estate will become the owner.
Note Carefully. If the owner does not name a contingent owner, the owner's
estate will become the new owner. If no probate estate is opened because the
owner has precluded the opening of a probate estate by means of a trust or
other instrument, unless PFL has received written notice of the trust as a
successor owner signed prior to the owner's death, that trust may not exercise
ownership rights to the policy. It may be necessary to open a probate estate in
order to exercise ownership rights to the policy if no contingent owner is
named in a written notice received by PFL.
The owner may change the ownership of the policy in a written notice. When this
change takes effect, all rights of ownership in the policy will pass to the new
owner. A change of ownership may have tax consequences.
When there is a change of owner or successor owner, the change will not be
effective until it is recorded in our records. Once recorded it will take
effect as of the date the owner signs the written notice, subject to any
payment PFL has made or action PFL has taken before recording the change.
Changing the owner or naming a new successor owner cancels any prior choice of
successor owner, but does not change the designation of the beneficiary or the
annuitant.
If ownership is transferred (except to the owner's spouse) because the owner
dies before the annuitant, the adjusted policy value generally must be
distributed to the successor owner within five years of the owner's death, or
if the first payment begins within one year of the owner's death, payments must
be made for a period certain which does not exceed that successor owner's life
expectancy.
Entire Policy
The policy, any endorsements thereon, the application, and information provided
in lieu thereof, constitute the entire contract between PFL and the owner. All
statements in the application are representations and not warranties. No
statement will cause the policy to be void or to be used in defense of a claim
unless contained in the application or information provided in lieu thereof.
Misstatement of Age or Sex
If the age or sex of the annuitant has been misstated, PFL will change the
annuity benefit payable to that which the premium payments would have purchased
for the correct age or sex. The dollar amount of
-6-
<PAGE>
any underpayment made by PFL shall be paid in full with the next payment due
such person or the beneficiary. The dollar amount of any overpayment made by
PFL due to any misstatement shall be deducted from payments subsequently
accruing to such person or beneficiary. Any underpayment or overpayment will
include interest at 5% per year, from the date of the wrong payment to the date
of the adjustment. The age of the annuitant may be established at any time by
the submission of proof satisfactory to PFL.
Addition, Deletion, or Substitution of Investments
PFL cannot and does not guarantee that any of the subaccounts or portfolios
will always be available for premium payments, allocations, or transfers. PFL
retains the right, subject to any applicable law, to make certain changes in
the separate account and its investments. PFL reserves the right to eliminate
the shares of any portfolio held by a subaccount and/or to substitute shares of
another portfolio of the underlying funds, or of another registered open-end
management investment company for the shares of any portfolio, if the shares of
the portfolio are no longer available for investment or if, in PFL's judgment,
investment in any portfolio would be inappropriate in view of the purposes of
the separate account. To the extent required by the 1940 Act, substitutions of
shares attributable to an owner's interest in a subaccount will not be made
without prior notice to the owner and the prior approval of the Securities and
Exchange Commission (SEC). Nothing contained herein shall prevent the separate
account from purchasing other securities for other series or classes of
variable annuity policies, or from effecting an exchange between series or
classes of variable annuity policies on the basis of your requests.
New subaccounts may be established when, in the sole discretion of PFL,
marketing, tax, investment or other conditions warrant. Any new subaccounts may
be made available to existing owners on a basis to be determined by PFL. Each
additional subaccount will purchase shares in a mutual fund portfolio or other
investment vehicle. PFL may also eliminate one or more subaccounts if, in its
sole discretion, marketing, tax, investment or other conditions warrant such
change. In the event any subaccount is eliminated, PFL will notify owners and
request a reallocation of the amounts invested in the eliminated subaccount. If
no such reallocation is provided by the owner, PFL will reinvest the amounts
invested in the eliminated subaccount in the subaccount that invests in the
Fidelity--VIP Money Market Portfolio (or in a similar portfolio of money market
instruments) or in another subaccount, if appropriate.
In the event of any such substitution or change, PFL may, by appropriate
endorsement, make such changes in the policies as may be necessary or
appropriate to reflect such substitution or change. Furthermore, if deemed to
be in the best interests of persons having voting rights under the policies,
the separate account may be (i) operated as a management company under the 1940
Act or any other form permitted by law, (ii) deregistered under the 1940 Act in
the event such registration is no longer required or (iii) combined with one or
more other separate accounts. To the extent permitted by applicable law, PFL
also may (1) transfer the assets of the separate account associated with the
policies to another account or accounts, (2) restrict or eliminate any voting
rights of owners or other persons who have voting rights as to the separate
account, (3) create new separate accounts, (4) add new subaccounts to or remove
existing subaccounts from the separate account, or combine subaccounts, or (5)
add new underlying funds, or substitute a new fund for an existing fund.
Excess Interest Adjustment
Money that you withdraw from (or apply to an annuity payment option from) a
guaranteed period option of the fixed account before the end of its guaranteed
period (the number of years you specified the money would remain in the
guaranteed period option) may be subject to an excess interest adjustment. At
the time you request a withdrawal, if interest rates PFL set have risen since
the date of the initial guarantee, the excess interest adjustment will result
in a lower cash value. However, if interest rates have fallen since the date of
the initial guarantee, the excess interest adjustment will result in a higher
cash value.
-7-
<PAGE>
Excess interest adjustments will not reduce the adjusted policy value for a
guaranteed period option below the amount paid into it, less any prior partial
withdrawals and transfers from that guaranteed period option, plus interest at
the policy's minimum guaranteed effective annual interest rate of 3%. This is
referred to as the excess interest adjustment floor.
The formula which will be used to determine the excess interest adjustment is:
S*(G - C)* (M/12)
S= Gross amount being withdrawn that is subject to the excess interest
adjustment.
G= Guaranteed Interest Rate applicable to S.
C= Current Guaranteed Interest Rate then being offered on new premium payments
for the next longer guaranteed period than "M". If this policy form or such
a guaranteed period is no longer offered, "C" will be the U.S. Treasury rate
for the next longer maturity (in whole years) than "M" on the 25th day of
the previous calendar month, plus up to 2%.
M= Number of months remaining in the current guaranteed period, rounded up to
the next higher whole number of months.
*= multiplication
/]= exponentiation
Example 1 (Full Surrender, rates increase by 3%):
<TABLE>
<C> <S>
Single Premium: $50,000
- ------------------------------------------------------------------------------
Guarantee Period: 5 Years
- ------------------------------------------------------------------------------
Guarantee Rate: 5.50% per annum
- ------------------------------------------------------------------------------
Full Surrender: Middle of Contract Year 3
- ------------------------------------------------------------------------------
Policy Value at middle of Contract Year 3 = 50,000* (1.055)/\ 2.5 =
57,161.18
- ------------------------------------------------------------------------------
Surrender Charge Free Amount at middle of = 57,161.18* .30 = 17,148.35
- ------------------------------------------------------------------------------
Excess Interest Adjustment free amount at
middle of Policy = 57,161.18 - 50,000 = 7,161.18
- ------------------------------------------------------------------------------
Amount Subject to Excess Interest = 57,161.18 - 7,161.18 =
Adjustment 50,000.00
- ------------------------------------------------------------------------------
Excess Interest Adjustment Floor = 50,000* (1.03)/\ /\ 2.5 =
53,834.80
- ------------------------------------------------------------------------------
Excess Interest Adjustment
G=.055
C=.085
M=30
- ------------------------------------------------------------------------------
Excess Interest Adjustment = S* (G - C)* (M/12)
- ------------------------------------------------------------------------------
= 50,000.00* (.055 - .085)*
(30/12)
- ------------------------------------------------------------------------------
= -3,750.00, but excess interest
adjustment
- ------------------------------------------------------------------------------
Adjusted policy value = policy value+excess interest
adjustment
- ------------------------------------------------------------------------------
Surrender charge = (50,000 - 17,148.35)* .06 =
1,971.10
- ------------------------------------------------------------------------------
Cash Value at middle of policy year 3 = Policy Value + Excess Interest
Adjustment - surrender charge
- ------------------------------------------------------------------------------
= 57,161.18 - 3,326.38 -
1,971.10
- ------------------------------------------------------------------------------
= 51,863.70
</TABLE>
-8-
<PAGE>
Example 2 (Full Surrender, rates decrease by 1%):
<TABLE>
<S> <C>
Single Premium: $50,000
- -----------------------------------------------------------------------------------------
Guarantee Period: 5 Years
- -----------------------------------------------------------------------------------------
Guarantee Rate: 5.50% per annum
- -----------------------------------------------------------------------------------------
Full Surrender: Middle of Contract Year 3
- -----------------------------------------------------------------------------------------
Policy Value at middle of Policy Year 3 = 50,000* (1.055)/\ 2.5 = 57,161.18
- -----------------------------------------------------------------------------------------
Surrender Charge Free Amount at middle of = 57,161.18* .30 = 17,148.35
Policy Year 3
- -----------------------------------------------------------------------------------------
Excess Interest Adjustment Free Amount at = 57,161.18 - 50,000 = 7,161.18
middle of Policy Year 3
- -----------------------------------------------------------------------------------------
Amount Subject to EIA = 57,161.18 - 7,161.18 = 50,000.00
- -----------------------------------------------------------------------------------------
Excess Interest Adjustment Floor = 50,000* (1.03)/\ 2.5 = 53,834.80
- -----------------------------------------------------------------------------------------
Excess Interest Adjustment
G= .055
C= .045
M= 30
- -----------------------------------------------------------------------------------------
Excess Interest Adjustment = S* (G - C)* (M/12)
- -----------------------------------------------------------------------------------------
= 50,000* (.055 - .045)* (30/12)
- -----------------------------------------------------------------------------------------
= 1,250.00
- -----------------------------------------------------------------------------------------
Adjusted Policy Value = policy value + excess interest adjustment
- -----------------------------------------------------------------------------------------
= 57,161.18 + 1,250.00 = 58,411.18
- -----------------------------------------------------------------------------------------
Surrender Charge = (50,000 - 17,148.35)* .06 = 1,971.10
- -----------------------------------------------------------------------------------------
Cash Value at middle of Policy Year 3 = Policy Value + Excess Interest
Adjustment - surrender charge
- -----------------------------------------------------------------------------------------
= 57,161.18 + 1,250 - 1,971.10
- -----------------------------------------------------------------------------------------
= 56,440.08
</TABLE>
On a partial withdrawal, PFL will pay the owner the full amount of withdrawal
requested (as long as the policy value is sufficient). Surrender charge--free
withdrawals will reduce the policy value by the amount withdrawn. Amounts
withdrawn in excess of the surrender charge--free amount will reduce the policy
value by an amount equal to:
X - Y + Z
X= excess partial withdrawal = requested withdrawal less surrender charge--free
amount
A= amount of partial withdrawal which is subject to excess interest
adjustment = requested withdrawal - excess interest adjustment--free amount,
where excess interest adjustment--free amount = cumulative interest credited
at time of, but prior to, withdrawal.
Y= excess interest adjustment = (A)*(G - C)*(M/12) where G, C, and M are
defined above, with "A" substituted for "S" in the definition of G and M.
Z= surrender charge on X minus Y.
-9-
<PAGE>
Example 3 (Partial Withdrawal, rates increase by 1%):
<TABLE>
<C> <S>
Single premium: $50,000
- ------------------------------------------------------------------------------
Guarantee period: 5 Years
- ------------------------------------------------------------------------------
Guarantee rate: 5.50% per annum
- ------------------------------------------------------------------------------
Partial surrender: $30,000; middle of contract year
3
- ------------------------------------------------------------------------------
Policy value at middle of policy year 3 = 50,000* (1.055)/\ 2.5 =
57,161.18
- ------------------------------------------------------------------------------
Surrender charge free amount at middle of
policy year 3 = 57,161.18* .30 = 17,148.35
- ------------------------------------------------------------------------------
Excess interest adjustment free amount at
middle of policy year 3 = 57,161.18-50,000 = 7,161.18
- ------------------------------------------------------------------------------
Excess interest adjustment/surrender charge
X= 30,000-17,148.35 = 12,851.65
A= 30,000-7,161.18 = 22,838.82
G= .055
C= .065
M= 30
Y= 22,838.82* (.055-.065)* (30/12) = -
570.97
Z= .06* [12,851.65-(-570.97)] = 805.36
- ------------------------------------------------------------------------------
Reduction to policy value due to surrender
charge--free withdrawal = 17,148.35
- ------------------------------------------------------------------------------
Reduction to policy value due to excess
withdrawal = X - Y + Z
- ------------------------------------------------------------------------------
= 12,851.65-(-570.97) + 805.36
- ------------------------------------------------------------------------------
= 14,227.98
- ------------------------------------------------------------------------------
Policy value after withdrawal at middle of = 57,161.18-[17,148.35 +
policy year 3 14,227.98]
- ------------------------------------------------------------------------------
= 57,161.18-[17,148.35 +
12,851.65 -(-570.97) + 805.36]
- ------------------------------------------------------------------------------
= 57,161.18-[30,000-(-570.97) +
805.36]
- ------------------------------------------------------------------------------
= 57,161.18-31,376.33 =
25,784.85
</TABLE>
-10-
<PAGE>
Example 4 (Partial Withdrawal, rates decrease by 1%):
<TABLE>
<C> <S>
Single Premium: $50,000
- ------------------------------------------------------------------------------
Guarantee Period: 5 Years
- ------------------------------------------------------------------------------
Guarantee Rate: 5.50% per annum
- ------------------------------------------------------------------------------
Partial Surrender: $30,000; Middle of Contract Year
3
- ------------------------------------------------------------------------------
Policy Value at middle of policy year 3 = 50,000* (1.055)/\ 2.5 =
57,161.18
- ------------------------------------------------------------------------------
Surrender Charge Free Amount at middle of = 57,161.18* .30 = 17,148.35
policy year 3
- ------------------------------------------------------------------------------
Excess interest adjustment Free Amount at = 57,161.18 - 50,000 = 7,161.18
middle of policy year 3
- ------------------------------------------------------------------------------
Excess Interest Adjustment/Surrender Charge
X = 30,000--17,148.35 = 12,851.65
A = 30,000--7,161.18 = 22,838.82
G = .055
C = .045
M = 30
Y = 22,838.82* (.055--.045)* (30/12) =
570.97
Z = .06* [12,851.65--(570.97)] = 736.84
- ------------------------------------------------------------------------------
Reduction to policy value due to Surrender = 17,148.35
Charge--Free Withdrawal
- ------------------------------------------------------------------------------
Reduction to policy value due to Excess = X - Y + Z
Withdrawal
- ------------------------------------------------------------------------------
= 12,851.65 - 570.97 + 736.84
- ------------------------------------------------------------------------------
= 13,017.52
- ------------------------------------------------------------------------------
Policy Value after withdrawal at middle of = 57,161.18 - [17,148.35 +
policy year 3 13,017.52]
- ------------------------------------------------------------------------------
= 57,161.18 - [17,148.35 +
12,851.65 -570.97 + 736.84]
- ------------------------------------------------------------------------------
= 57,161.18 - [30,000/\ (570.97)
+ 736.84]
- ------------------------------------------------------------------------------
= 57,161.18 - 30,165.87 =
26,995.31
</TABLE>
Reallocation of Annuity Units After the Annuity Commencement Date
After the annuity commencement date, the owner may reallocate the value of a
designated number of annuity units of a subaccount of the separate account then
credited to a policy into an equal value of annuity units of one or more other
subaccounts of the separate account, or the fixed account. An annuity unit is
an accounting unit used in the calculation of the amount of the second and each
subsequent variable annuity payment. The reallocation shall be based on the
relative value of the annuity units of the account(s) or subaccount(s) at the
end of the business day on the next payment date. The minimum amount which may
be reallocated is the lesser of (1) $10 of monthly income or (2) the entire
monthly income of the annuity units in the account or subaccount from which the
transfer is being made. If the monthly income of the annuity units remaining in
an account or subaccount after a reallocation is less than $10, PFL reserves
the right to include the value of those annuity units as part of the transfer.
The request must be in writing to PFL's administrative and service office.
There is no charge assessed in connection with such reallocation. A
reallocation of annuity units may be made up to four times in any given policy
year.
-11-
<PAGE>
After the annuity commencement date, no transfers may be made from the fixed
account to the separate account.
Annuity Payment Options
During the lifetime of the annuitant and prior to the annuity commencement
date, the owner may choose an annuity payment option or change the election,
but written notice of any election or change of election must be received by
PFL at its administrative and service office at least thirty (30) days prior to
the annuity commencement date. If no election is made prior to the annuity
commencement date, annuity payments will be made under (i) Payment Option 3,
life income with fixed (level) payments for 10 years certain, using the
existing adjusted policy value of the fixed account, or (ii) under Payment
Option 3, life income with variable payments for 10 years certain using the
existing policy value of the separate account, or (iii) in a combination of (i)
and (ii).
The person who elects an annuity payment option can also name one or more
successor payees to receive any unpaid amount PFL has at the death of a payee.
Naming these payees cancels any prior choice of a successor payee.
A payee who did not elect the annuity payment option does not have the right to
advance or assign payments, take the payments in one sum, or make any other
change. However, the payee may be given the right to do one or more of these
things if the person who elects the option tells PFL in writing and PFL agrees.
Variable Payment Options. The dollar amount of the first variable annuity
payment will be determined in accordance with the annuity payment rates set
forth in the applicable table contained in the policy. The tables are based on
a 5% effective annual Assumed Investment Return and the "1983 Table a" (male,
female, and unisex if required by law) mortality table with projection using
projection Scale G factors, assuming a maturity date in the year 2000. ("The
1983 Table a" mortality rates are adjusted based on improvements in mortality
since 1983 to more appropriately reflect increased longevity. This is
accomplished using a set of improvement factors referred to as projection scale
G.) The dollar amount of additional variable annuity payments will vary based
on the investment performance of the subaccount(s) of the separate account
selected by the annuitant or beneficiary.
Determination of the First Variable Payment. The amount of the first variable
payment depends upon the sex (if consideration of sex is allowed under state
law) and adjusted age of the annuitant. The adjusted age is the annuitant's
actual age nearest birthday, on the annuity commencement date, adjusted as
follows:
<TABLE>
<CAPTION>
Annuity Commencement Date Adjusted Age
------------------------- ------------
<C> <S>
Before 2001 Actual Age
2001-2010 Actual Age minus 1
2011-2020 Actual Age minus 2
2021-2030 Actual Age minus 3
2031-2040 Actual Age minus 4
After 2040 As determined by PFL
</TABLE>
This adjustment assumes an increase in life expectancy, and therefore it
results in lower payments than without such an adjustment.
Determination of Additional Variable Payments. All variable annuity payments
other than the first are calculated using annuity units which are credited to
the policy. The number of annuity units to be credited in respect of a
particular subaccount is determined by dividing that portion of the first
variable annuity payment attributable to that subaccount by the annuity unit
value of that subaccount on the
-12-
<PAGE>
annuity commencement date. The number of annuity units of each particular
subaccount credited to the policy then remains fixed, assuming no transfers to
or from that subaccount occur. The dollar value of variable annuity units in
the chosen subaccount will increase or decrease reflecting the investment
experience of the chosen subaccount. The dollar amount of each variable annuity
payment after the first may increase, decrease or remain constant, and is equal
to the sum of the amounts determined by multiplying the number of annuity units
of each particular subaccount credited to the policy by the annuity unit value
for the particular subaccount on the date the payment is made.
Death Benefit
Adjusted Partial Withdrawal. The amount of your guaranteed minimum death
benefit is reduced due to a partial withdrawal called the adjusted partial
withdrawal. The reduction amount depends on the relationship between your
guaranteed minimum death benefit and policy value. The adjusted partial
withdrawal is the sum of (1) and (2), where:
(1) The surrender charge-free withdrawal amount taken; and
(2) The amount that an excess partial withdrawal (the portion of a
withdrawal that can be subject to a surrender charge) reduces the
policy value times [(a) divided by (b)] where:
(a) is the amount of the death benefit prior to the excess partial
withdrawal; and
(b) is the policy value prior to the excess partial withdrawal.
The following examples describe the effect of a withdrawal on the guaranteed
minimum death benefit and policy value.
EXAMPLE 1
(Assumed Facts for Example)
<TABLE>
- ------------------------------------------------------------------------------
<C> <S>
$75,000 current guaranteed minimum death benefit before withdrawal
- ------------------------------------------------------------------------------
$50,000 current policy value before withdrawal
- ------------------------------------------------------------------------------
current death benefit (larger of policy value and guaranteed minimum
$75,000 death benefit)
- ------------------------------------------------------------------------------
6% current surrender charge percentage
- ------------------------------------------------------------------------------
$15,000 requested withdrawal
- ------------------------------------------------------------------------------
surrender charge-free amount (assumes 20% cumulative free percentage
$10,000 is available)
- ------------------------------------------------------------------------------
$ 5,000 excess partial withdrawal (amount subject to surrender charge)
- ------------------------------------------------------------------------------
excess interest adjustment (assumes interest rates have decreased
$ 100 since initial guarantee)
- ------------------------------------------------------------------------------
$ 294 surrender charge on (excess partial withdrawal less excess interest
adjustment) = 0.06*(5000--100)
- ------------------------------------------------------------------------------
reduction in policy value due to excess partial withdrawal = 5000 -
$ 5,194 100 + 294
- ------------------------------------------------------------------------------
$17,791 adjusted partial withdrawal = $10,000 + [$5,194* (75,000/50,000)]
- ------------------------------------------------------------------------------
New guaranteed minimum death benefit (after withdrawal) = 75,000 -
$57,209 17,791
- ------------------------------------------------------------------------------
$34,806 New policy value (after withdrawal) = 50,000 - 10,000 - 5,194
</TABLE>
<TABLE>
<C> <S>
Summary:
Reduction in guaranteed minimum death benefit = $17,791
Reduction in policy value = $15,194
</TABLE>
Note, guaranteed minimum death benefit is reduced more than the policy value
since the guaranteed minimum death benefit was greater than the policy value
just prior to the withdrawal.
-13-
<PAGE>
EXAMPLE 2
(Assumed Facts for Example)
<TABLE>
- -------------------------------------------------------------------------------
<C> <S>
$50,000 current guaranteed minimum death benefit before withdrawal
- -------------------------------------------------------------------------------
$75,000 current policy value before withdrawal
- -------------------------------------------------------------------------------
current death benefit (larger of policy value and guaranteed minimum
$75,000 death benefit)
- -------------------------------------------------------------------------------
6% current surrender charge percentage
- -------------------------------------------------------------------------------
$15,000 requested withdrawal
- -------------------------------------------------------------------------------
surrender charge-free amount (assumes 15% cumulative free percentage
$11,250 is available)
- -------------------------------------------------------------------------------
$3,750 excess partial withdrawal (amount subject to surrender charge)
- -------------------------------------------------------------------------------
excess interest adjustment--(assumes interest rates have increased
$ -- 100 since initial guarantee)
- -------------------------------------------------------------------------------
$ 231 surrender charge on (excess partial withdrawal less excess interest
adjustment) = 0.06*[(3750 -- ( -- 100)]
- -------------------------------------------------------------------------------
$4,081 reduction in policy value due to EPW = 3750 -- ( -- 100) + 231 =
3750 + 100 + 231
- -------------------------------------------------------------------------------
$15,331 Adjusted Partial Withdrawal = $11,250 +[$4,081* (75,000/75,000)]
- -------------------------------------------------------------------------------
New guaranteed minimum death benefit (after withdrawal) = 50,000 --
$34,669 15,331
- -------------------------------------------------------------------------------
$59,669 New policy value (after withdrawal) = 75,000 -- 11,250 -- 4,081
</TABLE>
<TABLE>
<C> <S>
Summary:
Reduction in guaranteed minimum death benefit = $15,331
Reduction in policy value = $15,331
</TABLE>
Note, the guaranteed minimum death benefit and policy value are reduced by the
same amount since the policy value was higher than the guaranteed minimum death
benefit just prior to the withdrawal.
Due proof of death of the annuitant is proof that the annuitant who is the
owner died prior to the commencement of annuity payments. A certified copy of a
death certificate, a certified copy of a decree of a court of competent
jurisdiction as to the finding of death, a written statement by the attending
physician, or any other proof satisfactory to PFL, will constitute due proof of
death. Upon receipt of this proof and an election of a method of settlement and
return of the policy, the death benefit generally will be paid within seven
days, or as soon thereafter as PFL has sufficient information about the
beneficiary to make the payment. The beneficiary may receive the amount payable
in a lump sum cash benefit, or, subject to any limitation under any state or
federal law, rule, or regulation, under one of the annuity payment options
described above, unless a settlement agreement is effective at the death of the
owner preventing such election.
Distribution Requirements. If the annuitant was the owner, and the beneficiary
was not the annuitant's spouse, the death benefit must (1) be distributed
within five years of the date of the deceased owner's death, or (2) payments
under an annuity payment option must begin no later than one year after the
deceased owner's death and must be made for the beneficiary's lifetime or for a
period certain (so long as any period certain does not exceed the beneficiary's
life expectancy). Death Proceeds which are not paid to or for the benefit of a
natural person must be distributed within five years of the date of the
deceased owner's death. If the sole beneficiary is the deceased owner's
surviving spouse, such spouse may elect to continue the policy as the new
annuitant and owner instead of receiving the death benefit. (See "Certain
Federal Income Tax Consequences.")
-14-
<PAGE>
If the annuitant is not the owner, and the owner dies prior to the annuity
commencement date, a successor owner may surrender the policy at any time for
the amount of the adjusted policy value. If the successor owner is not the
deceased owner's spouse, however, the adjusted policy value must be
distributed: (1) within five years after the date of the deceased owner's
death, or (2) payments under an annuity payment option must begin no later than
one year after the deceased owner's death and must be made for the successor
owner's lifetime or for a period certain (so long as any period certain does
not exceed the successor owner's life expectancy).
Beneficiary. The beneficiary designation in the application will remain in
effect until changed. The owner may change the designated beneficiary by
sending written notice to PFL. The beneficiary's consent to such change is not
required unless the beneficiary was irrevocably designated or law requires
consent. (If an irrevocable beneficiary dies, the owner may then designate a
new beneficiary.) The change will take effect as of the date the owner signs
the written notice, whether or not the owner is living when the notice is
received by PFL. PFL will not be liable for any payment made before the written
notice is received. If more than one beneficiary is designated, and the owner
fails to specify their interests, they will share equally.
Death of Owner
Federal tax law requires that if any owner (including any joint owner or any
successor owner who has become a current owner) dies before the annuity
commencement date, then the entire value of the policy must generally be
distributed within five years of the date of death of such owner. Certain rules
apply where (1) the spouse of the deceased owner is the sole beneficiary, (2)
the owner is not a natural person and the primary annuitant dies or is changed,
or (3) any owner dies after the annuity commencement date. See "Certain Federal
Income Tax Consequences" below for more information about these rules. Other
rules may apply to qualified policies.
Assignment
During the lifetime of the annuitant the owner may assign any rights or
benefits provided by the policy if your policy is a nonqualified policy. An
assignment will not be binding on PFL until a copy has been filed at its
administrative and service office. The rights and benefits of the owner and
beneficiary are subject to the rights of the assignee. PFL assumes no
responsibility for the validity or effect of any assignment. Any claim made
under an assignment shall be subject to proof of interest and the extent of the
assignment. An assignment may have tax consequences.
Unless you so direct by filing written notice with PFL, no beneficiary may
assign any payments under the policy before they are due. To the extent
permitted by law, no payments will be subject to the claims of any
beneficiary's creditors.
Ownership under qualified policies is restricted to comply with the Code.
Evidence of Survival
PFL reserves the right to require satisfactory evidence that a person is alive
if a payment is based on that person being alive. No payment will be made until
PFL receives such evidence.
Non-Participating
The policy will not share in PFL's surplus earnings; no dividends will be paid.
Amendments
No change in the policy is valid unless made in writing by PFL and approved by
one of PFL's officers. No registered representative has authority to change or
waive any provision of the policy.
-15-
<PAGE>
PFL reserves the right to amend the policy to meet the requirements of the
Code, regulations or published rulings. You can refuse such a change by giving
written notice, but a refusal may result in adverse tax consequences.
Employee and Agent Purchases
The policy may be acquired by an employee or registered representative of any
broker/dealer authorized to sell the policy or their spouse or minor children,
or by an officer, director, trustee or bona-fide full-time employee of PFL or
its affiliated companies or their spouse or minor children. In such a case, PFL
may credit an amount equal to a percentage of each premium payment to the
policy due to lower acquisition costs PFL experiences on those purchases. The
credit will be reported to the Internal Revenue Service as taxable income to
the employee or registered representative. PFL may offer certain employer
sponsored savings plans, in its discretion, reduced fees and charges including,
but not limited to, the annual service charge, the surrender charges, the
mortality and expense risk fee and the administrative charge for certain sales
under circumstances which may result in savings of certain costs and expenses.
In addition, there may be other circumstances of which PFL is not presently
aware which could result in reduced sales or distribution expenses. Credits to
the policy or reductions in these fees and charges will not be unfairly
discriminatory against any owner.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following summary does not constitute tax advice. It is a general
discussion of certain of the expected federal income tax consequences of
investment in and distributions with respect to a policy, based on the Internal
Revenue Code of 1986, as amended, proposed and final Treasury Regulations
thereunder, judicial authority, and current administrative rulings and
practice. This summary discusses only certain federal income tax consequences
to "United States Persons," and does not discuss state, local, or foreign tax
consequences. United States Persons means citizens or residents of the United
States, domestic corporations, domestic partnerships and trusts or estates that
are subject to United States federal income tax regardless of the source of
their income.
Tax Status of the Policy
The following discussion is based on the assumption that the policy qualifies
as an annuity contract for federal income tax purposes.
Diversification Requirements. Section 817(h) of the Code provides that in order
for a variable contract which is based on a segregated asset account to qualify
as an annuity contract under the Code, the investments made by such account
must be "adequately diversified" in accordance with Treasury regulations. The
Treasury regulations issued under Section 817(h) (Treas. Reg. ((S)) 1.817-5)
apply a diversification requirement to each of the subaccounts of the separate
account. The separate account, through the underlying funds and their
portfolios, intends to comply with the diversification requirements of the
Treasury. PFL has entered into agreements regarding participation in the
Retirement Income Builder II that require the underlying funds and their
portfolios to be operated in compliance with the Treasury regulations.
Owner Control. In certain circumstances, owners of variable annuity contracts
may be considered the owners, for Federal income tax purposes, of the assets of
the separate account used to support their contracts. In those circumstances,
income and gains from the separate account assets would be includable in the
variable annuity contractowner's gross income. Several years ago, the IRS state
in published rulings that a variable contract owner will be considered the
owner of separate account assets if the contractowner possesses incidents of
ownership in those assets, such as the ability to exercise investment control
over the assets. More recently, the Treasury Department announced, in
connection
-16-
<PAGE>
with the issuance of regulations concerning investment diversification, that
those regulations "do not provide guidance concerning the circumstances in
which investor control of the investments of a segregated asset account may
cause the investor, rather than the insurance company, to be treated as the
owner of the assets in the account." This announcement also stated that
guidance would be issued by way of regulations or rulings on the "extent to
which policyholders may direct their investments to particular subaccounts
without being treated as owners of underlying assets."
The ownership rights under the contract are similar to, but different in
certain respects from those described by the IRS in rulings in which it was
determined that contractowners were not owners of separate account assets. For
example, the owner of a policy has the choice of one or more subaccounts in
which to allocate premiums and policy values, and may be able to transfer among
these accounts more frequently than in such rulings. These differences could
result in policyowners being treated as the owners of the assets of the
separate account. In addition, PFL does not know what standards will be set
forth, if any, in the regulations or rulings which the Treasury Department has
stated it expects to issue. PFL therefore reserves the right to modify the
policies as necessary to attempt to prevent the policyowners from being
considered the owners of a pro rata share of the assets of the separate
account.
Distribution Requirements. The Code also requires that nonqualified policies
contain specific provisions for distribution of policy proceeds upon the death
of any owner. In order to be treated as an annuity contract for federal income
tax purposes, the Code requires that such policies provide that if any owner
dies on or after the annuity commencement date and before the entire interest
in the policy has been distributed, the remaining portion must be distributed
at least as rapidly as under the method in effect on such owner's death. If any
owner dies before the annuity commencement date, the entire interest in the
policy must generally be distributed within 5 years after such owner's date of
death or be applied to provide an immediate annuity under which payments will
begin within one year of such owner's death and will be made for the life of
the beneficiary or for a period not extending beyond the life expectancy of the
beneficiary. However, if such owner's death occurs prior to the annuity
commencement date, and such owner's surviving spouse is named the beneficiary,
then the policy may be continued with the surviving spouse as the new owner. If
any owner is not a natural person, then for purposes of these distribution
requirements, the primary annuitant shall be treated as the owner and any death
or change of such primary annuitant shall be treated as the death of an owner.
The policy contains provisions intended to comply with these requirements of
the Code. No regulations interpreting these requirements of the Code have yet
been issued and thus no assurance can be given that the provisions contained in
the policies satisfy all such Code requirements. The provisions contained in
the policies will be reviewed and modified if necessary to maintain their
compliance with the Code requirements when clarified by regulation or
otherwise.
Withholding. The portion of any distribution under a policy that is includable
in gross income will be subject to federal income tax withholding unless the
recipient of such distribution elects not to have federal income tax withheld.
Election forms will be provided at the time distributions are requested or
made. The withholding rate varies according to the type of distribution and the
owner's tax status. For qualified policies, "eligible rollover distributions"
from Section 401(a) plans, Section 403(a) annuities, and Section 403(b) tax-
sheltered annuities are subject to a mandatory federal income tax withholding
of 20%. An eligible rollover distribution is the taxable portion of any
distribution from such a plan, except certain distributions such as
distributions required by the Code or distributions in a specified annuity
form. The 20% withholding does not apply, however, if the owner chooses a
"direct rollover" from the plan to another tax-qualified plan or IRA. Different
withholding requirements may apply in the case of non-United States persons.
Qualified Policies. The qualified policy is designed for use with several types
of tax-qualified retirement plans. The tax rules applicable to participants and
beneficiaries in tax-qualified retirement plans vary
-17-
<PAGE>
according to the type of plan and the terms and conditions of the plan. Special
favorable tax treatment may be available for certain types of contributions and
distributions. Adverse tax consequences may result from contributions in excess
of specified limits; distributions prior to age 59 1/2 (subject to certain
exceptions); distributions that do not conform to specified commencement and
minimum distribution rules; and in other specified circumstances. Some
retirement plans are subject to distribution and other requirements that are
not incorporated into the policies or PFL's Policy administration procedures.
Owners, participants and beneficiaries are responsible for determining that
contributions, distributions and other transactions with respect to the
policies comply with applicable law.
For qualified plans under section 401(a), 403(a), 403(b), and 457, the Code
requires that distributions generally must commence no later than the later of
April 1 of the calendar year following the calendar year in which the owner (or
plan participant) (i) reaches age 70 1/2 or (ii) retires, and must be made in a
specified form or manner. If the plan participant is a "5 percent owner" (as
defined in the Code), or if the policy is a traditional individual retirement
annuity, then distributions generally must begin no later than April 1 of the
calendar year in which the owner (or plan participant) reaches age 70 1/2. Each
owner is responsible for requesting distributions under the policy that satisfy
applicable tax rules.
PFL makes no attempt to provide more than general information about use of the
policy with the various types of retirement plans. Purchasers of policies for
use with any retirement plan should consult their legal counsel and tax adviser
regarding the suitability of the policy.
Individual Retirement Annuities. In order to qualify as a traditional
individual retirement annuity under Section 408(b) of the Code, a policy must
contain certain provisions: (i) the owner must be the annuitant; (ii) the
policy generally is not transferable by the owner, e.g., the owner may not
designate a new owner, designate a contingent owner or assign the policy as
collateral security; (iii) the total premium payments for any calendar year on
behalf of any individual may not exceed $2,000, except in the case of a
rollover amount or contribution under Sections 402(c), 403(a)(4), 403(b)(8) or
408(d)(3) of the Code; (iv) annuity payments or partial withdrawals must begin
no later than April 1 of the calendar year following the calendar year in which
the annuitant attains age 70 1/2; (v) an annuity payment option with a period
certain that will guarantee annuity payments beyond the life expectancy of the
annuitant and the beneficiary may not be selected; (vi) certain payments of
death benefits must be made in the event the annuitant dies prior to the
distribution of the policy value; and (vii) the entire interest of the owner is
non-forfeitable. Policies intended to qualify as traditional individual
retirement annuities under Section 408(b) of the Code contain such provisions.
Amounts in the IRA (other than nondeductible contributions) are taxed when
distributed from the IRA. Distributions prior to age 59 1/2 (unless certain
exceptions apply) are subject to a 10% penalty tax.
No part of the funds for an individual retirement account (including a Roth
IRA) or annuity may be invested in a life insurance contract, but the
regulations thereunder allow such funds to be invested in an annuity policy
that provides a death benefit that equals the greater of the premiums paid or
the cash value for the contract. The policy provides an enhanced death benefit
that could exceed the amount of such a permissible death benefit, but it is
unclear to what extent such an enhanced death benefit could disqualify the
policy as an IRA. The Internal Revenue Service has not reviewed the policy for
qualification as an IRA, and has not addressed in a ruling of general
applicability whether an enhanced death benefit provision, such as the
provision in the policy, comports with IRA qualification requirements.
Roth Individual Retirement Annuities (Roth IRA). The Roth IRA, under Section
408A of the Code, contains many of the same provisions as a traditional IRA.
However, there are some differences. First, the contributions are not
deductible and must be made in cash or as a rollover or transfer from another
Roth IRA or other IRA. A rollover from or conversion of an IRA to a Roth IRA
may be subject to tax and other special rules may apply to the rollover or
conversion and to distributions attributable thereto. You should consult a tax
adviser before combining any converted amounts with any other Roth IRA
-18-
<PAGE>
contributions, including any other conversion amounts from other tax years. The
Roth IRA is available to individuals with earned income and whose modified
adjusted gross income is under $110,000 for single filers, $160,000 for married
filing jointly, and $10,000 for married filing separately. The amount per
individual that may be contributed to all IRAs (Roth and traditional) is
$2,000. Secondly, the distributions are taxed differently. The Roth IRA offers
tax-free distributions when made 5 tax years after the first contribution to
any Roth IRA of the individual and made after attaining age 59 1/2, or to pay
for qualified first time homebuyer expenses (lifetime maximum of $10,000), or
due to death or disability. All other distributions are subject to income tax
when made from earnings and may be subject to a premature withdrawal penalty
tax unless an exception applies. Unlike the traditional IRA, there are no
minimum required distributions during the owner's lifetime; however, required
distributions at death are generally the same.
Section 403(b) Plans. Under Section 403(b) of the Code, payments made by public
school systems and certain tax exempt organizations to purchase policies for
their employees are excludable from the gross income of the employee, subject
to certain limitations. However, such payments may be subject to FICA (Social
Security) taxes. The policy includes a death benefit that in some cases may
exceed the greater of the premium payments or the policy value. The death
benefit could be characterized as an incidental benefit, the amount of which is
limited in any tax-sheltered annuity under section 403(b). Because the death
benefit may exceed this limitation, employers using the policy in connection
with such plans should consult their tax adviser. Additionally, in accordance
with the requirements of the Code, Section 403(b) annuities generally may not
permit distribution of (i) elective contributions made in years beginning after
December 31, 1988, (ii) earnings on those contributions, and (iii) earnings on
amounts attributed to elective contributions held as of the end of the last
year beginning before January 1, 1989. Distributions of such amounts will be
allowed only upon the death of the employee, on or after attainment of age 59
1/2, separation from service, disability, or financial hardship, except that
income attributable to elective contributions may not be distributed in the
case of hardship.
Corporate Pension and Profit Sharing Plans and H.R. 10 Plans. Sections 401(a)
and 403(a) of the Code permit corporate employers to establish various types of
retirement plans for employees and self-employed individuals to establish
qualified plans for themselves and their employees. Such retirement plans may
permit the purchase of the policies to accumulate retirement savings. Adverse
tax consequences to the plan, the participant or both may result if the policy
is assigned or transferred to any individual as a means to provide benefit
payments. The policy includes a death benefit that in some cases may exceed the
greater of the premium payments or the policy value. The death benefit could be
characterized as an incidental benefit, the amount of which is limited in an
pension or profit-sharing plan. Because the death benefit may exceed this
limitation, employers using the policy in connection with such plans should
consult their tax adviser.
Deferred Compensation Plans. Section 457 of the Code, while not actually
providing for a qualified plan (as that term is used in the Code), provides for
certain deferred compensation plans with respect to service for state
governments, local governments, political subdivisions, agencies,
instrumentalities and certain affiliates of such entities, and tax exempt
organizations. The policies can be used with such plans. Under such plans a
participant may specify the form of investment in which his or her
participation will be made. For non-governmental Section 457 plans, all such
investments, however, are owned by the sponsoring employer, and are subject to
the claims of the general creditors of the sponsoring employer. Depending on
the terms of the particular plan, a non-governmental employer may be entitled
to draw on deferred amounts for purposes unrelated to its Section 457 plan
obligations. In general, all amounts received under a Section 457 plan are
taxable and are subject to federal income tax withholding as wages.
Non-natural Persons. Pursuant to Section 72(u) of the Code, an annuity contract
held by a taxpayer other than a natural person generally will not be treated as
an annuity contract under the Code; accordingly,
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<PAGE>
an owner who is not a natural person will recognize as ordinary income for a
taxable year the excess of (i) the sum of the cash value as of the close of
the taxable year and all previous distributions under the policy over (ii) the
sum of the premium payments paid for the taxable year and any prior taxable
year and the amounts includable in gross income for any prior taxable year
with respect to the policy. For these purposes, the policy value at year end
may have to be increased by any positive excess interest adjustment which
could result from a full surrender at such time. There is, however, no
definitive guidance on the proper tax treatment of excess interest adjustments
and the owner should contact a competent tax adviser with respect to the
potential tax consequences of an excess interest adjustment. Notwithstanding
the preceding sentences in that paragraph, Section 72(u) of the Code does not
apply to (i) a policy where the nominal owner is not a natural person but the
beneficial owner of which is a natural person, (ii) a policy acquired by the
estate of a decedent by reason of such decedent's death, (iii) a qualified
policy (other than one qualifying under Section 457) or (iv) a single-payment
annuity where the Commencement Date is no later than one year from the date of
the single premium payment; such policies are taxed as described above under
the heading "Taxation of Annuities."
Taxation of PFL
PFL at present is taxed as a life insurance company under part I of Subchapter
L of the Code. The separate account is treated as part of PFL and,
accordingly, will not be taxed separately as a "regulated investment company"
under Subchapter M of the Code. PFL does not expect to incur any federal
income tax liability with respect to investment income and net capital gains
arising from the activities of the separate account retained as part of the
reserves under the policy. Based on this expectation, it is anticipated that
no charges will be made against the separate account for federal income taxes.
If, in future years, any federal income taxes are incurred by PFL with respect
to the separate account, PFL may make a charge to the separate account.
INVESTMENT EXPERIENCE
A "Net Investment Factor" is used to determine the value of accumulation units
and annuity units, and to determine annuity payment rates.
Accumulation Units
Allocations of a premium payment directed to a subaccount are credited in the
form of accumulation units. Each subaccount has a distinct accumulation unit
value. The number of units credited is determined by dividing the premium
payment or amount transferred to the subaccount by the accumulation unit value
of the subaccount as of the end of the valuation period during which the
allocation is made. For each subaccount, the accumulation unit value for a
given business day is based on the net asset value of a share of the
corresponding portfolio of the underlying funds less any applicable charges or
fees. The investment performance of the portfolio, expenses, and deductions of
certain charges affect the value of an accumulation unit.
Upon allocation to the selected subaccount of the separate account, premium
payments are converted into accumulation units of the subaccount. The number
of accumulation units to be credited is determined by dividing the dollar
amount allocated to each subaccount by the value of an accumulation unit for
that subaccount as next determined after the premium payment is received at
the administrative and service office or, in the case of the initial premium
payment, when the application is completed, whichever is later. The value of
an accumulation unit was arbitrarily established at $1.000000 at the inception
of each subaccount. Thereafter, the value of an accumulation unit is
determined as of the close of trading on each day the New York Stock Exchange
is open for business.
-20-
<PAGE>
An index (the "Net Investment Factor") which measures the investment
performance of a subaccount during a valuation period, is used to determine the
value of an accumulation unit for the next subsequent valuation period. The Net
Investment Factor may be greater or less than or equal to one; therefore, the
value of an accumulation unit may increase, decrease or remain the same from
one valuation period to the next. The owner bears this investment risk. The net
investment performance of a subaccount and deduction of certain charges affect
the accumulation unit value.
The Net Investment Factor for any subaccount for any valuation period is
determined by dividing (a) by (b) and subtracting (c) from the result, where:
(a) is the net result of:
(1) the net asset value per share of the shares held in the subaccount
determined at the end of the current valuation period, plus
(2) the per share amount of any dividend or capital gain distribution
made with respect to the shares held in the subaccount if the ex-
dividend date occurs during the current valuation period, plus or minus
(3) a per share credit or charge for any taxes determined by PFL to
have resulted from the investment operations of the subaccount;
(b) the net asset value per share of the shares held in the subaccount
determined as of the end of the immediately preceding valuation period; and
(c) is the charge for mortality and expense risk during the valuation
period (equal on an annual basis to 1.10% for the Return of Premium Death
Benefit and 1.25% for both the 5% Annually Compounding Death Benefit or the
Annual Step-Up Death Benefit) of the daily net asset value of the
subaccount, plus the .15% administrative charge for all three death benefit
options.
-21-
<PAGE>
Illustration of Accumulation Unit Value Calculations
Formula and Illustration for Determining the Net Investment Factor
(Assume Either the 5% Annually Compounding Death Benefit or
the Annual Step-Up Death Benefit is in effect.)
Investment Experience Factor = (A + B - C) - E
-------------
D
<TABLE>
<C> <S> <C>
Where: A = The Net Asset Value of an underlying fund share as of the end
of the current valuation period.
Assume.......................................... A = $11.57
B = The per share amount of any dividend or capital gains
distribution since the end of the immediately preceding
valuation period.
Assume.......................................... B = 0
C = The per share charge or credit for any taxes reserved for at
the end of the current valuation period.
Assume.......................................... C = 0
D = The Net Asset Value of an underlying fund share at the end of
the immediately preceding valuation period.
Assume.......................................... D = $11.40
E = The daily deduction for mortality and expense risk fee and
administrative charges, which totals 1.40% on an annual basis.
On a daily basis................................ = .0000380909
</TABLE>
Then, the Investment Experience Factor = (11.57 + 0 - 0) - .0000380909 = Z =
1.0148741898 -----------------
11.40
Formula and Illustration for Determining Accumulation Unit Value
Accumulation Unit Value = A * B
<TABLE>
<C> <S> <C>
Where: A = The accumulation unit value for the immediately preceding
valuation period.
Assume...................................................... = $X
B = The Net Investment Factor for the current valuation period.
Assume...................................................... = Y
</TABLE>
Then, the accumulation unit value = $X * Y = $Z
Annuity Unit Value and Annuity Payment Rates
The amount of variable annuity payments will vary with annuity unit values.
Annuity unit values rise if the net investment performance of the subaccount
exceeds the assumed interest rate of 5% annually. Conversely, annuity unit
values fall if the net investment performance of the subaccount is less than
the assumed rate. The value of a variable annuity unit in each subaccount was
established at $1.00 on the date operations began for that subaccount. The
value of a variable annuity unit on any subsequent business day is equal to (a)
multiplied by (b) multiplied by (c), where:
(a) is the variable annuity unit value for that subaccount on the
immediately preceding business day;
(b) is the net investment factor for that subaccount for the valuation
period; and
-22-
<PAGE>
(c) is the investment result adjustment factor for the valuation period.
The investment result adjustment factor for the valuation period is the product
of discount factors of .99986634 per day to recognize the 5% effective annual
Assumed Investment Return. The valuation period is the period from the close of
the immediately preceding business day to the close of the current business
day.
The net investment factor for the policy used to calculate the value of a
variable annuity unit in each subaccount for the valuation period is determined
by dividing (i) by (ii) and subtracting (iii) from the result, where:
(i) is the result of:
(1) the net asset value of a fund share held in that subaccount
determined at the end of the current valuation period; plus
(2) the per share amount of any dividend or capital gain distributions
made by the fund for shares held in that subaccount if the ex-dividend
date occurs during the valuation period; plus or minus
(3) a per share charge or credit for any taxes reserved for, which PFL
determines to have resulted from the investment operations of the
subaccount.
(ii) is the net asset value of a fund share held in that subaccount
determined as of the end of the immediately preceding valuation period.
(iii) is a factor representing the mortality and expense risk fee and
administrative charge. This factor is equal, on an annual basis, to 1.25%
(for the Return of Premium Death Benefit) or 1.40% (for the 5% Annually
Compounding Death Benefit and the Annual Step-Up Death Benefit) of the
daily net asset value of a fund share held in that subaccount.
The dollar amount of subsequent variable annuity payments will depend upon
changes in applicable annuity unit values.
The annuity payment rates vary according to the annuity option elected and the
sex and adjusted age of the annuitant at the annuity commencement date. The
policy also contains a table for determining the adjusted age of the annuitant.
Illustration of Calculations for Annuity Unit Value
and Variable Annuity Payments
Formula and Illustration for Determining Annuity Unit Value
Annuity Unit Value = A * B * C
<TABLE>
<C> <S> <C>
Where: A = Annuity unit value for the immediately preceding valuation period.
Assume..............................................= $X
B = Investment Experience Factor for the valuation period for which the
annuity unit value is being calculated.
Assume...............................................= Y
C = A factor to neutralize the assumed interest rate of 5% built into the
Annuity Tables used.
Assume...............................................= Z
</TABLE>
Then, the annuity unit value is: $X * Y * Z = $Q
-23-
<PAGE>
Formula and Illustration for Determining Amount of
First Monthly Variable Annuity Payment
First monthly variable annuity payment = A * B
-------
$1,000
<TABLE>
<C> <S>
Where: A = The policy value as of the annuity commencement date.
Assume..........................................= $X
B = The Annuity purchase rate per $1,000 based upon the option
selected, the sex and adjusted age of the annuitant according to
the tables contained in the policy.
Assume..........................................= $Y
</TABLE>
Then, the first monthly variable annuity payment = $X * $Y = $Z
-------
1,000
Formula and Illustration for Determining the Number of Annuity Units
Represented by Each Monthly Variable Annuity Payment
Number of annuity units = A
---
B
<TABLE>
<C> <S> <C>
Where: A = The dollar amount of the first monthly variable annuity payment.
Assume............................................= $X
B = The annuity unit value for the valuation date on which the first
monthly payment is due.
Assume............................................= $Y
</TABLE>
Then, the number of annuity units = $X = Z
--
$Y
-24-
<PAGE>
FAMILY INCOME PROTECTOR--ADDITIONAL INFORMATION
The amounts shown below are hypothetical guaranteed minimum monthly payment
amounts under the "family income protector" for a $100,000 premium when annuity
payments do not begin until the rider anniversary indicated in the left-hand
column. These figures assume the following:
. there were no subsequent premium payments or withdrawals;
. there were no premium taxes;
. the $100,000 premium is subject to the family income protector;
. the annuitant is (or both annuitants are) 60 years old when the rider is
issued;
. the annual growth rate is 6.0% (once established an annual growth rate
will not change during the life of the family income protector rider);
and
. there was no upgrade of the minimum annuitization value.
Six different annuity payment options are illustrated: a male annuitant, a
female annuitant and a joint and survivor annuity, each on a Life Only and a
Life with 10 Year Certain basis. The figures below, which are the amount of the
first monthly payment, are based on an assumed investment return of 3%.
Subsequent payments will never be less than the amount of the first payment
(although subsequent payments are calculated using a 5% assumed investment
return).
Life Only = Life Annuity with No Period Certain
Life 10 = Life Annuity with 10 Years
Certain
<TABLE>
<CAPTION>
Rider Anniversary at
Exercise Date Male Female Joint & Survivor
- ------------------------------------------------------------------------------
Life Only Life 10 Life Only Life 10 Life Only Life 10
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
10 (age 70) $1,135 $1,067 $ 976 $ 949 $ 854 $ 852
- ------------------------------------------------------------------------------
15 1,833 1,634 1,562 1,469 1,332 1,318
- ------------------------------------------------------------------------------
20 (age 80) 3,049 2,479 2,597 2,286 2,145 2,078
</TABLE>
This hypothetical illustration should not be deemed representative of past or
future performance of any underlying variable investment option.
Withdrawals will affect the minimum annuitization value as follows: Each policy
year, withdrawals up to the limit of the total free amount (the minimum
annuitization value on the last policy anniversary multiplied by the annual
growth rate) reduce the minimum annuitization value on a dollar-for-dollar
basis. Withdrawals over this free amount will reduce the minimum annuitization
value on a pro rata basis by an amount equal to the minimum annuitization value
immediately prior to the excess withdrawal multiplied by the percentage
reduction in the policy value resulting from the excess withdrawal. The free
amount will always be a relatively small fraction of the minimum annuitization
value.
-25-
<PAGE>
Examples of the effect of withdrawals on the minimum annuitization value are as
follows:
EXAMPLE 1
Assumptions
<TABLE>
- -----------------------------------------------------------------------------
<S> <C>
.minimum annuitization value on last policy
anniversary: $10,000
- -----------------------------------------------------------------------------
.minimum annuitization value at time of
distribution: $10,500
- -----------------------------------------------------------------------------
.policy value at time of distribution: $15,000
- -----------------------------------------------------------------------------
.distribution amount: $500
- -----------------------------------------------------------------------------
.prior distribution in current policy year: None
- -----------------------------------------------------------------------------
Calculations
- -----------------------------------------------------------------------------
.maximum annual free amount: $10,000 x 6% = $600
- -----------------------------------------------------------------------------
.policy value after distribution: $15,000-$500 = $14,500
- -----------------------------------------------------------------------------
.minimum annual value after distribution: $10,500-$500 = $10,000
EXAMPLE 2
Assumptions
- -----------------------------------------------------------------------------
.minimum annuitization value on last policy anni-
versary: $10,000
- -----------------------------------------------------------------------------
.minimum annuitization value at time of distribu-
tion: $10,500
- -----------------------------------------------------------------------------
.policy value at time of distribution: $15,000
- -----------------------------------------------------------------------------
.distribution amount: $1,500
- -----------------------------------------------------------------------------
.prior distribution in current policy year: $1,000
- -----------------------------------------------------------------------------
Calculations
- -----------------------------------------------------------------------------
.maximum annual free amount: $0.0
- -----------------------------------------------------------------------------
(prior distributions have exceeded the current
year free amount
of $600 [$10,000 x 6% = $600])
- -----------------------------------------------------------------------------
.policy value after distribution: $15,000-$1,500 = $13,500
- -----------------------------------------------------------------------------
(since the policy value is reduced 10%
($1,500/$15,000), the minimum annuitization
value is also reduced 10%)
- -----------------------------------------------------------------------------
.minimum annual value after distribution: $10,500-
(10% x $10,500) = $9,450
</TABLE>
-26-
<PAGE>
EXAMPLE 3
Assumptions
<TABLE>
- -------------------------------------------------------------------------------
<S> <C>
.minimum annuitization value on last policy anni-
versary: $10,000
- -------------------------------------------------------------------------------
.minimum annuitization value at time of distribu-
tion: $10,500
- -------------------------------------------------------------------------------
.policy value at time of distribution: $7,500
- -------------------------------------------------------------------------------
.distribution amount: $1,500
- -------------------------------------------------------------------------------
.prior distribution in current policy year: $1,000
- -------------------------------------------------------------------------------
Calculations
- -------------------------------------------------------------------------------
.maximum annual free amount: $0.0
- -------------------------------------------------------------------------------
. (prior distributions have exceeded the current
year free amount
of $600 [$10,000 x 6% = $600])
- -------------------------------------------------------------------------------
.policy value after distribution: $7,500 - $1,500 = $6,000
- -------------------------------------------------------------------------------
. (since the policy value is reduced 20%
($1,500/$7,500), the minimum annuitization value
is also reduced 20%)
- -------------------------------------------------------------------------------
.minimum annual value after distribution: $10,500 -
(20% x $10,500) = $8,400
</TABLE>
The amount of the first payment provided by the family income protector will be
determined by multiplying each $1,000 of minimum annuitization value by the
applicable annuity factor shown on Schedule I of the family income protector
rider. The applicable annuity factor depends upon the annuitant's (and joint
annuitant's, if any) sex (or without regard to gender if required by law), age,
and the family income protector payment option selected and is based on a
guaranteed interest rate of 3% and the "1983 Table a" mortality table with
projection using projection Scale G factors, assuming a maturity date in the
year 2000. Subsequent payments will be calculated as described in the family
income protector rider using a 5% assumed investment return. Subsequent
payments may fluctuate annually in accordance with the investment performance
of the annuity subaccounts. However, subsequent payments are guaranteed to
never be less than the initial payment.
The stabilized payment on each subsequent policy anniversary after
annuitization using the family income protector will equal the greater of the
initial payment or the payment supportable by the annuity units in the selected
subaccounts. The supportable payment is equal to the number of variable annuity
units in the selected subaccounts multiplied by the variable annuity unit
values in those subaccounts on the date the payment is made. The variable
annuity unit values used to calculate the supportable payment will assume a 5%
assumed investment return. If the supportable payment at any payment date
during a policy year is greater than the stabilized payment for that policy
year, the excess will be used to purchase additional annuity units. Conversely,
if the supportable payment at any payment date during a policy year is less
than the stabilized payment for that policy year, there will be a reduction in
the number of annuity units credited to the policy to fund the deficiency. In
the case of a reduction, you will not participate as fully in the future
investment performance of the subaccounts you selected since fewer annuity
units are credited to your policy. Purchases and reductions will be allocated
to each subaccount on a proportionate basis. PFL bears the risk that it will
need to make payments if all annuity units have been used in an attempt to
maintain the stabilized payment at the initial payment level. In such an event,
PFL will make all future payments equal to the initial payment. Once all the
annuity units have been used, the amount of your payment will not increase or
decrease and will not depend upon the performance of any subaccounts. To
compensate PFL for this risk, as guaranteed payment fee will be deducted.
-27-
<PAGE>
HISTORICAL PERFORMANCE DATA
Money Market Yields
PFL may from time to time disclose the current annualized yield of the
Fidelity--VIP Money Market Subaccount for a 7-day period in a manner which does
not take into consideration any realized or unrealized gains or losses on
shares of the portfolio securities. This current annualized yield is computed
by determining the net change (exclusive of realized gains and losses on the
sale of securities and unrealized appreciation and depreciation and income
other than investment income) at the end of the 7-day period in the value of a
hypothetical account having a balance of 1 unit at the beginning of the 7-day
period, dividing such net change in account value by the value of the account
at the beginning of the period to determine the base period return, and
annualizing this quotient on a 365-day basis. The net change in account value
reflects (i) net income from the portfolio attributable to the hypothetical
account; and (ii) charges and deductions imposed under a policy that are
attributable to the hypothetical account. The charges and deductions include
the per unit charges for the hypothetical account for (i) the administrative
charges; and (ii) the mortality and expense risk fee. Current Yield will be
calculated according to the following formula:
Current Yield = ((NCS * ES)/UV) * (365/7)
Where:
NCS =
The net change in the value of the portfolio (exclusive of realized
gains and losses on the sale of securities and unrealized
appreciation and depreciation and income other than investment
income) for the 7-day period attributable to a hypothetical account
having a balance of 1 subaccount unit.
ES =
Per unit expenses of the subaccount for the 7-day period.
UV =
The unit value on the first day of the 7-day period.
Because of the charges and deductions imposed under a policy, the yield for the
Fidelity--VIP Money Market Subaccount will be lower than the yield for the
Fidelity--VIP Money Market Portfolio. The yield calculations do not reflect the
effect of any premium taxes or surrender charges that may be applicable to a
particular policy. Surrender charges range from 6% to 0% of the amount of
premium payments withdrawn based on the number of years since the premium
payment was made. However, surrender charges will not be assessed after the
tenth policy year.
PFL may also disclose the effective yield of the Fidelity--VIP 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 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.
-28-
<PAGE>
The yield on amounts held in the Fidelity--VIP 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 Fidelity--VIP Money Market Subaccount actual yield is affected by
changes in interest rates on money market securities, average portfolio
maturity of the Fidelity--VIP Money Market Portfolio, the types and quality of
portfolio securities held by the Fidelity--VIP Money Market Portfolio and its
operating expenses. For the seven days ended December 31, 1999, the yield of
the Fidelity-VIP Money Market Subaccount was 4.46%, and the effective yield was
4.56% for the Return of Premium Death Benefit. For the seven days ended
December 31, 1999, the yield of the Fidelity--VIP Money Market Subaccount was
4.30%, and the effective yield was 4.39% for the 5% Annually Compounding Death
Benefit or Annual Step-Up Death Benefit.
Other Subaccount Yields
PFL may from time to time advertise or disclose the current annualized yield of
one or more of the subaccounts of the separate account (except the Fidelity
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 (i) the administrative charge and (ii) the mortality
and expense risk fee. The 30-day yield is calculated according to the following
formula:
Yield = 2 * ((((NI - ES)/(U * 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 and deductions imposed by the separate account, the
yield for a subaccount of the separate account will be lower than the yield for
its corresponding portfolio. The yield calculations do not reflect the effect
of any premium taxes or surrender charges that may be applicable to a
particular policy. Surrender charges range from 6% to 0% of the amount of
premium payments withdrawn based on the number of years since the premium
payment was made. However, surrender charges will not be assessed after the
tenth policy year.
The yield on amounts held in the subaccounts of the separate account normally
will fluctuate over time. Therefore, the disclosed yield for any given past
period is not an indication or representation of future yields or rates of
return. The types and quality of its investments and its operating expenses
affect a subaccount's actual yield.
-29-
<PAGE>
Total Returns
PFL may from time to time also advertise or disclose total returns for one or
more of the subaccounts of the separate account for various periods of time.
One of the periods of time will include the period measured from the date the
subaccount commenced operations. When a subaccount has been in operation for 1,
5 and 10 years, respectively, the total return for these periods will be
provided. Total returns for other periods of time may from time to time also be
disclosed. Total returns represent the average annual compounded rates of
return that would equate an initial investment of $1,000 to the redemption
value of that investment as of the last day of each of the periods. The ending
date for each period for which total return quotations are provided will be for
the most recent month end practicable, considering the type and media of the
communication and will be stated in the communication.
Total returns will be calculated using subaccount unit values which PFL
calculates on each business day based on the performance of the subaccount's
underlying portfolio, and the deductions for the mortality and expense risk fee
and the administrative charges. Total return calculations will reflect the
effect of surrender charges that may be applicable to a particular period. The
total return will then be calculated according to the following formula:
P (1 + T)N = ERV
Where:
T =
The average annual total return net of subaccount recurring charges.
ERV =
The ending redeemable value of the hypothetical account at the end of
the period.
P =
A hypothetical initial payment of $1,000.
N =
The number of years in the period.
Other Performance Data
PFL may from time to time also disclose average annual total returns in a non-
standard format in conjunction with the standard format described above. The
non-standard format will be identical to the standard format except that the
surrender charge percentage will be assumed to be 0%.
PFL may from time to time also disclose cumulative total returns in conjunction
with the standard format described above. The cumulative returns will be
calculated using the following formula assuming that the surrender charge
percentage will be 0%.
CTR = (ERV/P) - 1
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-standardized performance data will only be advertised if the
standardized performance data is also disclosed.
-30-
<PAGE>
Adjusted Historical Performance Data
From time to time, sales literature or advertisements may quote average annual
total returns for periods prior to the date the separate account commenced
operations. Such performance information for the subaccounts will be calculated
based on the performance of the various portfolios and the assumption that the
subaccounts were in existence for the same periods as those indicated for the
portfolios, with the level of policy charges that are currently in effect.
PUBLISHED RATINGS
PFL may from time to time publish in advertisements, sales literature and
reports to owners, the ratings and other information assigned to it by one or
more independent rating organizations such as A.M. Best Company, Standard &
Poor's Insurance Ratings Services, Moody's Investors Service and Duff & Phelps
Credit Rating Co. The purpose of the ratings is to reflect the financial
strength and/or claims-paying ability of PFL and they should not be considered
as bearing on the investment performance of assets held in the separate account
or of the safety or riskiness of an investment in the separate account. Each
year the A.M. Best Company reviews the financial status of thousands of
insurers, culminating in the assignment of Best's ratings. These ratings
reflect their current opinion of the relative financial strength and operating
performance of an insurance company in comparison to the norms of the
life/health insurance industry. In addition, the claims-paying ability of PFL
as measured by Standard & Poor's Insurance Ratings Services, Moody's Investors
Service or Duff & Phelps Credit Rating Co. may be referred to in advertisements
or sales literature or in reports to owners. These ratings are opinions of an
operating insurance company's financial capacity to meet the obligations of its
insurance policies in accordance with their terms. Claims-paying ability
ratings do not refer to an insurer's ability to meet non-policy obligations
such as debt or commercial paper obligations.
STATE REGULATION OF PFL
PFL is subject to the laws of Iowa governing insurance companies and to
regulation by the Iowa Division of Insurance. An annual statement in a
prescribed form is filed with the Division of Insurance each year covering the
operation of PFL for the preceding year and its financial condition as of the
end of such year. Regulation by the Division of Insurance includes periodic
examination to determine PFL's contract liabilities and reserves so that the
Division may determine the items are correct. PFL's books and accounts are
subject to review by the Division of Insurance at all times and a full
examination of its operations is conducted periodically by the National
Association of Insurance Commissioners. In addition, PFL is subject to
regulation under the insurance laws of other jurisdictions in which it may
operate.
ADMINISTRATION
PFL performs administrative services for the policies. These services include
issuance of the policies, maintenance of records concerning the policies, and
certain valuation services.
RECORDS AND REPORTS
All records and accounts relating to the separate account will be maintained by
PFL. As presently required by the 1940 Act and regulations promulgated
thereunder, PFL 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.
-31-
<PAGE>
DISTRIBUTION OF THE POLICIES
The policies are offered to the public through brokers licensed under the
federal securities laws and state insurance laws. The offering of the policies
is continuous and PFL does not anticipate discontinuing the offering of the
policies, however, PFL reserves the right to do so.
AFSG Securities Corporation, an affiliate of PFL, is the principal underwriter
of the policies and may enter into agreements with broker-dealers for the
distribution of the policies. During 1999, 1998, and 1997 the amount paid to
AFSG Securities Corporation, AEGON USA Securities, Inc. and/or the broker-
dealers for their services related to Retirement Income Builder II Variable
Annuity policies was $9,517,500.00, $6,793,427.04 and $2,337,939.76,
respectively. No fees had been paid to any broker-dealers for their services
prior to 1997. Prior to April 30, 1998, AEGON USA Securities, Inc. (also an
affiliate of PFL) was the principal underwriter.
VOTING RIGHTS
To the extent required by law, PFL will vote the underlying funds' shares held
by the mutual fund account at regular and special shareholder meetings of the
underlying funds in accordance with instructions received from persons having
voting interests in the portfolios, although none of the underlying funds hold
regular annual shareholder meetings. If, however, the 1940 Act or any
regulation thereunder should be amended or if the present interpretation
thereof should change, and as a result PFL determines that it is permitted to
vote the underlying funds shares in its own right, it may elect to do so.
Before the annuity commencement date, you hold the voting interest in the
selected portfolios. The number of votes that you have the right to instruct
will be calculated separately for each subaccount. The number of votes that you
have the right to instruct for a particular subaccount will be determined by
dividing your policy value in the subaccount by the net asset value per share
of the corresponding portfolio in which the subaccount invests. Fractional
shares will be counted.
After the annuity commencement date, the person receiving annuity payments has
the voting interest, and the number of votes decreases as annuity payments are
made and as the reserves for the policy decrease. The person's number of votes
will be determined by dividing the reserve for the policy allocated to the
applicable subaccount by the net asset value per share of the corresponding
portfolio. Fractional shares will be counted.
The number of votes that you or the person receiving income payments has the
right to instruct will be determined as of the date established by the
underlying fund for determining shareholders eligible to vote at the meeting of
the underlying fund. PFL will solicit voting instructions by sending you, or
other persons entitled to vote, written requests for instructions prior to that
meeting in accordance with procedures established by the underlying fund.
Portfolio shares as to which no timely instructions are received and shares
held by PFL in which you, or other persons entitled to vote, have no beneficial
interest will be voted in proportion to the voting instructions that are
received with respect to all policies participating in the same subaccount.
Each person having a voting interest in a subaccount will receive proxy
material, reports, and other materials relating to the appropriate portfolio.
-32-
<PAGE>
OTHER PRODUCTS
PFL makes other variable annuity policies available that may also be funded
through the separate account. These variable annuity policies may have
different features, such as different investment choices or charges.
CUSTODY OF ASSETS
PFL holds assets of each of the subaccounts of the separate account. The assets
of each of the subaccounts of the separate account are segregated and held
separate and apart from the assets of the other subaccounts and from PFL's
general account assets. PFL maintains records of all purchases and redemptions
of shares of the underlying funds held by each of the subaccounts. Additional
protection for the assets of the separate account is afforded by PFL's fidelity
bond, presently in the amount of $5,000,000, covering the acts of officers and
employees of PFL.
LEGAL MATTERS
Sutherland Asbill & Brennan LLP, of Washington D.C. has provided legal advice
to PFL relating to certain matters under the federal securities laws applicable
to the issue and sale of the policies.
INDEPENDENT AUDITORS
The statutory-basis financial statements and schedules of PFL as of December
31, 1999 and 1998, and for each of the three years in the period ended December
31, 1999, and the financial statements of certain subaccounts of the PFL
Retirement Builder Variable Annuity Account, which are available for investment
by the Flexible Premium Individual Deferred Variable Annuity (now known as the
Retirement Income Builder II Variable Annuity) contract owners as of December
31, 1999 and for each of the two years in the period then ended, included in
this SAI have been audited by Ernst & Young LLP, Independent Auditors, Suite
3400, 801 Grand Avenue, Des Moines, Iowa 50309.
OTHER INFORMATION
A registration statement has been filed with the SEC, under the Securities Act
of 1933 as amended, with respect to the policies discussed in this SAI. Not all
of the information set forth in the registration statement, amendments and
exhibits thereto has been included in the prospectus or this SAI. Statements
contained in the prospectus and this SAI concerning the content of the policies
and other legal instruments are intended to be summaries. For a complete
statement of the terms of these documents, reference should be made to the
instruments filed with the SEC.
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). Financial
statements of certain subaccounts of the PFL Retirement Builder Variable
Annuity Account which are available for investment by PFL Retirement Income
Builder contract owners are contained herein. The financial statements of PFL,
which are included in this SAI, should be considered only as bearing on the
ability of PFL to meet its obligations under the policies. They should not be
considered as bearing on the investment performance of the assets held in the
separate account.
-33-
<PAGE>
Financial Statements--Statutory Basis
PFL Life Insurance Company
Years ended December 31, 1999, 1998 and 1997
with Report of Independent Auditors
<PAGE>
PFL Life Insurance Company
Financial Statements--Statutory Basis
Years ended December 31, 1999, 1998 and 1997
Contents
<TABLE>
<S> <C>
Report of Independent Auditors.............................................. 1
Audited Financial Statements
Balance Sheets--Statutory Basis........................................... 3
Statements of Operations--Statutory Basis................................. 5
Statements of Changes in Capital and Surplus--Statutory Basis............. 6
Statements of Cash Flows--Statutory Basis................................. 7
Notes to Financial Statements--Statutory Basis............................ 9
Statutory-Basis Financial Statement Schedules
Summary of Investments--Other Than Investments in Related Parties......... 28
Supplementary Insurance Information....................................... 29
Reinsurance............................................................... 31
</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, an indirect wholly-owned subsidiary of AEGON N.V., as of
December 31, 1999 and 1998, 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, 1999. 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 auditing standards generally
accepted in the United States. 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 accounting principles generally accepted in
the United States. The variances between such practices and accounting
principles generally accepted in the United States 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 effect of the matter described in the preceding
paragraph, the financial statements referred to above do not present fairly,
in conformity with accounting principles generally accepted in the United
States, the financial position of PFL Life Insurance Company at December 31,
1999 and 1998, or the results of its operations or its cash flows for each of
the three years in the period ended December 31, 1999.
1
<PAGE>
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, 1999 and 1998, and the results of its operations and
its cash flows for each of the three years in the period ended December 31,
1999, 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 18, 2000
2
<PAGE>
PFL Life Insurance Company
Balance Sheets--Statutory Basis
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
December 31
1999 1998
----------- ----------
<S> <C> <C>
Admitted Assets
Cash and invested assets:
Cash and short-term investments........................ $ 53,695 $ 83,289
Bonds.................................................. 4,892,156 4,822,442
Stocks:
Preferred............................................ 17,074 14,754
Common (cost: 1999--$61,813; 1998--$34,731).......... 71,658 49,448
Affiliated entities (cost: 1999--$10,318; 1998--
$8,060)............................................. 6,764 5,613
Mortgage loans on real estate.......................... 1,339,202 1,012,433
Real estate, at cost less accumulated depreciation
($10,891 in 1999; $9,500 in 1998):
Home office properties............................... 7,829 8,056
Properties acquired in satisfaction of debt.......... 16,336 11,778
Investment properties................................ 33,707 44,325
Policy loans........................................... 59,871 60,058
Other invested assets.................................. 123,722 76,482
----------- ----------
Total cash and invested assets..................... 6,622,014 6,188,678
Premiums deferred and uncollected....................... 14,656 15,318
Accrued investment income............................... 65,364 65,308
Receivable from affiliate............................... -- 643
Federal income taxes recoverable........................ 1,335 639
Transfers from separate accounts due or accrued......... 92,309 70,866
Other assets............................................ 30,119 29,511
Separate account assets................................. 4,905,374 3,348,611
----------- ----------
Total admitted assets................................... $11,731,171 $9,719,574
=========== ==========
</TABLE>
3
<PAGE>
PFL Life Insurance Company
Balance Sheets--Statutory Basis
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
December 31
1999 1998
----------- ----------
<S> <C> <C>
Liabilities and Capital and Surplus
Liabilities:
Aggregate reserves for policies and contracts:
Life................................................. $ 1,552,781 $1,357,175
Annuity.............................................. 4,036,751 3,925,293
Accident and health.................................. 254,571 205,736
Policy and contract claim reserves:
Life................................................. 8,681 9,101
Accident and health.................................. 37,466 48,906
Other policyholders' funds............................. 172,774 162,266
Remittances and items not allocated.................... 33,020 19,690
Asset valuation reserve................................ 103,193 91,588
Interest maintenance reserve........................... 36,120 50,575
Short-term notes payable to affiliates................. 144,500 9,421
Other liabilities...................................... 70,717 76,766
Payable for securities................................. 15,136 57,645
Payable to affiliates.................................. 11,517 --
Separate account liabilities........................... 4,899,289 3,342,884
----------- ----------
Total liabilities....................................... 11,376,516 9,357,046
Commitments and contingencies (Note 10)
Capital and surplus:
Common stock, $10 par value, 500,000 shares autho-
rized, 266,000 issued and outstanding................. 2,660 2,660
Paid-in surplus........................................ 154,282 154,282
Unassigned surplus..................................... 197,713 205,586
----------- ----------
Total capital and surplus............................... 354,655 362,528
----------- ----------
Total liabilities and capital and surplus............... $11,731,171 $9,719,574
=========== ==========
</TABLE>
See accompanying notes.
4
<PAGE>
PFL Life Insurance Company
Statements of Operations--Statutory Basis
(Dollars in thousands)
<TABLE>
<CAPTION>
Year ended December 31
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Premiums and other considerations, net of
reinsurance:
Life.................................... $ 227,510 $ 516,111 $ 202,435
Annuity................................. 1,413,049 667,920 657,695
Accident and health..................... 160,570 178,593 207,982
Net investment income..................... 437,549 446,984 446,424
Amortization of interest maintenance re-
serve.................................... 7,588 8,656 3,645
Commissions and expense allowances on
reinsurance ceded........................ 24,741 32,781 49,859
Separate account fee income............... 49,826 37,137 --
---------- ---------- ----------
2,320,833 1,888,182 1,568,040
Benefits and expenses:
Benefits paid or provided for:
Life and accident and health benefits... 115,621 135,184 146,583
Surrender benefits...................... 1,046,611 732,796 658,071
Other benefits.......................... 169,479 152,209 126,495
Increase (decrease) in aggregate
reserves for policies and contracts:
Life.................................... 195,606 473,158 149,575
Annuity................................. 111,427 (278,665) (203,139)
Accident and health..................... 48,835 36,407 30,059
Other................................... 10,480 17,550 16,998
---------- ---------- ----------
1,698,059 1,268,639 924,642
Insurance expenses:
Commissions............................... 167,146 136,569 157,300
General insurance expenses................ 54,191 48,018 57,571
Taxes, licenses and fees.................. 12,382 19,166 8,715
Net transfers to separate accounts........ 309,307 302,839 297,480
Other expenses............................ 229 1,016 119
---------- ---------- ----------
543,255 507,608 521,185
---------- ---------- ----------
2,241,314 1,776,247 1,445,827
---------- ---------- ----------
Gain from operations before federal income
tax expense and net realized capital gains
on investments............................. 79,519 111,935 122,213
Federal income tax expense.................. 25,316 49,835 43,381
---------- ---------- ----------
Gain from operations before net realized
capital gains on investments............... 54,203 62,100 78,832
Net realized capital gains on investments
(net of related federal income taxes and
amounts transferred to interest maintenance
reserve)................................... 6,365 3,398 7,159
---------- ---------- ----------
Net income.................................. $ 60,568 $ 65,498 $ 85,991
========== ========== ==========
</TABLE>
See accompanying notes.
5
<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, 1997 $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
Net income.............................. -- -- 60,568 60,568
Change in net unrealized capital gains.. -- -- (20,217) (20,217)
Change in non-admitted assets........... -- -- (980) (980)
Change in asset valuation reserve....... -- -- (11,605) (11,605)
Dividend to stockholder................. -- -- (40,000) (40,000)
Tax benefit on stock options exercised.. -- -- 1,305 1,305
Change in surplus in separate accounts.. -- -- 245 245
Settlement of prior period tax returns
and other tax-related adjustments...... -- -- 2,811 2,811
------ -------- -------- --------
Balance at December 31, 1999.............. $2,660 $154,282 $197,713 $354,655
====== ======== ======== ========
</TABLE>
See accompanying notes.
6
<PAGE>
PFL Life Insurance Company
Statements of Cash Flows--Statutory Basis
(Dollars in thousands)
<TABLE>
<CAPTION>
Year ended December 31
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Operating activities
Premiums and other considerations, net
of reinsurance......................... $ 1,830,365 $ 1,396,428 $ 1,119,936
Net investment income................... 441,737 469,246 452,091
Life and accident and health claims..... (124,178) (138,249) (154,383)
Surrender benefits and other fund
withdrawals............................ (1,046,611) (732,796) (658,071)
Other benefits to policyholders......... (169,476) (152,167) (126,462)
Commissions, other expenses and other
taxes.................................. (238,192) (197,135) (225,042)
Net transfers to separate accounts...... (280,923) (276,375) (319,146)
Federal income taxes.................... (24,709) (72,176) (47,909)
Cash paid in conjunction with an
amendment of a reinsurance agreement... -- -- (4,826)
Cash received in connection with a
reinsurance agreement.................. -- -- 1,477
Other, net.............................. (23,047) (93,095) 89,693
----------- ----------- -----------
Net cash provided by operating
activities............................. 364,966 203,681 127,358
Investing activities
Proceeds from investments sold, matured
or repaid:
Bonds and preferred stocks............ 3,283,038 3,347,174 3,284,095
Common stocks......................... 60,293 34,564 34,004
Mortgage loans on real estate......... 158,739 192,210 138,162
Real estate........................... 13,367 5,624 6,897
Policy loans.......................... 186 -- --
Cash received from ceding commissions
associated with the sale of a
division............................. -- -- 8
Other................................. 6,133 7,210 57,683
----------- ----------- -----------
3,521,756 3,586,782 3,520,849
Cost of investments acquired:
Bonds and preferred stocks............ (3,398,158) (3,251,822) (3,411,442)
Common stocks......................... (76,200) (36,379) (37,339)
Mortgage loans on real estate......... (480,750) (257,039) (159,577)
Real estate........................... (7,568) (11,458) (2,013)
Policy loans.......................... -- (2,922) (2,922)
Cash paid in association with the sale
of a division........................ -- -- (591)
Other................................. (48,719) (44,514) (15,674)
----------- ----------- -----------
(4,011,395) (3,604,134) (3,629,558)
----------- ----------- -----------
Net cash used in investing activities... (489,639) (17,352) (108,709)
</TABLE>
7
<PAGE>
PFL Life Insurance Company
Statements of Cash Flows--Statutory Basis
(Dollars in thousands)
<TABLE>
<CAPTION>
Year ended December 31
1999 1998 1997
-------- -------- -------
<S> <C> <C> <C>
Financing activities
Issuance (repayment) of short-term intercompany
notes payable................................... $135,079 $ (6,979) $16,400
Capital contribution............................. -- -- 153
Dividends to stockholder......................... (40,000) (120,000) (62,000)
-------- -------- -------
Net cash provided by (used in) financing
activities...................................... 95,079 (126,979) (45,447)
-------- -------- -------
Increase (decrease) in cash and short-term
investments..................................... (29,594) 59,350 (26,798)
Cash and short-term investments at beginning of
year............................................ 83,289 23,939 50,737
-------- -------- -------
Cash and short-term investments at end of year... $ 53,695 $ 83,289 $23,939
======== ======== =======
</TABLE>
See accompanying notes.
8
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis
(Dollars in thousands)
December 31, 1999
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.
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 and Guam. 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
9
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
1. Organization and Summary of Significant Accounting Policies (continued)
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 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) stock options settled in cash are recorded as expense of
the Company's indirect parent rather than charged to current operations; (m)
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; (n) 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 (o) 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") effective January 1,
2001. 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 anticipated that 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.
10
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
1. Organization and Summary of Significant Accounting Policies (continued)
Cash and Short-Term Investments
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 short-term investments.
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 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. During 1999, 1998 and 1997, the Company
excluded investment income due and accrued of $530, $102 and $177,
respectively, with respect to such practices.
11
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
1. Organization and Summary of Significant Accounting Policies (continued)
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 agreement
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.
12
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
1. Organization and Summary of Significant Accounting Policies (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 contract owners 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 contract owners. The Company received variable contract
premiums of $486,282, $345,319 and $281,095 in 1999, 1998 and 1997,
respectively. All variable account contracts are subject to discretionary
withdrawal by the contract owner 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 1998 and 1997 financial
statements to conform to the 1999 presentation.
13
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
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 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
amount.
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.
14
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
2. Fair Values of Financial Instruments (continued)
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.
Short-term notes payable to affiliates: The fair values for short-term
notes payable to affiliates are assumed to equal their carrying amount.
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.
The following sets forth a comparison of the fair values and carrying amounts
of the Company's financial instruments subject to the provisions of SFAS No.
107 and No. 119:
<TABLE>
<CAPTION>
December 31
1999 1998
--------------------- ---------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Admitted assets
Cash and short-term investments... $ 53,695 $ 53,695 $ 83,289 $ 83,289
Bonds............................. 4,892,156 4,757,325 4,822,442 4,900,516
Preferred stocks.................. 17,074 15,437 14,754 14,738
Common stocks..................... 71,658 71,658 49,448 49,448
Affiliated common stock........... 6,764 6,764 5,613 5,613
Mortgage loans on real estate..... 1,339,202 1,299,160 1,012,433 1,089,315
Policy loans...................... 59,871 59,871 60,058 60,058
Interest rate cap................. 4,959 1,784 4,445 725
Interest rate swaps............... 8,134 10,609 1,916 6,667
Separate account assets........... 4,905,374 4,905,374 3,348,611 3,348,611
Liabilities
Investment contract liabilities... 4,207,369 4,059,842 4,084,683 4,017,509
Separate account liabilities...... 4,377,676 4,212,615 3,271,005 3,213,251
Short-term notes payable to
affiliates....................... 144,500 144,500 9,421 9,421
</TABLE>
15
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
3. Investments
The carrying amounts and estimated fair values of investments in debt
securities were as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Carrying Unrealized Unrealized Fair
Amount Gains Losses Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
December 31, 1999
Bonds:
United States Government and
agencies........................ $ 141,390 $ 142 $ 4,520 $ 137,012
State, municipal and other
government...................... 137,745 5,168 1,627 141,286
Public utilities................. 219,791 1,148 6,777 214,162
Industrial and miscellaneous..... 2,078,145 20,042 84,919 2,013,268
Mortgage and other asset-backed
securities...................... 2,315,085 24,214 87,702 2,251,597
---------- -------- -------- ----------
4,892,156 50,714 185,545 4,757,325
Preferred stocks................... 17,074 2 1,639 15,437
---------- -------- -------- ----------
$4,909,230 $ 50,716 $187,184 $4,772,762
========== ======== ======== ==========
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>
The carrying amounts and estimated fair values of bonds at December 31, 1999,
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
Amount Fair Value
---------- ----------
<S> <C> <C>
Due in one year or less............................... $ 194,654 $ 192,453
Due after one year through five years................. 1,151,170 1,121,353
Due after five years through ten years................ 908,926 873,402
Due after ten years................................... 322,321 318,520
---------- ----------
2,577,071 2,505,728
Mortgage and other asset-backed securities............ 2,315,085 2,251,597
---------- ----------
$4,892,156 $4,757,325
========== ==========
</TABLE>
16
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
3. Investments (continued)
A detail of net investment income is presented below:
<TABLE>
<CAPTION>
Year ended December 31
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Interest on bonds and preferred stock............... $347,639 $374,478 $373,496
Dividends on equity investments..................... 734 1,357 1,460
Interest on mortgage loans.......................... 92,325 77,960 80,266
Rental income on real estate........................ 7,322 6,553 7,501
Interest on policy loans............................ 4,141 4,080 3,400
Other investment income............................. 7,978 2,576 613
-------- -------- --------
Gross investment income............................. 460,139 467,004 466,736
Less investment expenses............................ 22,590 20,020 20,312
-------- -------- --------
Net investment income............................... $437,549 $446,984 $446,424
======== ======== ========
</TABLE>
Proceeds from sales and maturities of debt securities and related gross
realized gains and losses were as follows:
<TABLE>
<CAPTION>
Year ended December 31
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Proceeds.................................... $3,283,038 $3,347,174 $3,284,095
========== ========== ==========
Gross realized gains........................ $ 21,171 $ 48,760 $ 30,094
Gross realized losses....................... (32,259) (8,072) (17,265)
---------- ---------- ----------
Net realized gains (losses)................. $ (11,088) $ 40,688 $ 12,829
========== ========== ==========
</TABLE>
At December 31, 1999, investments with an aggregate carrying value of
$6,346,831 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.
17
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
3. Investments (continued)
Realized investment gains (losses) and changes in unrealized gains (losses)
for investments are summarized below:
<TABLE>
<CAPTION>
Realized
----------------------------
Year ended December 31
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Debt securities......... $(11,088) $ 40,688 $ 12,829
Equity securities....... 11,433 (879) 6,972
Mortgage loans on real
estate................. 4,661 12,637 2,252
Real estate............. 900 3,176 4,252
Short-term investments.. (1,407) 1,533 (19)
Other invested assets... 534 (2,523) 1,632
-------- -------- --------
5,033 54,632 27,918
Tax effect.............. (5,535) (22,290) (10,572)
Transfer from (to)
interest maintenance
reserve................ 6,867 (28,944) (10,187)
-------- -------- --------
Net realized gains...... $ 6,365 $ 3,398 $ 7,159
======== ======== ========
<CAPTION>
Change in Unrealized
----------------------------
Year ended December 31
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Bonds................... $(12,711) $ (836) $ 2,498
Preferred stocks........ (2,753) -- --
Common stocks........... (3,980) 3,751 1,097
Mortgage loans.......... (147) (150) --
Other invested assets... (626) 1,739 (3)
-------- -------- --------
Change in unrealized.... $(20,217) $ 4,504 $ 3,592
======== ======== ========
Gross unrealized gains and gross unrealized losses on equity securities are as
follows:
<CAPTION>
December 31
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Unrealized gains........ $ 11,369 $ 15,980 $ 10,356
Unrealized losses....... (5,078) (3,710) (3,836)
-------- -------- --------
Net unrealized gains.... $ 6,291 $ 12,270 $ 6,520
======== ======== ========
</TABLE>
18
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
3. Investments (continued)
During 1999, the Company issued mortgage loans with interest rates ranging
from 6.42% to 8.67%. The maximum percentage of any one mortgage loan to the
value of the underlying real estate at origination was 84%. Mortgage loans
with a carrying value of $248 were non-income producing for the previous
twelve months. Accrued interest of $95 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, 1999 and 1998, the Company held a mortgage loan loss reserve
in the asset valuation reserve of $15,173 and $16,104, respectively. The
mortgage loan portfolio is diversified by geographic region and specific
collateral property type as follows:
Geographic Distribution
<TABLE>
<CAPTION>
December 31
1999 1998
----- -----
<S> <C> <C>
South Atlantic.......... 27% 32%
Pacific................. 18 15
E. North Central........ 17 16
Middle Atlantic......... 15 10
Mountain................ 9 10
W. South Central........ 6 6
W. North Central........ 4 5
E. South Central........ 3 3
New England............. 1 3
</TABLE>
<TABLE>
<CAPTION>
Property Type Distribution
December 31
1999 1998
----- -----
<S> <C> <C>
Office.................. 39% 30%
Retail.................. 28 35
Industrial.............. 18 21
Apartment............... 11 12
Other................... 4 2
</TABLE>
At December 31, 1999, 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,
collectively.
19
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
3. Investments (continued)
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 swaps and caps. 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 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, 1999 and 1998, 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
1999 1998
-------- --------
<S> <C> <C>
Derivative securities:
Interest rate swaps:
Receive fixed--pay floating............................... $115,000 $100,000
Receive floating--pay fixed............................... 64,017 --
Receive floating (uncapped)--pay floating (capped)........ 41,617 53,011
Receive floating (LIBOR--pay floating (S&P)............... 60,000 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.
20
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
4. Reinsurance (continued)
Reinsurance assumption and cession treaties are transacted primarily with
affiliates. Premiums earned reflect the following reinsurance assumed and
ceded amounts:
<TABLE>
<CAPTION>
Year ended December 31
----------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Direct premiums.......................... $1,942,716 $1,533,822 $1,312,446
Reinsurance assumed...................... 2,723 2,366 2,038
Reinsurance ceded........................ (144,310) (173,564) (246,372)
---------- ---------- ----------
Net premiums earned...................... $1,801,129 $1,362,624 $1,068,112
========== ========== ==========
</TABLE>
The Company received reinsurance recoveries in the amount of $139,138,
$173,297 and $183,638 during 1999, 1998 and 1997, respectively. At December
31, 1999 and 1998, estimated amounts recoverable from reinsurers that have
been deducted from policy and contract claim reserves totaled $35,511 and
$47,956, respectively. The aggregate reserves for policies and contracts were
reduced for reserve credits for reinsurance ceded at December 31, 1999 and
1998 of $1,870,190 and $2,163,905, respectively.
At December 31, 1999, amounts recoverable from unauthorized reinsurers of
$39,996 (1998--$55,379) and reserve credits for reinsurance ceded of $48,297
(1998--$49,835) were associated with a single reinsurer and its affiliates.
The Company holds collateral under these reinsurance agreements in the form of
trust agreements totaling $85,431 at December 31, 1999, that can be drawn on
for amounts that remain unpaid for more than 120 days.
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.
21
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
5. Income Taxes (continued)
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
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Computed tax at federal statutory rate (35%)..... $27,832 $39,177 $42,775
IMR amortization................................. (2,656) (3,030) (1,276)
Tax reserve adjustment........................... 1,390 607 2,004
Excess tax depreciation.......................... (219) (223) (392)
Deferred acquisition costs-- tax basis........... 5,979 11,827 4,308
Prior year under (over) accrual ................. (3,492) 1,750 (1,016)
Dividend received deduction...................... (1,666) (1,053) (941)
Charitable contributions......................... -- -- (848)
Other items--net................................. (1,852) 780 (1,233)
------- ------- -------
Federal income tax expense....................... $25,316 $49,835 $43,381
======= ======= =======
</TABLE>
Federal income tax expense differs from the amount computed by applying the
statutory federal income tax rate to realized gains (losses) due to the
differences in book and tax asset bases at the time certain investments are
sold.
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, 1999). 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.
In 1999, the Company reached a final settlement with the Internal Revenue
Service for 1990 and 1991, resulting in a tax refund of $904 and interest
received of $548. These amounts were credited directly to unassigned surplus.
The Company also corrected an error in 1999 which related to the 1997 tax-
sharing agreement between the Company and various affiliates. This resulted in
a credit to unassigned surplus of $1,359.
The Company's federal income tax returns have been examined and closing
agreements have been executed with the Internal Revenue Service through 1992.
An examination is underway for years 1993 through 1997.
22
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
6. Policy and Contract Attributes
A portion of the Company's policy reserves and other policyholders' funds
(including separate account liabilities) relate to liabilities established on
a variety of the Company's annuity and deposit fund products. There may be
certain restrictions placed upon 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
1999 1998
------------------- ------------------
Percent Percent
of of
Amount Total Amount Total
----------- ------- ---------- -------
<S> <C> <C> <C> <C>
Subject to discretionary withdrawal with
market value adjustment................ $ 114,544 1% $ 82,048 1%
Subject to discretionary withdrawal at
book value less surrender charge....... 828,490 8 515,778 5
Subject to discretionary withdrawal at
market value........................... 4,313,445 41 3,211,896 34
Subject to discretionary withdrawal at
book value (minimal or no charges or
adjustments)........................... 5,021,762 48 5,519,265 58
Not subject to discretionary withdrawal
provision.............................. 248,444 2 228,030 2
----------- --- ---------- ---
10,526,685 100% 9,557,017 100%
Less reinsurance ceded.................. 1,863,810 2,124,769
----------- ----------
Total policy reserves on annuities and
deposit fund liabilities............... $ 8,662,875 $7,432,248
=========== ==========
</TABLE>
A reconciliation of the amounts transferred to and from the separate accounts
is presented below:
<TABLE>
<CAPTION>
Year ended December 31
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Transfers as reported in the summary of
operations of the separate accounts statement:..
Transfers to separate accounts................. $486,282 $345,319 $281,095
Transfers from separate accounts............... (175,822) (42,671) (9,819)
-------- -------- --------
Net transfers to separate accounts............... 310,460 302,648 271,276
Reconciling adjustments--change in miscellaneous
income.......................................... (1,153) 191 26,204
-------- -------- --------
Transfers as reported in the summary of
operations of the life, accident and health
annual statement................................ $309,307 $302,839 $297,480
======== ======== ========
</TABLE>
23
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
6. Policy and Contract Attributes (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, 1999 and 1998, 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, 1999
Life and annuity:
Ordinary direct first year business................ $ 2,823 $2,085 $ 738
Ordinary direct renewal business................... 20,950 6,289 14,661
Group life direct business......................... 638 243 395
Reinsurance ceded.................................. (1,269) (16) (1,253)
------- ------ -------
23,142 8,601 14,541
Accident and health:
Direct............................................. 138 -- 138
Reinsurance ceded.................................. (23) -- (23)
------- ------ -------
Total accident and health............................ 115 -- 115
------- ------ -------
$23,257 $8,601 $14,656
======= ====== =======
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
======= ====== =======
</TABLE>
At December 31, 1999 and 1998, the Company had insurance in force aggregating
$41,720 and $44,233, 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 $871 and $998 to cover these
deficiencies at December 31, 1999 and 1998, respectively.
24
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
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 before net
realized capital gains (losses) on investments for the preceding year. Subject
to the availability of unassigned surplus at the time of such dividend, the
maximum payment which may be made in 2000, without the prior approval of
insurance regulatory authorities, is $54,203.
The Company paid dividends to its parent of $40,000, $120,000 and $62,000 in
1999, 1998 and 1997, 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
SFAS 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 $408, $380 and $422 for the
years ended December 31, 1999, 1998 and 1997, 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 $267, $233 and $226 for
the years ended December 31, 1999, 1998 and 1997, respectively.
25
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
8. Retirement and Compensation Plans (continued)
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 are charged to affiliates in accordance with an
intercompany cost sharing arrangement. The Company expensed $28, $62 and $62
for the years ended December 31, 1999, 1998 and 1997, 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 1999,
1998 and 1997, the Company paid $19,983, $18,706 and $18,705, respectively,
for these services, which approximates their costs to the affiliates.
Payables to affiliates bear interest at the thirty-day commercial paper rate
of 5.7% at December 31, 1999. During 1999, 1998 and 1997, the Company paid net
interest of $1,994, $1,491 and $1,188, respectively, to affiliates.
During 1997, the Company received a capital contribution of $153 in cash from
its parent.
At December 31, 1999 and 1998, the Company has short-term notes payable to an
affiliate of $144,500 and $9,421, respectively. Interest on these notes
accrues at rates ranging from 4.85% to 5.90% at December 31, 1999 and 5.13% to
5.52% at December 31, 1998.
26
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
9. Related Party Transactions (continued)
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 $190,299 and
$181,720 at December 31, 1999 and 1998, respectively.
10. Commitments and Contingencies
The Company has issued Trust (synthetic) GIC contracts to plan sponsors
totaling $374,124 at December 31, 1999, pursuant to terms under which the plan
sponsor retains ownership of the assets related to these contracts. The
Company guarantees benefit responsiveness in the event that plan benefit
requests and other contractual commitments exceed plan cash flows. The plan
sponsor agrees to reimburse the Company for such benefit payments with
interest, either at a fixed or floating rate, from future plan and asset cash
flows. In return for this guarantee, the Company receives a premium which
varies based on such elements as benefit responsive exposure and contract
size. The Company underwrites the plans for the possibility of having to make
benefit payments and also must agree to the investment guidelines to ensure
appropriate credit quality and cash flow matching. The assets relating to such
contracts are not recognized in the Company's statutory-basis financial
statements.
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 $19,662 and $17,901 and an offsetting
premium tax benefit of $7,429 and $7,631 at December 31, 1999 and 1998,
respectively, for its estimated share of future guaranty fund assessments
related to several major insurer insolvencies. The guaranty fund expense
(benefit) was $1,994, $1,985 and $(975) for the years ended December 31, 1999,
1998 and 1997, respectively.
27
<PAGE>
PFL Life Insurance Company
Summary of Investments--Other than
Investments in Related Parties
(Dollars in thousands)
December 31, 1999
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............... $ 195,119 $ 189,752 $ 195,119
States, municipalities and political
subdivisions........................... 545,562 535,945 545,562
Foreign governments..................... 134,584 138,767 134,584
Public utilities........................ 219,791 214,162 219,791
All other corporate bonds............... 3,797,100 3,678,699 3,797,100
Redeemable preferred stock................ 17,074 15,437 17,074
---------- --------- ----------
Total fixed maturities.................... 4,909,230 4,772,762 4,909,230
Equity securities
Common stocks:
Banks, trust and insurance.............. 2,676 2,809 2,809
Industrial, miscellaneous and all
other.................................. 59,137 68,849 68,849
---------- --------- ----------
Total equity securities................... 61,813 71,658 71,658
Mortgage loans on real estate............. 1,339,202 1,339,202
Real estate............................... 41,536 41,536
Real estate acquired in satisfaction of
debt..................................... 16,336 16,336
Policy loans.............................. 59,871 59,871
Other long-term investments............... 123,722 123,722
Cash and short-term investments........... 53,695 53,695
---------- ----------
Total investments......................... $6,605,405 $6,615,250
========== ==========
</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.
28
<PAGE>
PFL Life Insurance Company
Supplementary Insurance Information
(Dollars in thousands)
SCHEDULE III
<TABLE>
<CAPTION>
Future
Policy Policy
Benefits and
and Unearned Contract
Expenses Premiums Liabilities
---------- -------- -----------
<S> <C> <C> <C>
Year ended December 31, 1999
Individual life................................. $1,550,188 $ -- $ 8,607
Individual health............................... 133,214 10,311 10,452
Group life and health........................... 105,035 8,604 27,088
Annuity......................................... 4,036,751 -- --
---------- ------- -------
$5,825,188 $18,915 $46,147
========== ======= =======
Year ended December 31, 1998
Individual life................................. $1,355,283 $ -- $ 8,976
Individual health............................... 94,294 9,631 12,123
Group life and health........................... 93,405 10,298 36,908
Annuity......................................... 3,925,293 -- --
---------- ------- -------
$5,468,275 $19,929 $58,007
========== ======= =======
Year ended December 31, 1997
Individual life................................. $ 882,003 $ -- $ 8,550
Individual health............................... 62,033 9,207 12,821
Group life and health........................... 88,211 11,892 44,977
Annuity......................................... 4,204,125 -- --
---------- ------- -------
$5,236,372 $21,099 $66,348
========== ======= =======
</TABLE>
29
<PAGE>
PFL Life Insurance Company
Supplementary Insurance Information
(Dollars in thousands)
SCHEDULE III
<TABLE>
<CAPTION>
Benefits,
Claims
Net Losses and Other
Premium Investment Settlement Operating Premiums
Revenue Income* Expenses Expenses* Written
---------- ---------- ---------- --------- --------
<S> <C> <C> <C> <C> <C>
Year ended December 31,
1999
Individual life........... $ 226,456 $104,029 $ 274,730 $141,030 $ --
Individual health......... 77,985 10,036 58,649 35,329 77,716
Group life and health..... 83,639 10,422 61,143 38,075 81,918
Annuity................... 1,413,049 313,062 1,303,537 278,995 --
---------- -------- ---------- --------
$1,801,129 $437,549 $1,698,059 $493,429
========== ======== ========== ========
Year ended December 31,
1998
Individual life........... $ 514,194 $ 85,258 $ 545,720 $ 87,455 $ --
Individual health......... 68,963 8,004 48,144 30,442 68,745
Group life and health..... 111,547 11,426 82,690 54,352 108,769
Annuity................... 667,920 342,296 592,085 298,222 --
---------- -------- ---------- --------
$1,362,624 $446,984 $1,268,639 $470,471
========== ======== ========== ========
Year ended December 31,
1997
Individual life........... $ 200,175 $ 75,914 $ 211,921 $ 36,185 $ --
Individual health......... 63,548 5,934 37,706 29,216 63,383
Group life and health..... 146,694 11,888 103,581 91,568 143,580
Annuity................... 657,695 352,688 571,434 364,216 --
---------- -------- ---------- --------
$1,068,112 $446,424 $ 924,642 $521,185
========== ======== ========== ========
</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.
30
<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,
1999
Life insurance in
force.................. $6,538,901 $(500,192) $415,910 $6,454,619 6.4%
========== ========= ======== ========== ===
Premiums:
Individual life....... $ 227,363 $ 3,967 $ 2,723 $ 226,119 1.2%
Individual health..... 83,489 5,504 -- 77,985 --
Group life and
health............... 205,752 122,113 -- 83,639 --
Annuity............... 1,426,112 12,726 -- 1,413,386 --
---------- --------- -------- ---------- ---
$1,942,716 $ 144,310 $ 2,723 $1,801,129 0.2%
========== ========= ======== ========== ===
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%
========== ========= ======== ========== ===
</TABLE>
31
<PAGE>
Financial Statements
PFL Retirement Builder Variable
Annuity Account - Retirement
Income Builder Variable Annuity
Year ended December 31, 1999
with Report of Independent Auditors
<PAGE>
PFL Retirement Builder Variable Annuity Account -
Retirement Income Builder Variable Annuity
Financial Statements
Year ended December 31, 1999
Contents
<TABLE>
<CAPTION>
<S> <C>
Report of Independent Auditors.......................................... 1
Financial Statements
Balance Sheets.......................................................... 2
Statements of Operations................................................ 6
Statements of Changes in Contract Owners' Equity........................ 10
Notes to Financial Statements........................................... 16
</TABLE>
<PAGE>
Report of Independent Auditors
The Board of Directors and Contract Owners
of Retirement Income Builder Variable Annuity,
PFL Life Insurance Company
We have audited the accompanying balance sheets of certain subaccounts of PFL
Retirement Builder Variable Annuity Account (comprised of the Money Market, High
Income, Equity-Income, Growth, Overseas, Investment Grade Bond, Asset Manager,
Asset Manager: Growth, Contrafund, Index 500, Growth Opportunities, Growth &
Income, Balanced, and Mid Cap subaccounts), which are available for investment
by contract owners of the Retirement Income Builder Variable Annuity, as of
December 31, 1999, and the related statements of operations for the period then
ended as indicated thereon and changes in contract owners' equity for the
periods indicated thereon. These financial statements are the responsibility of
the Separate Account's management. Our responsibility is to express an opinion
on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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. Our
procedures included confirmation of mutual fund shares owned as of December 31,
1999, by correspondence with the mutual funds' transfer agents. 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.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of each of the respective
subaccounts of PFL Retirement Builder Variable Annuity Account which are
available for investment by contract owners of the Retirement Income Builder
Variable Annuity at December 31, 1999, and the results of their operations for
the period then ended as indicated thereon and changes in their contract owners'
equity for the periods indicated thereon in conformity with accounting
principles generally accepted in the United States.
/s/ Ernst & Young LLP
Des Moines, Iowa
January 28, 2000
1
<PAGE>
PFL Retirement Builder Variable Annuity Account -
Retirement Income Builder Variable Annuity
Balance Sheets
December 31, 1999
<TABLE>
<CAPTION>
Money
Market High Income
Subaccount Subaccount
------------------------------
<S> <C> <C>
Assets
Cash $ 17 $ 5
Investments in mutual funds, at current market value:
Variable Insurance Products Fund:
Money Market Portfolio 7,423,517
High Income Portfolio - 11,948,918
Equity-Income Portfolio - -
Growth Portfolio - -
Overseas Portfolio - -
Variable Insurance Products Fund II:
Investment Grade Bond Portfolio - -
Asset Manager Portfolio - -
Asset Manager: Growth Portfolio - -
Contrafund Portfolio - -
Index 500 Portfolio - -
Variable Insurance Products Fund III:
Growth Opportunities Portfolio - -
Growth & Income Portfolio - -
Balanced Portfolio - -
Mid Cap Portfolio - -
------------------------------
Total investments in mutual funds 7,423,517 11,948,918
------------------------------
Total assets $7,423,534 $11,948,923
==============================
Liabilities and contract owners' equity
Liabilities:
Contract terminations payable $ - $ -
------------------------------
Total liabilities - -
Contract owners' equity:
Deferred annuity contracts terminable by owners 7,423,534 11,948,923
------------------------------
Total liabilities and contract owners' equity $7,423,534 $11,948,923
==============================
</TABLE>
See accompanying notes.
2
<PAGE>
<TABLE>
<CAPTION>
Investment
Equity-Income Growth Overseas Grade Bond Asset Manager
Subaccount Subaccount Subaccount Subaccount Subaccount
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ - $ - $ - $ 7 $ 3
- - - - -
- - - - -
28,732,542 - - - -
- 37,934,360 - - -
- - 7,417,213 - -
- - - 19,637,462 -
- - - - 14,718,772
- - - - -
- - - - -
- - - - -
- - - - -
- - - - -
- - - - -
- - - - -
- -------------------------------------------------------------------------------------------------
28,732,542 37,934,360 7,417,213 19,637,462 14,718,772
- -------------------------------------------------------------------------------------------------
$28,732,542 $37,934,360 $7,417,213 $19,637,469 $14,718,775
=================================================================================================
$ - $ 1 $ 2 $ - $ -
- -------------------------------------------------------------------------------------------------
- 1 2 - -
28,732,542 37,934,359 7,417,211 19,637,469 14,718,775
- -------------------------------------------------------------------------------------------------
$28,732,542 $37,934,360 $7,417,213 $19,637,469 $14,718,775
=================================================================================================
</TABLE>
3
<PAGE>
PFL Retirement Builder Variable Annuity Account -
Retirement Income Builder Variable Annuity
Balance Sheets (continued)
<TABLE>
<CAPTION>
Asset
Manager:
Growth Contrafund
Subaccount Subaccount
------------------------------
<S> <C> <C>
Assets
Cash $ 1 $ -
Investments in mutual funds, at current market value:
Variable Insurance Products Fund:
Money Market Portfolio - -
High Income Portfolio - -
Equity-Income Portfolio - -
Growth Portfolio - -
Overseas Portfolio - -
Variable Insurance Products Fund II:
Investment Grade Bond Portfolio - -
Asset Manager Portfolio - -
Asset Manager: Growth Portfolio 8,547,407 -
Contrafund Portfolio - 30,346,950
Index 500 Portfolio - -
Variable Insurance Products Fund III:
Growth Opportunities Portfolio - -
Growth & Income Portfolio - -
Balanced Portfolio - -
Mid Cap Portfolio - -
------------------------------
Total investments in mutual funds 8,547,407 30,346,950
------------------------------
Total assets $8,547,408 $30,346,950
==============================
Liabilities and contract owners' equity
Liabilities:
Contract terminations payable $ - $ 4
------------------------------
Total liabilities - 4
Contract owners' equity:
Deferred annuity contracts terminable by owners 8,547,408 30,346,946
------------------------------
Total liabilities and contract owners' equity $8,547,408 $30,346,950
==============================
</TABLE>
See accompanying notes.
4
<PAGE>
<TABLE>
<CAPTION>
Growth Growth &
Index 500 Opportunities Income Balanced Mid Cap
Subaccount Subaccount Subaccount Subaccount Subaccount
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 117 $ - $ 142 $ - $ -
- - - - -
- - - - -
- - - - -
- - - - -
- - - - -
- - - - -
- - - - -
- - - - -
- - - - -
69,227,170 - - - -
- 16,610,069 - - -
- - 26,803,734 - -
- - - 17,508,830 -
- - - - 630,405
- ----------------------------------------------------------------------------------------
69,227,170 16,610,069 26,803,734 17,508,830 630,405
- ----------------------------------------------------------------------------------------
$69,227,287 $16,610,069 $26,803,876 $17,508,830 $630,405
========================================================================================
$ - $ 1 $ - $ 131 $ 9
- ----------------------------------------------------------------------------------------
- 1 - 131 9
69,227,287 16,610,068 26,803,876 17,508,699 630,396
- ----------------------------------------------------------------------------------------
$69,227,287 $16,610,069 $26,803,876 $17,508,830 $630,405
========================================================================================
</TABLE>
5
<PAGE>
PFL Retirement Builder Variable Annuity Account -
Retirement Income Builder Variable Annuity
Statements of Operations
Year ended December 31, 1999, except as noted
<TABLE>
<CAPTION>
Money
Market High Income
Subaccount Subaccount
-------------------------------------
<S> <C> <C>
Net investment income (loss)
Income:
Dividends $ 309,812 $ 801,058
Expenses:
Administrative, mortality and expense risk charge 82,569 138,910
-------------------------------------
Net investment income (loss) 227,243 662,148
Net realized and unrealized capital gain (loss) from investments
Net realized capital gain (loss) from sales of investments:
Proceeds from sales 9,047,610 1,562,557
Cost of investments sold 9,047,610 1,853,723
-------------------------------------
Net realized capital gain (loss) from sales of investments - (291,166)
Net change in unrealized appreciation/depreciation of investments:
Beginning of period - (487,036)
End of period - (265,145)
-------------------------------------
Net change in unrealized appreciation/depreciation of investments - 221,891
-------------------------------------
Net realized and unrealized capital gain (loss) from investments - (69,275)
-------------------------------------
Increase (decrease) from operations $ 227,243 $ 592,873
=====================================
</TABLE>
(1) Commencement of operations, May 3, 1999.
See accompanying notes.
6
<PAGE>
<TABLE>
<CAPTION>
Investment
Equity-Income Growth Overseas Grade Bond Asset Manager
Subaccount Subaccount Subaccount Subaccount Subaccount
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 949,918 $1,565,239 $ 144,481 $ 589,027 $ 695,195
334,315 304,941 64,533 207,327 156,811
- ----------------------------------------------------------------------------------------
615,603 1,260,298 79,948 381,700 538,384
1,324,259 648,923 565,716 2,145,017 1,236,665
1,173,433 475,122 515,883 2,148,613 1,214,703
- ----------------------------------------------------------------------------------------
150,826 173,801 49,833 (3,596) 21,962
1,106,287 2,273,112 81,975 327,428 543,827
1,237,668 8,814,159 1,889,982 (371,158) 1,163,069
- ----------------------------------------------------------------------------------------
131,381 6,541,047 1,808,007 (698,586) 619,242
- ----------------------------------------------------------------------------------------
282,207 6,714,848 1,857,840 (702,182) 641,204
- ----------------------------------------------------------------------------------------
$ 897,810 $7,975,146 $1,937,788 $ (320,482) $1,179,588
=======================================================================================
</TABLE>
7
<PAGE>
PFL Retirement Builder Variable Annuity Account -
Retirement Income Builder Variable Annuity
Statements of Operations (continued)
<TABLE>
<CAPTION>
Asset
Manager:
Growth Contrafund
Subaccount Subaccount
------------------------------------
<S> <C> <C>
Net investment income (loss)
Income:
Dividends $ 349,252 $ 604,393
Expenses:
Administrative, mortality and expense risk charge 89,581 280,248
------------------------------------
Net investment income (loss) 259,671 324,145
Net realized and unrealized capital gain (loss) from investments
Net realized capital gain (loss) from sales of investments:
Proceeds from sales 678,535 470,737
Cost of investments sold 619,347 293,048
------------------------------------
Net realized capital gain (loss) from sales of investments 59,188 177,689
Net change in unrealized appreciation/depreciation of investments:
Beginning of period 419,919 2,347,796
End of period 1,015,681 6,643,469
------------------------------------
Net change in unrealized appreciation/depreciation of investments 595,762 4,295,673
------------------------------------
Net realized and unrealized capital gain (loss) from investments 654,950 4,473,362
------------------------------------
Increase (decrease) from operations $ 914,621 $4,797,507
====================================
</TABLE>
(1) Commencement of operations, May 3, 1999.
See accompanying notes.
8
<PAGE>
<TABLE>
<CAPTION>
Growth Growth &
Index 500 Opportunities Income Balanced Mid Cap
Subaccount Subaccount Subaccount Subaccount Subaccount (1)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 522,714 $ 270,957 $ 264,225 $ 443,153 $ 3,649
646,328 172,721 270,629 175,024 1,410
- --------------------------------------------------------------------------------------------------
(123,614) 98,236 (6,404) 268,129 2,239
1,566,567 730,984 1,629,355 1,147,425 53,320
1,102,654 593,825 1,226,625 1,058,660 47,912
- --------------------------------------------------------------------------------------------------
463,913 137,159 402,730 88,765 5,408
4,180,458 1,142,056 1,704,874 519,991 -
12,751,273 1,327,916 2,865,531 562,461 94,921
- --------------------------------------------------------------------------------------------------
8,570,815 185,860 1,160,657 42,470 94,921
- --------------------------------------------------------------------------------------------------
9,034,728 323,019 1,563,387 131,235 100,329
- --------------------------------------------------------------------------------------------------
$ 8,911,114 $ 421,255 $1,556,983 $ 399,364 $102,568
==================================================================================================
</TABLE>
9
<PAGE>
PFL Retirement Builder Variable Annuity Account -
Retirement Income Builder Variable Annuity
Statements of Changes in Contract Owners' Equity
Years ended December 31, 1999 and 1998, except as noted
<TABLE>
<CAPTION>
Money Market Subaccount High Income Subaccount
---------------------------------- --------------------------------
1999 1998 1999 1998
---------------------------------- --------------------------------
<S> <C> <C> <C> <C>
Operations:
Net investment income (loss) $ 227,243 $ 199,921 $ 662,148 $ 193,076
Net realized capital gain (loss) - - (291,166) (54,545)
Net change in unrealized appreciation/
depreciation of investments - - 221,891 (562,907)
---------------------------------- --------------------------------
227,243 199,921 592,873 (424,376)
Contract transactions:
Net contract purchase payments 4,049,912 35,617,427 1,480,567 380,247
Transfer payments from (to) other
subaccounts or general account (1,478,050) (33,247,696) 2,344,994 6,678,886
Contract terminations, withdrawals,
and other deductions (727,793) (384,338) (511,381) (343,507)
---------------------------------- --------------------------------
Increase from contract transactions 1,844,069 1,985,393 3,314,180 6,715,626
---------------------------------- --------------------------------
Net increase in contract owners' equity 2,071,312 2,185,314 3,907,053 6,291,250
Contract owners' equity at beginning of
period 5,352,222 3,166,908 8,041,870 1,750,620
---------------------------------- --------------------------------
Contract owners' equity at end of period $ 7,423,534 $ 5,352,222 $11,948,923 $8,041,870
================================== ================================
</TABLE>
(1) Commencement of operations, May 3, 1999.
See accompanying notes.
10
<PAGE>
<TABLE>
<CAPTION>
Equity-Income Subaccount Growth Subaccount Overseas Subaccount
- ---------------------------------- ----------------------------------- -----------------------------------
1999 1998 1999 1998 1999 1998
- ---------------------------------- ----------------------------------- -----------------------------------
<S> <C> <C> <C> <C> <C>
$ 615,603 $ 231,827 $ 1,260,298 $ 483,795 $ 79,948 $ 84,071
150,826 86,584 173,801 85,228 49,833 2,457
131,381 788,079 6,541,047 2,108,019 1,808,007 118,240
- ---------------------------------- ----------------------------------- -----------------------------------
897,810 1,106,490 7,975,146 2,677,042 1,937,788 204,768
3,907,796 777,059 8,020,809 531,615 975,775 151,791
6,082,338 12,153,685 10,002,720 6,046,570 1,236,430 1,747,157
(1,247,913) (395,865) (948,645) (191,561) (196,145) (45,299)
- ---------------------------------- ----------------------------------- -----------------------------------
8,742,221 12,534,879 17,074,884 6,386,624 2,016,060 1,853,649
- ---------------------------------- ----------------------------------- -----------------------------------
9,640,031 13,641,369 25,050,030 9,063,666 3,953,848 2,058,417
19,092,511 5,451,142 12,884,329 3,820,663 3,463,363 1,404,946
- ---------------------------------- ----------------------------------- -----------------------------------
$ 28,732,542 $19,092,511 $37,934,359 $12,884,329 $7,417,211 $3,463,363
================================== =================================== ===================================
</TABLE>
11
<PAGE>
PFL Retirement Builder Variable Annuity Account -
Retirement Income Builder Variable Annuity
Statements of Changes in Contract Owners' Equity (continued)
<TABLE>
<CAPTION>
Investment Grade Bond
Subaccount Asset Manager Subaccount
--------------------------------------- -----------------------------------
1999 1998 1999 1998
--------------------------------------- -----------------------------------
<S> <C> <C> <C> <C>
Operations:
Net investment income (loss) $ 381,700 $ 53,412 $ 538,384 $ 233,306
Net realized capital gain (loss) (3,596) 75,906 21,962 11,450
Net change in unrealized appreciation/
depreciation of investments (698,586) 241,880 619,242 457,602
--------------------------------------- -----------------------------------
(320,482) 371,198 1,179,588 702,358
Contract transactions:
Net contract purchase payments 2,903,534 377,104 1,149,621 274,834
Transfer payments from (to) other
subaccounts or general account 7,554,760 7,803,520 4,129,282 5,927,236
Contract terminations, withdrawals, and
other deductions (840,990) (281,533) (648,889) (99,440)
--------------------------------------- -----------------------------------
Increase from contract transactions 9,617,304 7,899,091 4,630,014 6,102,630
--------------------------------------- -----------------------------------
Net increase in contract owners' equity 9,296,822 8,270,289 5,809,602 6,804,988
Contract owners' equity at beginning of
period 10,340,647 2,070,358 8,909,173 2,104,185
--------------------------------------- -----------------------------------
Contract owners' equity at end of period $19,637,469 $10,340,647 $14,718,775 $8,909,173
======================================= ===================================
</TABLE>
(1) Commencement of operations, May 3, 1999.
See accompanying notes.
12
<PAGE>
<TABLE>
<CAPTION>
Asset Manager: Growth
Subaccount Contrafund Subaccount Index 500 Subaccount
- --------------------------------- ----------------------------------- -------------------------------------
1999 1998 1999 1998 1999 1998
- --------------------------------- ----------------------------------- -------------------------------------
<S> <C> <C> <C> <C> <C>
$ 259,671 $ 195,760 $ 324,145 $ 150,990 $ (123,614) $ 91,629
59,188 10,664 177,689 57,144 463,913 233,701
595,762 325,255 4,295,673 2,115,359 8,570,815 3,765,930
- --------------------------------- ----------------------------------- -------------------------------------
914,621 531,679 4,797,507 2,323,493 8,911,114 4,091,260
1,341,416 224,033 5,840,392 714,036 15,958,156 1,423,052
1,318,004 2,828,204 6,157,722 7,535,024 16,480,835 17,653,806
(295,644) (50,855) (636,302) (229,022) (2,067,888) (468,172)
- --------------------------------- ----------------------------------- -------------------------------------
2,363,776 3,001,382 11,361,812 8,020,038 30,371,103 18,608,686
- --------------------------------- ----------------------------------- -------------------------------------
3,278,397 3,533,061 16,159,319 10,343,531 39,282,217 22,699,946
5,269,011 1,735,950 14,187,627 3,844,096 29,945,070 7,245,124
- --------------------------------- ----------------------------------- -------------------------------------
$ 8,547,408 $5,269,011 $30,346,946 $14,187,627 $69,227,287 $29,945,070
================================= =================================== =====================================
</TABLE>
13
<PAGE>
PFL Retirement Builder Variable Annuity Account -
Retirement Income Builder Variable Annuity
Statements of Changes in Contract Owners' Equity (continued)
<TABLE>
<CAPTION>
Growth Opportunities Subaccount
-----------------------------------
1999 1998
-----------------------------------
<S> <C> <C>
Operations:
Net investment income (loss) $ 98,236 $ 54,817
Net realized capital gain (loss) 137,159 52,797
Net change in unrealized appreciation/depreciation of investments 185,860 1,058,339
-----------------------------------
421,255 1,165,953
Contract transactions:
Net contract purchase payments 3,764,916 598,448
Transfer payments from (to) other subaccounts or general account 4,163,882 5,284,884
Contract terminations, withdrawals, and other deductions (536,181) (277,058)
-----------------------------------
Increase from contract transactions 7,392,617 5,606,274
-----------------------------------
Net increase in contract owners' equity 7,813,872 6,772,227
Contract owners' equity at beginning of period 8,796,196 2,023,969
-----------------------------------
Contract owners' equity at end of period $16,610,068 $8,796,196
===================================
</TABLE>
(1) Commencement of operations, May 3, 1999.
See accompanying notes.
14
<PAGE>
<TABLE>
<CAPTION>
Growth & Income
Subaccount Balanced Subaccount Mid Cap Subaccount
- ------------------------------------ -------------------------------------- ---------------------------
1999 1998 1999 1998 1999 (1)
- ------------------------------------ -------------------------------------- ---------------------------
<S> <C> <C> <C> <C>
$ (6,404) $ (64,556) $ 268,129 $ (7,392) $ 2,239
402,730 41,022 88,765 17,404 5,408
1,160,657 1,692,289 42,470 507,745 94,921
- ------------------------------------ -------------------------------------- ---------------------------
1,556,983 1,668,755 399,364 517,757 102,568
5,163,519 697,263 3,034,343 278,938 250,802
7,838,172 10,090,745 6,731,909 6,995,732 308,544
(1,019,680) (149,775) (833,396) (148,758) (31,518)
- ------------------------------------ -------------------------------------- ---------------------------
11,982,011 10,638,233 8,932,856 7,125,912 527,828
- ------------------------------------ -------------------------------------- ---------------------------
13,538,994 12,306,988 9,332,220 7,643,669 630,396
13,264,882 957,894 8,176,479 532,810 -
- ------------------------------------ -------------------------------------- ---------------------------
$ 26,803,876 $13,264,882 $17,508,699 $8,176,479 $630,396
==================================== ====================================== ===========================
</TABLE>
15
<PAGE>
PFL Retirement Builder Variable Annuity Account -
Retirement Income Builder Variable Annuity
Notes to Financial Statements
December 31, 1999
1. Organization and Summary of Significant Accounting Policies
Organization
The PFL Retirement Builder Variable Annuity Account ("Mutual Fund Account") is a
segregated investment account of PFL Life Insurance Company ("PFL Life"), an
indirect wholly-owned subsidiary of AEGON N.V., a holding company organized
under the laws of The Netherlands.
The Mutual Fund Account is registered with the Securities and Exchange
Commission as a Unit Investment Trust pursuant to provisions of the Investment
Company Act of 1940. The Mutual Fund Account consists of sixty-one investment
subaccounts, five of which are invested in specified portfolios of the Variable
Insurance Products Fund, five of which are invested in specified portfolios of
the Variable Insurance Products Fund II, and four of which are invested in
specified portfolios of the Variable Insurance Products Fund III (each a "Series
Fund" and collectively "the Series Funds"). Activity in these subaccounts is
available to contract owners of the Retirement Income Builder Variable Annuity,
as well as contract owners of the Immediate Income Builder Variable Annuity,
also offered by PFL Life. Activity in the Balanced subaccount of the Variable
Insurance Products Fund III is also available to contract owners of The One
Income Annuity, also offered by PFL Life. Activity in the High Income Portfolio
of the Variable Insurance Products Fund, the Investment Grade Bond and Index 500
subaccounts of the Variable Insurance Products Fund II, and the Growth
Opportunities subaccount of the Variable Insurance Products Fund III are also
available to contract owners of the Portfolio Select Variable Annuity, also
offered by PFL Life. The amounts reported herein represent the activity related
to contract owners of the Retirement Income Builder Variable Annuity only.
Activity in the remaining forty-seven subaccounts (not included herein) are
available to contract owners of Retirement Income Builder II Variable Annuity,
Portfolio Select Variable Annuity, PFL Immediate Income Builder and The One
Income Annuity, also offered by PFL Life.
Investments
Net purchase payments received by the Mutual Fund Account are invested in the
portfolios of the Series Funds, as selected by the contract owner. Investments
are stated at the closing net asset values per share as of December 31, 1999.
Realized capital gains and losses from sale of shares in the Series Funds are
determined on the first-in, first-out basis. Investment transactions are
accounted for on the trade date (date the order to buy or sell is executed) and
dividend income is recorded on the ex-dividend date. Unrealized gains or losses
from investments in the Series Funds are credited or charged to contract owners'
equity.
Dividend Income
Dividends received from the Series Funds investments are reinvested to purchase
additional mutual fund shares.
16
<PAGE>
PFL Retirement Builder Variable Annuity Account -
Retirement Income Builder Variable Annuity
Notes to Financial Statements (continued)
2. Investments
A summary of the mutual fund investments at December 31, 1999 follows:
<TABLE>
<CAPTION>
Number of Net Asset Value Market
Shares Held Per Share Value Cost
-------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Variable Insurance Products Fund:
Money Market Portfolio 7,423,516.540 $ 1.00 $ 7,423,517 $ 7,423,517
High Income Portfolio 1,056,491.460 11.31 11,948,918 12,214,063
Equity-Income Portfolio 1,117,562.911 25.71 28,732,542 27,494,874
Growth Portfolio 690,594.573 54.93 37,934,360 29,120,201
Overseas Portfolio 270,306.586 27.44 7,417,213 5,527,231
Variable Insurance Products Fund II:
Investment Grade Bond Portfolio 1,614,922.840 12.16 19,637,462 20,008,620
Asset Manager Portfolio 788,364.868 18.67 14,718,772 13,555,703
Asset Manager: Growth Portfolio 465,038.485 18.38 8,547,407 7,531,726
Contrafund Portfolio 1,041,061.760 29.15 30,346,950 23,703,481
Index 500 Portfolio 413,518.725 167.41 69,227,170 56,475,897
Variable Insurance Products Fund III:
Growth Opportunities Portfolio 717,497.593 23.15 16,610,069 15,282,153
Growth & Income Portfolio 1,549,348.783 17.30 26,803,734 23,938,203
Balanced Portfolio 1,094,301.857 16.00 17,508,830 16,946,369
Mid Cap Portfolio 41,338.012 15.25 630,405 535,484
</TABLE>
The aggregate cost of purchases and proceeds from sales of investments were as
follows:
<TABLE>
<CAPTION>
Period ending December 31
1999 1998
---------------------------------- ----------------------------------
Purchases Sales Purchases Sales
---------------------------------- ----------------------------------
<S> <C> <C> <C> <C>
Variable Insurance Products Fund:
Money Market Portfolio $11,118,916 $9,047,610 $23,942,596 $21,757,278
High Income Portfolio 5,538,880 1,562,557 7,577,621 668,926
Equity-Income Portfolio 10,682,080 1,324,259 13,550,635 784,057
Growth Portfolio 18,984,108 648,923 7,325,655 455,360
Overseas Portfolio 2,661,727 565,716 2,055,955 118,266
Variable Insurance Products Fund II:
Investment Grade Bond Portfolio 12,144,013 2,145,017 9,127,427 1,174,924
Asset Manager Portfolio 6,405,064 1,236,665 6,616,999 281,113
Asset Manager: Growth Portfolio 3,301,981 678,535 3,526,594 329,498
Contrafund Portfolio 12,156,695 470,737 8,417,189 246,277
Index 500 Portfolio 31,813,922 1,566,567 19,797,897 1,097,755
Variable Insurance Products Fund III:
Growth Opportunities Portfolio 8,221,841 730,984 6,378,240 717,198
Growth & Income Portfolio 13,604,820 1,629,355 10,878,320 304,665
Balanced Portfolio 10,348,540 1,147,425 7,494,438 375,925
Mid Cap Portfolio 583,396 53,320 - -
</TABLE>
17
<PAGE>
PFL Retirement Builder Variable Annuity Account -
Retirement Income Builder Variable Annuity
Notes to Financial Statements (continued)
3. Contract Owners' Equity
A summary of deferred annuity contracts terminable by owners at December 31,
1999 follows:
<TABLE>
<CAPTION>
Return of Premium Death Benefit
-------------------------------------------------------
Accumulation Accumulation Total Contract
Subaccount Units Owned Unit Value Value
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Money Market 3,006,556.098 $1.127218 $ 3,389,044
High Income 5,698,937.906 1.175901 6,701,387
Equity-Income 8,812,337.781 1.475588 13,003,380
Growth 7,259,072.666 2.303843 16,723,764
Overseas 1,581,467.826 1.746083 2,761,374
Investment Grade Bond 8,979,062.305 1.136386 10,203,681
Asset Manager 5,000,398.493 1.490174 7,451,464
Asset Manager: Growth 2,517,202.713 1.637912 4,122,957
Contrafund 6,635,336.504 1.951816 12,950,956
Index 500 16,867,472.950 1.987714 33,527,712
Growth Opportunities 4,816,401.648 1.557744 7,502,721
Growth & Income 7,210,251.573 1.708000 12,315,110
Balanced 6,318,466.775 1.375701 8,692,321
Mid Cap 104,783.145 1.349887 141,445
</TABLE>
<TABLE>
<CAPTION>
5% Annually Compounding Death Benefit
Annual Step-Up Death Benefit
-------------------------------------------------------
Accumulation Accumulation Total Contract
Subaccount Units Owned Unit Value Value
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Money Market 3,595,011.090 $1.122247 $ 4,034,490
High Income 4,482,422.581 1.170692 5,247,536
Equity-Income 10,707,066.298 1.469045 15,729,162
Growth 9,247,629.984 2.293625 21,210,595
Overseas 2,678,314.067 1.738346 4,655,837
Investment Grade Bond 8,338,500.843 1.131353 9,433,788
Asset Manager 4,898,492.947 1.483581 7,267,311
Asset Manager: Growth 2,713,217.130 1.630703 4,424,451
Contrafund 8,952,339.715 1.943178 17,395,990
Index 500 18,039,827.853 1.978931 35,699,575
Growth Opportunities 5,869,614.476 1.551609 9,107,347
Growth & Income 8,516,426.400 1.701273 14,488,766
Balanced 6,434,001.920 1.370279 8,816,378
Mid Cap 362,572.170 1.348563 488,951
</TABLE>
18
<PAGE>
PFL Retirement Builder Variable Annuity Account -
Retirement Income Builder Variable Annuity
Notes to Financial Statements (continued)
3. Contract Owners' Equity (continued)
A summary of changes in contract owners' account units follows:
<TABLE>
<CAPTION>
Money High Equity-
Market Income Income Growth Overseas
Subaccount Subaccount Subaccount Subaccount Subaccount
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Units outstanding at January 1, 1998 3,042,492 1,503,715 4,280,652 3,103,522 1,263,248
Units purchased 55,491,757 337,085 706,558 413,851 125,355
Units redeemed and transferred (53,593,128) 5,474,385 8,622,923 4,086,301 1,410,614
-------------------------------------------------------------------------------------
Units outstanding at December 31, 1998 4,941,121 7,315,185 13,610,133 7,603,674 2,799,217
Units purchased 6,202,218 1,451,865 2,956,121 4,812,430 806,648
Units redeemed and transferred (4,541,772) 1,414,310 2,953,150 4,090,599 653,917
-------------------------------------------------------------------------------------
Units outstanding at December 31, 1999 6,601,567 10,181,360 19,519,404 16,506,703 4,259,782
=====================================================================================
</TABLE>
<TABLE>
<CAPTION>
Asset
Investment Asset Manager:
Grade Bond Manager Growth Contrafund Index 500
Subaccount Subaccount Subaccount Subaccount Subaccount
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Units outstanding at January 1, 1998 1,915,589 1,762,020 1,402,328 3,105,688 5,503,544
Units purchased 347,468 231,143 197,170 533,713 1,006,308
Units redeemed and transferred 6,642,357 4,577,102 2,068,350 5,295,912 11,449,631
------------------------------------------------------------------------------------
Units outstanding at December 31, 1998 8,905,414 6,570,265 3,667,848 8,935,313 17,959,483
Units purchased 3,062,608 1,090,869 1,083,964 3,771,495 9,840,504
Units redeemed and transferred 5,349,541 2,237,757 478,608 2,880,868 7,107,314
------------------------------------------------------------------------------------
Units outstanding at December 31, 1999 17,317,563 9,898,891 5,230,420 15,587,676 34,907,301
===================================================================================
</TABLE>
19
<PAGE>
PFL Retirement Builder Variable Annuity Account -
Retirement Income Builder Variable Annuity
Notes to Financial Statements (continued)
3. Contract Owners' Equity (continued)
<TABLE>
<CAPTION>
Growth Growth &
Opportunities Income Balanced Mid Cap
Subaccount Subaccount Subaccount Subaccount
------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Units outstanding at January 1, 1998 1,647,631 774,418 464,934 -
Units purchased 468,163 555,489 324,109 -
Units redeemed and transferred 3,706,599 7,055,485 5,355,528 -
------------------------------------------------------------------------
Units outstanding at December 31, 1998 5,822,393 8,385,392 6,144,571 -
Units purchased 2,750,499 3,797,808 2,766,032 238,609
Units redeemed and transferred 2,113,124 3,543,478 3,841,866 228,746
------------------------------------------------------------------------
Units outstanding at December 31, 1999 10,686,016 15,726,678 12,752,469 467,355
========================================================================
</TABLE>
4. Administrative, Mortality and Expense Risk Charge
Administrative charges include an annual charge of $30 per contract. Charges for
administrative fees to the variable annuity contracts are an expense of the
Mutual Fund Account.
PFL Life deducts a daily charge for assuming certain mortality and expense
risks. For the 5% Annually Compounding Death Benefit and the Annual Step-Up
Death Benefit, this charge is equal to an effective annual rate of 1.25% of the
value of the contract owner's individual account. For the Return of Premium
Death Benefit, the corresponding charge is equal to an effective annual rate of
1.10% of the value of the contract owner's individual account. PFL Life also
deducts a daily charge equal to an annual rate of .15% of the contract owner's
account for administrative expenses.
5. Taxes
Operations of the Mutual Fund Account form a part of PFL Life, which is taxed as
a life insurance company under Subchapter L of the Internal Revenue Code of
1986, as amended (the "Code"). The operations of the Mutual Fund Account are
accounted for separately from other operations of PFL Life for purposes of
federal income taxation. The Mutual Fund Account is not separately taxable as a
regulated investment company under Subchapter M of the Code and is not otherwise
taxable as an entity separate from PFL Life. Under existing federal income tax
laws, the income of the Mutual Fund Account, to the extent applied to increase
reserves under the variable annuity contracts, is not taxable to PFL Life.
20
<PAGE>
RETIREMENT
INCOME BUILDER II
VARIABLE ANNUITY
Issued Through
PFL RETIREMENT BUILDER VARIABLE
ANNUITY ACCOUNT
by
PFL LIFE INSURANCE COMPANY
Prospectus
May 1, 2000
This prospectus and the mutual fund prospectuses give you important information
about the policies and the mutual funds. Please read them carefully before you
invest and keep them for future reference.
If you would like more information about the Retirement Income Builder II
Variable Annuity policy, you can obtain a free copy of the Statement of
Additional Information (SAI) dated May 1, 2000. Please call us at (800) 525-
6205 or write us at: PFL Life Insurance Company, Financial Markets Division,
Variable Annuity Department, 4333 Edgewood Road N.E., Cedar Rapids, Iowa,
52499-0001. A registration statement, including the SAI, has been filed with
the Securities and Exchange Commission (SEC) and is incorporated herein by
reference. 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 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 policies and the mutual funds:
. are not bank deposits
. are not federally insured
. are not endorsed by any bank or government agency
. are not guaranteed to achieve their goal
. are subject to risks, including loss of premium
The Securities and Exchange Commission has not approved or disapproved these
securities, or passed upon the adequacy of this prospectus. Any representation
to the contrary is a criminal offense.
This flexible premium annuity policy has many investment choices. There is a
fixed account, which offers interest at rates that are guaranteed by PFL Life
Insurance Company (PFL), and twenty-nine mutual fund portfolios offered by the
underlying funds listed below. You can choose any combination of these
investment choices. You bear the entire investment risk for all amounts you put
in the mutual fund portfolios.
AIM Variable Insurance Fund
AIM V.I. Capital Appreciation Fund
AIM V.I. Government Securities Fund
AIM V.I. Growth and Income Fund
AIM V.I. Value Fund
Dreyfus Stock Index Fund
Dreyfus Variable Investment Fund
Dreyfus VIF - Money Market Portfolio
Dreyfus VIF - Small Company Stock Portfolio
MFS(R) Variable Insurance TrustSM
MFS Emerging Growth Series
MFS Emerging Markets Equity Series
MFS Research Series
MFS Total Return Series
MFS Utilities Series
Oppenheimer Variable Account Funds
Oppenheimer Capital Appreciation Fund/VA
Oppenheimer Global Securities Fund/VA
Oppenheimer High Income Fund/VA
Oppenheimer Main Street Growth & Income Fund/VA
Oppenheimer Strategic Bond Fund/VA
Transamerica Variable Insurance Fund, Inc.
Transamerica VIF Growth Portfolio
Variable Insurance Products Fund
(VIP) - Service Class 2
Fidelity - VIP Equity-Income Portfolio
Fidelity - VIP Growth Portfolio
Fidelity - VIP High Income Portfolio
Variable Insurance Products Fund II
(VIP II) - Service Class 2
Fidelity - VIP II Contrafund(R) Portfolio
Fidelity - VIP II Investment Grade Bond Portfolio
Variable Insurance Products Fund III
(VIP III) - Service Class 2
Fidelity - VIP III Growth & Income Portfolio
Fidelity - VIP III Balanced Portfolio
Fidelity - VIP III Mid Cap Portfolio
WRL Series Fund, Inc.
WRL Janus Global
WRL Janus Growth
WRL VKAM Emerging Growth
<PAGE>
<TABLE>
<S> <C>
TABLE OF CONTENTS Page
GLOSSARY OF TERMS.......................................................... 3
SUMMARY.................................................................... 4
ANNUITY POLICY FEE TABLE................................................... 8
EXAMPLES................................................................... 10
1. THE ANNUITY POLICY...................................................... 13
2. PURCHASE................................................................ 13
Policy Issue Requirements................................................ 13
Premium Payments......................................................... 13
Initial Premium Requirements............................................. 13
Additional Premium Payments.............................................. 14
Maximum Total Premium Payments........................................... 14
Allocation of Premium Payments........................................... 14
Policy Value............................................................. 14
3. INVESTMENT CHOICES...................................................... 14
The Separate Account..................................................... 14
The Fixed Account........................................................ 15
Transfers................................................................ 16
4. PERFORMANCE............................................................. 16
5. EXPENSES................................................................ 17
Surrender Charges........................................................ 17
Excess Interest Adjustment............................................... 18
Mortality and Expense Risk Fee........................................... 18
Administrative Charges................................................... 18
Premium Taxes............................................................ 18
Federal, State and Local Taxes........................................... 18
Transfer Fee............................................................. 18
Family Income Protector.................................................. 18
Portfolio Management Fees................................................ 19
6. ACCESS TO YOUR MONEY.................................................... 19
Surrenders............................................................... 19
Delay of Payment and Transfers........................................... 19
Excess Interest Adjustment............................................... 19
7. ANNUITY PAYMENTS
(THE INCOME PHASE)....................................................... 20
Annuity Payment Options.................................................. 20
8. DEATH BENEFIT........................................................... 22
When We Pay A Death Benefit.............................................. 22
When We Do Not Pay A Death Benefit....................................... 22
</TABLE>
<TABLE>
<S> <C>
Amount of Death Benefit................................................... 22
Guaranteed Minimum Death Benefit.......................................... 23
Adjusted Partial Withdrawal............................................... 23
9. TAXES.................................................................... 24
Annuity Policies in General............................................... 24
Qualified and Nonqualified Policies....................................... 24
Withdrawals - Qualified Policies.......................................... 24
Withdrawals - 403(b) Policies............................................. 25
Diversification and Distribution Requirements............................. 25
Withdrawals - Nonqualified Policies....................................... 25
Taxation of Death Benefit Proceeds........................................ 25
Annuity Payments.......................................................... 25
Transfers, Assignments and Exchanges of Policies.......................... 26
Possible Tax Law Changes.................................................. 26
10. ADDITIONAL FEATURES..................................................... 26
Systematic Payout Option.................................................. 26
Family Income Protector................................................... 26
Nursing Care and Terminal Condition Withdrawal Option..................... 28
Unemployment Waiver....................................................... 29
Telephone Transactions.................................................... 29
Dollar Cost Averaging..................................................... 29
Asset Rebalancing......................................................... 30
11. OTHER INFORMATION....................................................... 30
Ownership................................................................. 30
Assignment................................................................ 30
PFL Life Insurance Company................................................ 30
The Separate Account...................................................... 30
Mixed and Shared Funding.................................................. 31
Reinstatements............................................................ 31
Voting Rights............................................................. 31
Distributor of the Policies............................................... 31
Variations in Policy Provisions........................................... 31
IMSA...................................................................... 32
Legal Proceedings......................................................... 32
Financial Statements...................................................... 32
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION................ 32
APPENDIX A
Condensed Financial Information........................................... 33
APPENDIX B
</TABLE>
<TABLE>
<S> <C>
Historical Performance Data............................................... 37
</TABLE>
2
<PAGE>
GLOSSARY OF TERMS
Accumulation Unit--An accounting unit of measure used in calculating the policy
value in the separate account before the annuity commencement date.
Annuitant--The person during whose life any annuity payments involving life
contingencies will continue.
Annuity Commencement Date--The date upon which annuity payments are to
commence. The annuity commencement date may not be later than the last day of
the policy month starting after the annuitant attains age 85, except as
expressly allowed by PFL. In no event will this date be later than the last day
of the policy month following the month in which the annuitant attains age 95.
The annuity commencement date may be required to be earlier for qualified
policies.
Annuity Payment Option--A method of receiving a stream of annuity payments
selected by the owner.
Cash Value--The policy value increased or decreased by any excess interest
adjustment, less the annual service charge, and less any applicable surrender
charge, premium taxes and family income protector rider fee.
Cumulative Free Percentage--The percentage (as applied to the policy value)
which is available free of any surrender charge.
Excess Interest Adjustment--A positive or negative adjustment to amounts
withdrawn upon partial or full surrenders from the fixed account guaranteed
period options, or to amounts applied to annuity payment options. The
adjustment reflects changes in the interest rates declared by PFL since the
date any payment was received by (or an amount was transferred to) the
guaranteed period option. The excess interest adjustment can either decrease or
increase the amount to be received by the owner upon full surrender or
commencement of annuity payments, depending upon whether there has been an
increase or decrease in interest rates, respectively.
Fixed Account--One or more investment choices under the policy that are part of
PFL's general assets and are not in the separate account.
Guaranteed Period Options--The various guaranteed interest rate periods of the
fixed account which PFL may offer and into which premium payments may be paid
or amounts transferred.
Owner--The person who may exercise all rights and privileges under the policy.
The owner during the lifetime of the annuitant and prior to the annuity
commencement date is the person designated as the owner or a successor owner in
the information that we require to issue a policy.
Policy Value--On or before the annuity commencement date, the policy value is
equal to the owner's:
. premium payments; minus
. partial withdrawals (including the net effect of any applicable excess
interest adjustments and/or surrender charges on such withdrawals); plus
. interest credited in the fixed account; plus or minus
. accumulated gains or losses in the separate account; minus
. service charges, rider fees, premium taxes and transfer fees, if any.
Separate Account--The Retirement Income Builder II Variable Annuity division of
the PFL Retirement Builder Variable Annuity Account. The PFL Retirement Builder
Variable Annuity Account is a separate account established and registered as a
unit investment trust under the Investment Company Act of 1940, as amended (the
"1940 Act"), to which premium payments under the policies may be allocated.
Subaccount--A subdivision within the separate account, the assets of which are
invested in a specified portfolio of the underlying funds.
(Note: The SAI contains a more extensive Glossary.)
3
<PAGE>
SUMMARY
The sections in this summary correspond to sections in this prospectus, which
discuss the topics in more detail.
1. THE ANNUITY POLICY
The flexible premium variable annuity policy offered by PFL Life Insurance
Company (PFL, we, us, or our) provides a way for you to invest on a tax-
deferred basis in the following investment choices: subaccounts of the
separate account, and a fixed account of PFL. The policy is intended to
accumulate money for retirement or other long-term investment purposes.
This policy offers twenty-nine subaccounts that are listed in Section 3. Each
subaccount invests exclusively in shares of one of the portfolios of the
underlying funds. The policy value may depend on the investment experience of
the selected subaccounts. Therefore, you bear the entire investment risk with
respect to all policy value in any subaccount. You could lose the amount that
you invest.
The fixed account offers an interest rate that PFL guarantees. We guarantee to
return your investment with interest credited for all amounts allocated to the
fixed account.
You can transfer money between any of the investment choices within certain
limits. We reserve the right to impose a $10 fee for each transfer in excess
of 12 transfers per policy year.
The policy, like all deferred annuity policies, has two phases: the
"accumulation phase" and the "income phase." During the accumulation phase,
earnings accumulate on a tax-deferred basis and are taxed as ordinary income
when you take them out of the policy. The income phase occurs when you begin
receiving regular payments from your policy. The money you can accumulate
during the accumulation phase will largely determine the income payments you
receive during the income phase.
2. PURCHASE
You can buy this policy with $2,000 or more under most circumstances. You can
add as little as $50 at any time during the accumulation phase.
3. INVESTMENT CHOICES
You can allocate your premium payments to one or more of the following
investment choices described in the underlying fund prospectuses:
AIM V.I. Capital Appreciation Fund
AIM V.I. Government Securities Fund
AIM V.I. Growth and Income Fund
AIM V.I. Value Fund
Dreyfus Stock Index Fund
Dreyfus VIF - Money Market Portfolio
Dreyfus VIF - Small Company Stock Portfolio
MFS Emerging Growth Series
MFS Emerging Markets Equity Series(/1/)
MFS Research Series
MFS Total Return Series
MFS Utilities Series
Oppenheimer Capital Appreciation Fund/VA
Oppenheimer Global Securities Fund/VA
Oppenheimer High Income Fund/VA
Oppenheimer Main Street Growth & Income Fund/VA
Oppenheimer Strategic Bond Fund/VA
Transamerica VIF Growth Portfolio
Fidelity - VIP Equity-Income Portfolio - Service Class 2
Fidelity - VIP Growth Portfolio - Service Class 2
Fidelity - VIP High Income Portfolio - Service Class 2
Fidelity - VIP II Contrafund(R) Portfolio - Service Class 2
Fidelity - VIP II Investment Grade Bond Portfolio -Service Class 2
Fidelity - VIP III Growth & Income Portfolio - Service Class 2
Fidelity - VIP III Balanced Portfolio - Service Class 2
Fidelity - VIP III Mid Cap Portfolio - Service Class 2
WRL Janus Global
WRL Janus Growth
WRL VKAM Emerging Growth
(/1/Formerly)known as MFS Foreign & Colonial Emerging Markets Equity Series.
4
<PAGE>
Depending upon their investment performance, you can make or lose money in any
of these subaccounts.
You can also allocate your premium payments to the fixed account.
4. PERFORMANCE
The value of the policy will vary up or down depending upon the investment
performance of the subaccounts you choose. We provide performance information
in Appendix B and in the SAI. This data does not indicate future performance.
5. EXPENSES
No deductions are made from premium payments at the time you buy the policy so
that the full amount of each premium payment is invested in one or more of your
investment choices.
We may deduct a surrender charge of up to 6.0% of premium payments withdrawn
within five years after the premium is paid. However, after the tenth policy
year, no surrender charges apply, regardless of when you made your last premium
payment. To calculate surrender charges, we consider the premium you paid to
come out before any earnings.
Full surrenders and partial withdrawals from a guaranteed period option of the
fixed account may also be subject to an excess interest adjustment, which may
increase or decrease the amount you receive. This adjustment may also apply to
amounts applied to an annuity payment option from a guaranteed period option of
the fixed account.
We deduct daily mortality and expense risk fees and administrative charges of
either 1.25% or 1.40% per year from the assets in each subaccount, depending on
the guaranteed minimum death benefit you choose.
During the accumulation phase, we deduct an annual service charge of no more
than $30 from the policy value on each policy anniversary and at the time of
surrender. The charge is waived if either the policy value or the sum of all
premium payments, minus all partial withdrawals, is at least $50,000.
We will deduct state premium taxes, which currently range from 0% to 3.50%,
upon total surrender, payment of a death benefit, or when annuity payments
begin.
If you elect the family income protector rider, there is an annual fee during
the accumulation phase of 0.30% of the minimum annuitization value. If you
receive annuity payments under the rider, then during the income phase, there
is a guaranteed payment fee at an annual rate of 1.25% of the daily net asset
value in the separate account.
The value of the net assets of the mutual fund subaccounts will reflect the
management fee and other expenses incurred by the underlying fund portfolios.
6. ACCESS TO YOUR MONEY
You can take out $500 or more anytime during the accumulation phase (except
under certain qualified policies). You may take out up to 10% of the policy
value free of surrender charges each policy year. The percentage that may be
taken free of surrender charges is referred to as the cumulative free
percentage. Also, withdrawals from the fixed account up to this percentage will
not be subject to an excess interest adjustment. Any cumulative free percentage
that is not taken in one year is carried forward and is available to be taken
in the following policy year. Amounts withdrawn in excess of the cumulative
free percentage may be subject to a surrender charge and excess interest
adjustment. You may also have to pay income tax and a tax penalty on any money
you take out.
Access to amounts held in qualified policies may not be restricted or
prohibited.
7. ANNUITY PAYMENTS (THE INCOME PHASE)
The policy allows you to receive income under one of five annuity payment
options. You may choose from fixed payment options, variable payment options,
or a combination of both. If you select a variable payment option, the dollar
amount of your payments may go up or down.
8. DEATH BENEFIT
If you are both the owner and the annuitant and you die before the income phase
begins, then your beneficiary will receive a death benefit.
5
<PAGE>
Naming different persons as owner and annuitant can affect whether the death
benefit is payable and to whom amounts will be paid. Use care when naming
owners, annuitants and beneficiaries, and consult your agent if you have
questions.
You may choose one of the following guaranteed minimum death benefits:
. 5% Annually Compounding
. Annual Step-Up
. Return of Premium
Charges are lower for the Return of Premium Death Benefit than they are for the
other two.
If the owner is not the annuitant, no death benefit is paid if the owner dies.
9. TAXES
Your earnings, if any, are not taxed until you take them out. If you take money
out during the accumulation phase, earnings come out first for federal tax
purposes, and are taxed as ordinary income. If you are younger than 59 1/2 when
you take money out, you may be charged a 10% federal penalty tax on the
earnings. Payments during the income phase are considered partly a return of
your original investment so that part of each payment is not taxable as income.
10. ADDITIONAL FEATURES
This policy has additional features that might interest you. These include the
following:
. You can arrange to have money automatically sent to you monthly, quarterly,
semi-annually or annually while your policy is in the accumulation phase.
This feature is referred to as the "systematic payout option." Amounts you
receive may be included in your gross income, and in certain circumstances,
may be subject to penalty taxes.
. You can elect an optional rider that guarantees you a minimum annuitization
value. This feature is called the "family income protector." There is an
extra charge for this rider and the rider may vary by state.
. Under certain medically related circumstances, we will allow you to
surrender or partially withdraw your policy value without a surrender charge
and excess
interest adjustment. This feature is called the "nursing care and terminal
condition withdrawal option."
. Under certain unemployment circumstances, you may withdraw all or a portion
of the policy value free of surrender charges and excess interest
adjustments. This feature is called the "unemployment waiver."
. You may make transfers and/or change the allocation of additional premium
payments by telephone.
. You can arrange to have a certain amount of money (at least $500)
automatically transferred from the fixed account, either monthly or
quarterly, to your choice of subaccounts. This feature is called "dollar
cost averaging."
. We will, upon your request, automatically transfer amounts among the
subaccounts on a regular basis to maintain a desired allocation of the
policy value among the various subaccounts. This feature is called "asset
rebalancing."
These features are not available in all states and may not be suitable for your
particular situation.
11. OTHER INFORMATION
Right to Cancel Period. You may return your policy for a refund. The amount of
time you have to return the policy will depend on the state where the policy
was issued. It is generally only 20 days. The amount of the refund will
generally be the policy value. PFL will pay the refund within 7 days after it
receives written notice of cancellation and the returned policy. The policy
will then be deemed void. In some states you may have more or less than 20 days
to return a policy, or receive a refund of more (or less) than the policy
value.
No Probate. Usually, when the annuitant dies, the person you choose as your
beneficiary will receive the death benefit under this policy without going
through probate. State laws vary on how the amount that may be paid is treated
for estate tax purposes.
6
<PAGE>
Who should purchase the Policy? This policy is designed for people seeking
long-term tax-deferred accumulation of assets, generally for retirement or
other long-term purposes; and for persons who have maximized their use of other
retirement savings methods, such as 401(k) plans. The tax-deferred feature is
most attractive to people in high federal and state tax brackets. The tax
deferral features of variable annuities are unnecessary when purchased to fund
a qualified plan. You should not buy this policy if you are looking for a
short-term investment or if you cannot take the risk of losing the money that
you put in.
There are various fees and charges associated with variable annuities. You
should consider whether the features and benefits of this policy, such as the
opportunity for lifetime income payments, a guaranteed death benefit, the
guaranteed level of certain charges, and the family income protector, make this
policy appropriate for your needs.
Financial Statements. Financial statements for PFL and the subaccounts are in
the SAI.
12. 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
You may check your policy at www.pfllife.com/fmd. Follow the logon procedures.
You will need your pre-assigned Personal Identification Number ("PIN") to
access information about your policy.
7
<PAGE>
ANNUITY POLICY FEE TABLE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Policy Owner Transaction Expenses
- -----------------------------------------------
<S> <C>
Sales Load On Purchase
Payments..................... 0
Maximum Surrender Charge
(as a % of Premium Payments
Surrendered)(/1/)(/2/)...... 6%
Annual Service Charge(/2/).... $30 Per Policy
Transfer Fee(/2/)............. Currently No Fee
</TABLE>
<TABLE>
<CAPTION>
Separate Account Annual Expenses
(as a percentage of average account value)
<S> <C>
Mortality and Expense Risk
Fees(/3/)..................... 1.25%
Administrative Charge.......... 0.15%
------------
TOTAL SEPARATE ACCOUNT
ANNUAL EXPENSES............... 1.40%
</TABLE>
<TABLE>
- --------------------------------------------------------------------------------
<CAPTION>
Portfolio Annual Expenses/(4)/
(as a percentage of average net assets
and after expense reimbursements)
- --------------------------------------------------------------------------------
Management Other Rule Total Portfolio
Fees Expenses 12b-1 Fees Annual Expenses
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AIM V.I. Capital Appreciation
Fund........................ 0.62% 0.11% -- 0.73%
AIM V.I. Government
Securities Fund............. 0.50% 0.40% -- 0.90%
AIM V.I. Growth and Income
Fund........................ 0.61% 0.16% -- 0.77%
AIM V.I. Value Fund.......... 0.61% 0.15% -- 0.76%
Dreyfus Stock Index Fund..... 0.25% 0.01% -- 0.26%
Dreyfus VIF -- Money Market
Portfolio................... 0.50% 0.08% -- 0.58%
Dreyfus VIF -- Small Company
Stock Portfolio............. 0.75% 0.22% -- 0.97%
MFS Emerging Growth
Series(/5/)................. 0.75% 0.09% -- 0.84%
MFS Emerging Markets Equity
Series(/6/)................. 1.25% 0.32% -- 1.57%
MFS Research Series(/5/)..... 0.75% 0.11% -- 0.86%
MFS Total Return
Series(/5/)................. 0.75% 0.15% -- 0.90%
MFS Utilities Series(/5/).... 0.75% 0.16% -- 0.91%
Oppenheimer Capital
Appreciation Fund/VA........ 0.68% 0.02% -- 0.70%
Oppenheimer Global Securities
Fund/VA..................... 0.67% 0.02% -- 0.69%
Oppenheimer High Income
Fund/VA..................... 0.74% 0.01% -- 0.75%
Oppenheimer Main Street
Growth & Income Fund/VA..... 0.73% 0.05% -- 0.78%
Oppenheimer Strategic Bond
Fund/VA..................... 0.74% 0.04% -- 0.78%
Transamerica VIF Growth
Portfolio(/7/).............. 0.70% 0.15% -- 0.85%
Fidelity -- VIP Equity-
Income -- Service Class
2(/8/)...................... 0.48% 0.10% 0.25% 0.83%
Fidelity -- VIP Growth --
Service Class 2(/8/)....... 0.58% 0.10% 0.25% 0.93%
Fidelity -- VIP High
Income -- Service Class
2(/8/)...................... 0.58% 0.12% 0.25% 0.95%
Fidelity -- VIP II
Contrafund(R) -- Service
Class 2(/8/)................ 0.58% 0.12% 0.25% 0.95%
Fidelity -- VIP II Investment
Grade Bond -- Service Class
2(/8/)...................... 0.43% 0.14% 0.25% 0.82%
Fidelity -- VIP III Growth &
Income --
Service Class 2(/8/)....... 0.48% 0.13% 0.25% 0.86%
Fidelity -- VIP III
Balanced -- Service Class
2(/8/)...................... 0.43% 0.16% 0.25% 0.84%
Fidelity -- VIP III Mid
Cap -- Service Class
2(/8/)...................... 0.57% 0.43% 0.25% 1.25%
WRL Janus Global(/9/)........ 0.80% 0.12% -- 0.92%
WRL Janus Growth(/10/)....... 0.80% 0.05% -- 0.85%
WRL VKAM Emerging Growth..... 0.80% 0.07% -- 0.87%
</TABLE>
8
<PAGE>
(/1/The)surrender charge is decreased based on the number of years since the
premium payment was made, from 6% in the year in which the premium payment
was made to 0% in the sixth year after the premium payment was made.
However, after the tenth policy year, no surrender charges apply,
regardless of when you made your last premium payment. If applicable, a
surrender charge will only be applied to withdrawals that exceed the
amount available under certain listed exceptions.
(/2/The)surrender charge and transfer fee, if any are imposed, apply to each
policy, regardless of how policy value is allocated among the separate
account and the fixed account. The service charge is the lesser of $30 or
2% of the policy value. It applies to both the fixed account and the
separate account, and is assessed on a prorata basis relative to each
account's policy value as a percentage of the policy's total policy value.
There is no fee for the first 12 transfers per policy year. For additional
transfers, PFL may charge a fee of $10 per transfer, but currently does
not charge for any transfers. Separate account expenses do not apply to
the fixed account.
(/3/Mortality)and expense risk fees shown (1.25%) are for the "5% Annually
Compounding Death Benefit" and the "Annual Step Up Death Benefit." This
reflects a fee that is 0.15% higher than the 1.10% corresponding fees for
the "Return of Premium Death Benefit."
(/4/The)fee table information relating to the underlying funds was provided to
PFL by the underlying funds, their investment advisers or managers, and
PFL has not independently verified such information. Actual future
expenses of the underlying funds may be greater or less than those shown
in the Table.
(/5/Each)series has an expense offset arrangement which reduces the series'
custodian fee based upon the amount of cash maintained by the series with
its custodian and dividend disbursing agent. Each series may enter into
other such arrangements and directed brokerage
arrangements, which would also have the effect of reducing the series'
expenses. Other expenses do not take into account these expense reductions,
and are therefore higher than the actual expenses of the series. The ratios
for Other Expenses and Total Underlying Fund Annual Expenses (reduced by
custodial offset arrangements), respectively, would have been as follows:
0.08%, 0.83% - MFS Emerging Growth Series; 0.10%, 0.85% - MFS Research
Series; 0.14%, 0.89% - MFS Total Return Series; and 0.15%, 0.90% - MFS
Utilities Series.
(/6/For)the MFS Emerging Markets Equity Series, the management fees before
waivers were 1.25% and other expenses before reimbursements were 4.84%.
Therefore, Total Portfolio Annual Expenses before waivers and other
expenses before reimbursements (reduced by custodial offset arrangements)
for the period ended December 31, 1999 were 6.02%.
(/7/For)the Transamerica VIF Growth Portfolio, the management fees before
waivers were 0.75% and other expenses before reimbursements were 0.15%.
Therefore, Total Portfolio Annual Expenses before waivers and other
expenses before reimbursements (reduced by custodial offset arrangements)
for the period ended December 31, 1999 were 0.90%.
(/8/Service)Class 2 expenses are based on estimated expenses for the first
year. VIP expenses are without any reimbursement.
(/9/For)WRL Janus Global, the investment adviser currently waives 0.025% of
its advisory fee on portfolio average daily net assets over $2 billion
(net fee - 0.775%). This waiver is voluntary and will be terminated on
June 25, 2000.
(/10/For)WRL Janus Growth, the investment adviser currently waives 0.025% of
its advisory fee for the first $3 billion of the portfolio's average
daily net assets (net fee - 0.775%); and 0.05% for the portfolio's
average daily net assets above $3 billion (net fee - 0.75%). This waiver
is voluntary and will be terminated on June 25, 2000.
9
<PAGE>
EXAMPLES
You would pay the following expenses on a $1,000 investment, assuming a
hypothetical 5% annual return on assets, assuming the entire policy value is in
the applicable subaccount, and assuming the family income protector benefit has
not been selected:
The expenses reflect different mortality and expense risk fees depending on
which death benefit you select:
A = Return of Premium Death Benefit (1.10% charge)
B = 5% Annually Compounding Death Benefit or the Annual Step-Up Death Benefit
(1.25% charge)
<TABLE>
<CAPTION>
If the Policy is
annuitized at the end
If the Policy is of the applicable time
surrendered at the end period or if the
of the applicable time Policy is still in the
period. accumulation phase.
----------------------------------------------
1 3 5 10 1 3 5 10
Subaccounts Year Years Years Years Year Years Years Years
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AIM V.I. Capital
Appreciation Fund A $75 $106 $121 $243 $21 $66 $113 $243
--------------------------------------------------
B $77 $111 $129 $258 $23 $70 $120 $258
- -------------------------------------------------------------------------------
AIM V.I. Government
Securities Fund A $77 $111 $130 $260 $23 $71 $121 $260
--------------------------------------------------
B $78 $116 $138 $275 $24 $75 $129 $275
- -------------------------------------------------------------------------------
AIM V.I. Growth and Income
Fund A $75 $107 $123 $247 $22 $67 $115 $247
--------------------------------------------------
B $77 $112 $131 $262 $23 $71 $122 $262
- -------------------------------------------------------------------------------
AIM V.I. Value Fund A $75 $107 $123 $246 $22 $67 $114 $246
--------------------------------------------------
B $77 $112 $130 $261 $23 $71 $122 $261
- -------------------------------------------------------------------------------
Dreyfus Stock Index Fund A $70 $ 91 $ 97 $193 $17 $51 $ 88 $193
--------------------------------------------------
B $72 $ 96 $105 $209 $18 $56 $ 96 $209
- -------------------------------------------------------------------------------
Dreyfus VIF--Money Market
Portfolio A $74 $101 $113 $227 $20 $61 $105 $227
--------------------------------------------------
B $75 $106 $121 $243 $21 $66 $113 $243
- -------------------------------------------------------------------------------
Dreyfus VIF--Small Company A $78 $113 $133 $267 $24 $73 $125 $267
--------------------------------------------------
Stock Portfolio B $79 $118 $141 $282 $25 $77 $132 $282
- -------------------------------------------------------------------------------
MFS Emerging Growth Series A $76 $109 $127 $254 $22 $69 $118 $254
--------------------------------------------------
B $78 $114 $134 $269 $24 $74 $126 $269
- -------------------------------------------------------------------------------
MFS Emerging Markets
Equity Series A $84 $134 $167 $332 $30 $93 $158 $332
--------------------------------------------------
B $86 $138 $174 $346 $32 $97 $165 $346
- -------------------------------------------------------------------------------
MFS Research Series A $76 $110 $128 $256 $23 $70 $119 $256
--------------------------------------------------
B $78 $115 $135 $271 $24 $74 $127 $271
- -------------------------------------------------------------------------------
MFS Total Return Series A $77 $111 $130 $260 $23 $71 $121 $260
--------------------------------------------------
B $78 $116 $138 $275 $24 $75 $129 $275
- -------------------------------------------------------------------------------
MFS Utilities Series A $77 $112 $130 $261 $23 $71 $122 $261
--------------------------------------------------
B $78 $116 $138 $276 $25 $76 $129 $276
- -------------------------------------------------------------------------------
Oppenheimer Capital
Appreciation A $75 $105 $120 $240 $21 $65 $111 $240
--------------------------------------------------
Fund/VA B $76 $110 $127 $255 $22 $69 $119 $255
- -------------------------------------------------------------------------------
Oppenheimer Global
Securities Fund/VA A $75 $105 $119 $239 $21 $64 $111 $239
--------------------------------------------------
B $76 $109 $127 $254 $22 $69 $118 $254
</TABLE>
10
<PAGE>
EXAMPLES continued
<TABLE>
<CAPTION>
If the Policy is annuitized at
If the Policy is surrendered the end of the applicable time
at the end of the applicable period or if the Policy is still
time period. in the accumulation phase.
-----------------------------------------------------------------------
1 3 5 10 1 3 5 10
Subaccounts Year Years Years Years Year Years Years Years
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Oppenheimer High Income
Fund/VA A $ 75 $ 107 $ 122 $ 245 $ 21 $ 66 $ 114 $ 245
--------------------------------------------------------------------------
B $ 77 $ 111 $ 130 $ 260 $ 23 $ 71 $ 121 $ 260
- -------------------------------------------------------------------------------------------------------
Oppenheimer Main Street
Growth & A $ 76 $ 108 $ 124 $ 248 $ 22 $ 67 $ 115 $ 248
--------------------------------------------------------------------------
Income Fund/VA B $ 77 $ 112 $ 131 $ 263 $ 23 $ 72 $ 123 $ 263
- -------------------------------------------------------------------------------------------------------
Oppenheimer Strategic
Bond Fund/VA A $ 76 $ 108 $ 124 $ 248 $ 22 $ 67 $ 115 $ 248
--------------------------------------------------------------------------
B $77 $112 $131 $263 $23 $72 $123 $263
- -------------------------------------------------------------------------------------------------------
Transamerica VIF Growth
Portfolio A $ 76 $ 110 $ 127 $ 255 $ 22 $ 69 $ 119 $ 255
--------------------------------------------------------------------------
B $78 $114 $135 $270 $24 $74 $126 $270
- -------------------------------------------------------------------------------------------------------
Fidelity--VIP Equity-
Income A $ 76 $ 109 $ 126 $ 253 $ 22 $ 69 $ 118 $ 253
--------------------------------------------------------------------------
Service Class 2 B $ 78 $ 114 $ 134 $ 268 $ 24 $ 73 $ 125 $ 268
- -------------------------------------------------------------------------------------------------------
Fidelity--VIP Growth A $ 77 $ 112 $ 131 $ 263 $ 23 $ 72 $ 123 $ 263
--------------------------------------------------------------------------
Service Class 2 B $ 79 $ 117 $ 139 $ 278 $ 25 $ 76 $ 130 $ 278
- -------------------------------------------------------------------------------------------------------
Fidelity--VIP High
Income A $ 77 $ 113 $ 132 $ 265 $ 23 $ 72 $ 124 $ 265
--------------------------------------------------------------------------
Service Class 2 B $ 79 $ 117 $ 140 $ 280 $ 25 $ 77 $ 131 $ 280
- -------------------------------------------------------------------------------------------------------
Fidelity--VIP II
Contrafund(R) A $ 77 $ 113 $ 132 $ 265 $ 23 $ 72 $ 124 $ 265
--------------------------------------------------------------------------
Service Class 2 B $ 79 $ 117 $ 140 $ 280 $ 25 $ 77 $ 131 $ 280
- -------------------------------------------------------------------------------------------------------
Fidelity--VIP II
Investment Grade Bond A $ 76 $ 109 $ 126 $ 252 $ 22 $ 68 $ 117 $ 252
--------------------------------------------------------------------------
Service Class 2 B $ 78 $ 113 $ 133 $ 267 $ 24 $ 73 $ 125 $ 267
- -------------------------------------------------------------------------------------------------------
Fidelity--VIP III Growth
& Income A $ 76 $ 110 $ 128 $ 256 $ 23 $ 70 $ 119 $ 256
--------------------------------------------------------------------------
Service Class 2 B $ 78 $ 115 $ 135 $ 271 $ 24 $ 74 $ 127 $ 271
- -------------------------------------------------------------------------------------------------------
Fidelity--VIP III
Balanced A $ 76 $ 109 $ 127 $ 254 $ 22 $ 69 $ 118 $ 254
--------------------------------------------------------------------------
Service Class 2 B $ 78 $ 114 $ 134 $ 269 $ 24 $ 74 $ 126 $ 269
- -------------------------------------------------------------------------------------------------------
Fidelity--VIP III Mid
Cap A $ 80 $ 122 $ 148 $ 295 $ 26 $ 81 $ 139 $ 295
--------------------------------------------------------------------------
Service Class 2 B $ 82 $ 127 $ 155 $ 310 $ 28 $ 86 $ 146 $ 310
- -------------------------------------------------------------------------------------------------------
WRL VKAM Emerging Growth A $ 77 $ 110 $ 128 $ 257 $ 23 $ 70 $ 120 $ 257
--------------------------------------------------------------------------
B $ 78 $ 115 $ 136 $ 272 $ 24 $ 74 $ 127 $ 272
- -------------------------------------------------------------------------------------------------------
WRL Janus Global A $ 77 $ 112 $ 131 $ 262 $ 23 $ 71 $ 122 $ 262
--------------------------------------------------------------------------
B $ 79 $ 117 $ 139 $ 277 $ 25 $ 76 $ 130 $ 277
- -------------------------------------------------------------------------------------------------------
WRL Janus Growth A $ 76 $ 110 $ 127 $ 255 $ 22 $ 69 $ 119 $ 255
--------------------------------------------------------------------------
B $ 78 $ 114 $ 135 $ 270 $ 24 $ 74 $ 126 $ 270
</TABLE>
The above tables will assist you in understanding the costs and expenses of the
policy that you will bear, directly or indirectly. These include the 1999
expenses of the underlying funds. In addition to the expenses listed above,
premium taxes may be applicable.
The examples should not be considered a representation of past or future
expenses, and
11
<PAGE>
actual expenses may be greater or less than those shown. The assumed 5% annual
return is hypothetical and should not be considered a representation of past
or future annual returns, which may be greater or less than the assumed rate.
In these examples, the annual $30 service charge is reflected as a charge of
0.114478% based on an average policy value of $26,206.00.
These examples do not reflect the annual fee of 0.30% of the minimum
annuitization value for the family income protector rider. The above expense
figures would be approximately $3 per year higher if you elected that rider.
Financial Information. Condensed financial information for the subaccounts is
in Appendix A to this prospectus.
12
<PAGE>
1. THE ANNUITY POLICY
This prospectus describes the Retirement Income Builder II Variable Annuity
policy offered by PFL Life Insurance Company.
An annuity is a policy between you, the owner, and an insurance company (in
this case PFL), where the insurance company promises to pay you an income in
the form of annuity payments. These payments begin on a designated date,
referred to as the annuity commencement date. Until the annuity commencement
date, your annuity is in the accumulation phase and the earnings (if any) are
tax deferred. Tax deferral means you generally are not taxed on your annuity
until you take money out of your annuity. After the annuity commencement date,
your annuity switches to the income phase.
The policy is a flexible premium variable annuity. You can use the policy to
accumulate funds for retirement or other long-term financial planning purposes.
The policy is a "flexible premium" policy because after you purchase it, you
can generally make additional investments of any amount of $50 or more, until
the annuity commencement date. But you are not required to make any additional
investments.
The policy is a "variable" annuity because the value of your investments can go
up or down based on the performance of your investment choices. If you invest
in the variable annuity portion of the policy, the amount of money you are able
to accumulate in your policy during the accumulation phase depends upon the
performance of your investment choices. The amount of annuity payments you
receive during the income phase from the variable annuity portion of your
policy also depends upon the investment performance of your investment choices
for the income phase. However, if you annuitize under the family income
protector rider, then PFL will guarantee a minimum amount of your annuity
payments. There is an extra charge for this rider.
The policy also contains a fixed account. The fixed account offers an interest
rate that we guarantee will not decrease during the selected guaranteed period.
There may be different interest rates for each different guaranteed period that
you select.
2. PURCHASE
Policy Issue Requirements
PFL will not issue a policy unless:
. PFL receives all information needed to issue the policy;
. PFL receives a minimum initial premium payment;
. The annuitant and any joint owner are age 84 or younger.
We reserve the right to reject any application or premium payment.
Premium Payments
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 PFL to pay any associated payments and benefits due
under the policy.
Initial Premium Requirements
The initial premium payment for most policies must be at least $2,000. There is
no minimum initial premium payment for policies issued under 403(b) policies of
the Internal Revenue Code; however, your premium must be received within 90
days of the policy date or your policy will be canceled. PFL will credit your
initial premium payment to your policy within two business days after the day
PFL receives it and your complete policy information. If we are unable to
credit your initial premium payment, we will contact you within five business
days and explain why. We will also return your initial premium payment at that
time unless you tell us to keep it and credit it as soon as possible.
The date on which we credit your initial premium payment to your policy is the
policy date. The policy date is used to determine policy years, policy months
and policy anniversaries.
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Additional Premium Payments
You are not required to make any additional premium payments. However, you can
make additional premium payments as often as you like during the lifetime of
the annuitant and during the accumulation phase. Additional premium payments
must be at least $50. PFL will credit additional premium payments to your
policy as of the business day we receive your premium and required
information. Additional premium payments must be received before the New York
Stock Exchange closes to get same-day pricing of the additional premium
payment.
Maximum Total Premium Payments
We allow premium payments up to a total of $1,000,000 without prior approval.
Allocation of Premium Payments
When you purchase a policy, PFL will allocate your premium payment to the
investment choices you select. Your allocation must be in whole percentages
and must total 100%. We will allocate additional premium payments the same
way, unless you request a different allocation.
If you allocate your premium payment to the dollar cost averaging fixed
account, you must give us instructions regarding the subaccount(s) to which
transfers are to be made or we cannot accept your premium payment.
You may change allocations for future additional premium payments by sending
written instructions or by telephone, subject to the limitations described
below under "Telephone Transactions." The allocation change will apply to
premium payments received after the date we receive the change request.
Policy Value
You should expect your policy value to change from valuation period to
valuation period. A valuation period begins at the close of trading on the New
York Stock Exchange on each business day and ends at the close of trading on
the next succeeding business day. A business day is each day that the New York
Stock Exchange is open. The New York Stock Exchange generally closes at 4:00
p.m. eastern time. Holidays are generally not business days.
3. INVESTMENT CHOICES
The Separate Account
The Retirement Income Builder II Variable Annuity separate account currently
consists of twenty-nine subaccounts.
The subaccounts invest in shares of the underlying fund portfolios. The
companies that provide investment advice and administrative services for the
underlying fund portfolios offered through this policy are listed below. The
following investment choices are currently offered through this policy:
AIM VARIABLE INSURANCE FUNDS
Managed by A I M Advisors, Inc.
AIM V.I. Capital Appreciation Fund
AIM V.I. Government Securities Fund
AIM V.I. Growth and Income Fund
AIM V.I. Value Fund
DREYFUS STOCK INDEX FUND
Managed by The Dreyfus Corporation
and Mellon Equity Associates as index fund manager
DREYFUS VARIABLE INVESTMENT FUND
Managed by The Dreyfus Corporation
Dreyfus VIF--Money Market Portfolio
Dreyfus VIF--Small Company Stock Portfolio
MFS(R) VARIABLE INSURANCE TRUSTSM
Managed by Massachusetts Financial Services Company
MFS Emerging Growth Series
MFS Emerging Markets Equity Series
MFS Research Series
MFS Total Return Series
MFS Utilities Series
OPPENHEIMER VARIABLE ACCOUNT FUNDS
Managed by OppenheimerFunds, Inc.
Oppenheimer Capital Appreciation Fund/VA
Oppenheimer Global Securities Fund/VA
Oppenheimer High Income Fund/VA
Oppenheimer Main Street Growth & Income Fund/VA
Oppenheimer Strategic Bond Fund/VA
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TRANSAMERICA VARIABLE INSURANCE FUND, INC.
Managed by Transamerica Investment Services, Inc.
Transamerica VIF Growth Portfolio
VARIABLE INSURANCE PRODUCTS FUND (VIP)--SERVICE CLASS 2
Managed by Fidelity Management & Research Company
Fidelity--VIP Equity-Income Portfolio
Fidelity--VIP Growth Portfolio
Fidelity--VIP High Income Portfolio
VARIABLE INSURANCE PRODUCTS FUND II (VIP II)--SERVICE CLASS 2
Managed by Fidelity Management & Research Company
Fidelity--VIP II Contrafund(R) Portfolio
Fidelity--VIP II Investment Grade Bond Portfolio
VARIABLE INSURANCE PRODUCTS FUND III (VIP III)--SERVICE CLASS 2
Managed by Fidelity Management & Research Company
Fidelity--VIP III Growth & Income Portfolio
Fidelity--VIP III Balanced Portfolio
Fidelity--VIP III Mid Cap Portfolio
WRL SERIES FUND, INC.
Subadvised by Janus Capital Corporation
WRL Janus Global
WRL Janus Growth
Subadvised by Van Kampen Asset Management Inc.
WRL VKAM Emerging Growth
The general public may not purchase shares of these underlying fund portfolios.
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 underlying fund portfolios to be the same as those of other portfolios or
mutual funds.
More detailed information, including an explanation of the portfolios'
investment objectives, may be found in the current prospectuses for the
underlying fund portfolios, which are attached to this prospectus. You should
read the prospectuses for each of the underlying fund portfolios carefully
before you invest.
PFL may receive expense reimbursements or other revenues from the underlying
funds or their managers. The amount of these reimbursements or revenues, if
any, may be different for different funds or portfolios, and may be based on
the amount of assets that PFL or the separate account invests in the underlying
fund portfolios.
We do not guarantee that any of the subaccounts will always be available for
premium payments, allocations, or transfers. See the SAI for more information
concerning the possible addition, deletion or substitution of investments.
The Fixed Account
Premium payments allocated and amounts transferred to the fixed account become
part of PFL's general account. Interests in the general account have not been
registered under the Securities Act of 1933 (the "1933 Act"), nor is the
general account registered as an investment company under the 1940 Act.
Accordingly, neither the general account nor any interests therein are
generally subject to the provisions of the 1933 or 1940 Acts. PFL has been
advised that the staff of the SEC has not reviewed the disclosures in this
Prospectus which relate to the fixed account.
We guarantee that the interest credited to the fixed account will not be less
than 3% per year. At the end of the guaranteed period option you selected, the
value in that guaranteed period option will automatically be transferred into a
new guaranteed period option of the same length (or the next shorter period if
the same period is no longer offered) at the current interest rate for that
period. You can transfer to another investment choice by giving us notice
within 30 days before the end of the expiring guaranteed period.
Surrenders or partial withdrawals from a guaranteed period option of the fixed
account are subject to an excess interest adjustment. This
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<PAGE>
adjustment may increase or decrease the amount of interest credited to your
policy. The excess interest adjustment will not decrease the interest credited
to your policy below 3% per year, however. You bear the risk that we will not
credit interest greater than 3% per year. We determine credited rates, which
are guaranteed for at least one year, in our sole discretion.
If you select the fixed account, your money will be placed with PFL's other
general assets. The amount of money you are able to accumulate in the fixed
account during the accumulation phase depends upon the total interest credited.
The amount of annuity payments you receive during the income phase from the
fixed portion of your policy will remain level for the entire income phase.
Transfers
During the accumulation phase, you may make transfers to or from any subaccount
or the fixed account as often as you wish within certain limitations.
Transfers from a guaranteed period option of the fixed account are limited to
the following:
. Within 30 days prior to the end of the guaranteed period you must notify us
that you wish to transfer the amount in the guaranteed period option to
another investment choice. No excess interest adjustment will apply.
. Transfers of amounts equal to interest credited on a monthly, quarterly,
semi-annual or annual basis. This may affect your overall interest-crediting
rate, because transfers are deemed to come from the oldest premium payment
first.
Otherwise, you cannot transfer out of the fixed account.
There are no transfers permitted out of the dollar cost averaging fixed account
option except through the dollar cost averaging program.
Each transfer must be at least $500, or the entire subaccount value. Transfers
of interest from a guaranteed period option of the fixed account, must be at
least $50. If less than $500 remains, then we reserve the right to include that
amount in the transfer. Transfers must be received while the New York Stock
Exchange is open to get same-day pricing of the transaction.
During the income phase of your policy, you may transfer values out of any
subaccount up to four times per policy year. However, you cannot transfer out
of the fixed account in this phase. The minimum amount that can be transferred
during this phase is the lesser of $10 of monthly income, or the entire monthly
income of the variable annuity units in the subaccount from which the transfer
is being made.
Transfers may be made by telephone, subject to limitations described below
under "Telephone Transactions."
Currently, there is no charge for transfers and no limit on the number of
transfers during the accumulation phase. However, in the future, the number of
transfers permitted may be limited and a $10 charge per transfer may apply.
We reserve the right to prohibit transfers to the fixed account if we are
crediting an effective annual interest rate of 3.0% (the guaranteed minimum).
The policy you are purchasing was not designed for professional market timing
organizations or other persons that use programmed, large, or frequent
transfers. The use of such transfers may be disruptive to an underlying fund
portfolio. We reserve the right to reject any premium payment or transfer
request from any person, if, in our judgment, an underlying fund portfolio
would be unable to invest effectively in accordance with its investment
objectives and policies or would otherwise be potentially adversely affected or
if an underlying portfolio would reject our purchase order.
4. PERFORMANCE
PFL periodically advertises performance of the various investment portfolios.
We may disclose at least four different kinds of performance. First, we may
calculate performance by determining the percentage change in the value of an
accumulation unit by dividing the increase (decrease) for that unit by the
value of the accumulation unit at the beginning of the period. This performance
number reflects the deduction
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of the mortality and expense risk fees and administrative charges. It does not
reflect the deduction of any applicable premium taxes or surrender charges. The
deduction of any applicable premium taxes or surrender charges would reduce the
percentage increase or make greater any percentage decrease.
Second, any advertisement will also include total return figures, which reflect
the deduction of the mortality and expense risk fees, administrative charges
and surrender charges.
Third, for periods starting prior to the date the policies were first offered,
the performance will be based on the historical performance of the
corresponding investment portfolios for the periods commencing from the date on
which the particular investment portfolio was made available through the
separate account.
Fourth, in addition, for certain investment portfolios, performance may be
shown for the period commencing from the inception date of the investment
portfolio. These figures should not be interpreted to reflect actual historical
performance of the separate account.
We also may, from time to time, include in our advertising and sales materials,
tax deferred compounding charts and other hypothetical illustrations, which may
include, comparisons of currently taxable and tax deferred investment programs,
based on selected tax brackets.
Appendix B contains performance information that you may find useful. It is
divided into various parts, depending upon the type of performance information
shown. Future performance will vary and future results will not be the same as
the results shown.
5. EXPENSES
There are charges and expenses associated with your policy that reduce the
return on your investment in the policy.
Surrender Charges
During the accumulation phase, you can withdraw part or all of the cash value.
Cash value is the policy value increased or decreased by any excess interest
adjustment, less the annual service charge, and less any applicable surrender
charge, premium taxes and family income protector rider fees. We may deduct a
surrender charge to compensate us for expenses relating to policy sales,
including commissions to registered representatives and other promotional
expenses.
You can withdraw up to 10% of your policy value each year free of surrender
charges. This free amount is cumulative and is referred to as the cumulative
free percentage and is determined at the time of the withdrawal. If you
withdraw money in excess of the cumulative free percentage, you might have to
pay a surrender charge, which is a contingent deferred sales charge, on the
excess amount. The following schedule shows the surrender charges that apply
during the five years following each premium payment:
<TABLE>
<CAPTION>
Surrender Charge
Number of Years (as a percentage
Since Premium of premium
Payment Date withdrawn)
------------------------------------------------
<S> <C>
0 - 1 6%
1 - 2 6%
2 - 3 6%
3 - 4 4%
4 - 5 2%
5 or more 0%
</TABLE>
For example, assume your policy value is $100,000 at the beginning of policy
year 2 and you withdraw $30,000. Since that amount is more than your cumulative
free percentage of 20% that is available at that time, you would pay a
surrender charge of $600 on the remaining $10,000 (6% of $30,000-$20,000).
You receive the full amount of a requested partial withdrawal because we deduct
any surrender charge and any applicable excess interest adjustment from your
remaining policy value. You receive your cash value upon full surrender.
For surrender charge purposes, the oldest premium is considered to be withdrawn
first. After the tenth policy year, no surrender charges apply, regardless of
when you made your last premium payment.
Keep in mind that withdrawals may be taxable, and if made before age 59 1/2,
may be subject to a
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10% federal penalty tax. For tax purposes, withdrawals are considered to come
from earnings first.
Surrender charges are waived if you withdraw money under the nursing care and
terminal condition withdrawal option or the unemployment waiver.
Excess Interest Adjustment
Withdrawals of cash value from the fixed account may be subject to an excess
interest adjustment. This adjustment could retroactively reduce the interest
credited in the fixed account to the guaranteed minimum of 3% per year. See the
"Excess Interest Adjustment" section of this prospectus.
Mortality and Expense Risk Fee
We charge a fee as compensation for bearing certain mortality and expense risks
under the policy. Examples include a guarantee of annuity rates, the death
benefits, certain expenses of the policy, and assuming the risk that the
current charges will be insufficient in the future to cover costs of
administering the policy. For the Return of Premium Death Benefit the mortality
and expense risk fee is at an annual rate of 1.10% of assets. During the
accumulation phase, for the 5% Annually Compounding Death Benefit and the
Annual Step-Up Death Benefit, the mortality and expense risk fee is at an
annual rate of 1.25% of assets. During the income phase, the mortality and
expense risk fee for these benefits is at an annual rate of 1.10% of assets.
This annual fee is assessed daily based on the net asset value of each
subaccount.
If this charge does not cover our actual costs, we absorb the loss. Conversely,
if the charge more than covers actual costs, the excess is added to our
surplus. We expect to profit from this charge. We may use our profit or surplus
for any proper purpose, including distribution expenses.
Administrative Charges
We deduct an annual administrative charge to cover the costs of administering
the policies. This charge is equal to an annual rate of 0.15% per year of the
daily net asset value of the separate account.
In addition, an annual service charge of $30 (but not more than 2% of the
policy value) is charged on each policy anniversary and at surrender. The
service charge is waived if your policy value or the sum of your premiums, less
all partial withdrawals, is at least $50,000.
Premium Taxes
Some states assess premium taxes on the premium payments you make. Currently we
do not deduct for these taxes at the time you make a premium payment. However,
we will deduct the total amount of premium taxes, if any, from the policy value
when:
. you elect to begin receiving annuity payments;
. you surrender the policy; or
. you die and a death benefit is paid (you must also be the annuitant for the
death benefit to be paid).
Generally, premium taxes range from 0% to 3.50%, depending on the state.
Federal, State and Local Taxes
We may in the future deduct charges from the policy for any taxes it incurs
because of the policy. However, no deductions are being made at the present
time.
Transfer Fee
Currently there is no charge for transfers. However, if you make more than 12
transfers per year before the annuity commencement date, we reserve the right
to charge $10 for each additional transfer. Premium payments, asset rebalancing
and dollar cost averaging transfers are not considered transfers. All transfer
requests made at the same time are treated as a single request.
Family Income Protector
If you elect the family income protector, there is an annual rider fee during
the accumulation phase of 0.30% of the minimum annuitization value, and a
guaranteed payment fee during the income phase of 1.25% of the daily net asset
value if you annuitize under the rider. The annual
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rider fee is also deducted upon a complete withdrawal.
Portfolio Management Fees
The value of the assets in each subaccount will reflect the fees and expenses
paid by the underlying fund. A list of these expenses is found in the "Fee
Table" section of this prospectus. See the prospectuses for the underlying
funds for more information.
6. ACCESS TO YOUR MONEY
During the accumulation phase, you can have access to the money in your policy
in several ways:
. by making a withdrawal (either a complete or partial withdrawal); or
. by taking systematic payouts.
Surrenders
If you want to make a complete withdrawal, you will receive:
. the value of your policy; plus or minus
. any excess interest adjustment, minus
. any applicable surrender charges, premium taxes, service charges, and family
income protector rider fees.
If you want to take a partial withdrawal, in most cases it must be for at least
$500. Unless you tell us otherwise, we will take the withdrawal from each of
the investment choices in proportion to the policy value.
You may take out up to 10% of the policy value free of surrender charges each
policy year. The free amount is cumulative so any free amount not taken one
year is available to be taken the following year free of surrender charges.
Remember that any withdrawal you take will reduce the policy value, and might
reduce the amount of the death benefit. See Section 8, Death Benefit, for more
details.
Withdrawals may be subject to a surrender charge. Withdrawals from the fixed
account may also be subject to an excess interest adjustment. Income taxes,
federal tax penalties and certain restrictions may apply to any withdrawals you
make.
Withdrawals from qualified policies may be restricted or prohibited.
During the income phase, you will receive annuity payments under the annuity
payment option you select; however, you generally may not take any other
withdrawals, either complete or partial.
Delay of Payment and Transfers
Payment of any amount due from the separate account for a surrender, a death
benefit, or the death of the owner of a nonqualified policy, will generally
occur within seven business days from the date PFL receives all required
information. PFL may defer such payment from the separate account if:
. the New York Stock Exchange is closed for other than usual weekends or
holidays or trading on the Exchange is otherwise restricted; or
. an emergency exists as defined by the SEC or the SEC requires that trading be
restricted; or
. the SEC permits a delay for the protection of owners.
In addition, transfers of amounts from the subaccounts may be deferred under
these circumstances.
Pursuant to the requirements of certain state laws, we reserve the right to
defer payment of the cash value from the fixed account for up to six months. We
may defer payment of any amount until your premium check has cleared your bank.
Excess Interest Adjustment
Money that you withdraw from a guaranteed period option of the fixed account
before the end of its guaranteed period (the number of years you specified the
money would remain in the guaranteed period option) may be subject to an excess
interest adjustment. At the time you
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<PAGE>
request a withdrawal, if interest rates set by PFL have risen since the date of
the initial guarantee, the excess interest adjustment will result in a lower
cash value on surrender. However, if interest rates have fallen since the date
of the initial guarantee, the excess interest adjustment will result in a
higher cash value on surrender.
Any amount withdrawn in excess of the cumulative free percentage available is
generally subject to an excess interest adjustment.
There will be no excess interest adjustment on any of the following:
. lump sum withdrawals of the cumulative free percentage available;
. nursing care or terminal condition withdrawals;
. unemployment withdrawals;
. periodic withdrawals of cumulative interest credited;
. withdrawals to satisfy any minimum distribution requirements; and
. systematic payout option payments, which do not exceed the cumulative
interest credited.
Please note that in these circumstances, you will not receive a higher cash
value if interest rates have fallen, nor will you receive a lower cash value if
interest rates have risen.
7. ANNUITY PAYMENTS (THE INCOME PHASE)
You choose the annuity commencement date. You can change this date by giving us
written notice 30 days before the current annuity commencement date. The new
annuity commencement date must be at least 30 days after we receive notice of
the change. The latest annuity commencement date generally cannot be after the
policy month following the month in which the annuitant attains age 85. We may
allow a later annuity commencement date, but in no event will that date be
later than the last day of the policy month following the month in which the
annuitant attains age 95.
Election of Annuity Payment Option. Before the annuity commencement date, if
the annuitant is alive, you may choose an annuity payment option or change your
election. If the annuitant dies before the annuity commencement date, the
beneficiary may elect to receive the death benefit in a lump sum or under one
of the annuity payment options (unless you become the new annuitant).
Unless you specify otherwise, the annuitant will receive the annuity payments.
After the annuitant's death, the beneficiary will receive any remaining
guaranteed payments.
Annuity Payment Options
The policy provides five annuity payment options that are described below. You
may chose any combination of annuity payment options. We will use your
"adjusted policy value" to provide these annuity payments. The adjusted policy
value is the policy value increased or decreased by an applicable excess
interest adjustment. If the adjusted policy value on the annuity commencement
date is less than $2,000, PFL reserves the right to pay it in one lump sum in
lieu of applying it under a payment option. You can receive annuity payments
monthly, quarterly, semi-annually, or annually. (We reserve the right to change
the frequency if payments would be less than $50.)
Unless you choose to receive variable payments under annuity payment options 3
or 5, the amount of each payment will be set on the annuity commencement date
and will not change. You may, however, choose to receive variable payments
under either annuity payment option 3 or 5. The dollar amount of the first
variable payment will be determined in accordance with the annuity payment
rates set forth in the applicable table contained in the policy. The dollar
amount of additional variable payments will vary based on the investment
performance of the subaccount(s) that you select. The dollar amount of each
variable payment after the first may increase, decrease or remain constant. If
the actual investment performance exactly matched the assumed investment return
of 5% at all times, the amount of each variable annuity payment would remain
equal. If actual investment performance exceeds the assumed investment return,
the amount of the variable annuity payments would increase. Conversely, if
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<PAGE>
actual investment performance is lower than the assumed investment return, the
amount of the variable annuity payments would decrease.
A charge for premium taxes and an excess interest adjustment may be made when
annuity payments begin. The annuity payment options are explained below.
Options 1, 2, and 4 are fixed only. Options 3 and 5 can be fixed or variable.
Payment Option 1--Interest Payments. We will pay the interest on the amount we
use to provide annuity payments in equal payments, or this amount may be left
to accumulate for a period of time you and PFL agree to. You and PFL will agree
on withdrawal rights when you elect this option.
Payment Option 2--Income for a Specified Period. We will make level payments
only for the fixed period you choose. No funds will remain at the end.
Payment Option 3--Life Income. You may choose between:
Fixed Payments
. No Period Certain--We will make level payments only during the annuitant's
lifetime.
. 10 Years Certain--We will make level payments for the longer of the
annuitant's lifetime or ten years.
. Guaranteed Return of Policy Proceeds--We will make level payments for the
longer of the annuitant's lifetime or until the total dollar amount of
payments we made to you equals the amount applied to this option.
Variable Payments
. No Period Certain--Payments will be made only during the lifetime of the
annuitant.
. 10 Years Certain--Payments will be made for the longer of the annuitant's
lifetime or ten years.
Payment Option 4--Income of a Specified Amount. Payments are made for any
specified amount until the amount applied to this option, with interest, is
exhausted. This will be a series of level payments followed by a smaller final
payment.
Payment Option 5--Joint and Survivor Annuity. You may choose between:
Fixed Payments
. Payments are made during the joint lifetime of the annuitant and a joint
annuitant of your selection. Payments will be made as long as either person
is living.
Variable Payments
. Payments are made during the joint lifetime of the annuitant and a joint
annuitant of your selection. Payments will be made as long as either person
is living.
Other annuity payment options may be arranged by agreement with PFL. Certain
annuity payment options may not be available in all states.
NOTE CAREFULLY:
IF:
. you choose Life Income with No Period Certain or a Joint and Survivor
Annuity; and
. the annuitant(s) dies before the due date of the second (third, fourth, etc.)
annuity payment;
THEN:
. we may make only one (two, three, etc.) annuity payments.
IF:
. you choose Income for a Specified Period, Life Income with 10 years Certain,
Life Income with Guaranteed Return of Policy Proceeds, or Income of a
Specified Amount; and
. the person receiving payments dies prior to the end of the guaranteed period;
THEN:
. the remaining guaranteed payments will be continued to that person's
beneficiary, or their present value may be paid in a single sum.
We will not pay interest on amounts represented by uncashed annuity payment
checks if the postal or other delivery service is unable to deliver checks to
the payee's address of record. The person receiving payments is responsible for
keeping PFL informed of their current address.
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8. DEATH BENEFIT
We will pay a death benefit to your beneficiary, under certain circumstances,
if the annuitant dies during the accumulation phase and the annuitant was also
an owner. (If the annuitant was not an owner, a death benefit may or may not be
paid. See below.) The beneficiary may choose an annuity payment option, or may
choose to receive a lump sum.
When We Pay A Death Benefit
Before the Annuity Commencement Date
We will pay a death benefit to your beneficiary IF:
. you are both the annuitant and the owner of the policy; and
. you die before the annuity commencement date.
If the only beneficiary is your surviving spouse, then he or she may elect to
continue the policy as the new annuitant and owner, instead of receiving the
death benefit. All future surrender charges will be waived.
We will also pay a death benefit to your beneficiary IF:
. you are not the annuitant; and
. the annuitant dies before the annuity commencement date; and
. you specifically requested that the death benefit be paid upon the
annuitant's death.
Distribution requirements apply to the policy value upon the death of any
owner. These restrictions are detailed in the SAI.
After the Annuity Commencement Date
The death benefit payable, if any, on or after the annuity commencement date
depends on the annuity payment option selected.
IF:
. you are not the annuitant; and
. you die on or after the annuity commencement date; and
. the entire interest in the policy has not been paid to you;
THEN:
. the remaining portion of such interest in the policy will be distributed at
least as rapidly as under the method of distribution being used as of the
date of your death.
When We Do Not Pay A Death Benefit
No death benefit is paid in the following cases:
IF:
. you are not the annuitant; and
. the annuitant dies prior to the annuity commencement date; and
. you did not specifically request that the death benefit be paid upon the
annuitant's death;
THEN:
. you will become the new annuitant and the policy will continue.
IF:
. you are not the annuitant; and
. you die prior to the annuity commencement date;
THEN:
. the new owner (unless it is your spouse) must generally surrender the policy
within five years of your death for the policy value increased or decreased
by an excess interest adjustment.
Note carefully. If the owner does not name a contingent owner, the owner's
estate will become the new owner. If no probate estate is opened (because, for
example, the owner has precluded the opening of a probate estate by means of a
trust or other instrument), and PFL has not received written notice of the
trust as a successor owner signed prior to the owner's death, then that trust
may not exercise ownership rights to the policy. It may be necessary to open a
probate estate in order to exercise ownership rights to the policy if no
contingent owner is named in a written notice PFL receives.
Amount of Death Benefit
Death benefit provisions may differ from state to state. The death benefit may
be paid as a lump
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<PAGE>
sum or as annuity payments. The amount of the death benefit depends on the
guaranteed minimum death benefit option you choose when you buy the policy. The
death benefit will be the greatest of:
. policy value on the date we receive the required information; or
. cash value on the date we receive the required information (this could be
more than the policy value if there is a positive excess interest adjustment
that exceeds the surrender charge); or
. guaranteed minimum death benefit, if any, (discussed below), plus premium
payments, less partial withdrawals from the date of death to the date the
death benefit is paid.
Guaranteed Minimum Death Benefit
On the application, you generally may choose one of the three guaranteed
minimum death benefit options listed below.
After the policy is issued, you cannot make an election and the death benefit
cannot be changed.
A. Return of Premium Death Benefit
The Return of Premium Death Benefit is the total premium payments, less any
adjusted partial withdrawals (discussed below) as of the date of death.
The Return of Premium Death Benefit will be in effect if you do not choose one
of the other options on the policy application. After the policy is issued, you
cannot make an election and the death benefit cannot be changed.
B. 5% Annually Compounding Death Benefit
The 5% Annually Compounding Death Benefit is the total premium payments, less
any adjusted partial withdrawals, plus interest at an effective annual rate of
5% from the premium payment date or withdrawal date to the date of death (but
not later than your 81st birthday). There is an extra charge for this death
benefit.
The 5% Annually Compounding Death Benefit is not available if the owner or
annuitant is 81 or older on the policy date.
C. Annual Step-Up Death Benefit
On each policy anniversary before your 81st birthday, a new "stepped-up" death
benefit is determined and becomes the guaranteed minimum death benefit for that
policy year. The death benefit is equal to:
. the largest policy value on the policy date or on any policy anniversary
before you reach age 81; plus
. any premium payments you have made since then; minus
. any adjusted partial withdrawals we have paid to you since then.
The Annual Step-Up Death Benefit is not available if the owner or annuitant is
81 or older on the policy date.
There is an extra charge for this death benefit.
IF, under all three death benefit options:
. the surviving spouse elects to continue the policy instead of receiving the
death benefit; and
. the guaranteed minimum death benefit is greater than the policy value;
THEN:
. we will increase the policy value to be equal to the guaranteed minimum death
benefit. This increase is made only at the time the surviving spouse elects
to continue the policy.
Adjusted Partial Withdrawal
When you request a partial withdrawal, your guaranteed minimum death benefit
will be reduced by an amount called the adjusted partial withdrawal. Under
certain circumstances, the adjusted partial withdrawal may be more than the
amount of your withdrawal request. It is also possible that if a death benefit
is paid after you have made a partial withdrawal, then the total amount paid
could be less than total premium payments. We have included a detailed
explanation of this adjustment in the SAI.
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<PAGE>
9. 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
SAI.
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 you will not be taxed on the earnings, if any,
on the money held in your annuity policy until you take the money out. This is
referred to as tax deferral. There are different rules as to how you will be
taxed depending on how you take the money out and the type of policy--qualified
or nonqualified (discussed below).
You will not be taxed on increases in the value of your policy until a
distribution occurs--either as a withdrawal or as annuity payments.
When a non-natural person (e.g., corporation or certain other entities other
than tax-qualified trusts) owns a nonqualified policy, the policy will
generally not be treated as an annuity for tax purposes.
Qualified and Nonqualified Policies
If you purchase the policy under an individual retirement annuity, a pension
plan, or specially sponsored program, your policy is referred to as a qualified
policy.
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 Plans 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--Qualified Policies
The information hereindescribing 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 date. The terms of the plan may limit the rights
otherwise available to you under the policies. We have provided more
information in the SAI.
You should consult your legal counsel or tax adviser if you are considering
purchasing a policy for use with any retirement plan.
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<PAGE>
Withdrawals--403(b) Policies
The Internal Revenue Code limits withdrawal 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
. declares 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 SAI. PFL may modify the policy to attempt to maintain favorable tax
treatment.
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. The tax treatment of excess interest adjustments is uncertain. You
should consult a tax adviser if a withdrawal results in an excess interest
adjustment.) 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 an owner 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 PFL (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.
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. The same tax treatment applies to any amounts
distributed after an owner's death.
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
25
<PAGE>
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 payee or other beneficiary who is not also the owner, the
selection of certain annuity commencement dates, or a change of 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 with
respect to the potential tax effects of such a transaction.
Possible Tax Law Changes
Although the likelihood of legislative changes is 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
legal developments and their effect on the policy.
10. ADDITIONAL FEATURES
Systematic Payout Option
You can select at any time (during the accumulation phase) to receive regular
payments from your policy by using the systematic payout option. Under this
option, you can receive up to 10% (annually) of your policy's value free of
surrender charges. Payments can be made monthly, quarterly, semi-annually, or
annually. Each payment must be at least $50, and cannot exceed the cumulative
free percentage divided by the number of payments per year. Monthly and
quarterly payments must be made by electronic funds transfer directly to your
checking or savings account. There is no charge for this benefit.
Family Income Protector
The family income protector may vary by state and may not be available in all
states.
The "family income protector" assures you of a minimum level of income in the
future by guaranteeing a minimum annuitization value (discussed below) after
10 years. You may elect to purchase this benefit, which guarantees the total
amount you will have to apply to a family income protector payment option and
which guarantees a minimum for the amounts of those payments once you begin to
receive them. By electing this benefit, you can participate in the gains of
the underlying variable investment
26
<PAGE>
options you select while knowing that you are guaranteed a minimum level of
income in the future, regardless of the performance of the underlying variable
investment options.
You can annuitize under the family income protector (subject to the conditions
described below) at the greater of the adjusted policy value or the minimum
annuitization value.
Minimum Annuitization Value. The minimum annuitization value is:
. the policy value on the date the rider is issued; plus
. any additional premium payments; minus
. an adjustment for any withdrawals made after the date the rider is issued;
. which is accumulated at the annual growth rate written on page one of the
rider; minus
. any premium taxes.
The annual growth rate is currently 6% per year; PFL may, at its discretion,
change the rate in the future, but the rate will never be less than 3% per
year. Once the rider is added to your policy, the annual growth rate will not
vary during the life of that rider. Withdrawals may reduce the minimum
annuitization value on a basis greater than dollar-for-dollar. See the SAI for
more information.
The minimum annuitization value may only be used to annuitize using the family
income protector payment options and may not be used with any of the annuity
payment options listed in section 7 of this prospectus. The family income
protector payment options are:
. Life Income--An election may be made for "No Period Certain" or "10 Years
Certain". In the event of the death of the annuitant prior to the end of the
chosen period certain, the remaining period certain payments will be
continued to the beneficiary.
. Joint and Full Survivor--An election may be made for "No Period Certain" or
"10 Years Certain". Payments will be made as long as either the annuitant or
joint annuitant is living. In the event of the death of both the annuitant
and joint annuitant prior to the end of the chosen period certain, the
remaining period certain payments will be continued to the beneficiary.
The minimum annuitization value is used solely to calculate the family income
protector annuity payments. The family income protector does not establish or
guarantee policy value or guarantee performance of any investment option.
Because this benefit is based on conservative actuarial factors, the level of
lifetime income that it guarantees may be less than the level that would be
provided by application of the policy value at otherwise applicable annuity
factors. Therefore, the family income protector should be regarded as a safety
net. The costs of annuitizing under the family income protector include the
guaranteed payment fee, and also the lower payout levels inherent in the
annuity tables used for those minimum payouts.
In addition to the annual growth rate, other benefits and fees under the rider
(the rider fee, the fee waiver threshold, the guaranteed payment fee, and the
waiting period before the family income protector can be exercised) are also
guaranteed not to change after the rider is added. However, all of these
benefit specifications may change if you elect to upgrade the minimum
annuitization value.
Minimum Annuitization Value Upgrade. You can upgrade your minimum annuitization
value to the policy value within 30 days after any policy anniversary before
your 85th birthday (earlier if required by state law). For your convenience, we
will put the last date to upgrade on page one of the rider.
If you upgrade:
. the current rider will terminate and a new one will be issued with its own
specified guaranteed benefits and fees;
. the new rider's specified benefits and fees and may not be as advantageous as
before; and
. you will have a new ten year waiting period before you can exercise the
family income protector.
It generally will not be to your advantage to upgrade unless your policy value
exceeds your minimum annuitization value on the applicable policy anniversary.
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<PAGE>
Conditions of Exercise of the Family Income Protector. You can only annuitize
using the family income protector within the 30 days after the tenth or later
policy anniversary after the family income protector is elected or, in the case
of an upgrade of the minimum annuitization value, the tenth or later policy
anniversary following the upgrade; PFL may, at its discretion, change the
waiting period before the family income protector can be exercised in the
future. You cannot, however, annuitize using the family income protector after
the policy anniversary after your 94th birthday (earlier if required by state
law). For your convenience, we will put the first and last date to annuitize
using the family income protector on page one of the rider.
Note Carefully--If you annuitize at any time other than indicated above, you
cannot use the family income protector.
Guaranteed Minimum Stabilized Payments. Annuity payments under the family
income protector are guaranteed to never be less than the initial payment. See
the Statement of Additional Information for information concerning the
calculation of the initial payment. The payments will also be "stabilized" or
held constant during each policy year.
During the first policy year after annuitizing using the family income
protector, each stabilized payment will equal the initial payment. On each
policy anniversary thereafter, the stabilized payment will increase or decrease
depending on the performance of the investment options you selected (but will
never be less than the initial payment), and then be held constant at that
amount for that policy year. The stabilized payment on each policy anniversary
will equal the greater of the initial payment or the payment supportable by the
annuity units in the selected investment options. See the SAI for additional
information concerning stabilized payments.
Family Income Protector Rider Fee. A rider fee, currently 0.30% of the minimum
annuitization value on the policy anniversary, is charged annually prior to
annuitization. We will also charge this fee if you take a complete withdrawal.
The rider fee is deducted from each variable investment option in proportion to
the amount of policy value in each subaccount.
The rider fee on any given policy anniversary will be waived if the policy
value exceeds the fee waiver threshold. The fee waiver threshold currently is
two times the minimum annuitization value. PFL may, at its discretion, change
the fee waiver threshold in the future, but it will never be greater than two
and one-half times the minimum annuitization value.
Guaranteed Payment Fee. A guaranteed payment fee, currently equal to an
effective annual rate of 1.25% of the daily net asset value in the separate
account, is reflected in the amount of the variable payments you receive if you
annuitize under the family income protector rider. The guaranteed payment fee
is included on page one of the rider.
Termination. The family income protector is irrevocable. You have the option
not to use the benefit but you will not receive a refund of any fees you have
paid. The family income protector will terminate upon the earliest of the
following:
. annuitization (you will still get guaranteed minimum stabilized payments if
you annuitize using the minimum annuitization value under the family income
protector),
. upgrade of the minimum annuitization value (although a new rider will be
issued),
. termination of your policy, or
. 30 days after the policy anniversary after your 94th birthday (earlier if
required by state law).
Nursing Care and Terminal Condition Withdrawal Option
No surrender charges or excess interest adjustment will apply if you or your
spouse has been:
. confined in a hospital or nursing facility for 30 days in a row; or
. diagnosed with a terminal condition (usually a life expectancy of 12 months
or less).
This benefit is also available to the annuitant or annuitant's spouse if the
owner is not a natural person.
You may exercise this benefit at any time (during the accumulation phase) and
there is no charge for this benefit.
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<PAGE>
This benefit may not be available in all states. See the policy or endorsement
for details and conditions.
Unemployment Waiver
No surrender charges or excess interest adjustment will apply to withdrawals if
you or your spouse is unemployed. In order to qualify, you (or your spouse,
whichever is applicable) must have been:
. employed full time for at least two years prior to becoming unemployed; and
. employed full time on the policy date; and
. unemployed for at least 60 days in a row at the time of withdrawal; and
. must have a minimum cash value at the time of withdrawal of $5,000.
You must provide written proof from your State's Department of Labor, which
verifies that you qualify for and are receiving unemployment benefits at the
time of withdrawal. This benefit may not be available in all states.
You may exercise this benefit at any time (during the accumulation phase) and
there is no charge for this benefit.
This benefit is also available to the annuitant or annuitant's spouse if the
owner is not a natural person. This benefit may not be available in all states.
See the policy for details.
Telephone Transactions
You may make transfers and change the allocation of additional premium payments
by telephone IF:
. you select the "Telephone Transfer/Reallocation Authoriziation" box in the
policy application or enrollment information; or
. you later complete an authorization form.
You will be required to provide certain information for identification purposes
when requesting a transaction by the telephone and we may record your telephone
call. PFL may also require written confirmation of your request. PFL will not
be liable for following telephone requests that it believes are genuine.
Telephone requests must be received while the New York Stock Exchange is open
to get same-day pricing of the transaction. We may discontinue this option at
any time.
Dollar Cost Averaging Program
During the accumulation phase, you may instruct us to automatically transfer
money from the dollar cost averaging fixed account option into one or more
variable subaccounts. There is no charge for this program.
Complete and clear instructions must be received before a dollar cost averaging
program will begin. The instructions must include:
. the subaccounts into which money from the dollar cost averaging fixed account
(or other subaccount(s) used for dollar cost averaging) is to be transferred;
and
. either the dollar amount to transfer monthly or quarterly (each transfer must
be at least $500) or the number of transfers (minimum of 6 monthly or 4
quarterly and maximum of 24 monthly or 8 quarterly).
Transfers must begin within 30 days. We will make the transfers on the 28th day
of the applicable month. You may change your allocations at anytime.
Only one dollar cost averaging program can run at one time. This means that any
addition to a dollar cost averaging program must change either the length of
the program or the dollar amount of the transfers. New instructions must be
received each time there is an addition to a dollar cost averaging program.
Any amount in the dollar cost averaging fixed account (or other subaccount(s)
used for dollar cost averaging) for which we have not received complete and
clear instructions will remain in the dollar cost averaging fixed account (or
other such subaccount) until we receive the instructions. If we have not
received complete and clear instructions within 30 days, the interest credited
in the dollar cost averaging fixed account may be adjusted downward, but not
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<PAGE>
below the guaranteed effective annual interest rate of 3%.
Dollar cost averaging buys more accumulation units when prices are low and
fewer accumulation units when prices are high. It does not guarantee profits or
assure that you will not experience a loss. You should consider your ability to
continue the dollar cost averaging program during all economic conditions.
We may credit different interest rates for dollar cost averaging programs of
varying time periods. If you discontinue the dollar cost averaging program
before its completion, then the interest credited on amounts in the dollar cost
averaging fixed account may be adjusted downward, but not below the minimum
guaranteed effective annual interest rate of 3%.
Asset Rebalancing
During the accumulation phase you can instruct us to automatically rebalance
the amounts in your subaccounts to maintain your desired asset allocation. This
feature is called asset rebalancing and can be started and stopped at any time
free of charge. However, we will not rebalance if you are in the dollar cost
averaging program or if any other transfer is requested. If a transfer is
requested, we will honor the requested transfer and discontinue asset
rebalancing. New instructions are required to start asset rebalancing. Asset
rebalancing ignores amounts in the fixed account. You can choose to rebalance
monthly, quarterly, semi-annually, or annually.
11. OTHER INFORMATION
Ownership
You, as owner of the policy, exercise all rights under the policy. You can
change the owner at any time by notifying PFL in writing. An ownership change
may be a taxable event.
Assignment
You can also assign the policy any time during your lifetime. PFL will not be
bound by the assignment until we receive written notice of the assignment. PFL
will not be liable for any payment or other action we take in accordance with
the policy before we receive notice of the assignment. An assignment may be a
taxable event. There may be limitations on your ability to assign a qualified
policy. An assignment may have tax consequences.
PFL Life Insurance Company
PFL Life Insurance Company was incorporated under the laws of the State of Iowa
on April 19, 1961 as NN Investors Life Insurance Company, Inc. It is engaged in
the sale of life and health insurance and annuity policies. PFL is a
Transamerica Company and a wholly-owned indirect subsidiary of AEGON USA, Inc.
which conducts most of its operations through subsidiary companies engaged in
the insurance business or in providing non-insurance financial services. All of
the stock of AEGON USA, Inc., is indirectly owned by AEGON N.V. of The
Netherlands, the securities of which are publicly traded. AEGON N.V., a holding
company, conducts its business through subsidiary companies engaged primarily
in the insurance business. PFL is licensed in the District of Columbia, Guam,
and in all states except New York.
All obligations arising under the policies, including the promise to make
annuity payments, are general corporate obligations of PFL.
The Separate Account
PFL established a separate account, called the PFL Retirement Builder Variable
Annuity Account, under the laws of the State of Iowa on March 29, 1996. The
Retirement Income Builder II divisions of the separate account receive and
currently invest the premium payments that are allocated to the separate
account for investment in shares of the underlying mutual fund portfolios.
The separate account is registered with the SEC as a unit investment trust
under the 1940 Act. However, the SEC does not supervise the management, the
investment practices, or the policies of the separate account or PFL. Income,
gains, and losses, whether or not realized, from assets allocated to the
separate account are, in accordance with the policies, credited or charged
against the separate account without regard to PFL's other income, gains or
losses.
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The assets of the separate account are held in PFL's name on behalf of the
separate account and belong to PFL. However, those assets that underlie the
policies are not chargeable with liabilities arising out of any other business
PFL may conduct. The separate account includes other subaccounts that are not
available under these policies.
Mixed and Shared Funding
Before making a decision concerning the allocation of premium payments to a
particular subaccount, please read the prospectuses for the underlying funds.
The underlying funds are not limited to selling their shares to this separate
account and can accept investments from any separate account or qualified
retirement plan. Since the underlying fund portfolios are available to
registered separate accounts offering variable annuity products of PFL, as well
as variable annuity and variable life products of other insurance companies,
and qualified retirement plans, there is a possibility that a material conflict
may arise between the interests of this separate account and one or more of the
other accounts of another participating insurance company. In the event of a
material conflict, the affected insurance companies, including PFL, agree to
take any necessary steps to resolve the matter. This includes removing their
separate accounts from the underlying funds. See the prospectuses for the
underlying funds for more details.
Reinstatements
You may exchange your policy for one issued by another life insurance company
(sometimes referred to as a 1035 Exchange or a trustee-to-trustee transfer).
You may also request us to reinstate your policy after such an exchange by
returning the same total dollar amount of funds to the applicable investment
choices. The dollar amount will be used to purchase new accumulation units at
the then current price. Because of changes in market value, your new
accumulation units may be worth more or less than the units you previously
owned. We recommend that you consult a tax professional to explain the possible
tax consequences of exchanges and/or reinstatements.
Voting Rights
PFL will vote all shares of the underlying funds in accordance with
instructions we receive from you and other owners that have voting interests in
the portfolios. We will send you and other owners written requests for
instructions on how to vote those shares. When we receive those instructions,
we will vote all of the shares in proportion to those instructions. If,
however, we determine that we are permitted to vote the shares in our own
right, we may do so.
Each person having a voting interest will receive proxy material, reports, and
other materials relating to the appropriate portfolio.
Distributor of the Policies
AFSG Securities Corporation is the principal underwriter of the policies. Like
PFL, it is a Transamerica Company and an indirect wholly owned subsidiary of
AEGON USA, Inc. It is located at 4333 Edgewood Road N.E., Cedar Rapids, IA
52499-0001. AFSG Securities Corporation is registered as a broker/dealer under
the Securities Exchange Act of 1934. It is a member of the National Association
of Securities Dealers, Inc. ("NASD"). It was incorporated in Pennsylvania on
March 12, 1986.
Commissions of up to 5% of premium payments will be paid to broker/dealers who
sell the policies under agreements with AFSG Securities Corporation. These
commissions are not deducted from premium payments. In addition, certain
production, persistency and managerial bonuses may be paid. PFL may also pay
compensation to banks and other financial institutions for their services in
connection with the sale and servicing of the policies.
Variations in Policy Provisions
Certain provisions of the policies may vary from the descriptions in this
prospectus in order to comply with different state laws. See your policy for
variations since any such state variations will be included in your policy or
in riders or endorsements attached to your policy.
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IMSA
PFL is a member of the Insurance Marketplace Standards Association (IMSA). IMSA
is an independent, voluntary organization of life insurance companies. It
promotes high ethical standards in the sales and advertising of individual life
insurance and annuity products. Companies must undergo a rigorous self and
independent assessment of their practices to become a member of IMSA. The IMSA
logo in our sales literature shows our ongoing commitment to these standards.
Legal Proceedings
There are no legal proceedings to which the separate account is a party or to
which the assets of the account are subject. PFL, like other life insurance
companies, is involved in lawsuits. In some class action and other lawsuits
involving other insurers, substantial damages have been sought and/or material
settlement payments have been made. Although the outcome of any litigation
cannot be predicted with certainty, PFL believes that at the present time there
are no pending or threatened lawsuits that are reasonably likely to have a
material adverse impact on the separate account or PFL.
Financial Statements
The financial statements of PFL and the subaccounts are included in the SAI.
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<S> <C>
Glossary of Terms
The Policy--General Provisions
Certain Federal Income Tax Consequences
Investment Experience
Family Income Protector-- Additional Information
Historical Performance Data
Published Ratings
State Regulation of PFL
Administration
Records and Reports
Distribution of the Policies
Voting Rights
Other Products
Custody of Assets
Legal Matters
Independent Auditors
Other Information
Financial Statements
</TABLE>
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APPENDIX A
CONDENSED FINANCIAL INFORMATION
The accumulation unit values and the number of accumulation units outstanding
for each subaccount from the date of inception are shown in the following
tables.
5% Annually Compounding Death Benefit or Annual Step-Up Death Benefit
(Total Separate Account Annual Expenses: 1.40%)
<TABLE>
- --------------------------------------------------------------------------------
<CAPTION>
Number of
Accumulation Unit Accumulation Accumulation
Value at Unit Value Units at End
Subaccount Beginning of Year at End of Year of Year
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
AIM V.I. Capital Appreciation
Fund
1999.......................... $1.236035 $1.762835 149,502.305
1998(/1/)..................... $1.000000 $1.236035 16,140.294
- --------------------------------------------------------------------------------
AIM V.I. Government Securities
Fund
1999.......................... $0.996068 $0.969383 65,086.922
1998(/1/)..................... $1.000000 $0.996068 1,000.000
- --------------------------------------------------------------------------------
AIM V.I. Growth and Income Fund
1999.......................... $1.260383 $1.668693 440,846.470
1998(/1/)..................... $1.000000 $1.260383 24,295.424
- --------------------------------------------------------------------------------
AIM V.I. Value Fund
1999.......................... $1.265957 $1.621757 972,784.807
1998(/1/)..................... $1.000000 $1.265957 77,450.159
- --------------------------------------------------------------------------------
Dreyfus VIF--Money Market
1999.......................... $1.008557 $1.042375 123,465.646
1998(/1/)..................... $1.000000 $1.008557 4,812.918
- --------------------------------------------------------------------------------
Dreyfus VIF--Small Company
Stock
1999.......................... $1.160376 $1.265697 56,266.889
1998(/1/)..................... $1.000000 $1.160376 1,727.775
- --------------------------------------------------------------------------------
Dreyfus Stock Index Fund
1999.......................... $1.208018 $1.436823 590,536.086
1998(/1/)..................... $1.000000 $1.208018 22,149.833
- --------------------------------------------------------------------------------
MFS Emerging Growth Series
1999.......................... $1.265976 $2.206323 211,278.628
1998(/1/)..................... $1.000000 $1.265976 19,506.272
- --------------------------------------------------------------------------------
MFS Emerging Markets Equity
Series
1999.......................... $1.048257 $1.428496 1,837.073
1998(/1/)..................... $1.000000 $1.048257 1,314.230
- --------------------------------------------------------------------------------
MFS Research Series
1999.......................... $1.212231 $1.482998 51,069.228
1998(/1/)..................... $1.000000 $1.212231 1,000.000
- --------------------------------------------------------------------------------
MFS Total Return Series
1999.......................... $1.076083 $1.093953 590,994.565
1998(/1/)..................... $1.000000 $1.076083 22,214.590
- --------------------------------------------------------------------------------
MFS Utilities Series
1999.......................... $1.096045 $1.413957 943,325.341
1998(/1/)..................... $1.000000 $1.096045 38,962.685
- --------------------------------------------------------------------------------
Oppenheimer Capital
Appreciation Fund/VA
1999.......................... $1.263125 $1.764620 101,367.692
1998(/1/)..................... $1.000000 $1.263125 4,185.246
- --------------------------------------------------------------------------------
Oppenheimer Global Securities
Fund/VA
1999.......................... $1.201147 $1.877387 38,642.828
1998(/1/)..................... $1.000000 $1.201147 9,328.475
</TABLE>
- --------------------------------------------------------------------------------
33
<PAGE>
5% Annually Compounding Death Benefit or Annual Step-Up Death Benefit
(Total Separate Account Annual Expenses: 1.40%)
continued
<TABLE>
- --------------------------------------------------------------------------------
<CAPTION>
Number of
Accumulation Unit Accumulation Accumulation
Value at Unit Value Units at End
Subaccount Beginning of Year at End of Year of Year
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Oppenheimer High Income Fund/VA
1999.......................... $ 1.027262 $ 1.056520 272,300.459
1998(/1/)..................... $ 1.000000 $ 1.027262 51,275.380
- --------------------------------------------------------------------------------
Oppenheimer Main Street Growth
& Income Fund/VA
1999.......................... $ 1.188617 $ 1.426679 499,990.413
1998(/1/)..................... $ 1.000000 $ 1.188617 2,300.849
- --------------------------------------------------------------------------------
Oppenheimer Strategic Bond
Fund/VA
1999.......................... $ 1.014327 $ 1.028609 119,315.055
1998(/1/)..................... $ 1.000000 $ 1.014327 1,000.000
- --------------------------------------------------------------------------------
WRL VKAM Emerging Growth
1999.......................... $ 1.277710 $ 2.585245 301,047.760
1998(/1/)..................... $ 1.000000 $ 1.277710 18,154.685
- --------------------------------------------------------------------------------
WRL Janus Global
1999.......................... $ 1.224958 $ 2.067073 652,947.842
1998(/1/)..................... $ 1.000000 $ 1.224958 43,161.863
- --------------------------------------------------------------------------------
WRL Janus Growth
1999.......................... $31.898334 $50.230109 55,771.471
1998(/1/)..................... $24.866333 $31.898334 4,221.779
</TABLE>
- --------------------------------------------------------------------------------
34
<PAGE>
Return of Premium Death Benefit
(Total Separate Account Annual Expenses: 1.25%)
<TABLE>
- --------------------------------------------------------------------------------
<CAPTION>
Number of
Accumulation Unit Accumulation Accumulation
Value at Unit Value Units at End
Subaccount Beginning of Year at End of Year of Year
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
AIM V.I. Capital Appreciation
Fund
1999.......................... $1.236494 $1.766094 84,511.204
1998(/1/)..................... $1.000000 $1.236494 5,643.068
- --------------------------------------------------------------------------------
AIM V.I. Government Securities
Fund
1999.......................... $0.996434 $0.971172 124,585.938
1998(/1/)..................... $1.000000 $0.996434 1,242.352
- --------------------------------------------------------------------------------
AIM V.I. Growth and Income Fund
1999.......................... $1.260851 $1.671780 438,692.206
1998(/1/)..................... $1.000000 $1.260851 9,888.276
- --------------------------------------------------------------------------------
AIM V.I. Value Fund
1999.......................... $1.266420 $1.624758 526,714.786
1998(/1/)..................... $1.000000 $1.266420 25,924.011
- --------------------------------------------------------------------------------
Dreyfus VIF--Money Market
1999.......................... $1.008931 $1.044306 123,716.494
1998(/1/)..................... $1.000000 $1.008931 49,469.204
- --------------------------------------------------------------------------------
Dreyfus VIF--Small Company
Stock
1999.......................... $1.160806 $1.268047 85,044.523
1998(/1/)..................... $1.000000 $1.160806 1,815.395
- --------------------------------------------------------------------------------
Dreyfus Stock Index Fund
1999.......................... $1.208468 $1.439480 624,164.914
1998(/1/)..................... $1.000000 $1.208468 1,000.000
- --------------------------------------------------------------------------------
MFS Emerging Growth Series
1999.......................... $1.266452 $2.210407 185,758.204
1998(/1/)..................... $1.000000 $1.266452 6,087.050
- --------------------------------------------------------------------------------
MFS Emerging Markets Equity
Series
1999.......................... $1.048650 $1.431150 3,624.645
1998(/1/)..................... $1.000000 $1.048650 1,000.000
- --------------------------------------------------------------------------------
MFS Research Series
1999.......................... $1.212676 $1.485750 58,376.165
1998(/1/)..................... $1.000000 $1.212676 1,000.000
- --------------------------------------------------------------------------------
MFS Total Return Series
1999.......................... $1.076484 $1.095980 349,475.124
1998(/1/)..................... $1.000000 $1.076484 18,274.251
- --------------------------------------------------------------------------------
MFS Utilities Series
1999.......................... $1.096455 $1.416577 744,104.079
1998(/1/)..................... $1.000000 $1.096455 35,198.960
- --------------------------------------------------------------------------------
Oppenheimer Capital
Appreciation Fund/VA
1999.......................... $1.263592 $1.767873 104,929.282
1998(/1/)..................... $1.000000 $1.263592 24,594.049
- --------------------------------------------------------------------------------
Oppenheimer Global Securities
Fund/VA
1999.......................... $1.201594 $1.880860 19,735.145
1998(/1/)..................... $1.000000 $1.201594 1,000.000
- --------------------------------------------------------------------------------
Oppenheimer High Income Fund/VA
1999.......................... $1.027647 $1.058469 189,255.301
1998(/1/)..................... $1.000000 $1.027647 2,175.664
- --------------------------------------------------------------------------------
Oppenheimer Main Street Growth
& Income Fund/VA
1999.......................... $1.189058 $1.429320 369,611.788
1998(/1/)..................... $1.000000 $1.189058 7,214.278
</TABLE>
- --------------------------------------------------------------------------------
35
<PAGE>
Return of Premium Death Benefit
(Total Separate Account Annual Expenses: 1.25%)
continued
<TABLE>
- -------------------------------------------------------------------------------
<CAPTION>
Number of
Accumulation Unit Accumulation Accumulation
Value at Unit Value Units at End
Subaccount Beginning of Year at End of Year of Year
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Oppenheimer Strategic Bond
Fund/VA
1999......................... $1.014714 $1.030527 159,454.033
1998(/1/).................... $1.000000 $1.014714 1,739.591
- -------------------------------------------------------------------------------
WRL VKAM Emerging Growth
1999......................... $1.277918 $2.589491 279,435.662
1998(/1/).................... $1.000000 $1.277918 2,275.052
- -------------------------------------------------------------------------------
WRL Janus Global
1999......................... $1.204408 $2.035403 687,059.623
1998(/1/).................... $1.000000 $1.204408 60,664.783
- -------------------------------------------------------------------------------
WRL Janus Growth
1999......................... $1.283263 $2.023744 1,819,121.129
1998(/1/).................... $1.000000 $1.283263 85,687.614
</TABLE>
(/1/)Period from September 30, 1998 through December 31, 1998
The Transamerica VIF Growth Subaccount, Fidelity--VIP Equity-Income Subaccount,
Fidelity--VIP Growth Subaccount, Fidelity--VIP High Income Subaccount,
Fidelity--VIP II Contrafund Subaccount, Fidelity--VIP II Investment Grade Bond
Subaccount, Fidelity--VIP III Growth & Income Subaccount, Fidelity--VIP III
Balanced Subaccount, and the Fidelity--VIP III Mid Cap Subaccount had not
commenced operations as of December 31, 1999, therefore comparable information
is not available.
36
<PAGE>
APPENDIX B
HISTORICAL PERFORMANCE DATA
Standardized Performance Data
PFL may advertise historical yields and total returns for the subaccounts of
the separate account. These figures are based on historical earnings and will
be calculated according to guidelines from the SEC. They do not indicate future
performance.
Dreyfus VIF--Money Market Subaccount. The yield of the Dreyfus VIF--Money
Market Subaccount for a policy refers to the annualized income generated by an
investment under a policy in the subaccount over a specified seven-day period.
The yield is calculated by assuming that the income generated for that seven-
day period is generated each seven-day period over a 52-week period and is
shown as a percentage of the investment. The effective yield is calculated
similarly but, when annualized, the income earned by an investment under a
policy in the subaccount is assumed to be reinvested. The effective yield will
be slightly higher than the yield because of the compounding effect of this
assumed reinvestment.
Other Subaccounts. The yield of a subaccount of the separate account (other
than the Dreyfus VIF--Money Market Subaccount) for a policy refers to the
annualized income generated by an investment under a policy in the subaccount
over a specified 30-day period. The yield is calculated by assuming that the
income generated by the investment during that 30-day period is generated each
30-day period over a 12-month period and is shown as a percentage of the
investment.
The total return of a subaccount of the separate account refers to return
quotations assuming an investment under a policy has been held in the
subaccount for various periods of time including a period measured from the
date the subaccount commenced operations. When a subaccount has been in
operation for 1, 5, and 10 years, respectively, the total return for these
periods will be provided. The total return quotations for a subaccount will
represent the average annual compounded rates of return that equate an initial
investment of $1,000 in the subaccount to the redemption value of that
investment as of the last day of each of the periods for which total return
quotations are provided.
The yield and total return calculations for a subaccount do not reflect the
effect of any premium taxes that may be applicable to a particular policy and
they do not reflect the rider charge for the optional family income protector.
The yield calculations also do not reflect the effect of any surrender charge
that may be applicable to a particular policy. To the extent that any or all of
a premium tax and/or surrender charge is applicable to a particular policy, the
yield and/or total return of that policy will be reduced. For additional
information regarding yields and total returns calculated using the standard
formats briefly summarized above, please refer to the SAI, a copy of which may
be obtained from the administrative and service office upon request.
Based on the method of calculation described in the SAI, the average annual
total returns for periods from inception of the subaccounts to December 31,
1999, and for the one and five year periods ended December 31, 1999 are shown
in Table 1 below. Total returns shown reflect deductions for the mortality and
expense risk fee and the administrative charges. Performance figures may
reflect the 1.25% mortality and expense risk fee for the 5% Annually
Compounding and Annual Step-Up Death Benefits, or the 1.10% mortality and
expense risk fee for the Return of Premium Death Benefit. Standard total return
calculations will reflect the effect of surrender charges that may be
applicable to a particular period.
37
<PAGE>
TABLE 1--A
Standard Average Annual Total Returns
(Assuming A Surrender Charge and No Family Income Protector)
- --------------------------------------------------------------------------------
Return of Premium Death Benefit
(Total Mutual Fund Account Annual Expenses: 1.25%)
<TABLE>
- ----------------------------------------------------------------------------------
<CAPTION>
1 Year 5 Year Inception of the Subaccount
Ended Ended Subaccount to Inception
Subaccount 12/31/99 12/31/99 12/31/99 Date
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AIM V.I. Capital
Appreciation Fund...... 38.43% N/A 54.62% September 30, 1998
AIM V.I. Government
Securities Fund........ <7.48%> N/A <6.33%> September 30, 1998
AIM V.I. Growth and
Income Fund............ 28.07% N/A 47.75% September 30, 1998
AIM V.I. Value Fund..... 23.72% N/A 44.30% September 30, 1998
Dreyfus Stock Index
Fund................... 14.43% N/A 30.47% September 30, 1998
Dreyfus VIF--Small
Company Stock.......... 4.43% N/A 17.35% September 30, 1998
MFS Emerging Growth
Series................. 70.52% N/A 86.02% September 30, 1998
MFS Emerging Markets
Equity Series.......... 32.00% N/A 29.84% September 30, 1998
MFS Research Series..... 17.87% N/A 33.96% September 30, 1998
MFS Total Return
Series................. <3.08%> N/A 3.79% September 30, 1998
MFS Utilities Series.... 24.63% N/A 28.74% September 30, 1998
Oppenheimer Capital
Appreciation Fund/VA... 35.47% N/A 54.75% September 30, 1998
Oppenheimer Global
Securities Fund/VA..... 52.29% N/A 62.87% September 30, 1998
Oppenheimer High Income
Fund/VA................ <1.88%> N/A 0.78% September 30, 1998
Oppenheimer Main Street
Growth & Income
Fund/VA................ 15.53% N/A 29.71% September 30, 1998
Oppenheimer Strategic
Bond Fund/VA........... <3.34%> N/A <1.48%> September 30, 1998
Transamerica VIF Growth
(/1/).................. N/A N/A N/A N/A
Fidelity--VIP Equity-
Income--Service Class
2(/1/)................. N/A N/A N/A N/A
Fidelity--VIP Growth--
Service Class 2(/1/)... N/A N/A N/A N/A
Fidelity--VIP High
Income--Service Class
2(/1/)................. N/A N/A N/A N/A
Fidelity--VIP II
Contrafund(R)--Service
Class 2(/1/)........... N/A N/A N/A N/A
Fidelity--VIP II
Investment Grade Bond--
Service Class 2(/1/)... N/A N/A N/A N/A
Fidelity--VIP III Growth
& Income--Service Class
2(/1/)................. N/A N/A N/A N/A
Fidelity--VIP III
Balanced--Service Class
2(/1/)................. N/A N/A N/A N/A
Fidelity--VIP III Mid
Cap--Service Class
2(/1/)................. N/A N/A N/A N/A
WRL VKAM Emerging
Growth................. 98.95% N/A 111.79% September 30, 1998
WRL Janus Global........ 64.91% N/A 73.83% September 30, 1998
WRL Janus Growth........ 53.48% N/A 73.01% September 30, 1998
</TABLE>
- --------------------------------------------------------------------------------
38
<PAGE>
TABLE 1--B
Standard Average Annual Total Returns
(Assuming A Surrender Charge and No Family Income Protector)
- --------------------------------------------------------------------------------
5% Annually Compounding Death Benefit or Annual Step-Up Death Benefit
(Total Mutual Fund Account Annual Expenses: 1.40%)
<TABLE>
- ----------------------------------------------------------------------------------
<CAPTION>
1 Year 5 Year Inception of the Subaccount
Ended Ended Subaccount to Inception
Subaccount 12/31/99 12/31/99 12/31/99 Date
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AIM V.I. Capital
Appreciation Fund...... 38.22% N/A 54.38% September 30, 1998
AIM V.I. Government
Securities Fund........ <7.63%> N/A <6.47%> September 30, 1998
AIM V.I. Growth and
Income Fund............ 27.87% N/A 47.52% September 30, 1998
AIM V.I. Value Fund..... 23.53% N/A 44.07% September 30, 1998
Dreyfus Stock Index
Fund................... 14.25% N/A 30.27% September 30, 1998
Dreyfus VIF--Small
Company Stock.......... 4.27% N/A 17.17% September 30, 1998
MFS Emerging Growth
Series................. 70.26% N/A 85.74% September 30, 1998
MFS Emerging Markets
Equity Series.......... 31.79% N/A 29.64% September 30, 1998
MFS Research Series..... 17.69% N/A 33.75% September 30, 1998
MFS Total Return
Series................. <3.23%> N/A 3.63% September 30, 1998
MFS Utilities Series.... 24.44% N/A 28.54% September 30, 1998
Oppenheimer Capital
Appreciation Fund/VA... 35.26% N/A 54.51% September 30, 1998
Oppenheimer Global
Securities Fund/VA..... 52.6% N/A 62.62% September 30, 1998
Oppenheimer High Income
Fund/VA................ <2.03%> N/A 0.62% September 30, 1998
Oppenheimer Main Street
Growth & Income
Fund/VA................ 15.35% N/A 29.51% September 30, 1998
Oppenheimer Strategic
Bond Fund/VA........... <3.49%> N/A <1.64%> September 30, 1998
Transamerica VIF
Growth(/1/)............ N/A N/A N/A N/A
Fidelity--VIP Equity-
Income--Service Class
2(/1/)................. N/A N/A N/A N/A
Fidelity--VIP Growth--
Service Class 2(/1/)... N/A N/A N/A N/A
Fidelity--VIP High
Income--Service Class
2(/1/)................. N/A N/A N/A N/A
Fidelity--VIP II
Contrafund(R)--Service
Class 2(/1/)........... N/A N/A N/A N/A
Fidelity--VIP II
Investment Grade Bond--
Service Class 2(/1/)... N/A N/A N/A N/A
Fidelity--VIP III Growth
& Income--Service Class
2(/1/)................. N/A N/A N/A N/A
Fidelity--VIP III
Balanced--Service Class
2(/1/)................. N/A N/A N/A N/A
Fidelity--VIP III Mid
Cap--Service Class
2(/1/)................. N/A N/A N/A N/A
WRL VKAM Emerging
Growth................. 98.65% N/A 111.47% September 30, 1998
WRL Janus Global........ 64.66% N/A 73.56% September 30, 1998
WRL Janus Growth........ 53.24% N/A 72.74% September 30, 1998
</TABLE>
- --------------------------------------------------------------------------------
(/1/) The Transamerica VIF Growth Subaccount, Fidelity--VIP Equity-Income
Subaccount, Fidelity--VIP Growth Subaccount, Fidelity--VIP High Income
Subaccount, Fidelity--VIP II Contrafund(R) Subaccount, Fidelity--VIP II
Investment Grade Bond Subaccount, Fidelity--VIP III Growth & Income
Subaccount, Fidelity--VIP III Balanced Subaccount, and the Fidelity--VIP
III Mid Cap Subaccount had not commenced operations as of December 31,
1999, therefore comparable information is not available.
Non-Standardized Performance Data
In addition to the standardized data discussed above, similar performance data
for other periods may also be shown.
PFL may from time to time also advertise or disclose average annual total
return or other performance data in non-standard formats for a subaccount of
the separate account. The non-standardized performance data may assume that no
surrender charge is applicable, and may also make other assumptions such as the
amount invested in a subaccount, differences in time periods to be shown, or
the effect of partial withdrawals or annuity payments.
All non-standardized performance data will be advertised only if the
standardized performance data is also disclosed. For additional information
regarding the calculation of other performance data, please refer to the SAI.
39
<PAGE>
The non-standardized average annual total return figures shown in Table 2 are
based on the assumption that the policy is not surrendered, and therefore the
surrender charge is not imposed. Also, Table 2 does not reflect the rider
charge for the optional family income protector.
TABLE 2--A
Non-Standard Average Annual Total Returns
(Assuming No Surrender Charge or Family Income Protector)
- --------------------------------------------------------------------------------
Return of Premium Death Benefit
(Total Mutual Fund Account Annual Expenses: 1.25%)
<TABLE>
- ----------------------------------------------------------------------------------
<CAPTION>
1 Year 5 Year Inception of the Subaccount
Ended Ended Subaccount to Inception
Subaccount 12/31/99 12/31/99 12/31/99 Date
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AIM V.I. Capital
Appreciation Fund...... 42.83% N/A 57.50% September 30, 1998
AIM V.I. Government
Securities Fund........ <2.54%> N/A <2.31%> September 30, 1998
AIM V.I. Growth and
Income Fund............ 32.59% N/A 50.75% September 30, 1998
AIM V.I. Value Fund..... 28.30% N/A 47.35% September 30, 1998
Dreyfus Stock Index
Fund................... 19.12% N/A 33.77% September 30, 1998
Dreyfus VIF--Small
Company Stock.......... 9.24% N/A 20.89% September 30, 1998
MFS Emerging Growth
Series................. 74.54% N/A 88.42% September 30, 1998
MFS Emerging Markets
Equity Series.......... 36.48% N/A 33.15% September 30, 1998
MFS Research Series..... 22.52% N/A 37.19% September 30, 1998
MFS Total Return
Series................. 1.81% N/A 7.59% September 30, 1998
MFS Utilities Series.... 29.20% N/A 32.07% September 30, 1998
Oppenheimer Capital
Appreciation Fund/VA... 39.91% N/A 57.63% September 30, 1998
Oppenheimer Global
Securities Fund/VA..... 56.53% N/A 65.62% September 30, 1998
Oppenheimer High Income
Fund/VA................ 3.00% N/A 4.64% September 30, 1998
Oppenheimer Main Street
Growth & Income
Fund/VA................ 20.21% N/A 33.01% September 30, 1998
Oppenheimer Strategic
Bond Fund/VA........... 1.56% N/A 2.43% September 30, 1998
Transamerica VIF
Growth(/1/)............ N/A N/A N/A N/A
Fidelity--VIP Equity-
Income--Service Class
2(/1/)................. N/A N/A N/A N/A
Fidelity--VIP Growth--
Service Class 2(/1/)... N/A N/A N/A N/A
Fidelity--VIP High
Income--Service Class
2(/1/)................. N/A N/A N/A N/A
Fidelity--VIP II
Contrafund(R)--Service
Class 2(/1/)........... N/A N/A N/A N/A
Fidelity--VIP II
Investment Grade Bond--
Service Class 2(/1/)... N/A N/A N/A N/A
Fidelity--VIP III Growth
& Income--Service Class
2(/1/)................. N/A N/A N/A N/A
Fidelity--VIP III
Balanced--Service Class
2(/1/)................. N/A N/A N/A N/A
Fidelity--VIP III Mid
Cap--Service Class
2(/1/)................. N/A N/A N/A N/A
WRL VKAM Emerging
Growth................. 102.63% N/A 113.81% September 30, 1998
WRL Janus Global........ 69.00% N/A 76.41% September 30, 1998
WRL Janus Growth........ 57.70% N/A 75.60% September 30, 1998
</TABLE>
- --------------------------------------------------------------------------------
40
<PAGE>
TABLE 2--B
Non-Standard Average Annual Total Returns
(Assuming No Surrender Charge or Family Income Protector)
- --------------------------------------------------------------------------------
5% Annually Compounding Death Benefit or Annual Step-Up Death Benefit
(Total Mutual Fund Account Annual Expenses: 1.40%)
<TABLE>
- ----------------------------------------------------------------------------------
<CAPTION>
1 Year 5 Year Inception of the Subaccount
Ended Ended Subaccount to Inception
Subaccount 12/31/99 12/31/99 12/31/99 Date
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AIM V.I. Capital
Appreciation Fund...... 42.62% N/A 52.27% September 30, 1998
AIM V.I. Government
Securities Fund........ <2.68%> N/A <2.45%> September 30, 1998
AIM V.I. Growth and
Income Fund............ 32.40% N/A 50.53% September 30, 1998
AIM V.I. Value Fund..... 28.11% N/A 47.13% September 30, 1998
Dreyfus Stock Index
Fund................... 18.94% N/A 33.57% September 30, 1998
Dreyfus VIF--Small
Company Stock.......... 9.08% N/A 20.71% September 30, 1998
MFS Emerging Growth
Series................. 74.28% N/A 88.14% September 30, 1998
MFS Emerging Markets
Equity Series.......... 36.27% N/A 32.95% September 30, 1998
MFS Research Series..... 22.34% N/A 36.99% September 30, 1998
MFS Total Return
Series................. 1.66% N/A 7.44% September 30, 1998
MFS Utilities Series.... 29.01% N/A 31.87% September 30, 1998
Oppenheimer Capital
Appreciation Fund/VA... 39.70% N/A 57.40% September 30, 1998
Oppenheimer Global
Securities Fund/VA..... 56.30% N/A 65.38% September 30, 1998
Oppenheimer High Income
Fund/VA................ 2.85% N/A 4.49% September 30, 1998
Oppenheimer Main Street
Growth & Income
Fund/VA................ 20.03% N/A 32.82% September 30, 1998
Oppenheimer Strategic
Bond Fund/VA........... 1.41% N/A 2.28% September 30, 1998
Transamerica VIF
Growth(/1/)............ N/A N/A N/A N/A
Fidelity--VIP Equity-
Income--Service Class
2(/1/)................. N/A N/A N/A N/A
Fidelity--VIP Growth--
Service Class 2(/1/)... N/A N/A N/A N/A
Fidelity--VIP High
Income--Service Class
2(/1/)................. N/A N/A N/A N/A
Fidelity--VIP II
Contrafund(R)--Service
Class 2(/1/)........... N/A N/A N/A N/A
Fidelity--VIP II
Investment Grade Bond--
Service Class 2(/1/)... N/A N/A N/A N/A
Fidelity--VIP III Growth
& Income--Service Class
2(/1/)................. N/A N/A N/A N/A
Fidelity--VIP III
Balanced--Service Class
2(/1/)................. N/A N/A N/A N/A
Fidelity--VIP III Mid
Cap--Service Class
2(/1/)................. N/A N/A N/A N/A
WRL VKAM Emerging
Growth................. 102.33% N/A 113.49% September 30, 1998
WRL Janus Global........ 68.75% N/A 76.15% September 30, 1998
WRL Janus Growth........ 57.47% N/A 75.34% September 30, 1998
</TABLE>
- --------------------------------------------------------------------------------
(/1/)The Transamerica VIF Growth Subaccount, Fidelity-VIP Equity-Income
Subaccount, Fidelity--VIP Growth Subaccount, Fidelity--VIP High Income
Subaccount, Fidelity--VIP II Contrafund(R) Subaccount, Fidelity--VIP II
Investment Grade Bond Subaccount, Fidelity--VIP III Growth & Income
Subaccount, Fidelity--VIP III Balanced Subaccount, and the Fidelity--VIP
III Mid Cap Subaccount had not commenced operations as of December 31,
1999, therefore comparable information is not available.
Adjusted Historical Performance Data. The following performance data is
historic performance data for the underlying portfolios since their inception
reduced by some or all of the fees and charges under the policy. Such adjusted
historic performance includes data that precedes the inception dates of the
subaccounts. This data is designed to show the performance that would have
resulted if the policy had been in existence during that time, based on the
performance of the applicable portfolio and the assumption that the applicable
subaccount was in existence for the same period as the portfolio with a level
of charges equal to those currently assessed under the policies. This data is
not intended to indicate future performance.
For instance, as shown in Table 3, PFL may disclose average annual total
returns for the portfolios reduced by all fees and charges under the policy, as
if the policy had been in existence since the inception of the portfolio. Such
fees and charges include the mortality and expense risk fee, administrative
charge and surrender charges. Table 3 assumes that the policy is not
surrendered, and therefore the surrender charge is not deducted. Also, Table 3
does not reflect the rider charge for the optional family income protector.
41
<PAGE>
The following information is also based on the method of calculation described
in the SAI. The adjusted historical average annual total returns for periods
ended December 31, 1999, were as follows:
TABLE 3--A
Adjusted Historical Average Annual Total Returns(/1/)
(Assuming No Surrender Charge or Family Income Protector)
- --------------------------------------------------------------------------------
Return of Premium Death Benefit
(Total Mutual Fund Account Annual Expenses: 1.25%)
<TABLE>
- -------------------------------------------------------------------------------
<CAPTION>
10 Year Corresponding
or Portfolio
Portfolio 1 Year 5 Year Inception Inception Date
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AIM V.I. Capital
Appreciation Fund...... 42.83% 24.04% 20.82% May 5, 1993
AIM V.I. Government
Securities Fund........ <2.54%> 5.02% 3.37% May 5, 1993
AIM V.I. Growth and
Income Fund............ 32.59% 26.61% 22.95% May 2, 1994
AIM V.I. Value Fund..... 28.30% 25.67% 21.55% May 5, 1993
Dreyfus Stock Index
Fund................... 19.12% 26.50% 16.25%+ September 29, 1989
Dreyfus VIF--Small
Company Stock
Portfolio.............. 9.24% N/A 7.76% May 1, 1996
MFS Emerging Growth
Series................. 74.54% N/A 34.74% July 24, 1995
MFS Emerging Markets
Equity Series.......... 36.48% N/A <9.32%> October 16, 1997
MFS Research Series..... 22.52% N/A 21.33% July 26, 1995
MFS Total Return
Series................. 1.81% N/A 13.99% January 3, 1995
MFS Utilities Series.... 29.20% N/A 24.90% January 3, 1995
Oppenheimer Capital
Appreciation Fund/VA... 39.91% 29.05% 17.00% April 3, 1985
Oppenheimer Global
Securities Fund/VA..... 56.53% 20.17% 15.34% November 12, 1990
Oppenheimer High Income
Fund/VA................ 3.00% 8.88% 11.27%+ December 31, 1987
Oppenheimer Main Street
Growth & Income
Fund/VA................ 20.21% N/A 24.23% July 5, 1995
Oppenheimer Strategic
Bond Fund/VA........... 1.56% 6.92% 4.87% May 5, 1993
Transamerica VIF Growth
Portfolio(/2/)......... 36.12% 45.02% 27.58%+ December 1, 1980
Fidelity--VIP Equity-
Income Portfolio--
Service Class 2(/2/)... 4.94% 17.11% 13.06%+ October 9, 1986(/3/)
Fidelity--VIP Growth
Portfolio--Service
Class 2(/2/)........... 35.62% 28.12% 18.45%+ October 9, 1986(/3/)
Fidelity--VIP High
Income Portfolio--
Service Class 2(/2/)... 6.74% 9.48% 11.03%+ September 19, 1985(/3/)
Fidelity--VIP II
Contrafund(R)
Portfolio--Service
Class 2(/2/)........... 22.63% N/A 26.13% January 3, 1995(/3/)
Fidelity--VIP II
Investment Grade Bond
Portfolio--Service
Class 2(/2/)........... <2.28%> 5.97% 5.86% December 5, 1988(/3/)
Fidelity--VIP III Growth
& Income Portfolio--
Service Class 2(/2/)... 7.71% N/A 20.50% December 31, 1996(/3/)
Fidelity--VIP III
Balanced Portfolio--
Service Class 2(/2/)... 3.14% N/A 12.04% January 3, 1995(/3/)
Fidelity--VIP III Mid
Cap Portfolio--Service
Class 2(/2/)........... 47.15% N/A 51.18% December 28, 1998(/3/)
WRL VKAM Emerging
Growth................. 102.63% 41.21% 31.01% March 1, 1993
WRL Janus Global........ 69.00% 31.31% 26.34% December 3, 1992
WRL Janus Growth........ 57.70% 38.18% 22.10%+ October 2, 1986
- -------------------------------------------------------------------------------
+Ten Year Date
</TABLE>
42
<PAGE>
TABLE 3--B
Adjusted Historical Average Annual Total Returns(/1/)
(Assuming No Surrender Charge or Family Income Protector)
- --------------------------------------------------------------------------------
5% Annually Compounding Death Benefit or Annual Step-Up Death Benefit
(Total Mutual Fund Account Annual Expenses: 1.40%)
<TABLE>
- -------------------------------------------------------------------------------
<CAPTION>
10 Year Corresponding
or Portfolio
Portfolio 1 Year 5 Year Inception Inception Date
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AIM V.I. Capital
Appreciation Fund....... 42.62% 23.86% 20.64% May 5, 1993
AIM V.I. Government
Securities Fund......... <2.68%> 4.86% 3.22% May 5, 1993
AIM V.I. Growth and
Income Fund............. 32.40% 26.42% 22.77% May 2, 1994
AIM V.I. Value Fund...... 28.11% 25.48% 21.37% May 5, 1993
Dreyfus Stock Index
Fund.................... 18.94% 26.32% 16.08%+ September 29, 1989
Dreyfus VIF--Small
Company Stock
Portfolio............... 9.08% N/A 7.60% May 1, 1996
MFS Emerging Growth
Series.................. 74.28% N/A 34.54% July 24, 1995
MFS Emerging Markets
Equity Series........... 36.27% N/A <9.46%> October 16, 1997
MFS Research Series...... 22.34% N/A 21.15% July 26, 1995
MFS Total Return Series.. 1.66% N/A 13.82% January 3, 1995
MFS Utilities Series..... 29.01% N/A 24.72% January 3, 1995
Oppenheimer Capital
Appreciation Fund/VA.... 39.70% 28.86% 16.83%+ April 3, 1985
Oppenheimer Global
Securities Fund/VA...... 56.30% 19.99% 15.17% November 12, 1990
Oppenheimer High Income
Fund/VA................. 2.85% 8.72% 11.10%+ December 31, 1987
Oppenheimer Main Street
Growth & Income
Fund/VA................. 20.03% N/A 24.05% July 5, 1995
Oppenheimer Strategic
Bond Fund/VA............ 1.41% 6.76% 4.72% May 5, 1993
Transamerica VIF Growth
Portfolio(/2/).......... 35.92% 45.45% 27.68%+
Fidelity--VIP Equity-
Income Portfolio--
Service Class 2(/2/).... 4.78% 16.94% 12.89%+ October 9, 1986(/3/)
Fidelity--VIP Growth
Portfolio--Service Class
2(/2/).................. 35.42% 27.93% 18.27%+ October 9, 1986(/3/)
Fidelity--VIP High Income
Portfolio--Service Class
2(/2/).................. 6.58% 9.31% 10.87%+ September 19, 1985(/3/)
Fidelity--VIP II
Contrafund(R)
Portfolio--Service Class
2(/2/).................. 22.45% N/A 25.95% January 3, 1995(/3/)
Fidelity--VIP II
Investment Grade Bond
Portfolio--Service Class
2(/2/).................. <2.43%> 5.81% 5.71%+ December 5, 1988(/3/)
Fidelity--VIP III Growth
& Income Portfolio--
Service Class 2(/2/).... 7.55% N/A 20.33% December 31, 1996(/3/)
Fidelity--VIP III
Balanced Portfolio--
Service Class 2(/2/).... 2.98% N/A 11.87% January 3, 1995(/3/)
Fidelity--VIP III Mid Cap
Portfolio--Service Class
2(/2/).................. 46.94% N/A 50.96% December 28, 1998(/3/)
WRL VKAM Emerging
Growth.................. 102.33% 41.00% 30.81% March 1, 1993
WRL Janus Global......... 68.75% 31.12% 26.16% December 3, 1992
WRL Janus Growth......... 57.47% 37.98% 21.92%+ October 2, 1986
- -------------------------------------------------------------------------------
+Ten Year Date
</TABLE>
(/1/)The calculation of total return performance for periods prior to inception
of the subaccounts reflects deductions for the mortality and expense risk
fee and administrative charge on a monthly basis, rather than a daily
basis. The monthly deduction is made at the beginning of each month and
generally approximates the performance which would have resulted if the
subaccount had been in existence since the inception of the portfolio.
(/2/)The Transamerica VIF Growth Subaccount, Fidelity--VIP Equity-Income
Subaccount, Fidelity--VIP Growth Subaccount, Fidelity--VIP High Income
Subaccount, Fidelity--VIP II Contrafund(R) Subaccount, Fidelity--VIP II
Investment Grade Bond Subaccount, Fidelity--VIP III Growth & Income
Subaccount, Fidelity--VIP III Balanced Subaccount, and the Fidelity--VIP
III Mid Cap Subaccount had not commenced operations as of December 31,
1999, therefore comparable information is not available.
(/3/)Returns prior to January 12, 2000 for the portfolios are based on
historical returns for Initial Class Shares.
43
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
RETIREMENT INCOME BUILDER II
VARIABLE ANNUITY
Issued through
PFL RETIREMENT BUILDER VARIABLE
ANNUITY ACCOUNT
Offered by
PFL LIFE INSURANCE COMPANY
4333 Edgewood Road, N.E.
Cedar Rapids, Iowa 52499-0001
This Statement of Additional Information expands upon subjects discussed in the
current prospectus for the Retirement Income Builder II Variable Annuity
offered by PFL Life Insurance Company. You may obtain a copy of the prospectus
dated May 1, 2000, by calling 1-800-525-6205, or by writing to the
administrative and service office, Financial Markets Division-Variable Annuity
Dept., 4333 Edgewood Road, N.E., Cedar Rapids, Iowa 52499-0001. The prospectus
sets forth information that a prospective investor should know before investing
in a policy. Terms used in the current prospectus for the policy are
incorporated in this Statement of Additional Information.
This Statement of Additional Information (SAI) is not a prospectus and should
be read only in conjunction with the prospectus for the policy and the
underlying fund portfolios.
Dated: May 1, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
GLOSSARY OF TERMS.......................................................... 3
THE POLICY--GENERAL PROVISIONS............................................. 6
Owner.................................................................... 6
Entire Policy............................................................ 6
Misstatement of Age or Sex............................................... 6
Addition, Deletion or Substitution of Investments........................ 7
Excess Interest Adjustment............................................... 7
Reallocation of Annuity Units After the Annuity Commencement Date........ 11
Annuity Payment Options.................................................. 12
Death Benefit............................................................ 13
Death of Owner........................................................... 15
Assignment............................................................... 15
Evidence of Survival..................................................... 15
Non Participating........................................................ 15
Amendments............................................................... 15
Employee and Agent Purchases............................................. 16
CERTAIN FEDERAL INCOME TAX CONSEQUENCES.................................... 16
Tax Status of the Policy................................................. 16
Taxation of PFL.......................................................... 20
INVESTMENT EXPERIENCE...................................................... 20
Accumulation Units....................................................... 20
Annuity Unit Value and Annuity Payment Rates............................. 22
FAMILY INCOME PROTECTOR--ADDITIONAL INFORMATION............................ 24
HISTORICAL PERFORMANCE DATA................................................ 27
Money Market Yields...................................................... 27
Other Subaccount Yields.................................................. 28
Total Returns............................................................ 28
Other Performance Data................................................... 29
Adjusted Historical Performance Data..................................... 29
PUBLISHED RATINGS.......................................................... 30
STATE REGULATION OF PFL.................................................... 30
ADMINISTRATION............................................................. 30
RECORDS AND REPORTS........................................................ 30
DISTRIBUTION OF THE POLICIES............................................... 30
VOTING RIGHTS.............................................................. 31
OTHER PRODUCTS............................................................. 31
CUSTODY OF ASSETS.......................................................... 31
LEGAL MATTERS.............................................................. 32
INDEPENDENT AUDITORS....................................................... 32
OTHER INFORMATION.......................................................... 32
FINANCIAL STATEMENTS....................................................... 32
</TABLE>
-2-
<PAGE>
GLOSSARY OF TERMS
Accumulation Unit--An accounting unit of measure used in calculating the policy
value in the separate account before the annuity commencement date.
Adjusted Policy Value--An amount equal to the policy value increased or
decreased by any excess interest adjustments applied at the time of surrender
or on the annuity commencement date.
Administrative and Service Office--Financial Markets Division Variable Annuity
Department, 4333 Edgewood Road, N.E., Cedar Rapids, Iowa 52499-0001.
Annuitant--The person during whose life any annuity payments involving life
contingencies will continue.
Annuity Commencement Date--The date upon which annuity payments are to
commence. The annuity commencement date may not be later than the last day of
the policy month starting after the annuitant attains age 85, except as
expressly allowed by PFL. In no event will this date be later than the last day
of the policy month following the month in which the annuitant attains age 95.
The annuity commencement date may be required to be earlier for qualified
policies.
Annuity Payment Option--A method of receiving a stream of annuity payments
selected by the owner.
Annuity Unit--An accounting unit of measure used in the calculation of the
amount of the second and each subsequent variable annuity payment.
Application--A written application, order form, or any other information
received electronically or otherwise upon which the policy is issued and/or is
reflected on the data or specifications page.
Beneficiary--The person who has the right to the death benefit set forth in the
policy.
Business Day--A day when the New York Stock Exchange is open for business.
Cash Value--The policy value increased or decreased by any excess interest
adjustment, less the annual service charge, and less any applicable surrender
charge, premium taxes, and family income protector rider fee.
Code--The Internal Revenue Code of 1986, as amended.
Cumulative Free Percentage--The percentage (as applied to the policy value)
which is available free of any surrender charge.
Excess Interest Adjustment ("EIA")--A positive or negative adjustment to
amounts withdrawn upon partial or full surrenders from the fixed account
guaranteed period options, or to amounts applied to annuity payment options.
The adjustment reflects changes in the interest rates declared by PFL since the
date any payment was received by (or an amount was transferred to) the
guaranteed period option. The excess interest adjustment can either decrease or
increase the amount to be received by the owner upon full surrender or
commencement of annuity payments, depending upon whether there has been an
increase or decrease in interest rates, respectively.
Excess Partial Withdrawal--The portion of a partial withdrawal (surrender) that
exceeds the cumulative free percentage.
Fixed Account--One or more investment choices under the policy that are part of
PFL's general assets and are not in the separate account.
-3-
<PAGE>
Guaranteed Period Options--The various guaranteed interest rate periods of the
fixed account which PFL may be offer and into which premium payments may be
paid or amounts transferred.
Nonqualified Policy--A policy other than a qualified policy.
Owner--The person who may exercise all rights and privileges under the policy.
The owner during the lifetime of the annuitant and prior to the annuity
commencement date is the person designated as the owner or a successor owner in
the information that we require to issue a policy.
Policy Value--On or before the annuity commencement date, the policy value is
equal to the owner's:
. premium payments; minus
. partial withdrawals (including the net effect of any applicable excess
interest adjustments and/or surrender charges on such withdrawals); plus
. interest credited in the fixed account; plus or minus
. accumulated gains or losses in the separate account; minus
. service charges, rider fees, premium taxes, and transfer fees, if any.
Policy Year--A policy year begins on the policy date in which the policy
becomes effective and on each anniversary thereof.
Premium Payment--An amount paid to PFL by the owner or on the owner's behalf as
consideration for the benefits provided by the policy.
Qualified Policy--A policy issued in connection with retirement plans that
qualify for special federal income tax treatment under the Code.
Separate Account--The Retirement Income Builder II Variable Annuity division of
the PFL Retirement Builder Variable Annuity Account, a separate account
established and registered as a unit investment trust under the Investment
Company Act of 1940, as amended (the "1940 Act"), to which premium payments
under the policies may be allocated.
Service Charge--There is an annual service charge on each policy anniversary
(and a charge at the time of surrender during any policy year) for policy
maintenance and related administrative expenses. This annual charge is $30, but
in no event will this charge be more than 2% of the policy value.
Subaccount--A subdivision within the separate account, the assets of which are
invested in a specified portfolio of the underlying funds.
Successor Owner--A person appointed by the owner to succeed to ownership of the
policy in the event of the death of the owner who is not the annuitant before
the annuity commencement date.
Surrender Charge--The applicable contingent deferred sales charge, assessed on
certain full surrenders or partial withdrawals of premium payments to cover
expenses relating to the sale of the policies.
Underlying Funds--The designated portfolios of: (1) AIM Variable Insurance
Funds, managed by A I M Advisors, Inc.; (2) Dreyfus Stock Index Fund, managed
by The Dreyfus Corporation and Mellon Equity Associates; (3) Dreyfus Variable
Investment Fund, managed by The Dreyfus Corporation; (4) MFS Variable Insurance
Trust, managed by Massachusetts Financial Services Company; (5) Oppenheimer
Variable Account Funds, managed by OppenheimerFunds, Inc.; (6) Transamerica
Variable Insurance Fund, Inc., managed by Transamerica Investment Services,
Inc.; (7) Variable Insurance Products Fund (VIP)--Service Class 2, managed by
Fidelity Management & Research Company; (8) Variable Insurance Products Fund II
(VIP II)--Service Class 2, managed by Fidelity Management & Research Company;
(9)
-4-
<PAGE>
Variable Insurance Products Fund III (VIP III)--Service Class 2, managed by
Fidelity Management & Research Company; and (10) WRL Series Fund, Inc. (WRL
VKAM Emerging Growth managed by Van Kampen Asset Management Inc.; WRL Janus
Global and WRL Janus Growth managed by Janus Capital Corporation).
Valuation Period--The period of time from one determination of accumulation
unit and annuity unit values to the next subsequent determination of values.
Such determinations shall be made on each business day.
Variable Annuity Payment(s)--Payment(s) made pursuant to an annuity payment
option which fluctuate as to dollar amount or payment term in relation to the
investment performance of the specified subaccounts within the separate
account.
Written Notice--Written notice, signed by the owner, that gives PFL the
information it requires and is received at the administrative and service
office. For some transactions, PFL may accept an electronic notice such as
telephone instructions. Such electronic notice must meet the requirements PFL
establishes for such notices.
-5-
<PAGE>
In order to supplement the description in the prospectus, the following
provides additional information about PFL and the policy, which may be of
interest to a prospective purchaser.
THE POLICY--GENERAL PROVISIONS
Owner
The policy shall belong to the owner upon issuance of the policy after
completion of an application and delivery of the initial premium payment. While
the annuitant is living, the owner may: (1) assign the policy; (2) surrender
the policy; (3) amend or modify the policy with PFL's consent; (4) receive
annuity payments or name a payee to receive the payments; and (5) exercise,
receive and enjoy every other right and benefit contained in the policy. The
exercise of these rights may be subject to the consent of any assignee or
irrevocable beneficiary; and of the owner's spouse in a community or marital
property state.
Unless PFL has been notified of a community or marital property interest in the
policy, it will rely on its good faith belief that no such interest exists and
will assume no responsibility for inquiry.
A successor owner can be named in the application or in a written notice. The
successor owner will become the new owner upon your death, if you predecease
the annuitant. If no successor owner survives the owner and the owner
predeceases the annuitant, your estate will become the owner.
Note carefully. If the owner does not name a contingent owner, the owner's
estate will become the new owner. If no probate estate is opened because the
owner has precluded the opening of a probate estate by means of a trust or
other instrument, unless PFL has received written notice of the trust as a
successor owner signed prior to the owner's death, that trust may not exercise
ownership rights to the policy. It may be necessary to open a probate estate in
order to exercise ownership rights to the policy if no contingent owner is
named in a written notice received by PFL.
The owner may change the ownership of the policy in a written notice. When this
change takes effect, all rights of ownership in the policy will pass to the new
owner. A change of ownership may have tax consequences.
When there is a change of owner or successor owner, the change will not be
effective until it is recorded in our records. Once recorded it will take
effect as of the date the owner signs the written notice, subject to any
payment PFL has made or action PFL has taken before recording the change.
Changing the owner or naming a new successor owner cancels any prior choice of
successor owner, but does not change the designation of the beneficiary or the
annuitant.
If ownership is transferred (except to the owner's spouse) because the owner
dies before the annuitant, the adjusted policy value generally must be
distributed to the successor owner within five years of the owner's death, or
if the first payment begins within one year of the owner's death, payments must
be made for a period certain which does not exceed that successor owner's life
expectancy.
Entire Policy
The policy, any endorsements thereon, the application, and information provided
in lieu thereof, constitute the entire contract between PFL and the owner. All
statements in the application are representations and not warranties. No
statement will cause the policy to be void or to be used in defense of a claim
unless contained in the application or information provided in lieu thereof.
Misstatement of Age or Sex
If the age or sex of the annuitant has been misstated, PFL will change the
annuity benefit payable to that which the premium payments would have purchased
for the correct age or sex. The dollar amount of
-6-
<PAGE>
any underpayment made by PFL shall be paid in full with the next payment due
such person or the beneficiary. The dollar amount of any overpayment made by
PFL due to any misstatement shall be deducted from payments subsequently
accruing to such person or beneficiary. Any underpayment or overpayment will
include interest at 5% per year, from the date of the wrong payment to the date
of the adjustment. The age of the annuitant may be established at any time by
the submission of proof satisfactory to PFL.
Addition, Deletion, or Substitution of Investments
PFL cannot and does not guarantee that any of the subaccounts or portfolios
will always be available for premium payments, allocations, or transfers. PFL
retains the right, subject to any applicable law, to make certain changes in
the separate account and its investments. PFL reserves the right to eliminate
the shares of any portfolio held by a subaccount and/or to substitute shares of
another portfolio of the underlying funds, or of another registered open-end
management investment company for the shares of any portfolio, if the shares of
the portfolio are no longer available for investment or if, in PFL's judgment,
investment in any portfolio would be inappropriate in view of the purposes of
the separate account. To the extent required by the 1940 Act, substitutions of
shares attributable to an owner's interest in a subaccount will not be made
without prior notice to the owner and the prior approval of the Securities and
Exchange Commission (SEC). Nothing contained herein shall prevent the separate
account from purchasing other securities for other series or classes of
variable annuity policies, or from effecting an exchange between series or
classes of variable annuity policies on the basis of your requests.
New subaccounts may be established when, in the sole discretion of PFL,
marketing, tax, investment or other conditions warrant. Any new subaccounts may
be made available to existing owners on a basis to be determined by PFL. Each
additional subaccount will purchase shares in a mutual fund portfolio or other
investment vehicle. PFL may also eliminate one or more subaccounts if, in its
sole discretion, marketing, tax, investment or other conditions warrant such
change. In the event any subaccount is eliminated, PFL will notify owners and
request a reallocation of the amounts invested in the eliminated subaccount. If
no such reallocation is provided by the owner, PFL will reinvest the amounts
invested in the eliminated subaccount in the subaccount that invests in the
Dreyfus--Money Market Portfolio (or in a similar portfolio of money market
instruments) or in another subaccount, if appropriate.
In the event of any such substitution or change, PFL may, by appropriate
endorsement, make such changes in the policies as may be necessary or
appropriate to reflect such substitution or change. Furthermore, if deemed to
be in the best interests of persons having voting rights under the policies,
the separate account may be (i) operated as a management company under the 1940
Act or any other form permitted by law, (ii) deregistered under the 1940 Act in
the event such registration is no longer required or (iii) combined with one or
more other separate accounts. To the extent permitted by applicable law, PFL
also may (1) transfer the assets of the separate account associated with the
policies to another account or accounts, (2) restrict or eliminate any voting
rights of owners or other persons who have voting rights as to the separate
account, (3) create new separate accounts, (4) add new subaccounts to or remove
existing subaccounts from the separate account, or combine subaccounts, or (5)
add new underlying funds, or substitute a new fund for an existing fund.
Excess Interest Adjustment
Money that you withdraw from or apply to an annuity payment option from a
guaranteed period option of the fixed account before the end of its guaranteed
period (the number of years you specified the money would remain in the
guaranteed period option) may be subject to an excess interest adjustment. At
the time you request a withdrawal, if interest rates PFL set have risen since
the date of the initial guarantee, the excess interest adjustment will result
in a lower cash value. However, if interest rates have fallen since the date of
the initial guarantee, the excess interest adjustment will result in a higher
cash value.
-7-
<PAGE>
Excess interest adjustments will not reduce the adjusted policy value for a
guaranteed period option below the amount paid into it, less any prior partial
withdrawals and transfers from that guaranteed period option, plus interest at
the policy's minimum guaranteed effective annual interest rate of 3%. This is
referred to as the excess interest adjustment floor.
The formula which will be used to determine the excess interest adjustment is:
S*(G - C)* (M/12)
S = Gross amount being withdrawn that is subject to the excess interest
adjustment.
G = Guaranteed interest rate applicable to S.
C = Current Guaranteed Interest Rate then being offered on new premium
payments for the next longer guaranteed period than "M". If this policy
form or such a guaranteed period is no longer offered, "C" will be the
U.S. Treasury rate for the next longer maturity (in whole years) than "M"
on the 25th day of the previous calendar month, plus up to 2%.
M = Number of months remaining in the current guaranteed period, rounded up to
the next higher whole number of months.
* = multiplication
/\= exponentiation
Example 1 (Full Surrender, rates increase by 3%):
<TABLE>
<S> <C>
Single premium: $50,000
- -----------------------------------------------------------------------------------------
Guarantee period: 5 Years
- -----------------------------------------------------------------------------------------
Guarantee rate: 5.50% per annum
- -----------------------------------------------------------------------------------------
Full surrender: middle of contract year 3
- -----------------------------------------------------------------------------------------
Policy value at middle of contract year 3 = 50,000* (1.055) /\2.5 = 57,161.18
- -----------------------------------------------------------------------------------------
Surrender charge free amount at middle of
policy year 3 = 57,161.18* .30 = 17,148.35
- -----------------------------------------------------------------------------------------
Excess interest adjustment free amount at
middle of policy year 3 = 57,161.18 - 50,000 = 7,161.18
- -----------------------------------------------------------------------------------------
Amount subject to excess interest = 57,161.18 - 7,161.18 = 50,000.00
adjustment
- -----------------------------------------------------------------------------------------
Excess interest adjustment floor = 50,000* (1.03) /\2.5 = 53,834.80
- -----------------------------------------------------------------------------------------
Excess interest adjustment
G = .055
C = .085
M = 30
- -----------------------------------------------------------------------------------------
Excess interest adjustment = S* (G - C)* (M/12)
- -----------------------------------------------------------------------------------------
= 50,000.00* (.055 - .085)* (30/12)
- -----------------------------------------------------------------------------------------
= -3,750.00, but excess interest adjustment
cannot cause the adjusted policy value to
fall below the Excess interest adjustment
floor, so the adjustment is limited to
53,834.80 - 57,161.18 = -3,326.38
- -----------------------------------------------------------------------------------------
Adjusted Policy Value = Policy value + Excess interest
adjustment = 57,161.18 -
3,326.38 = 53,834.80
- -----------------------------------------------------------------------------------------
Surrender Charge = (50,000 - 17,148.35)* .06 = 1,971.10
- -----------------------------------------------------------------------------------------
Cash Value at middle of Policy Year 3 = Policy value + Excess interest
adjustment - surrender charge
- -----------------------------------------------------------------------------------------
= 57,161.18 - 3,326.38 - 1,971.10
- -----------------------------------------------------------------------------------------
= 51,863.70
</TABLE>
-8-
<PAGE>
Example 2 (Full Surrender, rates decrease by 1%):
<TABLE>
<S> <C>
Single Premium: $50,000
- -----------------------------------------------------------------------------------------
Guarantee period: 5 Years
- -----------------------------------------------------------------------------------------
Guarantee rate: 5.50% per annum
- -----------------------------------------------------------------------------------------
Full surrender: middle of contract year 3
- -----------------------------------------------------------------------------------------
Policy value at middle of policy year 3 = 50,000* (1.055) /\2.5 = 57,161.18
- -----------------------------------------------------------------------------------------
Surrender charge free amount at middle of = 57,161.18* .30 = 17,148.35
policy year 3
- -----------------------------------------------------------------------------------------
Excess interest adjustment free amount at = 57,161.18 - 50,000 = 7,161.18
middle of policy year 3
- -----------------------------------------------------------------------------------------
Amount subject to excess interest = 57,161.18 - 7,161.18 = 50,000.00
adjustment
- -----------------------------------------------------------------------------------------
Excess interest adjustment floor = 50,000* (1.03) /\2.5 = 53,834.80
- -----------------------------------------------------------------------------------------
Excess interest adjustment
G = .055
C = .045
M = 30
- -----------------------------------------------------------------------------------------
Excess interest adjustment = S* (G - C)* (M/12)
- -----------------------------------------------------------------------------------------
= 50,000* (.055 - .045)* (30/12)
- -----------------------------------------------------------------------------------------
= 1,250.00
- -----------------------------------------------------------------------------------------
Adjusted policy value = policy value + excess interest adjustment
- -----------------------------------------------------------------------------------------
= 57,161.18 + 1,250.00 = 58,411.18
- -----------------------------------------------------------------------------------------
Surrender charge = (50,000 - 17,148.35)* .06 = 1,971.10
- -----------------------------------------------------------------------------------------
Cash value at middle of policy year 3 = policy value + excess interest
adjustment - surrender charge
- -----------------------------------------------------------------------------------------
= 57,161.18 + 1,250 - 1,971.10
- -----------------------------------------------------------------------------------------
= 56,440.08
</TABLE>
On a partial withdrawal, PFL will pay the owner the full amount of withdrawal
requested (as long as the policy value is sufficient). Surrender charge--free
withdrawals will reduce the policy value by the amount withdrawn. Amounts
withdrawn in excess of the surrender charge--free amount will reduce the policy
value by an amount equal to:
X - Y + Z
X= excess partial withdrawal = requested withdrawal less surrender charge--
free amount
A= amount of partial withdrawal which is subject to excess interest
adjustment = requested withdrawal - excess interest adjustment-free amount,
where excess interest adjustment-free amount = cumulative interest credited
at time of, but prior to, withdrawal.
Y= excess interest adjustment = (A)*(G-C)*(M/12) where G, C, and M are defined
above, with "A" substituted for "S" in the definition of G and M.
Z= surrender charge on X minus Y.
-9-
<PAGE>
Example 3 (Partial Withdrawal, rates increase by 1%):
<TABLE>
<S> <C>
Single premium: $50,000
- -------------------------------------------------------------------------------------
Guarantee period: 5 Years
- -------------------------------------------------------------------------------------
Guarantee rate: 5.50% per annum
- -------------------------------------------------------------------------------------
Partial surrender: $30,000; middle of contract year 3
- -------------------------------------------------------------------------------------
Policy value at middle of policy year 3 = 50,000* (1.055) /\2.5 = 57,161.18
- -------------------------------------------------------------------------------------
Surrender charge free amount at middle of = 57,161.18* .30 = 17,148.35
policy year 3
- -------------------------------------------------------------------------------------
Excess interest adjustment free amount at = 57,161.18 - 50,000 = 7,161.18
middle of policy year 3
- -------------------------------------------------------------------------------------
Excess interest adjustment/surrender charge
X= 30,000 - 17,148.35 = 12,851.65
A= 30,000 - 7,161.18 = 22,838.82
G= .055
C= .065
M= 30
Y= 22,838.82* (.055 - .065)* (30/12) = -
570.97
Z= .06* [12,851.65 - ( - 570.97)] = 805.36
- -------------------------------------------------------------------------------------
Reduction to policy value due to surrender = 17,148.35
charge--free withdrawal
- -------------------------------------------------------------------------------------
Reduction to policy value due to excess = X - Y + Z
withdrawal
- -------------------------------------------------------------------------------------
= 12,851.65 - ( - 570.97) + 805.36
- -------------------------------------------------------------------------------------
= 14,227.98
- -------------------------------------------------------------------------------------
Policy value after withdrawal at middle of
policy year 3 = 57,161.18 - [17,148.35 + 14,227.98]
- -------------------------------------------------------------------------------------
= 57,161.18 - [17,148.35 + 12,851.65 -
( - 570.97) + 805.36]
- -------------------------------------------------------------------------------------
= 57,161.18 - [30,000 -
( - 570.97) + 805.36]
- -------------------------------------------------------------------------------------
= 57,161.18 - 31,376.33 = 25,784.85
</TABLE>
-10-
<PAGE>
Example 4 (Partial Withdrawal, rates decrease by 1%):
<TABLE>
<S> <C>
Single Premium: $50,000
- -----------------------------------------------------------------------------------------
Guarantee period: 5 Years
- -----------------------------------------------------------------------------------------
Guarantee rate: 5.50% per annum
- -----------------------------------------------------------------------------------------
Partial surrender: $30,000; middle of contract year 3
- -----------------------------------------------------------------------------------------
Policy value at middle of policy year 3 = 50,000* (1.055) /\2.5 = 57,161.18
- -----------------------------------------------------------------------------------------
Surrender charge free amount at middle of
policy year 3 = 57,161.18* .30 = 17,148.35
- -----------------------------------------------------------------------------------------
Excess interest adjustment free amount at
middle of policy year 3 = 57,161.18 - 50,000 = 7,161.18
- -----------------------------------------------------------------------------------------
Excess interest adjustment/surrender charge
X=30,000 - 17,148.35 = 12,851.65
A= 30,000,00 - 7,161.18 = 22,838.82
G=.055
C=.045
M=30
Y=22,838.82* (.055 - .045)*
(30/12) = 570.97
Z=.06* [12,851.65 - (570.97)] = 736.84
- -----------------------------------------------------------------------------------------
Reduction to policy value due to surrender
charge--free withdrawal = 17,148.35
- -----------------------------------------------------------------------------------------
Reduction to policy value due to excess
withdrawal = X - Y + Z
- -----------------------------------------------------------------------------------------
= 12,851.65 - 570.97 + 736.84
- -----------------------------------------------------------------------------------------
= 13,017.52
- -----------------------------------------------------------------------------------------
Policy value after withdrawal at middle of
policy year 3 = 57,161.18 - [17,148.35 + 13,017.52]
- -----------------------------------------------------------------------------------------
= 57,161.18 - [17,148.35 + 12,851.65 -
570.97 + 736.84]
- -----------------------------------------------------------------------------------------
= 57,161.18 - [30,000 - (570.97) + 736.84]
- -----------------------------------------------------------------------------------------
= 57,161.18 - 30,165.87 = 26,995.31
</TABLE>
Reallocation of Annuity Units After the Annuity Commencement Date
After the annuity commencement date, the owner may reallocate the value of a
designated number of annuity units of a subaccount of the separate account then
credited to a policy into an equal value of annuity units of one or more other
subaccounts of the separate account, or the fixed account. An annuity unit is
an accounting unit used in the calculation of the amount of the second and each
subsequent variable annuity payment. The reallocation shall be based on the
relative value of the annuity units of the account(s) or subaccount(s) at the
end of the business day on the next payment date. The minimum amount which may
be reallocated is the lesser of (1) $10 of monthly income or (2) the entire
monthly income of the annuity units in the account or subaccount from which the
transfer is being made. If the monthly income of the annuity units remaining in
an account or subaccount after a reallocation is less than $10, PFL reserves
the right to include the value of those annuity units as part of the transfer.
The request must be in writing to PFL's administrative and service office.
There is no charge
-11-
<PAGE>
assessed in connection with such reallocation. A reallocation of annuity units
may be made up to four times in any given policy year.
After the annuity commencement date, no transfers may be made from the fixed
account to the separate account.
Annuity Payment Options
During the lifetime of the annuitant and prior to the annuity commencement
date, the owner may choose an annuity payment option or change the election,
but written notice of any election or change of election must be received by
PFL at its administrative and service office at least thirty (30) days prior to
the annuity commencement date. If no election is made prior to the annuity
commencement date, annuity payments will be made under (i) Payment Option 3,
life income with level payments for 10 years certain, using the existing
adjusted policy value of the fixed account, or (ii) under Payment Option 3,
life income with variable payments for 10 years certain using the existing
policy value of the separate account, or (iii) in a combination of (i) and
(ii).
The person who elects an annuity payment option can also name one or more
successor payees to receive any unpaid amount PFL has at the death of a payee.
Naming these payees cancels any prior choice of a successor payee.
A payee who did not elect the annuity payment option does not have the right to
advance or assign payments, take the payments in one sum, or make any other
change. However, the payee may be given the right to do one or more of these
things if the person who elects the option tells PFL in writing and PFL agrees.
Variable Payment Options. The dollar amount of the first variable annuity
payment will be determined in accordance with the annuity payment rates set
forth in the applicable table contained in the policy. The tables are based on
a 5% effective annual Assumed Investment Return and the "1983 Table a" (male,
female, and unisex if required by law) mortality table with projection using
projection Scale G factors, assuming a maturity date in the year 2000. ("The
1983 Table a" mortality rates are adjusted based on improvements in mortality
since 1983 to more appropriately reflect increased longevity. This is
accomplished using a set of improvement factors referred to as projection scale
G.) The dollar amount of additional variable annuity payments will vary based
on the investment performance of the subaccount(s) of the separate account
selected by the annuitant or beneficiary.
Determination of the First Variable Payment. The amount of the first variable
payment depends upon the sex (if consideration of sex is allowed under state
law) and adjusted age of the annuitant. The adjusted age is the annuitant's
actual age nearest birthday, on the annuity commencement date, adjusted as
follows:
<TABLE>
<CAPTION>
Annuity
Commencement
Date Adjusted Age
------------ --------------------
<S> <C>
Before 2001 Actual Age
2001-2010 Actual Age minus 1
2011-2020 Actual Age minus 2
2021-2030 Actual Age minus 3
2031-2040 Actual Age minus 4
After 2040 As determined by PFL
</TABLE>
This adjustment assumes an increase in life expectancy, and therefore it
results in lower payments than without such an adjustment.
Determination of Additional Variable Payments. All variable annuity payments
other than the first are calculated using annuity units which are credited to
the policy. The number of annuity units to be credited in respect of a
particular subaccount is determined by dividing that portion of the first
variable annuity payment attributable to that subaccount by the annuity unit
value of that subaccount on the annuity commencement date. The number of
annuity units of each particular subaccount credited to the
-12-
<PAGE>
policy then remains fixed, assuming no transfers to or from that subaccount
occur. The dollar value of variable annuity units in the chosen subaccount will
increase or decrease reflecting the investment experience of the chosen
subaccount. The dollar amount of each variable annuity payment after the first
may increase, decrease or remain constant, and is equal to the sum of the
amounts determined by multiplying the number of annuity units of each
particular subaccount credited to the policy by the annuity unit value for the
particular subaccount on the date the payment is made.
Death Benefit
Adjusted Partial Withdrawal. The amount of your guaranteed minimum death
benefit is reduced due to a partial withdrawal called the adjusted partial
withdrawal. The reduction amount depends on the relationship between your
guaranteed minimum death benefit and policy value. The adjusted partial
withdrawal is the sum of (1) and (2), where:
(1) The surrender charge-free withdrawal amount taken; and
(2) The amount that an excess partial withdrawal (the portion of a
withdrawal that can be subject to a surrender charge) reduces the policy
value times [(a) divided by (b)] where:
(a) is the amount of the death benefit prior to the excess partial
withdrawal; and
(b) is the policy value prior to the excess partial withdrawal.
The following examples describe the effect of a withdrawal on the guaranteed
minimum death benefit and policy value.
EXAMPLE 1
(Assumed Facts for Example)
<TABLE>
- ------------------------------------------------------------------------------
<C> <S>
$75,000 current guaranteed minimum death benefit before withdrawal
- ------------------------------------------------------------------------------
$50,000 current policy value before withdrawal
- ------------------------------------------------------------------------------
$75,000 current death benefit (larger of policy value and guaranteed minimum
death benefit)
- ------------------------------------------------------------------------------
6% current surrender charge percentage
- ------------------------------------------------------------------------------
$15,000 requested withdrawal
- ------------------------------------------------------------------------------
$10,000 surrender charge-free amount (assumes 20% cumulative free percentage
is available)
- ------------------------------------------------------------------------------
$ 5,000 excess partial withdrawal--(amount subject to surrender charge)
- ------------------------------------------------------------------------------
$ 100 excess interest adjustment (assumes interest rates have decreased
since initial guarantee)
- ------------------------------------------------------------------------------
$ 294 surrender charge on (excess partial withdrawal less excess interest
adjustment) = 0.06*(5000 - 100)
- ------------------------------------------------------------------------------
$ 5,194 reduction in policy value due to excess partial withdrawal = 5000 -
100 + 294
- ------------------------------------------------------------------------------
$17,791 adjusted partial withdrawal = $10,000 + [$5,194* (75,000/50,000)]
- ------------------------------------------------------------------------------
$57,209 New guaranteed minimum death benefit (after withdrawal) = 75,000 -
17,791
- ------------------------------------------------------------------------------
$34,806 New policy value (after withdrawal) = 50,000 - 10,000 - 5,194
</TABLE>
<TABLE>
<CAPTION>
Summary:
- --------
<S> <C>
Reduction in guaranteed minimum death benefit = $17,791
Reduction in policy value = $15,194
</TABLE>
Note, guaranteed minimum death benefit is reduced more than the policy value
since the guaranteed minimum death benefit was greater than the policy value
just prior to the withdrawal.
-13-
<PAGE>
EXAMPLE 2
(Assumed Facts for Example)
<TABLE>
- ------------------------------------------------------------------------------
<C> <S>
$50,000 current guaranteed minimum death benefit before withdrawal
- ------------------------------------------------------------------------------
$75,000 current policy value before withdrawal
- ------------------------------------------------------------------------------
$75,000 current death benefit (larger of policy value and guaranteed minimum
death benefit)
- ------------------------------------------------------------------------------
6% current surrender charge percentage
- ------------------------------------------------------------------------------
$15,000 requested withdrawal
- ------------------------------------------------------------------------------
$11,250 surrender charge-free amount (assumes 15% cumulative free percentage
is available)
- ------------------------------------------------------------------------------
$ 3,750 excess partial withdrawal--(amount subject to surrender charge)
- ------------------------------------------------------------------------------
$ -100 excess interest adjustment
(assumes interest rates have increased since initial guarantee)
- ------------------------------------------------------------------------------
$ 231 surrender charge on (excess partial withdrawal less excess interest
adjustment) = 0.06*[(3750 - ( - 100)]
- ------------------------------------------------------------------------------
$ 4,081 reduction in policy value due to excess partial withdrawal = 3750 -
( - 100) + 231 = 3750 + 100 + 231
- ------------------------------------------------------------------------------
$15,331 adjusted partial withdrawal = $11,250 + [$4,081* (75,000/75,000)]
- ------------------------------------------------------------------------------
$34,669 New guaranteed minimum death benefit (after withdrawal) = 50,000 -
15,331
- ------------------------------------------------------------------------------
$59,669 New policy value (after withdrawal) = 75,000 - 11,250 - 4,081
</TABLE>
<TABLE>
<CAPTION>
Summary:
- --------
<S> <C>
Reduction in guaranteed minimum death benefit = $15,331
Reduction in policy value = $15,331
</TABLE>
Note, the guaranteed minimum death benefit and policy value are reduced by the
same amount since the policy value was higher than the guaranteed minimum death
benefit just prior to the withdrawal.
Due proof of death of the annuitant is proof that the annuitant who is the
owner died prior to the commencement of annuity payments. A certified copy of a
death certificate, a certified copy of a decree of a court of competent
jurisdiction as to the finding of death, a written statement by the attending
physician, or any other proof satisfactory to PFL, will constitute due proof of
death. Upon receipt of this proof and an election of a method of settlement and
return of the policy, the death benefit generally will be paid within seven
days, or as soon thereafter as PFL has sufficient information about the
beneficiary to make the payment. The beneficiary may receive the amount payable
in a lump sum cash benefit, or, subject to any limitation under any state or
federal law, rule, or regulation, under one of the annuity payment options
described above, unless a settlement agreement is effective at the death of the
owner preventing such election.
Distribution Requirements. If the annuitant was the owner, and the beneficiary
was not the annuitant's spouse, the death benefit must (1) be distributed
within five years of the date of the deceased owner's death, or (2) payments
under an annuity payment option must begin no later than one year after the
deceased owner's death and must be made for the beneficiary's lifetime or for a
period certain (so long as any period certain does not exceed the beneficiary's
life expectancy). Death Proceeds which are not paid to or for the benefit of a
natural person must be distributed within five years of the date of the
deceased owner's death. If the sole beneficiary is the deceased owner's
surviving spouse, such spouse may elect to continue the policy as the new
annuitant and owner instead of receiving the death benefit. (See "Certain
Federal Income Tax Consequences.")
-14-
<PAGE>
If the annuitant is not the owner, and the owner dies prior to the annuity
commencement date, a successor owner may surrender the policy at any time for
the amount of the adjusted policy value. If the successor owner is not the
deceased owner's spouse, however, the adjusted policy value must be
distributed: (1) within five years after the date of the deceased owner's
death, or (2) payments under an annuity payment option must begin no later than
one year after the deceased owner's death and must be made for the successor
owner's lifetime or for a period certain (so long as any period certain does
not exceed the successor owner's life expectancy).
Beneficiary. The beneficiary designation in the application will remain in
effect until changed. The owner may change the designated beneficiary by
sending written notice to PFL. The beneficiary's consent to such change is not
required unless the beneficiary was irrevocably designated or law requires
consent. (If an irrevocable beneficiary dies, the owner may then designate a
new beneficiary .) The change will take effect as of the date the owner signs
the written notice, whether or not the owner is living when the notice is
received by PFL. PFL will not be liable for any payment made before the written
notice is received. If more than one beneficiary is designated, and the owner
fails to specify their interests, they will share equally.
Death of Owner
Federal tax law requires that if any owner (including any joint owner or any
successor owner who has become a current owner) dies before the annuity
commencement date, then the entire value of the policy must generally be
distributed within five years of the date of death of such owner. Certain rules
apply where (1) the spouse of the deceased owner is the sole beneficiary, (2)
the owner is not a natural person and the primary annuitant dies or is changed,
or (3) any owner dies after the annuity commencement date. See "Certain Federal
Income Tax Consequences" below for more information about these rules. Other
rules may apply to qualified policies.
Assignment
During the lifetime of the annuitant the owner may assign any rights or
benefits provided by the policy if your policy is a nonqualified policy. An
assignment will not be binding on PFL until a copy has been filed at its
administrative and service office. The rights and benefits of the owner and
beneficiary are subject to the rights of the assignee. PFL assumes no
responsibility for the validity or effect of any assignment. Any claim made
under an assignment shall be subject to proof of interest and the extent of the
assignment. An assignment may have tax consequences.
Unless you so direct by filing written notice with PFL, no beneficiary may
assign any payments under the policy before they are due. To the extent
permitted by law, no payments will be subject to the claims of any
beneficiary's creditors.
Ownership under qualified policies is restricted to comply with the Code.
Evidence of Survival
PFL reserves the right to require satisfactory evidence that a person is alive
if a payment is based on that person being alive. No payment will be made until
PFL receives such evidence.
Non-Participating
The policy will not share in PFL's surplus earnings; no dividends will be paid.
Amendments
No change in the policy is valid unless made in writing by PFL and approved by
one of PFL's officers. No registered representative has authority to change or
waive any provision of the policy.
-15-
<PAGE>
PFL reserves the right to amend the policy to meet the requirements of the
Code, regulations or published rulings. You can refuse such a change by giving
written notice, but a refusal may result in adverse tax consequences.
Employee and Agent Purchases
The policy may be acquired by an employee or registered representative of any
broker/dealer authorized to sell the policy or their spouse or minor children,
or by an officer, director, trustee or bona-fide full-time employee of PFL or
its affiliated companies or their spouse or minor children. In such a case, PFL
may credit an amount equal to a percentage of each premium payment to the
policy due to lower acquisition costs PFL experiences on those purchases. The
credit will be reported to the Internal Revenue Service as taxable income to
the employee or registered representative. PFL may offer certain employer
sponsored savings plans, in its discretion, reduced fees and charges including,
but not limited to, the annual service charge, the surrender charges, the
mortality and expense risk fee and the administrative charge for certain sales
under circumstances which may result in savings of certain costs and expenses.
In addition, there may be other circumstances of which PFL is not presently
aware which could result in reduced sales or distribution expenses. Credits to
the policy or reductions in these fees and charges will not be unfairly
discriminatory against any owner.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following summary does not constitute tax advice. It is a general
discussion of certain of the expected federal income tax consequences of
investment in and distributions with respect to a policy, based on the Internal
Revenue Code of 1986, as amended, proposed and final Treasury Regulations
thereunder, judicial authority, and current administrative rulings and
practice. This summary discusses only certain federal income tax consequences
to "United States Persons," and does not discuss state, local, or foreign tax
consequences. United States Persons means citizens or residents of the United
States, domestic corporations, domestic partnerships and trusts or estates that
are subject to United States federal income tax regardless of the source of
their income.
Tax Status of the Policy
The following discussion is based on the assumption that the policy qualifies
as an annuity contract for federal income tax purposes.
Diversification Requirements. Section 817(h) of the Code provides that in order
for a variable contract which is based on a segregated asset account to qualify
as an annuity contract under the Code, the investments made by such account
must be "adequately diversified" in accordance with Treasury regulations. The
Treasury regulations issued under Section 817(h) (Treas. Reg. ((S)) 1.817-5)
apply a diversification requirement to each of the subaccounts 20 of the
separate account. The separate account, through the underlying funds and their
portfolios, intends to comply with the diversification requirements of the
Treasury. PFL has entered into agreements regarding participation in the
Retirement Income Builder II that require the underlying funds and their
portfolios to be operated in compliance with the Treasury regulations.
Owner Control. In certain circumstances, owners of variable annuity contracts
may be considered the owners, for Federal income tax purposes, of the assets of
the separate account used to support their contracts. In those circumstances,
income and gains from the separate account assets would be includable in the
variable annuity contractowner's gross income. Several years ago, the IRS state
in published rulings that a variable contract owner will be considered the
owner of separate account assets if the contractowner possesses incidents of
ownership in those assets, such as the ability to exercise
-16-
<PAGE>
investment control over the assets. More recently, the Treasury Department
announced, in connection with the issuance of regulations concerning investment
diversification, that those regulations "do not provide guidance concerning the
circumstances in which investor control of the investments of a segregated
asset account may cause the investor, rather than the insurance company, to be
treated as the owner of the assets in the account." This announcement also
stated that guidance would be issued by way of regulations or rulings on the
"extent to which policyholders may direct their investments to particular
subaccounts without being treated as owners of underlying assets."
The ownership rights under the contract are similar to, but different in
certain respects from those described by the IRS in rulings in which it was
determined that contractowners were not owners of separate account assets. For
example, the owner of a policy has the choice of one or more subaccounts in
which to allocate premiums and policy values, and may be able to transfer among
these accounts more frequently than in such rulings. These differences could
result in policyowners being treated as the owners of the assets of the
separate account. In addition, PFL does not know what standards will be set
forth, if any, in the regulations or rulings which the Treasury Department has
stated it expects to issue. PFL therefore reserves the right to modify the
policies as necessary to attempt to prevent the policyowners from being
considered the owners of a pro rata share of the assets of the separate
account.
Distribution Requirements. The Code also requires that nonqualified policies
contain specific provisions for distribution of policy proceeds upon the death
of any owner. In order to be treated as an annuity contract for federal income
tax purposes, the Code requires that such policies provide that if any owner
dies on or after the annuity commencement date and before the entire interest
in the policy has been distributed, the remaining portion must be distributed
at least as rapidly as under the method in effect on such owner's death. If any
owner dies before the annuity commencement date, the entire interest in the
policy must generally be distributed within 5 years after such owner's date of
death or be applied to provide an immediate annuity under which payments will
begin within one year of such owner's death and will be made for the life of
the beneficiary or for a period not extending beyond the life expectancy of the
beneficiary. However, if such owner's death occurs prior to the annuity
commencement date, and such owner's surviving spouse is named the beneficiary,
then the policy may be continued with the surviving spouse as the new owner. If
any owner is not a natural person, then for purposes of these distribution
requirements, the primary annuitant shall be treated as the owner and any death
or change of such primary annuitant shall be treated as the death of an owner.
The policy contains provisions intended to comply with these requirements of
the Code. No regulations interpreting these requirements of the Code have yet
been issued and thus no assurance can be given that the provisions contained in
the policies satisfy all such Code requirements. The provisions contained in
the policies will be reviewed and modified if necessary to maintain their
compliance with the Code requirements when clarified by regulation or
otherwise.
Withholding. The portion of any distribution under a policy that is includable
in gross income will be subject to federal income tax withholding unless the
recipient of such distribution elects not to have federal income tax withheld.
Election forms will be provided at the time distributions are requested or
made. The withholding rate varies according to the type of distribution and the
owner's tax status. For qualified policies, "eligible rollover distributions"
from Section 401(a) plans, Section 403(a) annuities, and Section 403(b) tax-
sheltered annuities are subject to a mandatory federal income tax withholding
of 20%. An eligible rollover distribution is the taxable portion of any
distribution from such a plan, except certain distributions such as
distributions required by the Code or distributions in a specified annuity
form. The 20% withholding does not apply, however, if the owner chooses a
"direct rollover" from the plan to another tax-qualified plan or IRA. Different
withholding requirements may apply in the case of non-United States persons.
Qualified Policies. The qualified policy is designed for use with several types
of tax-qualified retirement plans. The tax rules applicable to participants and
beneficiaries in tax-qualified retirement plans vary
-17-
<PAGE>
according to the type of plan and the terms and conditions of the plan. Special
favorable tax treatment may be available for certain types of contributions and
distributions. Adverse tax consequences may result from contributions in excess
of specified limits; distributions prior to age 59 1/2 (subject to certain
exceptions); distributions that do not conform to specified commencement and
minimum distribution rules; and in other specified circumstances. Some
retirement plans are subject to distribution and other requirements that are
not incorporated into the policies or PFL's Policy administration procedures.
Owners, participants and beneficiaries are responsible for determining that
contributions, distributions and other transactions with respect to the
policies comply with applicable law.
For qualified plans under section 401(a), 403(a), 403(b), and 457, the Code
requires that distributions generally must commence no later than the later of
April 1 of the calendar year following the calendar year in which the owner (or
plan participant) (i) reaches age 70 1/2 or (ii) retires, and must be made in a
specified form or manner. If the plan participant is a "5 percent owner" (as
defined in the Code), distributions generally must begin no later than April 1
of the calendar year in which the owner (or plan participant) reaches age 70
1/2. Each owner is responsible for requesting distributions under the policy
that satisfy applicable tax rules.
PFL makes no attempt to provide more than general information about use of the
policy with the various types of retirement plans. Purchasers of policies for
use with any retirement plan should consult their legal counsel and tax adviser
regarding the suitability of the policy.
Individual Retirement Annuities. In order to qualify as a traditional
individual retirement annuity under Section 408(b) of the Code, a policy must
contain certain provisions: (i) the owner must be the annuitant; (ii) the
policy generally is not transferable by the owner, e.g., the owner may not
designate a new owner, designate a contingent owner or assign the policy as
collateral security; (iii) the total premium payments for any calendar year on
behalf of any individual may not exceed $2,000, except in the case of a
rollover amount or contribution under Sections 402(c), 403(a)(4), 403(b)(8) or
408(d)(3) of the Code; (iv) annuity payments or partial withdrawals must begin
no later than April 1 of the calendar year following the calendar year in which
the annuitant attains age 70 1/2; (v) an annuity payment optionaj with a period
certain that will guarantee annuity payments beyond the life expectancy of the
annuitant and the beneficiary may not be selected; (vi) certain payments of
death benefits must be made in the event the annuitant dies prior to the
distribution of the policy value; and (vii) the entire interest of the owner is
non-forfeitable. Policies intended to qualify as traditional individual
retirement annuities under Section 408(b) of the Code contain such provisions.
Amounts in the IRA (other than nondeductible contributions) are taxed when
distributed from the IRA. Distributions prior to age 59 1/2 (unless certain
exceptions apply) are subject to a 10% penalty tax.
No part of the funds for an individual retirement account (including a Roth
IRA) or annuity may be invested in a life insurance contract, but the
regulations thereunder allow such funds to be invested in an annuity policy
that provides a death benefit that equals the greater of the premiums paid or
the cash value for the contract. The policy provides an enhanced death benefit
that could exceed the amount of such a permissible death benefit, but it is
unclear to what extent such an enhanced death benefit could disqualify the
policy as an IRA. The Internal Revenue Service has not reviewed the policy for
qualification as an IRA, and has not addressed in a ruling of general
applicability whether an enhanced death benefit provision, such as the
provision in the policy, comports with IRA qualification requirements.
Roth Individual Retirement Annuities (Roth IRA). The Roth IRA, under Section
408A of the Code, contains many of the same provisions as a traditional IRA.
However, there are some differences. First, the contributions are not
deductible and must be made in cash or as a rollover or transfer from another
Roth IRA or other IRA. A rollover from or conversion of an IRA to a Roth IRA
may be subject to tax and other special rules may apply to the rollover or
conversion and to distributions attributable thereto. You should consult a tax
adviser before combining any converted amounts with any other Roth IRA
-18-
<PAGE>
contributions, including any other conversion amounts from other tax years. The
Roth IRA is available to individuals with earned income and whose modified
adjusted gross income is under $110,000 for single filers, $160,000 for married
filing jointly, and $10,000 for married filing separately. The amount per
individual that may be contributed to all IRAs (Roth and traditional) is
$2,000. Secondly, the distributions are taxed differently. The Roth IRA offers
tax-free distributions when made 5 tax years after the first contribution to
any Roth IRA of the individual and made after attaining age 59 1/2, or to pay
for qualified first time homebuyer expenses (lifetime maximum of $10,000), or
due to death or disability. All other distributions are subject to income tax
when made from earnings and may be subject to a premature withdrawal penalty
tax unless an exception applies. Unlike the traditional IRA, there are no
minimum required distributions during the owner's lifetime; however, required
distributions at death are generally the same.
Section 403(b) Plans. Under Section 403(b) of the Code, payments made by public
school systems and certain tax exempt organizations to purchase policies for
their employees are excludable from the gross income of the employee, subject
to certain limitations. However, such payments may be subject to FICA (Social
Security) taxes. The policy includes a death benefit that in some cases may
exceed the greater of the premium payments or the policy value. The death
benefit could be characterized as an incidental benefit, the amount of which is
limited in any tax-sheltered annuity under section 403(b). Because the death
benefit may exceed this limitation, employers using the policy in connection
with such plans should consult their tax adviser. Additionally, in accordance
with the requirements of the Code, Section 403(b) annuities generally may not
permit distribution of (i) elective contributions made in years beginning after
December 31, 1988, (ii) earnings on those contributions, and (iii) earnings on
amounts attributed to elective contributions held as of the end of the last
year beginning before January 1, 1989. Distributions of such amounts will be
allowed only upon the death of the employee, on or after attainment of age 59
1/2, separation from service, disability, or financial hardship, except that
income attributable to elective contributions may not be distributed in the
case of hardship.
Corporate Pension and Profit Sharing Plans and H.R. 10 Plans. Sections 401(a)
and 403(a) of the Code permit corporate employers to establish various types of
retirement plans for employees and self-employed individuals to establish
qualified plans for themselves and their employees. Such retirement plans may
permit the purchase of the policies to accumulate retirement savings. Adverse
tax consequences to the plan, the participant or both may result if the policy
is assigned or transferred to any individual as a means to provide benefit
payments. The policy includes a death benefit that in some cases may exceed the
greater of the premium payments or the policy value. The death benefit could be
characterized as an incidental benefit, the amount of which is limited in an
pension or profit-sharing plan. Because the death benefit may exceed this
limitation, employers using the policy in connection with such plans should
consult their tax adviser.
Deferred Compensation Plans. Section 457 of the Code, while not actually
providing for a qualified plan (as that term is used in the Code), provides for
certain deferred compensation plans with respect to service for state
governments, local governments, political subdivisions, agencies,
instrumentalities and certain affiliates of such entities, and tax exempt
organizations. The policies can be used with such plans. Under such plans a
participant may specify the form of investment in which his or her
participation will be made. For non-governmental Section 457 plans, all such
investments, however, are owned by the sponsoring employer, and are subject to
the claims of the general creditors of the sponsoring employer. Depending on
the terms of the particular plan, a non-governmental employer may be entitled
to draw on deferred amounts for purposes unrelated to its Section 457 plan
obligations. In general, all amounts received under a Section 457 plan are
taxable and are subject to federal income tax withholding as wages.
Non-natural Persons. Pursuant to Section 72(u) of the Code, an annuity contract
held by a taxpayer other than a natural person generally will not be treated as
an annuity contract under the Code; accordingly, an owner who is not a natural
person will recognize as ordinary income for a taxable year
-19-
<PAGE>
the excess of (i) the sum of the cash value as of the close of the taxable year
and all previous distributions under the policy over (ii) the sum of the
premium payments paid for the taxable year and any prior taxable year and the
amounts includable in gross income for any prior taxable year with respect to
the policy. For these purposes, the policy value at year end may have to be
increased by any positive excess interest adjustment which could result from a
full surrender at such time. There is, however, no definitive guidance on the
proper tax treatment of excess interest adjustments and the owner should
contact a competent tax adviser with respect to the potential tax consequences
of an excess interest adjustment. Notwithstanding the preceding sentences in
that paragraph, Section 72(u) of the Code does not apply to (i) a policy where
the nominal owner is not a natural person but the beneficial owner of which is
a natural person, (ii) a policy acquired by the estate of a decedent by reason
of such decedent's death, (iii) a qualified policy (other than one qualifying
under Section 457) or (iv) a single-payment annuity where the Commencement Date
is no later than one year from the date of the single premium payment; such
policies are taxed as described above under the heading "Taxation of
Annuities."
Taxation of PFL
PFL at present is taxed as a life insurance company under part I of Subchapter
L of the Code. The separate account is treated as part of PFL and, accordingly,
will not be taxed separately as a "regulated investment company" under
Subchapter M of the Code. PFL does not expect to incur any federal income tax
liability with respect to investment income and net capital gains arising from
the activities of the separate account retained as part of the reserves under
the policy. Based on this expectation, it is anticipated that no charges will
be made against the separate account for federal income taxes. If, in future
years, any federal income taxes are incurred by PFL with respect to the
separate account, PFL may make a charge to the separate account.
INVESTMENT EXPERIENCE
A "Net Investment Factor" is used to determine the value of accumulation units
and annuity units, and to determine annuity payment rates.
Accumulation Units
Allocations of a premium payment directed to a subaccount are credited in the
form of accumulation units. Each subaccount has a distinct accumulation unit
value. The number of units credited is determined by dividing the premium
payment or amount transferred to the subaccount by the accumulation unit value
of the subaccount as of the end of the valuation period during which the
allocation is made. For each subaccount, the accumulation unit value for a
given business day is based on the net asset value of a share of the
corresponding portfolio of the underlying funds less any applicable charges or
fees. The investment performance of the portfolio, expenses, and deductions of
certain charges affect the value of an accumulation unit.
Upon allocation to the selected subaccount of the separate account, premium
payments are converted into accumulation units of the subaccount. The number of
accumulation units to be credited is determined by dividing the dollar amount
allocated to each subaccount by the value of an accumulation unit for that
subaccount as next determined after the premium payment is received at the
administrative and service office or, in the case of the initial premium
payment, when the application is completed, whichever is later. The value of an
accumulation unit was arbitrarily established at $1.000000 at the inception of
each subaccount. Thereafter, the value of an accumulation unit is determined as
of the close of trading on each day the New York Stock Exchange is open for
business.
An index (the "Net Investment Factor") which measures the investment
performance of a subaccount during a valuation period, is used to determine the
value of an accumulation unit for the next
-20-
<PAGE>
subsequent valuation period. The Net Investment Factor may be greater or less
than or equal to one; therefore, the value of an accumulation unit may
increase, decrease or remain the same from one valuation period to the next.
The owner bears this investment risk. The net investment performance of a
subaccount and deduction of certain charges affect the accumulation unit value.
The Net Investment Factor for any subaccount for any valuation period is
determined by dividing (a) by (b) and subtracting (c) from the result, where:
(a) is the net result of:
(1) the net asset value per share of the shares held in the subaccount
determined at the end of the current valuation period, plus
(2) the per share amount of any dividend or capital gain distribution
made with respect to the shares held in the subaccount if the ex-
dividend date occurs during the current valuation period, plus or minus
(3) a per share credit or charge for any taxes determined by PFL to
have resulted from the investment operations of the subaccount;
(b) the net asset value per share of the shares held in the subaccount
determined as of the end of the immediately preceding valuation period; and
(c) is the charge for mortality and expense risk during the valuation
period (equal on an annual basis to 1.10% for the Return of Premium Death
Benefit and 1.25% for both the 5% Annually Compounding Death Benefit or the
Annual Step-Up Death Benefit) of the daily net asset value of the
subaccount, plus the .15% administrative charge for all three death benefit
options.
Illustration of Accumulation Unit Value Calculations
Formula and Illustration for Determining the Net Investment Factor
(Assume Either the 5% Annually Compounding Death Benefit or
the Annual Step-Up Death Benefit is in effect.)
Investment Experience Factor = (A + B - C) - E
-----------
D
<TABLE>
<C> <S> <C>
Where: A = The Net Asset Value of an underlying fund share as of the end of
the current valuation period.
Assume................................... .A = $11.57
B = The per share amount of any dividend or capital gains distribution
since the end of the immediately preceding valuation period.
Assume..........................................B = 0
C = The per share charge or credit for any taxes reserved for at the
end of the current valuation period.
Assume..........................................C = 0
D = The Net Asset Value of an underlying fund share at the end of the
immediately preceding valuation period.
Assume.....................................D = $11.40
E = The daily deduction for mortality and expense risk fee and
administrative charges, which totals 1.40% on an annual basis.
On a daily basis....................... = .0000380909
</TABLE>
Then, the Investment Experience Factor = (11.57 + 0 - 0) - .0000380909 = Z =
1.0148741898 ---------------
11.40
-21-
<PAGE>
Formula and Illustration for Determining Accumulation Unit Value
Accumulation Unit Value = A * B
<TABLE>
<C> <S> <C>
Where: A = The accumulation unit value for the immediately preceding valuation
period.
Assume............................................ = $X
B = The Net Investment Factor for the current valuation period.
Assume............................................. = Y
</TABLE>
Then, the accumulation unit value = $X * Y = $Z
Annuity Unit Value and Annuity Payment Rates
The amount of variable annuity payments will vary with annuity unit values.
Annuity unit values rise if the net investment performance of the subaccount
exceeds the assumed interest rate of 5% annually. Conversely, annuity unit
values fall if the net investment performance of the subaccount is less than
the assumed rate. The value of a variable annuity unit in each subaccount was
established at $1.00 on the date operations began for that subaccount. The
value of a variable annuity unit on any subsequent business day is equal to (a)
multiplied by (b) multiplied by (c), where:
(a) is the variable annuity unit value for that subaccount on the
immediately preceding business day;
(b) is the net investment factor for that subaccount for the valuation
period; and
(c) is the investment result adjustment factor for the valuation period.
The investment result adjustment factor for the valuation period is the product
of discount factors of .99986634 per day to recognize the 5% effective annual
Assumed Investment Return. The valuation period is the period from the close of
the immediately preceding business day to the close of the current business
day.
The net investment factor for the policy used to calculate the value of a
variable annuity unit in each subaccount for the valuation period is determined
by dividing (i) by (ii) and subtracting (iii) from the result, where:
(i) is the result of:
(1) the net asset value of a fund share held in that subaccount
determined at the end of the current valuation period; plus
(2) the per share amount of any dividend or capital gain distributions
made by the fund for shares held in that subaccount if the ex-dividend
date occurs during the valuation period; plus or minus
(3) a per share charge or credit for any taxes reserved for, which PFL
determines to have resulted from the investment operations of the
subaccount.
(ii) is the net asset value of a fund share held in that subaccount
determined as of the end of the immediately preceding valuation period.
(iii) is a factor representing the mortality and expense risk fee and
administrative charge. This factor is equal, on an annual basis, to 1.25%
(for the Return of Premium Death Benefit) or 1.40% (for the 5% Annually
Compounding Death Benefit and the Annual Step-Up Death Benefit) of the
daily net asset value of a fund share held in that subaccount.
The dollar amount of subsequent variable annuity payments will depend upon
changes in applicable annuity unit values.
The annuity payment rates vary according to the annuity option elected and the
sex and adjusted age of the annuitant at the annuity commencement date. The
policy also contains a table for determining the adjusted age of the annuitant.
-22-
<PAGE>
Illustration of Calculations for Annuity Unit Value
and Variable Annuity Payments
Formula and Illustration for Determining Annuity Unit Value
Annuity Unit Value = A * B * C
<TABLE>
<C> <S> <C>
Where: A = Annuity unit value for the immediately preceding valuation period.
Assume..............................................= $X
B = Investment Experience Factor for the valuation period for which the
annuity unit value is being calculated.
Assume...............................................= Y
C = A factor to neutralize the assumed interest rate of 5% built into
the Annuity Tables used.
Assume...............................................= Z
</TABLE>
Then, the annuity unit value is: $X * Y * Z = $Q
Formula and Illustration for Determining Amount of
First Monthly Variable Annuity Payment
A * B
First Monthly Variable Annuity Payment = ---------
$1,000
<TABLE>
<C> <S> <C>
Where: A = The policy value as of the annuity commencement date.
Assume..........................................= $X
B = The Annuity purchase rate per $1,000 based upon the option
selected, the sex and adjusted age of the annuitant according to
the tables contained in the policy.
Assume..........................................= $Y
</TABLE>
$X * $Y = $Z
Then, the first Monthly Variable Annuity Payment = ------------
1,000
Formula and Illustration for Determining the Number of Annuity Units
Represented by Each Monthly Variable Annuity Payment
A
Number of annuity units = ---
B
<TABLE>
<C> <S> <C>
Where: A = The dollar amount of the first monthly Variable Annuity Payment.
Assume............................................= $X
B = The annuity unit value for the Valuation Date on which the first
monthly payment is due.
Assume............................................= $Y
</TABLE>
$X
Then, the number of annuity units --- = Z
$Y
-23-
<PAGE>
FAMILY INCOME PROTECTOR -- ADDITIONAL INFORMATION
The amounts shown below are hypothetical guaranteed minimum monthly payment
amounts under the "family income protector" for a $100,000 premium when annuity
payments do not begin until the rider anniversary indicated in the left-hand
column. These figures assume the following:
.there were no subsequent premium payments or withdrawals;
.there were no premium taxes;
.the $100,000 premium is subject to the family income protector;
.the annuitant is (or both annuitants are) 60 years old when the rider is
issued;
. the annual growth rate is 6.0% (once established an annual growth rate will
not change during the life of the family income protector rider); and
.there was no upgrade of the minimum annuitization value.
Six different annuity payment options are illustrated: a male annuitant, a
female annuitant and a joint and survivor annuity, each on a Life Only and a
Life with 10 Year Certain basis. The figures below, which are the amount of the
first monthly payment, are based on an assumed investment return of 3%.
Subsequent payments will never be less than the amount of the first payment
(although subsequent payments are calculated using a 5% assumed investment
return).
<TABLE>
<CAPTION>
Life Only = Life Annuity with No Period Certain Life 10 = Life Annuity with 10 Years Certain
Rider Anniversary at Male Female Joint & Survivor
Exercise Date
- ------------------------------------------------------------------------------
Life Only Life 10 Life Only Life 10 Life Only Life 10
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
10 (age 70) $1,135 $1,067 $ 976 $ 949 $ 854 $ 852
- ------------------------------------------------------------------------------
15 1,833 1,634 1,562 1,469 1,332 1,318
- ------------------------------------------------------------------------------
20 (age 80) 3,049 2,479 2,597 2,286 2,145 2,078
</TABLE>
This hypothetical illustration should not be deemed representative of past or
future performance of any underlying variable investment option.
Withdrawals will affect the minimum annuitization value as follows: Each policy
year, withdrawals up to the limit of the total free amount (the minimum
annuitization value on the last policy anniversary multiplied by the annual
growth rate) reduce the minimum annuitization value on a dollar-for-dollar
basis. Withdrawals over this free amount will reduce the minimum annuitization
value on a pro rata basis by an amount equal to the minimum annuitization value
immediately prior to the excess withdrawal multiplied by the percentage
reduction in the policy value resulting from the excess withdrawal. The free
amount will always be a relatively small fraction of the minimum annuitization
value.
-24-
<PAGE>
Examples of the effect of withdrawals on the minimum annuitization value are as
follows:
EXAMPLE 1
Assumptions
<TABLE>
- ---------------------------------------------------------------------------
<S> <C>
.minimum annuitization value on last policy
anniversary: $10,000
- ---------------------------------------------------------------------------
.minimum annuitization value at time of
distribution: $10,500
- ---------------------------------------------------------------------------
.policy value at time of distribution: $15,000
- ---------------------------------------------------------------------------
.distribution amount: $500
- ---------------------------------------------------------------------------
.prior distribution in current policy year: None
- ---------------------------------------------------------------------------
Calculations
- ---------------------------------------------------------------------------
.maximum annual free amount: $10,000 X 6% = $600
- ---------------------------------------------------------------------------
.policy value after distribution: $15,000 - $500 = $14,500
- ---------------------------------------------------------------------------
.minimum annual value after distribution: $10,500 - $500 = $10,000
EXAMPLE 2
Assumptions
- ---------------------------------------------------------------------------
.minimum annuitization value on last policy
anniversary: $10,000
- ---------------------------------------------------------------------------
.minimum annuitization value at time of dis-
tribution: $10,500
- ---------------------------------------------------------------------------
.policy value at time of distribution: $15,000
- ---------------------------------------------------------------------------
.distribution amount: $1,500
- ---------------------------------------------------------------------------
.prior distribution in current policy year: $1,000
- ---------------------------------------------------------------------------
Calculations
- ---------------------------------------------------------------------------
.maximum annual free amount: $0.0
- ---------------------------------------------------------------------------
(prior distributions have exceeded the
current year free amount of $600) [$10,000 X 6% = $600]
- ---------------------------------------------------------------------------
.policy value after distribution: $15,000 - $1,500 = $13,500
- ---------------------------------------------------------------------------
(since the policy value is reduced 10%
($1,500/$15,000), the
minimum annuitization value is also
reduced 10%)
- ---------------------------------------------------------------------------
$10,500 - (10% X $10,500) =
.minimum annual value after distribution: $9,450
</TABLE>
-25-
<PAGE>
EXAMPLE 3
Assumptions
<TABLE>
- ----------------------------------------------------------------------------
<S> <C>
.minimum annuitization value on last policy
anniversary: $10,000
- ----------------------------------------------------------------------------
.minimum annuitization value at time of dis-
tribution: $10,500
- ----------------------------------------------------------------------------
.policy value at time of distribution: $7,500
- ----------------------------------------------------------------------------
.distribution amount: $1,500
- ----------------------------------------------------------------------------
.prior distribution in current policy year: $1,000
- ----------------------------------------------------------------------------
Calculations
- ----------------------------------------------------------------------------
.maximum annual free amount: $0.0
- ----------------------------------------------------------------------------
(prior distributions have exceeded the
current year free amount of $600) [$10,000 X 6% = $600]
- ----------------------------------------------------------------------------
.policy value after distribution: $7,500 - $1,500 = $6,000
- ----------------------------------------------------------------------------
(since the policy value is reduced 20%
($1,500/$7,500), the minimum
annuitization value is also reduced 20%)
- ----------------------------------------------------------------------------
$10,500 - (20% X $10,500) =
.minimum annual value after distribution: $8,400
</TABLE>
The amount of the first payment provided by the family income protector will be
determined by multiplying each $1,000 of minimum annuitization value by the
applicable annuity factor shown on Schedule I of the family income protector
rider. The applicable annuity factor depends upon the annuitant's (and joint
annuitant's, if any) sex (or without regard to gender if required by law), age,
and the family income protector payment option selected and is based on a
guaranteed interest rate of 3% and the "1983 Table a" mortality table with
projection using projection Scale G factors, assuming a maturity date in the
year 2000. Subsequent payments will be calculated as described in the family
income protector rider using a 5% assumed investment return. Subsequent
payments may fluctuate annually in accordance with the investment performance
of the annuity subaccounts. However, subsequent payments are guaranteed to
never be less than the initial payment.
The stabilized payment on each subsequent policy anniversary after
annuitization using the family income protector will equal the greater of the
initial payment or the payment supportable by the annuity units in the selected
subaccounts. The supportable payment is equal to the number of variable annuity
units in the selected subaccounts multiplied by the variable annuity unit
values in those subaccounts on the date the payment is made. The variable
annuity unit values used to calculate the supportable payment will assume a 5%
assumed investment return. If the supportable payment at any payment date
during a policy year is greater than the stabilized payment for that policy
year, the excess will be used to purchase additional annuity units. Conversely,
if the supportable payment at any payment date during a policy year is less
than the stabilized payment for that policy year, there will be a reduction in
the number of annuity units credited to the policy to fund the deficiency. In
the case of a reduction, you will not participate as fully in the future
investment performance of the subaccounts you selected since fewer annuity
units are credited to your policy. Purchases and reductions will be allocated
to each subaccount on a proportionate basis.
PFL bears the risk that it will need to make payments if all annuity units have
been used in an attempt to maintain the stabilized payment at the initial
payment level. In such an event, PFL will make all future payments equal to the
initial payment. Once all the annuity units have been used, the amount of your
payment will not increase or decrease and will not depend upon the performance
of any subaccounts. To compensate PFL for this risk, a guaranteed payment fee
will be deducted.
-26-
<PAGE>
HISTORICAL PERFORMANCE DATA
Money Market Yields
PFL may from time to time disclose the current annualized yield of the Dreyfus
Money Market Subaccount for a 7-day period in a manner which does not take into
consideration any realized or unrealized gains or losses on shares of the
portfolio securities. This current annualized yield is computed by determining
the net change (exclusive of realized gains and losses on the sale of
securities and unrealized appreciation and depreciation and income other than
investment income) at the end of the 7-day period in the value of a
hypothetical account having a balance of 1 unit at the beginning of the 7-day
period, dividing such net change in account value by the value of the account
at the beginning of the period to determine the base period return, and
annualizing this quotient on a 365-day basis. The net change in account value
reflects (i) net income from the portfolio attributable to the hypothetical
account; and (ii) charges and deductions imposed under a policy that are
attributable to the hypothetical account. The charges and deductions include
the per unit charges for the hypothetical account for (i) the administrative
charges; and (ii) the mortality and expense risk fee. Current Yield will be
calculated according to the following formula:
Current Yield = ((NCS * ES)/UV) * (365/7)
Where:
NCS= The net change in the value of the portfolio (exclusive of realized
gains and losses on the sale of securities and unrealized
appreciation and depreciation and income other than investment
income) for the 7-day period attributable to a hypothetical account
having a balance of 1 subaccount unit.
ES= Per unit expenses of the subaccount for the 7-day period.
UV=
The unit value on the first day of the 7-day period.
Because of the charges and deductions imposed under a policy, the yield for the
Dreyfus Money Market Subaccount will be lower than the yield for the Dreyfus--
Money Market Portfolio. The yield calculations do not reflect the effect of any
premium taxes or surrender charges that may be applicable to a particular
policy. Surrender charges range from 6% to 0% of the amount of premium payments
withdrawn based on the number of years since the premium payment was made.
However, surrender charges will not be assessed after the tenth policy year.
PFL may also disclose the effective yield of the Dreyfus 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 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.
-27-
<PAGE>
The yield on amounts held in the Dreyfus--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 Dreyfus Money Market Subaccount actual yield is affected by changes
in interest rates on money market securities, average portfolio maturity of the
Dreyfus--Money Market Portfolio, the types and quality of portfolio securities
held by the Dreyfus--Money Market Portfolio and its operating expenses. For the
seven days ended December 31, 1999, the yield of the Dreyfus--Money Market
Subaccount was 3.90%, and the effective yield was 3.98% for the Return of
Premium Death Benefit. For the seven days ended December 31, 1999, the yield of
the Dreyfus Money Market Subaccount was 3.74%, and the effective yield was
3.81% for the 5% Annually Compounding Death Benefit or Annual Step-Up Death
Benefit.
Other Subaccount Yields
PFL may from time to time advertise or disclose the current annualized yield of
one or more of the subaccounts of the separate account (except the Dreyfus
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 (i) the administrative charge and (ii) the mortality
and expense risk fee. The 30-day yield is calculated according to the following
formula:
Yield = 2 * ((((NI - ES)/(U * 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 and deductions imposed by the separate account, the
yield for a subaccount of the separate account will be lower than the yield for
its corresponding portfolio. The yield calculations do not reflect the effect
of any premium taxes or surrender charges that may be applicable to a
particular policy. Surrender charges range from 6% to 0% of the amount of
premium payments withdrawn based on the number of years since the premium
payment was made. However, surrender charges will not be assessed after the
tenth policy year.
The yield on amounts held in the subaccounts of the separate account normally
will fluctuate over time. Therefore, the disclosed yield for any given past
period is not an indication or representation of future yields or rates of
return. A subaccount's actual yield is affected by the types and quality of its
investments and its operating expenses.
Total Returns
PFL may from time to time also advertise or disclose total returns for one or
more of the subaccounts of the separate account for various periods of time.
One of the periods of time will include the period measured from the date the
subaccount commenced operations. When a subaccount has been in
-28-
<PAGE>
operation for 1, 5 and 10 years, respectively, the total return for these
periods will be provided. Total returns for other periods of time may from time
to time also be disclosed. Total returns represent the average annual
compounded rates of return that would equate an initial investment of $1,000 to
the redemption value of that investment as of the last day of each of the
periods. The ending date for each period for which total return quotations are
provided will be for the most recent month end practicable, considering the
type and media of the communication and will be stated in the communication.
Total returns will be calculated using subaccount unit values which PFL
calculates on each business day based on the performance of the subaccount's
underlying portfolio, and the deductions for the mortality and expense risk fee
and the administrative charges. Total return calculations will reflect the
effect of surrender charges that may be applicable to a particular period. The
total return will then be calculated according to the following formula:
P (1 + T)N = ERV
Where:
T= The average annual total return net of subaccount recurring charges.
ERV= The ending redeemable value of the hypothetical account at the end of
the period.
P= A hypothetical initial payment of $1,000.
N= The number of years in the period.
Other Performance Data
PFL may from time to time also disclose average annual total returns in a non-
standard format in conjunction with the standard format described above. The
non-standard format will be identical to the standard format except that the
surrender charge percentage will be assumed to be 0%.
PFL may from time to time also disclose cumulative total returns in conjunction
with the standard format described above. The cumulative returns will be
calculated using the following formula assuming that the surrender charge
percentage will be 0%.
CTR = (ERV/P) - 1
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-standardized performance data will only be advertised if the
standardized performance data is also disclosed.
Adjusted Historical Performance Data
From time to time, sales literature or advertisements may quote average annual
total returns for periods prior to the date the separate account commenced
operations. Such performance information for the subaccounts will be calculated
based on the performance of the various portfolios and the assumption that the
subaccounts were in existence for the same periods as those indicated for the
portfolios, with the level of policy charges that are currently in effect.
-29-
<PAGE>
PUBLISHED RATINGS
PFL may from time to time publish in advertisements, sales literature and
reports to owners, the ratings and other information assigned to it by one or
more independent rating organizations such as A.M. Best Company, Standard &
Poor's Insurance Ratings Services, Moody's Investors Service and Duff & Phelps
Credit Rating Co. The purpose of the ratings is to reflect the financial
strength and/or claims-paying ability of PFL and they should not be considered
as bearing on the investment performance of assets held in the separate account
or of the safety or riskiness of an investment in the separate account. Each
year the A.M. Best Company reviews the financial status of thousands of
insurers, culminating in the assignment of Best's ratings. These ratings
reflect their current opinion of the relative financial strength and operating
performance of an insurance company in comparison to the norms of the
life/health insurance industry. In addition, the claims-paying ability of PFL
as measured by Standard & Poor's Insurance Ratings Services, Moody's Investors
Service or Duff & Phelps Credit Rating Co. may be referred to in advertisements
or sales literature or in reports to owners. These ratings are opinions of an
operating insurance company's financial capacity to meet the obligations of its
insurance policies in accordance with their terms. Claims-paying ability
ratings do not refer to an insurer's ability to meet non-policy obligations
such as debt or commercial paper obligations.
STATE REGULATION OF PFL
PFL is subject to the laws of Iowa governing insurance companies and to
regulation by the Iowa Division of Insurance. An annual statement in a
prescribed form is filed with the Division of Insurance each year covering the
operation of PFL for the preceding year and its financial condition as of the
end of such year. Regulation by the Division of Insurance includes periodic
examination to determine PFL's contract liabilities and reserves so that the
Division may determine the items are correct. PFL's books and accounts are
subject to review by the Division of Insurance at all times and a full
examination of its operations is conducted periodically by the National
Association of Insurance Commissioners. In addition, PFL is subject to
regulation under the insurance laws of other jurisdictions in which it may
operate.
ADMINISTRATION
PFL performs administrative services for the policies. These services include
issuance of the policies, maintenance of records concerning the policies, and
certain valuation services.
RECORDS AND REPORTS
All records and accounts relating to the separate account will be maintained by
PFL. As presently required by the 1940 Act and regulations promulgated
thereunder, PFL 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 POLICIES
The policies are offered to the public through brokers licensed under the
federal securities laws and state insurance laws. The offering of the policies
is continuous and PFL does not anticipate discontinuing the offering of the
policies, however, PFL reserves the right to do so.
-30-
<PAGE>
AFSG Securities Corporation, an affiliate of PFL, is the principal underwriter
of the policies and may enter into agreements with broker-dealers for the
distribution of the policies. During 1999 and 1998, the amount paid to AFSG
Securities Corporation, AEGON USA Securities, Inc. and/or the broker-dealers
for their services related to Retirement Income Builder II Variable Annuity
policies was $648,011.00 and $7,913.51, respectively. Prior to April 30, 1998,
AEGON USA Securities, Inc. (also an affiliate of PFL) was the principal
underwriter. No fees had been paid to any broker-dealers for their services
prior to 1998.
VOTING RIGHTS
To the extent required by law, PFL will vote the underlying funds' shares held
by the mutual fund account at regular and special shareholder meetings of the
underlying funds in accordance with instructions received from persons having
voting interests in the portfolios, although none of the underlying funds hold
regular annual shareholder meetings. If, however, the 1940 Act or any
regulation thereunder should be amended or if the present interpretation
thereof should change, and as a result PFL determines that it is permitted to
vote the underlying funds shares in its own right, it may elect to do so.
Before the annuity commencement date, you hold the voting interest in the
selected portfolios. The number of votes that you have the right to instruct
will be calculated separately for each subaccount. The number of votes that you
have the right to instruct for a particular subaccount will be determined by
dividing your policy value in the subaccount by the net asset value per share
of the corresponding portfolio in which the subaccount invests. Fractional
shares will be counted.
After the annuity commencement date, the person receiving annuity payments has
the voting interest, and the number of votes decreases as annuity payments are
made and as the reserves for the policy decrease. The person's number of votes
will be determined by dividing the reserve for the policy allocated to the
applicable subaccount by the net asset value per share of the corresponding
portfolio. Fractional shares will be counted.
The number of votes that you or the person receiving income payments has the
right to instruct will be determined as of the date established by the
underlying fund for determining shareholders eligible to vote at the meeting of
the underlying fund. PFL will solicit voting instructions by sending you, or
other persons entitled to vote, written requests for instructions prior to that
meeting in accordance with procedures established by the underlying fund.
Portfolio shares as to which no timely instructions are received and shares
held by PFL in which you, or other persons entitled to vote, have no beneficial
interest will be voted in proportion to the voting instructions that are
received with respect to all policies participating in the same subaccount.
Each person having a voting interest in a subaccount will receive proxy
material, reports, and other materials relating to the appropriate portfolio.
OTHER PRODUCTS
PFL makes other variable annuity policies available that may also be funded
through the separate account. These variable annuity policies may have
different features, such as different investment choices or charges.
CUSTODY OF ASSETS
PFL holds assets of each of the subaccounts of the separate account. The assets
of each of the subaccounts of the separate account are segregated and held
separate and apart from the assets of the
-31-
<PAGE>
other subaccounts and from PFL's general account assets. PFL maintains records
of all purchases and redemptions of shares of the underlying funds held by each
of the subaccounts. Additional protection for the assets of the separate
account is afforded by PFL's fidelity bond, presently in the amount of
$5,000,000, covering the acts of officers and employees of PFL.
LEGAL MATTERS
Sutherland Asbill & Brennan LLP, of Washington D.C. has provided legal advice
to PFL relating to certain matters under the federal securities laws applicable
to the issue and sale of the policies.
INDEPENDENT AUDITORS
The statutory-basis financial statements and schedules of PFL as of December
31, 1999 and 1998, and for each of the three years in the period ended December
31, 1999, and the financial statements of certain subaccounts of the PFL
Retirement Builder Variable Annuity Account, which are available for investment
by the Flexible Premium Individual Deferred Variable Annuity (now known as the
Retirement Income Builder II Variable Annuity) contract owners as of December
31, 1999 and for each of the two years in the period then ended, included in
this SAI have been audited by Ernst & Young LLP, Independent Auditors, Suite
3400, 801 Grand Avenue, Des Moines, Iowa 50309.
OTHER INFORMATION
A Registration Statement has been filed with the SEC, under the Securities Act
of 1933 as amended, with respect to the policies discussed in this SAI. Not all
of the information set forth in the registration statement, amendments and
exhibits thereto has been included in the prospectus or this SAI. Statements
contained in the prospectus and this SAI concerning the content of the policies
and other legal instruments are intended to be summaries. For a complete
statement of the terms of these documents, reference should be made to the
instruments filed with the SEC.
FINANCIAL STATEMENTS
The values of the interest of owners in the separate account will be affected
solely by the investment results of the selected subaccount(s). The financial
statements of PFL, which are included in this SAI, should be considered only as
bearing on the ability of PFL to meet its obligations under the policies. They
should not be considered as bearing on the investment performance of the assets
held in the separate account.
-32-
<PAGE>
Financial Statements--Statutory Basis
PFL Life Insurance Company
Years ended December 31, 1999, 1998 and 1997
with Report of Independent Auditors
<PAGE>
PFL Life Insurance Company
Financial Statements--Statutory Basis
Years ended December 31, 1999, 1998 and 1997
Contents
<TABLE>
<S> <C>
Report of Independent Auditors.............................................. 1
Audited Financial Statements
Balance Sheets--Statutory Basis........................................... 3
Statements of Operations--Statutory Basis................................. 5
Statements of Changes in Capital and Surplus--Statutory Basis............. 6
Statements of Cash Flows--Statutory Basis................................. 7
Notes to Financial Statements--Statutory Basis............................ 9
Statutory-Basis Financial Statement Schedules
Summary of Investments--Other Than Investments in Related Parties......... 28
Supplementary Insurance Information....................................... 29
Reinsurance............................................................... 31
</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, an indirect wholly-owned subsidiary of AEGON N.V., as of
December 31, 1999 and 1998, 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, 1999. 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 auditing standards generally
accepted in the United States. 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 accounting principles generally accepted in
the United States. The variances between such practices and accounting
principles generally accepted in the United States 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 effect of the matter described in the preceding
paragraph, the financial statements referred to above do not present fairly,
in conformity with accounting principles generally accepted in the United
States, the financial position of PFL Life Insurance Company at December 31,
1999 and 1998, or the results of its operations or its cash flows for each of
the three years in the period ended December 31, 1999.
1
<PAGE>
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, 1999 and 1998, and the results of its operations and
its cash flows for each of the three years in the period ended December 31,
1999, 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 18, 2000
2
<PAGE>
PFL Life Insurance Company
Balance Sheets--Statutory Basis
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
December 31
1999 1998
----------- ----------
<S> <C> <C>
Admitted Assets
Cash and invested assets:
Cash and short-term investments........................ $ 53,695 $ 83,289
Bonds.................................................. 4,892,156 4,822,442
Stocks:
Preferred............................................ 17,074 14,754
Common (cost: 1999--$61,813; 1998--$34,731).......... 71,658 49,448
Affiliated entities (cost: 1999--$10,318; 1998--
$8,060)............................................. 6,764 5,613
Mortgage loans on real estate.......................... 1,339,202 1,012,433
Real estate, at cost less accumulated depreciation
($10,891 in 1999; $9,500 in 1998):
Home office properties............................... 7,829 8,056
Properties acquired in satisfaction of debt.......... 16,336 11,778
Investment properties................................ 33,707 44,325
Policy loans........................................... 59,871 60,058
Other invested assets.................................. 123,722 76,482
----------- ----------
Total cash and invested assets..................... 6,622,014 6,188,678
Premiums deferred and uncollected....................... 14,656 15,318
Accrued investment income............................... 65,364 65,308
Receivable from affiliate............................... -- 643
Federal income taxes recoverable........................ 1,335 639
Transfers from separate accounts due or accrued......... 92,309 70,866
Other assets............................................ 30,119 29,511
Separate account assets................................. 4,905,374 3,348,611
----------- ----------
Total admitted assets................................... $11,731,171 $9,719,574
=========== ==========
</TABLE>
3
<PAGE>
PFL Life Insurance Company
Balance Sheets--Statutory Basis
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
December 31
1999 1998
----------- ----------
<S> <C> <C>
Liabilities and Capital and Surplus
Liabilities:
Aggregate reserves for policies and contracts:
Life................................................. $ 1,552,781 $1,357,175
Annuity.............................................. 4,036,751 3,925,293
Accident and health.................................. 254,571 205,736
Policy and contract claim reserves:
Life................................................. 8,681 9,101
Accident and health.................................. 37,466 48,906
Other policyholders' funds............................. 172,774 162,266
Remittances and items not allocated.................... 33,020 19,690
Asset valuation reserve................................ 103,193 91,588
Interest maintenance reserve........................... 36,120 50,575
Short-term notes payable to affiliates................. 144,500 9,421
Other liabilities...................................... 70,717 76,766
Payable for securities................................. 15,136 57,645
Payable to affiliates.................................. 11,517 --
Separate account liabilities........................... 4,899,289 3,342,884
----------- ----------
Total liabilities....................................... 11,376,516 9,357,046
Commitments and contingencies (Note 10)
Capital and surplus:
Common stock, $10 par value, 500,000 shares autho-
rized, 266,000 issued and outstanding................. 2,660 2,660
Paid-in surplus........................................ 154,282 154,282
Unassigned surplus..................................... 197,713 205,586
----------- ----------
Total capital and surplus............................... 354,655 362,528
----------- ----------
Total liabilities and capital and surplus............... $11,731,171 $9,719,574
=========== ==========
</TABLE>
See accompanying notes.
4
<PAGE>
PFL Life Insurance Company
Statements of Operations--Statutory Basis
(Dollars in thousands)
<TABLE>
<CAPTION>
Year ended December 31
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Premiums and other considerations, net of
reinsurance:
Life.................................... $ 227,510 $ 516,111 $ 202,435
Annuity................................. 1,413,049 667,920 657,695
Accident and health..................... 160,570 178,593 207,982
Net investment income..................... 437,549 446,984 446,424
Amortization of interest maintenance re-
serve.................................... 7,588 8,656 3,645
Commissions and expense allowances on
reinsurance ceded........................ 24,741 32,781 49,859
Separate account fee income............... 49,826 37,137 --
---------- ---------- ----------
2,320,833 1,888,182 1,568,040
Benefits and expenses:
Benefits paid or provided for:
Life and accident and health benefits... 115,621 135,184 146,583
Surrender benefits...................... 1,046,611 732,796 658,071
Other benefits.......................... 169,479 152,209 126,495
Increase (decrease) in aggregate
reserves for policies and contracts:
Life.................................... 195,606 473,158 149,575
Annuity................................. 111,427 (278,665) (203,139)
Accident and health..................... 48,835 36,407 30,059
Other................................... 10,480 17,550 16,998
---------- ---------- ----------
1,698,059 1,268,639 924,642
Insurance expenses:
Commissions............................... 167,146 136,569 157,300
General insurance expenses................ 54,191 48,018 57,571
Taxes, licenses and fees.................. 12,382 19,166 8,715
Net transfers to separate accounts........ 309,307 302,839 297,480
Other expenses............................ 229 1,016 119
---------- ---------- ----------
543,255 507,608 521,185
---------- ---------- ----------
2,241,314 1,776,247 1,445,827
---------- ---------- ----------
Gain from operations before federal income
tax expense and net realized capital gains
on investments............................. 79,519 111,935 122,213
Federal income tax expense.................. 25,316 49,835 43,381
---------- ---------- ----------
Gain from operations before net realized
capital gains on investments............... 54,203 62,100 78,832
Net realized capital gains on investments
(net of related federal income taxes and
amounts transferred to interest maintenance
reserve)................................... 6,365 3,398 7,159
---------- ---------- ----------
Net income.................................. $ 60,568 $ 65,498 $ 85,991
========== ========== ==========
</TABLE>
See accompanying notes.
5
<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, 1997 $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
Net income.............................. -- -- 60,568 60,568
Change in net unrealized capital gains.. -- -- (20,217) (20,217)
Change in non-admitted assets........... -- -- (980) (980)
Change in asset valuation reserve....... -- -- (11,605) (11,605)
Dividend to stockholder................. -- -- (40,000) (40,000)
Tax benefit on stock options exercised.. -- -- 1,305 1,305
Change in surplus in separate accounts.. -- -- 245 245
Settlement of prior period tax returns
and other tax-related adjustments...... -- -- 2,811 2,811
------ -------- -------- --------
Balance at December 31, 1999.............. $2,660 $154,282 $197,713 $354,655
====== ======== ======== ========
</TABLE>
See accompanying notes.
6
<PAGE>
PFL Life Insurance Company
Statements of Cash Flows--Statutory Basis
(Dollars in thousands)
<TABLE>
<CAPTION>
Year ended December 31
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Operating activities
Premiums and other considerations, net
of reinsurance......................... $ 1,830,365 $ 1,396,428 $ 1,119,936
Net investment income................... 441,737 469,246 452,091
Life and accident and health claims..... (124,178) (138,249) (154,383)
Surrender benefits and other fund
withdrawals............................ (1,046,611) (732,796) (658,071)
Other benefits to policyholders......... (169,476) (152,167) (126,462)
Commissions, other expenses and other
taxes.................................. (238,192) (197,135) (225,042)
Net transfers to separate accounts...... (280,923) (276,375) (319,146)
Federal income taxes.................... (24,709) (72,176) (47,909)
Cash paid in conjunction with an
amendment of a reinsurance agreement... -- -- (4,826)
Cash received in connection with a
reinsurance agreement.................. -- -- 1,477
Other, net.............................. (23,047) (93,095) 89,693
----------- ----------- -----------
Net cash provided by operating
activities............................. 364,966 203,681 127,358
Investing activities
Proceeds from investments sold, matured
or repaid:
Bonds and preferred stocks............ 3,283,038 3,347,174 3,284,095
Common stocks......................... 60,293 34,564 34,004
Mortgage loans on real estate......... 158,739 192,210 138,162
Real estate........................... 13,367 5,624 6,897
Policy loans.......................... 186 -- --
Cash received from ceding commissions
associated with the sale of a
division............................. -- -- 8
Other................................. 6,133 7,210 57,683
----------- ----------- -----------
3,521,756 3,586,782 3,520,849
Cost of investments acquired:
Bonds and preferred stocks............ (3,398,158) (3,251,822) (3,411,442)
Common stocks......................... (76,200) (36,379) (37,339)
Mortgage loans on real estate......... (480,750) (257,039) (159,577)
Real estate........................... (7,568) (11,458) (2,013)
Policy loans.......................... -- (2,922) (2,922)
Cash paid in association with the sale
of a division........................ -- -- (591)
Other................................. (48,719) (44,514) (15,674)
----------- ----------- -----------
(4,011,395) (3,604,134) (3,629,558)
----------- ----------- -----------
Net cash used in investing activities... (489,639) (17,352) (108,709)
</TABLE>
7
<PAGE>
PFL Life Insurance Company
Statements of Cash Flows--Statutory Basis
(Dollars in thousands)
<TABLE>
<CAPTION>
Year ended December 31
1999 1998 1997
-------- -------- -------
<S> <C> <C> <C>
Financing activities
Issuance (repayment) of short-term intercompany
notes payable................................... $135,079 $ (6,979) $16,400
Capital contribution............................. -- -- 153
Dividends to stockholder......................... (40,000) (120,000) (62,000)
-------- -------- -------
Net cash provided by (used in) financing
activities...................................... 95,079 (126,979) (45,447)
-------- -------- -------
Increase (decrease) in cash and short-term
investments..................................... (29,594) 59,350 (26,798)
Cash and short-term investments at beginning of
year............................................ 83,289 23,939 50,737
-------- -------- -------
Cash and short-term investments at end of year... $ 53,695 $ 83,289 $23,939
======== ======== =======
</TABLE>
See accompanying notes.
8
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis
(Dollars in thousands)
December 31, 1999
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.
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 and Guam. 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
9
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
1. Organization and Summary of Significant Accounting Policies (continued)
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 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) stock options settled in cash are recorded as expense of
the Company's indirect parent rather than charged to current operations; (m)
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; (n) 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 (o) 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") effective January 1,
2001. 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 anticipated that 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.
10
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
1. Organization and Summary of Significant Accounting Policies (continued)
Cash and Short-Term Investments
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 short-term investments.
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 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. During 1999, 1998 and 1997, the Company
excluded investment income due and accrued of $530, $102 and $177,
respectively, with respect to such practices.
11
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
1. Organization and Summary of Significant Accounting Policies (continued)
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 agreement
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.
12
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
1. Organization and Summary of Significant Accounting Policies (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 contract owners 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 contract owners. The Company received variable contract
premiums of $486,282, $345,319 and $281,095 in 1999, 1998 and 1997,
respectively. All variable account contracts are subject to discretionary
withdrawal by the contract owner 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 1998 and 1997 financial
statements to conform to the 1999 presentation.
13
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
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 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
amount.
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.
14
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
2. Fair Values of Financial Instruments (continued)
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.
Short-term notes payable to affiliates: The fair values for short-term
notes payable to affiliates are assumed to equal their carrying amount.
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.
The following sets forth a comparison of the fair values and carrying amounts
of the Company's financial instruments subject to the provisions of SFAS No.
107 and No. 119:
<TABLE>
<CAPTION>
December 31
1999 1998
--------------------- ---------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Admitted assets
Cash and short-term investments... $ 53,695 $ 53,695 $ 83,289 $ 83,289
Bonds............................. 4,892,156 4,757,325 4,822,442 4,900,516
Preferred stocks.................. 17,074 15,437 14,754 14,738
Common stocks..................... 71,658 71,658 49,448 49,448
Affiliated common stock........... 6,764 6,764 5,613 5,613
Mortgage loans on real estate..... 1,339,202 1,299,160 1,012,433 1,089,315
Policy loans...................... 59,871 59,871 60,058 60,058
Interest rate cap................. 4,959 1,784 4,445 725
Interest rate swaps............... 8,134 10,609 1,916 6,667
Separate account assets........... 4,905,374 4,905,374 3,348,611 3,348,611
Liabilities
Investment contract liabilities... 4,207,369 4,059,842 4,084,683 4,017,509
Separate account liabilities...... 4,377,676 4,212,615 3,271,005 3,213,251
Short-term notes payable to
affiliates....................... 144,500 144,500 9,421 9,421
</TABLE>
15
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
3. Investments
The carrying amounts and estimated fair values of investments in debt
securities were as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Carrying Unrealized Unrealized Fair
Amount Gains Losses Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
December 31, 1999
Bonds:
United States Government and
agencies........................ $ 141,390 $ 142 $ 4,520 $ 137,012
State, municipal and other
government...................... 137,745 5,168 1,627 141,286
Public utilities................. 219,791 1,148 6,777 214,162
Industrial and miscellaneous..... 2,078,145 20,042 84,919 2,013,268
Mortgage and other asset-backed
securities...................... 2,315,085 24,214 87,702 2,251,597
---------- -------- -------- ----------
4,892,156 50,714 185,545 4,757,325
Preferred stocks................... 17,074 2 1,639 15,437
---------- -------- -------- ----------
$4,909,230 $ 50,716 $187,184 $4,772,762
========== ======== ======== ==========
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>
The carrying amounts and estimated fair values of bonds at December 31, 1999,
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
Amount Fair Value
---------- ----------
<S> <C> <C>
Due in one year or less............................... $ 194,654 $ 192,453
Due after one year through five years................. 1,151,170 1,121,353
Due after five years through ten years................ 908,926 873,402
Due after ten years................................... 322,321 318,520
---------- ----------
2,577,071 2,505,728
Mortgage and other asset-backed securities............ 2,315,085 2,251,597
---------- ----------
$4,892,156 $4,757,325
========== ==========
</TABLE>
16
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
3. Investments (continued)
A detail of net investment income is presented below:
<TABLE>
<CAPTION>
Year ended December 31
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Interest on bonds and preferred stock............... $347,639 $374,478 $373,496
Dividends on equity investments..................... 734 1,357 1,460
Interest on mortgage loans.......................... 92,325 77,960 80,266
Rental income on real estate........................ 7,322 6,553 7,501
Interest on policy loans............................ 4,141 4,080 3,400
Other investment income............................. 7,978 2,576 613
-------- -------- --------
Gross investment income............................. 460,139 467,004 466,736
Less investment expenses............................ 22,590 20,020 20,312
-------- -------- --------
Net investment income............................... $437,549 $446,984 $446,424
======== ======== ========
</TABLE>
Proceeds from sales and maturities of debt securities and related gross
realized gains and losses were as follows:
<TABLE>
<CAPTION>
Year ended December 31
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Proceeds.................................... $3,283,038 $3,347,174 $3,284,095
========== ========== ==========
Gross realized gains........................ $ 21,171 $ 48,760 $ 30,094
Gross realized losses....................... (32,259) (8,072) (17,265)
---------- ---------- ----------
Net realized gains (losses)................. $ (11,088) $ 40,688 $ 12,829
========== ========== ==========
</TABLE>
At December 31, 1999, investments with an aggregate carrying value of
$6,346,831 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.
17
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
3. Investments (continued)
Realized investment gains (losses) and changes in unrealized gains (losses)
for investments are summarized below:
<TABLE>
<CAPTION>
Realized
----------------------------
Year ended December 31
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Debt securities......... $(11,088) $ 40,688 $ 12,829
Equity securities....... 11,433 (879) 6,972
Mortgage loans on real
estate................. 4,661 12,637 2,252
Real estate............. 900 3,176 4,252
Short-term investments.. (1,407) 1,533 (19)
Other invested assets... 534 (2,523) 1,632
-------- -------- --------
5,033 54,632 27,918
Tax effect.............. (5,535) (22,290) (10,572)
Transfer from (to)
interest maintenance
reserve................ 6,867 (28,944) (10,187)
-------- -------- --------
Net realized gains...... $ 6,365 $ 3,398 $ 7,159
======== ======== ========
<CAPTION>
Change in Unrealized
----------------------------
Year ended December 31
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Bonds................... $(12,711) $ (836) $ 2,498
Preferred stocks........ (2,753) -- --
Common stocks........... (3,980) 3,751 1,097
Mortgage loans.......... (147) (150) --
Other invested assets... (626) 1,739 (3)
-------- -------- --------
Change in unrealized.... $(20,217) $ 4,504 $ 3,592
======== ======== ========
Gross unrealized gains and gross unrealized losses on equity securities are as
follows:
<CAPTION>
December 31
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Unrealized gains........ $ 11,369 $ 15,980 $ 10,356
Unrealized losses....... (5,078) (3,710) (3,836)
-------- -------- --------
Net unrealized gains.... $ 6,291 $ 12,270 $ 6,520
======== ======== ========
</TABLE>
18
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
3. Investments (continued)
During 1999, the Company issued mortgage loans with interest rates ranging
from 6.42% to 8.67%. The maximum percentage of any one mortgage loan to the
value of the underlying real estate at origination was 84%. Mortgage loans
with a carrying value of $248 were non-income producing for the previous
twelve months. Accrued interest of $95 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, 1999 and 1998, the Company held a mortgage loan loss reserve
in the asset valuation reserve of $15,173 and $16,104, respectively. The
mortgage loan portfolio is diversified by geographic region and specific
collateral property type as follows:
Geographic Distribution
<TABLE>
<CAPTION>
December 31
1999 1998
----- -----
<S> <C> <C>
South Atlantic.......... 27% 32%
Pacific................. 18 15
E. North Central........ 17 16
Middle Atlantic......... 15 10
Mountain................ 9 10
W. South Central........ 6 6
W. North Central........ 4 5
E. South Central........ 3 3
New England............. 1 3
</TABLE>
<TABLE>
<CAPTION>
Property Type Distribution
December 31
1999 1998
----- -----
<S> <C> <C>
Office.................. 39% 30%
Retail.................. 28 35
Industrial.............. 18 21
Apartment............... 11 12
Other................... 4 2
</TABLE>
At December 31, 1999, 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,
collectively.
19
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
3. Investments (continued)
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 swaps and caps. 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 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, 1999 and 1998, 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
1999 1998
-------- --------
<S> <C> <C>
Derivative securities:
Interest rate swaps:
Receive fixed--pay floating............................... $115,000 $100,000
Receive floating--pay fixed............................... 64,017 --
Receive floating (uncapped)--pay floating (capped)........ 41,617 53,011
Receive floating (LIBOR--pay floating (S&P)............... 60,000 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.
20
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
4. Reinsurance (continued)
Reinsurance assumption and cession treaties are transacted primarily with
affiliates. Premiums earned reflect the following reinsurance assumed and
ceded amounts:
<TABLE>
<CAPTION>
Year ended December 31
----------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Direct premiums.......................... $1,942,716 $1,533,822 $1,312,446
Reinsurance assumed...................... 2,723 2,366 2,038
Reinsurance ceded........................ (144,310) (173,564) (246,372)
---------- ---------- ----------
Net premiums earned...................... $1,801,129 $1,362,624 $1,068,112
========== ========== ==========
</TABLE>
The Company received reinsurance recoveries in the amount of $139,138,
$173,297 and $183,638 during 1999, 1998 and 1997, respectively. At December
31, 1999 and 1998, estimated amounts recoverable from reinsurers that have
been deducted from policy and contract claim reserves totaled $35,511 and
$47,956, respectively. The aggregate reserves for policies and contracts were
reduced for reserve credits for reinsurance ceded at December 31, 1999 and
1998 of $1,870,190 and $2,163,905, respectively.
At December 31, 1999, amounts recoverable from unauthorized reinsurers of
$39,996 (1998--$55,379) and reserve credits for reinsurance ceded of $48,297
(1998--$49,835) were associated with a single reinsurer and its affiliates.
The Company holds collateral under these reinsurance agreements in the form of
trust agreements totaling $85,431 at December 31, 1999, that can be drawn on
for amounts that remain unpaid for more than 120 days.
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.
21
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
5. Income Taxes (continued)
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
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Computed tax at federal statutory rate (35%)..... $27,832 $39,177 $42,775
IMR amortization................................. (2,656) (3,030) (1,276)
Tax reserve adjustment........................... 1,390 607 2,004
Excess tax depreciation.......................... (219) (223) (392)
Deferred acquisition costs-- tax basis........... 5,979 11,827 4,308
Prior year under (over) accrual ................. (3,492) 1,750 (1,016)
Dividend received deduction...................... (1,666) (1,053) (941)
Charitable contributions......................... -- -- (848)
Other items--net................................. (1,852) 780 (1,233)
------- ------- -------
Federal income tax expense....................... $25,316 $49,835 $43,381
======= ======= =======
</TABLE>
Federal income tax expense differs from the amount computed by applying the
statutory federal income tax rate to realized gains (losses) due to the
differences in book and tax asset bases at the time certain investments are
sold.
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, 1999). 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.
In 1999, the Company reached a final settlement with the Internal Revenue
Service for 1990 and 1991, resulting in a tax refund of $904 and interest
received of $548. These amounts were credited directly to unassigned surplus.
The Company also corrected an error in 1999 which related to the 1997 tax-
sharing agreement between the Company and various affiliates. This resulted in
a credit to unassigned surplus of $1,359.
The Company's federal income tax returns have been examined and closing
agreements have been executed with the Internal Revenue Service through 1992.
An examination is underway for years 1993 through 1997.
22
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
6. Policy and Contract Attributes
A portion of the Company's policy reserves and other policyholders' funds
(including separate account liabilities) relate to liabilities established on
a variety of the Company's annuity and deposit fund products. There may be
certain restrictions placed upon 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
1999 1998
------------------- ------------------
Percent Percent
of of
Amount Total Amount Total
----------- ------- ---------- -------
<S> <C> <C> <C> <C>
Subject to discretionary withdrawal with
market value adjustment................ $ 114,544 1% $ 82,048 1%
Subject to discretionary withdrawal at
book value less surrender charge....... 828,490 8 515,778 5
Subject to discretionary withdrawal at
market value........................... 4,313,445 41 3,211,896 34
Subject to discretionary withdrawal at
book value (minimal or no charges or
adjustments)........................... 5,021,762 48 5,519,265 58
Not subject to discretionary withdrawal
provision.............................. 248,444 2 228,030 2
----------- --- ---------- ---
10,526,685 100% 9,557,017 100%
Less reinsurance ceded.................. 1,863,810 2,124,769
----------- ----------
Total policy reserves on annuities and
deposit fund liabilities............... $ 8,662,875 $7,432,248
=========== ==========
</TABLE>
A reconciliation of the amounts transferred to and from the separate accounts
is presented below:
<TABLE>
<CAPTION>
Year ended December 31
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Transfers as reported in the summary of
operations of the separate accounts statement:..
Transfers to separate accounts................. $486,282 $345,319 $281,095
Transfers from separate accounts............... (175,822) (42,671) (9,819)
-------- -------- --------
Net transfers to separate accounts............... 310,460 302,648 271,276
Reconciling adjustments--change in miscellaneous
income.......................................... (1,153) 191 26,204
-------- -------- --------
Transfers as reported in the summary of
operations of the life, accident and health
annual statement................................ $309,307 $302,839 $297,480
======== ======== ========
</TABLE>
23
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
6. Policy and Contract Attributes (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, 1999 and 1998, 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, 1999
Life and annuity:
Ordinary direct first year business................ $ 2,823 $2,085 $ 738
Ordinary direct renewal business................... 20,950 6,289 14,661
Group life direct business......................... 638 243 395
Reinsurance ceded.................................. (1,269) (16) (1,253)
------- ------ -------
23,142 8,601 14,541
Accident and health:
Direct............................................. 138 -- 138
Reinsurance ceded.................................. (23) -- (23)
------- ------ -------
Total accident and health............................ 115 -- 115
------- ------ -------
$23,257 $8,601 $14,656
======= ====== =======
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
======= ====== =======
</TABLE>
At December 31, 1999 and 1998, the Company had insurance in force aggregating
$41,720 and $44,233, 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 $871 and $998 to cover these
deficiencies at December 31, 1999 and 1998, respectively.
24
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
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 before net
realized capital gains (losses) on investments for the preceding year. Subject
to the availability of unassigned surplus at the time of such dividend, the
maximum payment which may be made in 2000, without the prior approval of
insurance regulatory authorities, is $54,203.
The Company paid dividends to its parent of $40,000, $120,000 and $62,000 in
1999, 1998 and 1997, 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
SFAS 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 $408, $380 and $422 for the
years ended December 31, 1999, 1998 and 1997, 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 $267, $233 and $226 for
the years ended December 31, 1999, 1998 and 1997, respectively.
25
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
8. Retirement and Compensation Plans (continued)
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 are charged to affiliates in accordance with an
intercompany cost sharing arrangement. The Company expensed $28, $62 and $62
for the years ended December 31, 1999, 1998 and 1997, 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 1999,
1998 and 1997, the Company paid $19,983, $18,706 and $18,705, respectively,
for these services, which approximates their costs to the affiliates.
Payables to affiliates bear interest at the thirty-day commercial paper rate
of 5.7% at December 31, 1999. During 1999, 1998 and 1997, the Company paid net
interest of $1,994, $1,491 and $1,188, respectively, to affiliates.
During 1997, the Company received a capital contribution of $153 in cash from
its parent.
At December 31, 1999 and 1998, the Company has short-term notes payable to an
affiliate of $144,500 and $9,421, respectively. Interest on these notes
accrues at rates ranging from 4.85% to 5.90% at December 31, 1999 and 5.13% to
5.52% at December 31, 1998.
26
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
9. Related Party Transactions (continued)
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 $190,299 and
$181,720 at December 31, 1999 and 1998, respectively.
10. Commitments and Contingencies
The Company has issued Trust (synthetic) GIC contracts to plan sponsors
totaling $374,124 at December 31, 1999, pursuant to terms under which the plan
sponsor retains ownership of the assets related to these contracts. The
Company guarantees benefit responsiveness in the event that plan benefit
requests and other contractual commitments exceed plan cash flows. The plan
sponsor agrees to reimburse the Company for such benefit payments with
interest, either at a fixed or floating rate, from future plan and asset cash
flows. In return for this guarantee, the Company receives a premium which
varies based on such elements as benefit responsive exposure and contract
size. The Company underwrites the plans for the possibility of having to make
benefit payments and also must agree to the investment guidelines to ensure
appropriate credit quality and cash flow matching. The assets relating to such
contracts are not recognized in the Company's statutory-basis financial
statements.
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 $19,662 and $17,901 and an offsetting
premium tax benefit of $7,429 and $7,631 at December 31, 1999 and 1998,
respectively, for its estimated share of future guaranty fund assessments
related to several major insurer insolvencies. The guaranty fund expense
(benefit) was $1,994, $1,985 and $(975) for the years ended December 31, 1999,
1998 and 1997, respectively.
27
<PAGE>
PFL Life Insurance Company
Summary of Investments--Other than
Investments in Related Parties
(Dollars in thousands)
December 31, 1999
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............... $ 195,119 $ 189,752 $ 195,119
States, municipalities and political
subdivisions........................... 545,562 535,945 545,562
Foreign governments..................... 134,584 138,767 134,584
Public utilities........................ 219,791 214,162 219,791
All other corporate bonds............... 3,797,100 3,678,699 3,797,100
Redeemable preferred stock................ 17,074 15,437 17,074
---------- --------- ----------
Total fixed maturities.................... 4,909,230 4,772,762 4,909,230
Equity securities
Common stocks:
Banks, trust and insurance.............. 2,676 2,809 2,809
Industrial, miscellaneous and all
other.................................. 59,137 68,849 68,849
---------- --------- ----------
Total equity securities................... 61,813 71,658 71,658
Mortgage loans on real estate............. 1,339,202 1,339,202
Real estate............................... 41,536 41,536
Real estate acquired in satisfaction of
debt..................................... 16,336 16,336
Policy loans.............................. 59,871 59,871
Other long-term investments............... 123,722 123,722
Cash and short-term investments........... 53,695 53,695
---------- ----------
Total investments......................... $6,605,405 $6,615,250
========== ==========
</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.
28
<PAGE>
PFL Life Insurance Company
Supplementary Insurance Information
(Dollars in thousands)
SCHEDULE III
<TABLE>
<CAPTION>
Future
Policy Policy
Benefits and
and Unearned Contract
Expenses Premiums Liabilities
---------- -------- -----------
<S> <C> <C> <C>
Year ended December 31, 1999
Individual life................................. $1,550,188 $ -- $ 8,607
Individual health............................... 133,214 10,311 10,452
Group life and health........................... 105,035 8,604 27,088
Annuity......................................... 4,036,751 -- --
---------- ------- -------
$5,825,188 $18,915 $46,147
========== ======= =======
Year ended December 31, 1998
Individual life................................. $1,355,283 $ -- $ 8,976
Individual health............................... 94,294 9,631 12,123
Group life and health........................... 93,405 10,298 36,908
Annuity......................................... 3,925,293 -- --
---------- ------- -------
$5,468,275 $19,929 $58,007
========== ======= =======
Year ended December 31, 1997
Individual life................................. $ 882,003 $ -- $ 8,550
Individual health............................... 62,033 9,207 12,821
Group life and health........................... 88,211 11,892 44,977
Annuity......................................... 4,204,125 -- --
---------- ------- -------
$5,236,372 $21,099 $66,348
========== ======= =======
</TABLE>
29
<PAGE>
PFL Life Insurance Company
Supplementary Insurance Information
(Dollars in thousands)
SCHEDULE III
<TABLE>
<CAPTION>
Benefits,
Claims
Net Losses and Other
Premium Investment Settlement Operating Premiums
Revenue Income* Expenses Expenses* Written
---------- ---------- ---------- --------- --------
<S> <C> <C> <C> <C> <C>
Year ended December 31,
1999
Individual life........... $ 226,456 $104,029 $ 274,730 $141,030 $ --
Individual health......... 77,985 10,036 58,649 35,329 77,716
Group life and health..... 83,639 10,422 61,143 38,075 81,918
Annuity................... 1,413,049 313,062 1,303,537 278,995 --
---------- -------- ---------- --------
$1,801,129 $437,549 $1,698,059 $493,429
========== ======== ========== ========
Year ended December 31,
1998
Individual life........... $ 514,194 $ 85,258 $ 545,720 $ 87,455 $ --
Individual health......... 68,963 8,004 48,144 30,442 68,745
Group life and health..... 111,547 11,426 82,690 54,352 108,769
Annuity................... 667,920 342,296 592,085 298,222 --
---------- -------- ---------- --------
$1,362,624 $446,984 $1,268,639 $470,471
========== ======== ========== ========
Year ended December 31,
1997
Individual life........... $ 200,175 $ 75,914 $ 211,921 $ 36,185 $ --
Individual health......... 63,548 5,934 37,706 29,216 63,383
Group life and health..... 146,694 11,888 103,581 91,568 143,580
Annuity................... 657,695 352,688 571,434 364,216 --
---------- -------- ---------- --------
$1,068,112 $446,424 $ 924,642 $521,185
========== ======== ========== ========
</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.
30
<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,
1999
Life insurance in
force.................. $6,538,901 $(500,192) $415,910 $6,454,619 6.4%
========== ========= ======== ========== ===
Premiums:
Individual life....... $ 227,363 $ 3,967 $ 2,723 $ 226,119 1.2%
Individual health..... 83,489 5,504 -- 77,985 --
Group life and
health............... 205,752 122,113 -- 83,639 --
Annuity............... 1,426,112 12,726 -- 1,413,386 --
---------- --------- -------- ---------- ---
$1,942,716 $ 144,310 $ 2,723 $1,801,129 0.2%
========== ========= ======== ========== ===
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%
========== ========= ======== ========== ===
</TABLE>
31
<PAGE>
Financial Statements
PFL Retirement Builder Variable Annuity Account
- Retirement Income Builder II Variable Annuity
Year ended December 31, 1999
with Report of Independent Auditors
<PAGE>
PFL Retirement Builder Variable Annuity Account
- Retirement Income Builder II Variable Annuity
Financial Statements
Year ended December 31, 1999
Contents
Report of Independent Auditors............................................ 1
Financial Statements
Balance Sheets............................................................ 2
Statements of Operations.................................................. 8
Statements of Changes in Contract Owners' Equity.......................... 14
Notes to Financial Statements............................................. 22
<PAGE>
Report of Independent Auditors
The Board of Directors and Contract Owners
of the Retirement Income Builder II Variable Annuity,
PFL Life Insurance Company
We have audited the accompanying balance sheets of certain subaccounts of PFL
Retirement Builder Variable Annuity Account (the "Separate Account", comprised
of the AIM V.I. Capital Appreciation, AIM V.I. Government Securities, AIM V.I.
Growth & Income, AIM V.I. Value, Dreyfus Stock Index, Dreyfus Money Market,
Dreyfus Small Company Stock, MFS Emerging Growth, MFS Foreign & Colonial
Emerging Markets Equity, MFS Research, MFS Total Return, MFS Utilities,
Oppenheimer Global Securities, Oppenheimer Capital Appreciation, Oppenheimer
Main Street Growth & Income, Oppenheimer High Income, Oppenheimer Strategic
Bond, WRL VKAM Emerging Growth, WRL Janus Global, and WRL Janus Growth
subaccounts), which are available for investment by contract owners of the
Retirement Income Builder II Variable Annuity, as of December 31, 1999, and the
related statements of operations for the year then ended and changes in contract
owners' equity for the year then ended and the period from September 30, 1998
(commencement of operations) through December 31, 1998. These financial
statements are the responsibility of the Separate Account's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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. Our
procedures included confirmation of mutual fund shares owned as of December 31,
1999, by correspondence with the mutual funds' transfer agents. 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.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of each of the respective
subaccounts of PFL Retirement Builder Variable Annuity Account which are
available for investment by contract owners of the Retirement Income Builder II
Variable Annuity at December 31, 1999, and the results of their operations for
the year then ended and changes in their contract owners' equity for the year
then ended and the period from September 30, 1998 through December 31, 1998, in
conformity with accounting principles generally accepted in the United States.
/s/ Ernst & Young LLP
Des Moines, Iowa
January 28, 2000
1
<PAGE>
PFL Retirement Builder Variable Annuity Account
- Retirement Income Builder II Variable Annuity
Balance Sheets
December 31, 1999
<TABLE>
<CAPTION>
AIM V.I.
Capital
Appreciation
Subaccount
--------------
<S> <C>
Assets
Cash $ -
Investments in mutual funds, at current market value:
AIM Variable Insurance Funds, Inc.:
AIM V.I. Capital Appreciation Fund 412,807
AIM V.I. Government Securities Fund -
AIM V.I. Growth & Income Fund -
AIM V.I. Value Fund -
Dreyfus Stock Index Fund -
Dreyfus Variable Investment Fund:
Dreyfus Money Market Portfolio -
Dreyfus Small Company Stock Portfolio -
MFS Variable Insurance Trust:
MFS Emerging Growth Series -
MFS Foreign & Colonial Emerging Markets Equity Series -
MFS Research Series -
MFS Total Return Series -
MFS Utilities Series -
Oppenheimer Variable Account Funds:
Oppenheimer Global Securities Fund -
Oppenheimer Capital Appreciation Fund -
Oppenheimer Main Street Growth & Income Fund -
Oppenheimer High Income Fund -
Oppenheimer Strategic Bond Fund -
WRL Series Fund, Inc.:
WRL VKAM Emerging Growth -
WRL Janus Global -
WRL Janus Growth -
--------------
Total investments in mutual funds 412,807
--------------
Total assets $ 412,807
==============
Liabilities and contract owners' equity
Liabilities:
Contract terminations payable $ 4
--------------
Total liabilities 4
Contract owners' equity:
Deferred annuity contracts terminable by owners 412,803
--------------
Total liabilities and contract owners' equity $ 412,807
==============
</TABLE>
See accompanying notes.
2
<PAGE>
<TABLE>
<CAPTION>
AIM V.I.
Government AIM V.I. Dreyfus Dreyfus
Securities Growth & Income AIM V.I. Value Stock Index Money Market
Subaccount Subaccount Subaccount Subaccount Subaccount
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ - $ - $ - $ - $ -
- - - - -
184,089 - - - -
- 1,469,055 - - -
- - 2,433,426 - -
- - - 1,746,975 -
- - - - 257,896
- - - - -
- - - - -
- - - - -
- - - - -
- - - - -
- - - - -
- - - - -
- - - - -
- - - - -
- - - - -
- - - - -
- - - - -
- - - - -
- - - - -
- ---------------------------------------------------------------------------------------------------------
184,089 1,469,055 2,433,426 1,746,975 257,896
- ---------------------------------------------------------------------------------------------------------
$ 184,089 $ 1,469,055 $ 2,433,426 $ 1,746,975 $ 257,896
=========================================================================================================
$ 1 $ 21 $ 21 $ 6 $ -
- ---------------------------------------------------------------------------------------------------------
1 21 21 6 -
184,088 1,469,034 2,433,405 1,746,969 257,896
- ---------------------------------------------------------------------------------------------------------
$ 184,089 $ 1,469,055 $ 2,433,426 $ 1,746,975 $ 257,896
=========================================================================================================
</TABLE>
3
<PAGE>
PFL Retirement Builder Variable Annuity Account
- Retirement Income Builder II Variable Annuity
Balance Sheets (continued)
<TABLE>
<CAPTION>
Dreyfus Small
Company Stock
Subaccount
-----------------
<S> <C>
Assets
Cash $ -
Investments in mutual funds, at current market value:
AIM Variable Insurance Funds, Inc.:
AIM V.I. Capital Appreciation Fund -
AIM V.I. Government Securities Fund -
AIM V.I. Growth & Income Fund -
AIM V.I. Value Fund -
Dreyfus Stock Index Fund -
Dreyfus Variable Investment Fund:
Dreyfus Money Market Portfolio -
Dreyfus Small Company Stock Portfolio 179,060
MFS Variable Insurance Trust:
MFS Emerging Growth Series -
MFS Foreign & Colonial Emerging Markets Equity Series -
MFS Research Series -
MFS Total Return Series -
MFS Utilities Series -
Oppenheimer Variable Account Funds:
Oppenheimer Global Securities Fund -
Oppenheimer Capital Appreciation Fund -
Oppenheimer Main Street Growth & Income Fund -
Oppenheimer High Income Fund -
Oppenheimer Strategic Bond Fund -
WRL Series Fund, Inc.:
WRL VKAM Emerging Growth -
WRL Janus Global -
WRL Janus Growth -
-----------------
Total investments in mutual funds 179,060
-----------------
Total assets $ 179,060
=================
Liabilities and contract owners' equity
Liabilities:
Contract terminations payable $ 3
-----------------
Total liabilities 3
Contract owners' equity:
Deferred annuity contracts terminable by owners 179,057
-----------------
Total liabilities and contract owners' equity $ 179,060
=================
</TABLE>
See accompanying notes.
4
<PAGE>
<TABLE>
<CAPTION>
MFS Foreign &
MFS Colonial Oppenheimer
Emerging Emerging MFS MFS Total Global
Growth Markets Equity Research Return MFS Utilities Securities
Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ - $ - $ - $ - $ - $ -
- - - - - -
- - - - - -
- - - - - -
- - - - - -
- - - - - -
- - - - - -
- - - - - -
876,764 - - - - -
- 7,812 - - - -
- - 162,470 - - -
- - - 1,029,551 - -
- - - - 2,387,934 -
- - - - - 109,668
- - - - - -
- - - - - -
- - - - - -
- - - - - -
- - - - - -
- - - - - -
- - - - - -
- ----------------------------------------------------------------------------------------------------------------
876,764 7,812 162,470 1,029,551 2,387,934 109,668
- ----------------------------------------------------------------------------------------------------------------
$ 876,764 $ 7,812 $ 162,470 $ 1,029,551 $ 2,387,934 $ 109,668
================================================================================================================
$ 14 $ 1 $ 2 $ 13 $ 32 $ 1
- ----------------------------------------------------------------------------------------------------------------
14 1 2 13 32 1
876,750 7,811 162,468 1,029,538 2,387,902 109,667
- ----------------------------------------------------------------------------------------------------------------
$ 876,764 $ 7,812 $ 162,470 $ 1,029,551 $ 2,387,934 $ 109,668
================================================================================================================
</TABLE>
5
<PAGE>
PFL Retirement Builder Variable Annuity Account
- Retirement Income Builder II Variable Annuity
Balance Sheets (continued)
<TABLE>
<CAPTION>
Oppenheimer
Capital
Appreciation
Subaccount
--------------------
<S> <C>
Assets
Cash $ -
Investments in mutual funds, at current market value:
AIM Variable Insurance Funds, Inc.:
AIM V.I. Capital Appreciation Fund -
AIM V.I. Government Securities Fund -
AIM V.I. Growth & Income Fund -
AIM V.I. Value Fund -
Dreyfus Stock Index Fund -
Dreyfus Variable Investment Fund:
Dreyfus Money Market Portfolio -
Dreyfus Small Company Stock Portfolio -
MFS Variable Insurance Trust:
MFS Emerging Growth Series -
MFS Foreign & Colonial Emerging Markets Equity Series -
MFS Research Series -
MFS Total Return Series -
MFS Utilities Series -
Oppenheimer Variable Account Funds:
Oppenheimer Global Securities Fund -
Oppenheimer Capital Appreciation Fund 364,383
Oppenheimer Main Street Growth & Income Fund -
Oppenheimer High Income Fund -
Oppenheimer Strategic Bond Fund -
WRL Series Fund, Inc.:
WRL VKAM Emerging Growth -
WRL Janus Global -
WRL Janus Growth -
-------------
Total investments in mutual funds 364,383
-------------
Total assets $ 364,383
=============
Liabilities and contract owners' equity
Liabilities:
Contract terminations payable $ 6
-------------
Total liabilities 6
Contract owners' equity:
Deferred annuity contracts terminable by owners 364,377
-------------
Total liabilities and contract owners' equity $ 364,383
=============
</TABLE>
See accompanying notes.
6
<PAGE>
<TABLE>
<CAPTION>
Oppenheimer Oppenheimer WRL VKAM
Main Street Oppenheimer Strategic Emerging WRL Janus WRL Janus
Growth & Income High Income Bond Growth Global Growth
Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ - $ - $ - $ - $ - $ 13
- - - - - -
- - - - - -
- - - - - -
- - - - - -
- - - - - -
- - - - - -
- - - - - -
- - - - - -
- - - - - -
- - - - - -
- - - - - -
- - - - - -
- - - - - -
- - - - - -
1,241,627 - - - - -
- 488,014 - - - -
- - 287,051 - - -
- - - 1,501,899 - -
- - - - 2,748,169 -
- - - - - 6,482,829
- --------------------------------------------------------------------------------------------------------------
1,241,627 488,014 287,051 1,501,899 2,748,169 6,482,829
- --------------------------------------------------------------------------------------------------------------
$ 1,241,627 $488,014 $ 287,051 $1,501,899 $2,748,169 $6,482,842
==============================================================================================================
$ 7 $ 2 $ - $ 21 $ 35 $ -
- --------------------------------------------------------------------------------------------------------------
7 2 - 21 35 -
1,241,620 488,012 287,051 1,501,878 2,748,134 6,482,842
- --------------------------------------------------------------------------------------------------------------
$ 1,241,627 $488,014 $ 287,051 $1,501,899 $2,748,169 $6,482,842
==============================================================================================================
</TABLE>
7
<PAGE>
PFL Retirement Builder Variable Annuity Account
- Retirement Income Builder II Variable Annuity
Statements of Operations
Year ended December 31, 1999
<TABLE>
<CAPTION>
AIM V.I.
Capital
Appreciation
Subaccount
----------------
<S> <C>
Net investment income (loss)
Income:
Dividends $ 7,385
Expenses:
Administrative, mortality and expense risk charges 1,910
---------
Net investment income (loss) 5,475
Net realized and unrealized capital gain (loss) from investments
Net realized capital gain (loss) from sales of investments:
Proceeds from sales 11,660
Cost of investments sold 8,898
---------
Net realized capital gain (loss) from sales of investments 2,762
Net change in unrealized appreciation/depreciation of investments:
Beginning of the period 1,338
End of the period 83,081
---------
Net change in unrealized appreciation/depreciation of investments 81,743
Net realized and unrealized capital gain (loss) from investments 84,505
---------
Increase (decrease) from operations $89,980
=========
</TABLE>
See accompanying notes.
8
<PAGE>
<TABLE>
<CAPTION>
AIM V.I.
Government AIM V.I. Dreyfus Stock Dreyfus Money
Securities Growth & Income AIM V.I. Value Index Market
Subaccount Subaccount Subaccount Subaccount Subaccount
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 6,425 $ 11,719 $ 36,327 $ 20,843 $ 6,470
1,626 7,856 11,701 10,730 1,826
- ---------------------------------------------------------------------------------------------------------
4,799 3,863 24,626 10,113 4,644
86,222 66,715 29,263 80,201 293,055
87,250 57,396 23,030 73,102 293,055
- ---------------------------------------------------------------------------------------------------------
(1,028) 9,319 6,233 7,099 -
(66) 1,179 6,954 1,024 -
(5,411) 234,583 282,802 148,407 -
- ---------------------------------------------------------------------------------------------------------
(5,345) 233,404 275,848 147,383 -
(6,373) 242,723 282,081 154,482 -
- ---------------------------------------------------------------------------------------------------------
$ (1,574) $246,586 $306,707 $164,595 $ 4,644
=========================================================================================================
</TABLE>
9
<PAGE>
PFL Retirement Builder Variable Annuity Account
- Retirement Income Builder II Variable Annuity
Statements of Operations (continued)
<TABLE>
<CAPTION>
Dreyfus Small
Company Stock
Subaccount
---------------------
<S> <C>
Net investment income (loss)
Income:
Dividends $ -
Expenses:
Administrative, mortality and expense risk charges 651
---------------------
Net investment income (loss) (651)
Net realized and unrealized capital gain (loss) from investments
Net realized capital gain (loss) from sales of investments:
Proceeds from sales 5,443
Cost of investments sold 4,726
---------------------
Net realized capital gain (loss) from sales of investments 717
Net change in unrealized appreciation/depreciation of investments:
Beginning of the period 558
End of the period 15,219
---------------------
Net change in unrealized appreciation/depreciation of investments 14,661
Net realized and unrealized capital gain (loss) from investments 15,378
---------------------
Increase (decrease) from operations $ 14,727
=====================
</TABLE>
See accompanying notes.
10
<PAGE>
<TABLE>
<CAPTION>
MFS Foreign &
MFS Colonial Oppenheimer
Emerging Emerging MFS MFS Total Global
growth Markets Equity Research Return MFS Utilities Securities
Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ - $ 2 $ 706 $18,365 $ 39,128 $ 597
3,884 84 911 7,166 13,193 541
- ------------------------------------------------------------------------------------------------------------------
(3,884) (82) (205) 11,199 25,935 56
35,869 3,013 30,660 84,201 69,619 7,344
27,712 2,083 29,212 86,995 63,675 5,357
- ------------------------------------------------------------------------------------------------------------------
8,157 930 1,448 (2,794) 5,944 1,987
2,076 211 565 896 1,721 720
302,021 1,681 22,434 (5,901) 371,323 26,727
- ------------------------------------------------------------------------------------------------------------------
299,945 1,470 21,869 (6,797) 369,602 26,007
308,102 2,400 23,317 (9,591) 375,546 27,994
- ------------------------------------------------------------------------------------------------------------------
$304,218 $2,318 $23,112 $ 1,608 $401,481 $28,050
==================================================================================================================
</TABLE>
11
<PAGE>
PFL Retirement Builder Variable Annuity Account
- Retirement Income Builder II Variable Annuity
Statements of Operations (continued)
<TABLE>
<CAPTION>
Oppenheimer
Capital
Appreciation
Subaccount
------------------
<S> <C>
Net investment income (loss)
Income:
Dividends $ 2,337
Expenses:
Administrative, mortality and expense risk charges 1,882
------------------
Net investment income (loss) 455
Net realized and unrealized capital gain (loss) from investments
Net realized capital gain (loss) from sales of investments:
Proceeds from sales 40,212
Cost of investments sold 34,501
------------------
Net realized capital gain (loss) from sales of investments 5,711
Net change in unrealized appreciation/depreciation of investments:
Beginning of the period 3,269
End of the period 64,118
------------------
Net change in unrealized appreciation/depreciation of investments 60,849
Net realized and unrealized capital gain (loss) from investments 66,560
------------------
Increase (decrease) from operations $67,015
==================
</TABLE>
See accompanying notes.
12
<PAGE>
<TABLE>
<CAPTION>
Oppenheimer
Main Street Oppenheimer WRL VKAM
Growth & Oppenheimer High Strategic Emerging WRL Janus WRL Janus
Income Income Bond Growth Global Growth
Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 1,939 $ 1,030 $ 1,109 $182,323 $154,719 $ 974,862
6,228 2,344 1,556 4,502 11,832 30,429
- -------------------------------------------------------------------------------------------------------------------
(4,289) (1,314) (447) 177,821 142,887 944,433
27,452 49,776 11,354 14,757 32,257 107,305
22,645 51,158 11,780 8,831 26,066 73,709
- -------------------------------------------------------------------------------------------------------------------
4,807 (1,382) (426) 5,926 6,191 33,596
3,103 90 38 3,027 4,164 21,566
109,151 3,147 5,974 308,216 662,740 562,442
- -------------------------------------------------------------------------------------------------------------------
106,048 3,057 5,936 305,189 658,576 540,876
110,855 1,675 5,510 311,115 664,767 574,472
- -------------------------------------------------------------------------------------------------------------------
$106,566 $ 361 $ 5,063 $488,936 $807,654 $1,518,905
===================================================================================================================
</TABLE>
13
<PAGE>
PFL Retirement Builder Variable Annuity Account
- Retirement Income Builder II Variable Annuity
Statements of Changes in Contract Owners' Equity
Year ended December 31, 1999, and the period
from September 30, 1998 (commencement of
operations) through December 31, 1998
<TABLE>
<CAPTION>
AIM V.I. Capital AIM V.I. Government
Appreciation Subaccount Securities Subaccount
------------------------- -------------------------
1999 1998 1999 1998
------------------------- -------------------------
<S> <C> <C> <C> <C>
Operations:
Net investment income (loss) $ 5,475 $ 147 $ 4,799 $ 49
Net realized capital gain (loss) 2,762 53 (1,028) -
Net change in unrealized appreciation/
depreciation of investments 81,743 1,338 (5,345) (66)
------------------------- -------------------------
Increase (decrease) from operations 89,980 1,538 (1,574) (17)
Contract transactions:
Net contract purchase payments 154,568 7,425 109,199 1,999
Transfer payments from (to) other
subaccounts or general account 152,311 17,965 86,916 252
Contract terminations, withdrawals and
other deductions (10,984) - (12,687) -
------------------------- -------------------------
Increase from contract transactions 295,895 25,390 183,428 2,251
------------------------- -------------------------
Net increase in contract owners' equity 385,875 26,928 181,854 2,234
Contract owners' equity:
Beginning of the period 26,928 - 2,234 -
------------------------- -------------------------
End of the period $412,803 $26,928 $184,088 $2,234
========================= =========================
</TABLE>
See accompanying notes.
14
<PAGE>
<TABLE>
<CAPTION>
AIM V.I. Growth & AIM V.I. Value Dreyfus Stock Index
Income Subaccount Subaccount Subaccount
------------------------------ --------------------------- ---------------------------
1999 1998 1999 1998 1999 1998
------------------------------ --------------------------- ---------------------------
<S> <C> <C> <C> <C> <C>
$ 3,863 $ 557 $ 24,626 $ 3,723 $ 10,113 $ 52
9,319 2,485 6,233 23 7,099 3
233,404 1,179 275,848 6,954 147,383 1,024
------------------------------ --------------------------- ---------------------------
246,586 4,221 306,707 10,700 164,595 1,079
676,268 11,725 687,020 59,208 835,424 18,300
521,859 27,144 1,325,042 60,972 733,732 8,586
(18,769) - (16,244) - (14,747) -
------------------------------ --------------------------- ---------------------------
1,179,358 38,869 1,995,818 120,180 1,554,409 26,886
------------------------------ --------------------------- ---------------------------
1,425,944 43,090 2,302,525 130,880 1,719,004 27,965
43,090 - 130,880 - 27,965 -
------------------------------ --------------------------- ---------------------------
$1,469,034 $43,090 $2,433,405 $130,880 $1,746,969 $27,965
============================== =========================== ===========================
</TABLE>
15
<PAGE>
PFL Retirement Builder Variable Annuity Account
- Retirement Income Builder II Variable Annuity
Statements of Changes in Contract Owners' Equity (continued)
<TABLE>
<CAPTION>
Dreyfus Money Market Dreyfus Small Company Stock
Subaccount Subaccount
------------------------- ---------------------------
1999 1998 1999 1998
------------------------- ---------------------------
<S> <C> <C> <C> <C>
Operations:
Net investment income (loss) $ 4,644 $ 170 $ (651) $ -
Net realized capital gain (loss) - - 717 1
Net change in unrealized appreciation/
depreciation of investments - - 14,661 558
------------------------- ---------------------------
Increase (decrease) from operations 4,644 170 14,727 559
Contract transactions:
Net contract purchase payments 101,313 54,558 85,054 2,474
Transfer payments from (to) other
subaccounts or general account 100,035 37 78,391 1,079
Contract terminations, withdrawals and
other deductions (2,861) - (3,227) -
------------------------- ---------------------------
Increase from contract transactions 198,487 54,595 160,218 3,553
------------------------- ---------------------------
Net increase in contract owners' equity 203,131 54,765 174,945 4,112
Contract owners' equity:
Beginning of the period 54,765 - 4,112 -
------------------------- ---------------------------
End of the period $257,896 $54,765 $179,057 $4,112
========================= ===========================
</TABLE>
See accompanying notes.
16
<PAGE>
<TABLE>
<CAPTION>
MFS Foreign & Colonial MFS Research Subaccount
MFS Emerging Growth Subaccount Emerging Markets Equity Subaccount
- ---------------------------------- --------------------------------- ---------------------------------
1999 1998 1999 1998 1999 1998
- ---------------------------------- --------------------------------- ---------------------------------
<S> <C> <C> <C> <C> <C>
$ (3,884) $ (26) $ (82) $ 32 $ (205) $ (7)
8,157 596 930 - 1,448 1
299,945 2,076 1,470 211 21,869 565
- ---------------------------------- --------------------------------- ---------------------------------
304,218 2,646 2,318 243 23,112 559
293,420 6,520 - 2,002 113,711 2,001
251,749 23,237 6,001 182 26,671 (135)
(5,040) - (2,935) - (3,451) -
- ---------------------------------- --------------------------------- ---------------------------------
540,129 29,757 3,066 2,184 136,931 1,866
- ---------------------------------- --------------------------------- ---------------------------------
844,347 32,403 5,384 2,427 160,043 2,425
32,403 - 2,427 - 2,425 -
- ---------------------------------- --------------------------------- ---------------------------------
$876,750 $32,403 $ 7,811 $2,427 $162,468 $2,425
================================== ================================= =================================
</TABLE>
17
<PAGE>
PFL Retirement Builder Variable Annuity Account
- Retirement Income Builder II Variable Annuity
Statements of Changes in Contract Owners' Equity (continued)
<TABLE>
<CAPTION>
MFS Total Return Subaccount MFS Utilities Subaccount
--------------------------------- ---------------------------------
1999 1998 1999 1998
--------------------------------- ---------------------------------
<S> <C> <C> <C> <C>
Operations:
Net investment income (loss) $ 11,199 $ (29) $ 25,935 $ (36)
Net realized capital gain (loss) (2,794) 2 5,944 -
Net change in unrealized appreciation/
depreciation of investments (6,797) 896 369,602 1,721
--------------------------------- ---------------------------------
Increase (decrease) from operations 1,608 869 401,481 1,685
Contract transactions:
Net contract purchase payments 470,743 38,899 848,801 38,889
Transfer payments from (to) other
subaccounts or general account 530,092 3,809 1,079,373 40,725
Contract terminations, withdrawals and
other deductions (16,482) - (23,052) -
--------------------------------- ---------------------------------
Increase from contract transactions 984,353 42,708 1,905,122 79,614
-------------------------------- ---------------------------------
Net increase in contract owners' equity 985,961 43,577 2,306,603 81,299
Contract owners' equity:
Beginning of the period 43,577 - 81,299 -
-------------------------------- ---------------------------------
End of the period $1,029,538 $43,577 $2,387,902 $81,299
================================= =================================
</TABLE>
See accompanying notes.
18
<PAGE>
<TABLE>
<CAPTION>
Oppenheimer Main
Oppenheimer Global Oppenheimer Capital Street Growth & Income
Securities Subaccount Appreciation Subaccount Subaccount
- ---------------------------------- --------------------------------- ---------------------------------
1999 1998 1999 1998 1999 1998
- ---------------------------------- --------------------------------- ---------------------------------
<S> <C> <C> <C> <C> <C>
$ 56 $ (9) $ 455 $ (33) $ (4,289) $ (45)
1,987 2 5,711 8 4,807 -
26,007 720 60,849 3,269 106,048 3,103
- ---------------------------------- --------------------------------- ---------------------------------
28,050 713 67,015 3,244 106,566 3,058
21,427 1,999 178,547 29,615 426,130 30,429
57,926 3,517 81,939 10,001 646,076 36,038
(3,965) - (5,984) - (6,677) -
- ---------------------------------- --------------------------------- ---------------------------------
75,388 5,516 254,502 39,616 1,065,529 66,467
- ---------------------------------- --------------------------------- ---------------------------------
103,438 6,229 321,517 42,860 1,172,095 69,525
6,229 - 42,860 - 69,525 -
- ---------------------------------- --------------------------------- ---------------------------------
$109,667 $6,229 $364,377 $42,860 $1,241,620 $69,525
================================== ================================= =================================
</TABLE>
19
<PAGE>
PFL Retirement Builder Variable Annuity Account
- Retirement Income Builder II Variable Annuity
Statements of Changes in Contract Owners' Equity (continued)
<TABLE>
<CAPTION>
Oppenheimer High Income Oppenheimer Strategic Bond
Subaccount Subaccount
--------------------------------- ---------------------------------
1999 1998 1999 1998
--------------------------------- ---------------------------------
<S> <C> <C> <C> <C>
Operations:
Net investment income (loss) $ (1,314) $ (8) $ (447) $ (7)
Net realized capital gain (loss) (1,382) - (426) -
Net change in unrealized appreciation/
depreciation of investments 3,057 90 5,936 38
--------------------------------- ---------------------------------
Increase (decrease) from operations 361 82 5,063 31
Contract transactions:
Net contract purchase payments 158,479 3,001 111,054 2,025
Transfer payments from (to) other
subaccounts or general account 332,880 1,517 176,155 723
Contract terminations, withdrawals and
other deductions (8,308) - (8,000) -
--------------------------------- ---------------------------------
Increase from contract transactions 483,051 4,518 279,209 2,748
--------------------------------- ---------------------------------
Net increase in contract owners' equity 483,412 4,600 284,272 2,779
Contract owners' equity:
Beginning of the period 4,600 - 2,779 -
--------------------------------- ---------------------------------
End of the period $488,012 $4,600 $287,051 $2,779
================================= =================================
</TABLE>
See accompanying notes.
20
<PAGE>
<TABLE>
<CAPTION>
WRL VKAM Emerging Growth Subaccount WRL Janus Global Subaccount WRL Janus Growth Subaccount
- ------------------------------------ -------------------------------- ------------------------------
1999 1998 1999 1998 1999 1998
- ------------------------------------ -------------------------------- ------------------------------
<S> <C> <C> <C> <C> <C>
$ 177,821 $ 747 $ 142,887 $ 783 $ 944,433 $ 43
5,926 9 6,191 502 33,596 53
305,189 3,027 658,576 4,164 540,876 21,566
- ------------------------------------ -------------------------------- ------------------------------
488,936 3,783 807,654 5,449 1,518,905 21,662
481,961 1,999 703,413 61,367 2,486,598 87,399
513,327 20,321 1,116,788 59,122 2,250,398 135,566
(8,449) - (5,659) - (17,686) -
- ------------------------------------ -------------------------------- ------------------------------
986,839 22,320 1,814,542 120,489 4,719,310 222,965
- ------------------------------------ -------------------------------- ------------------------------
1,475,775 26,103 2,622,196 125,938 6,238,215 244,627
26,103 - 125,938 - 244,627 -
- ------------------------------------ -------------------------------- ------------------------------
$1,501,878 $26,103 $2,748,134 $125,938 $6,482,842 $244,627
==================================== ================================ ==============================
</TABLE>
21
<PAGE>
PFL Retirement Builder Variable Annuity Account
- Retirement Income Builder II Variable Annuity
Notes to Financial Statements
December 31, 1999
1. Organization and Summary of Significant Accounting Policies
Organization
PFL Retirement Builder Variable Annuity Account (the "Mutual Fund Account") is a
segregated investment account of PFL Life Insurance Company ("PFL Life"), an
indirect wholly-owned subsidiary of AEGON N.V., a holding company organized
under the laws of The Netherlands.
The Mutual Fund Account is registered with the Securities and Exchange
Commission as a Unit Investment Trust pursuant to provisions of the Investment
Company Act of 1940. The Mutual Fund Account consists of sixty-one investment
subaccounts, four of which are invested in specific portfolios of the AIM
Variable Insurance Funds, Inc., one of which is invested in the Dreyfus Stock
Index Fund, two of which are invested in the Dreyfus Variable Investment Fund,
five of which are invested in the MFS Variable Insurance Trust, five of which
are invested in the Oppenheimer Variable Account Funds, and three of which are
invested in the WRL Series Fund, Inc. (each a "Series Fund" and collectively the
"Series Funds"). Activity in these twenty investment subaccounts is available to
contract owners of the Retirement Income Builder II Variable Annuity. The
remaining forty-one subaccounts (not presented herein), as well as certain of
the aforementioned twenty investment subaccounts, are available for investment
by contract owners of the Retirement Income Builder Variable Annuity, the
Portfolio Select Variable Annuity, The One Income Annuity, and the PFL Immediate
Income Builder, also offered by PFL Life. The amounts reported herein represent
the activity related to contract owners of the Retirement Income Builder II
Variable Annuity only.
The Oppenheimer Capital Appreciation Fund and the Oppenheimer Capital
Appreciation Subaccount were formerly known as the Oppenheimer Growth Fund and
the Oppenheimer Growth Subaccount. The Oppenheimer Main Street Growth & Income
Fund and the Oppenheimer Main Street Growth & Income Subaccount were formerly
known as the Oppenheimer Growth & Income Fund and Oppenheimer Growth & Income
Subaccount.
Investments
Net purchase payments received by the Mutual Fund Account for the Retirement
Income Builder II Variable Annuity are invested in the portfolios of the Series
Funds, as selected by the contract owner. Investments are stated at the closing
net asset values per share as of December 31, 1999.
Realized capital gains and losses from sale of shares in the mutual funds are
determined on the first-in, first-out basis. Investment transactions are
accounted for on the trade date (date the order to buy or sell is executed) and
dividend income is recorded on the ex-dividend date. Unrealized gains or losses
from investments in the Series Funds are credited or charged to contract owners'
equity.
22
<PAGE>
PFL Retirement Builder Variable Annuity Account
- Retirement Income Builder II Variable Annuity
Notes to Financial Statements (continued)
1. Organization and Summary of Significant Accounting Policies (continued)
Dividend Income
Dividends received from the Series Funds investments are reinvested to purchase
additional mutual fund shares.
2. Investments
A summary of the mutual fund investments at December 31, 1999 follows:
<TABLE>
<CAPTION>
Number of Net Asset Value Market
Shares Held Per Share Value Cost
----------------------------------------------------------------
AIM Variable Insurance Funds, Inc.:
<S> <C> <C> <C> <C>
AIM V.I. Capital Appreciation Fund
11,602.222 $35.58 $ 412,807 $ 329,726
AIM V.I. Government Securities Fund
17,317.835 10.63 184,089 189,500
AIM V.I. Growth & Income Fund
46,503.800 31.59 1,469,055 1,234,472
AIM V.I. Value Fund 72,639.571 33.50 2,433,426 2,150,624
Dreyfus Stock Index Fund 45,434.889 38.45 1,746,975 1,598,568
Dreyfus Variable Investment Fund:
Dreyfus Money Market Portfolio 257,895.850 1.00 257,896 257,896
Dreyfus Small Company Stock
Portfolio 10,728.557 16.69 179,060 163,841
MFS Variable Insurance Trust:
MFS Emerging Growth Series 23,109.222 37.94 876,764 574,743
MFS Foreign & Colonial Emerging
Markets Equity Series
958.543 8.15 7,812 6,131
MFS Research Series 6,961.018 23.34 162,470 140,036
MFS Total Return Series 58,002.877 17.75 1,029,551 1,035,452
MFS Utilities Series 98,838.313 24.16 2,387,934 2,016,611
Oppenheimer Variable Account Funds:
Oppenheimer Global Securities Fund
3,282.497 33.41 109,668 82,941
Oppenheimer Capital Appreciation
Fund 7,311.059 49.84 364,383 300,265
Oppenheimer Main Street Growth &
Income Fund 50,411.156 24.63 1,241,627 1,132,476
Oppenheimer High Income Fund 45,523.652 10.72 488,014 484,867
Oppenheimer Strategic Bond Fund
57,756.803 4.97 287,051 281,077
</TABLE>
23
<PAGE>
PFL Retirement Builder Variable Annuity Account
- Retirement Income Builder II Variable Annuity
Notes to Financial Statements (continued)
2. Investments (continued)
<TABLE>
<CAPTION>
Number of Net Asset Value Market
Shares Held Per Share Value Cost
------------------------------------------------------------------
WRL Series Fund, Inc.:
<S> <C> <C> <C> <C>
WRL VKAM Emerging Growth 32,645.347 $46.007 $1,501,899 $1,193,683
WRL Janus Global 73,360.329 37.461 2,748,169 2,085,429
WRL Janus Growth 83,117.383 77.996 6,482,829 5,920,387
</TABLE>
The aggregate cost of purchases and proceeds from sales of investments were as
follows:
<TABLE>
<CAPTION>
Period from September 30,
Year ended 1998 through
December 31, 1999 December 31, 1998
------------------------------ ----------------------------
Purchases Sales Purchases Sales
------------------------------ ----------------------------
<S> <C> <C> <C> <C>
AIM Variable Insurance Funds, Inc.:
AIM V.I. Capital Appreciation Fund $ 313,033 $ 11,660 $ 25,811 $ 273
AIM V.I. Government Securities Fund 274,449 86,222 2,307 6
AIM V.I. Growth & Income Fund 1,249,955 66,715 64,919 25,491
AIM V.I. Value Fund 2,049,723 29,263 124,009 101
Dreyfus Stock Index Fund 1,644,727 80,201 26,956 16
Dreyfus Variable Investment Fund:
Dreyfus Money Market Portfolio 496,186 293,055 54,828 63
Dreyfus Small Company Stock Portfolio 165,012 5,443 3,559 5
MFS Variable Insurance Trust:
MFS Emerging Growth Series 572,126 35,869 33,560 3,827
MFS Foreign & Colonial Emerging Markets
Equity Series 5,999 3,013 2,219 4
MFS Research Series 167,388 30,660 1,866 7
MFS Total Return Series 1,079,766 84,201 42,708 29
MFS Utilities Series 2,000,707 69,619 79,583 4
Oppenheimer Variable Account Funds:
Oppenheimer Global Securities Fund 82,788 7,344 5,517 9
Oppenheimer Capital Appreciation Fund 295,173 40,212 39,614 29
Oppenheimer Main Street Growth & Income Fund 1,088,697 27,452 66,426 2
Oppenheimer High Income Fund 531,515 49,776 4,515 5
Oppenheimer Strategic Bond Fund 290,115 11,354 2,749 7
WRL Series Fund, Inc.:
WRL VKAM Emerging Growth 1,179,434 14,757 23,104 33
WRL Janus Global 1,989,718 32,257 125,337 4,062
WRL Janus Growth 5,771,026 107,305 223,294 277
</TABLE>
24
<PAGE>
PFL Retirement Builder Variable Annuity Account
- Retirement Income Builder II Variable Annuity
Notes to Financial Statements (continued)
3. Contract Owners' Equity
A summary of deferred annuity contracts terminable by owners at December 31,
1999 follows:
<TABLE>
<CAPTION>
Return of Premium Death Benefit
---------------------------------------------------------
Accumulation Accumulation Total Contract
Subaccount Units Owned Unit Value Value
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
AIM V.I. Capital Appreciation 84,511.204 $1.766094 $ 149,255
AIM V.I. Government Securities 124,585.938 0.971172 120,994
AIM V.I. Growth & Income 438,692.206 1.671780 733,397
AIM V.I. Value 526,714.786 1.624758 855,784
Dreyfus Stock Index 624,164.914 1.439480 898,473
Dreyfus Money Market 123,716.494 1.044306 129,198
Dreyfus Small Company Stock 85,044.523 1.268047 107,840
MFS Emerging Growth 185,758.204 2.210407 410,601
MFS Foreign & Colonial Emerging Markets Equity 3,624.645 1.431150 5,187
MFS Research 58,376.165 1.485750 86,732
MFS Total Return 349,475.124 1.095980 383,018
MFS Utilities 744,104.079 1.416577 1,054,081
Oppenheimer Global Securities 19,735.145 1.880860 37,119
Oppenheimer Capital Appreciation 104,929.282 1.767873 185,502
Oppenheimer Main Street Growth & Income 369,611.788 1.429320 528,294
Oppenheimer High Income 189,255.301 1.058469 200,321
Oppenheimer Strategic Bond 159,454.033 1.030527 164,322
WRL VKAM Emerging Growth 279,435.662 2.589491 723,596
WRL Janus Global 687,059.623 2.035403 1,398,443
WRL Janus Growth 1,819,121.129 2.023744 3,681,435
</TABLE>
25
<PAGE>
PFL Retirement Builder Variable Annuity Account
- Retirement Income Builder II Variable Annuity
Notes to Financial Statements (continued)
3. Contract Owners' Equity (continued)
<TABLE>
<CAPTION>
5% Annually Compounding Death Benefit
Annual Step-Up Death Benefit
---------------------------------------------------------
Accumulation Accumulation Total Contract
Subaccount Units Owned Unit Value Value
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
AIM V.I. Capital Appreciation 149,502.305 $ 1.762835 $ 263,548
AIM V.I. Government Securities 65,086.922 0.969383 63,094
AIM V.I. Growth & Income 440,846.470 1.668693 735,637
AIM V.I. Value 972,784.807 1.621757 1,577,621
Dreyfus Stock Index 590,536.086 1.436823 848,496
Dreyfus Money Market 123,465.646 1.042375 128,698
Dreyfus Small Company Stock 56,266.889 1.265697 71,217
MFS Emerging Growth 211,278.628 2.206323 466,149
MFS Foreign & Colonial Emerging Markets Equity 1,837.073 1.428496 2,624
MFS Research 51,069.228 1.482998 75,736
MFS Total Return 590,994.565 1.093953 646,520
MFS Utilities 943,325.341 1.413957 1,333,821
Oppenheimer Global Securities 38,642.828 1.877387 72,548
Oppenheimer Capital Appreciation 101,367.692 1.764620 178,875
Oppenheimer Main Street Growth & Income 499,990.413 1.426679 713,326
Oppenheimer High Income 272,300.459 1.056520 287,691
Oppenheimer Strategic Bond 119,315.055 1.028609 122,729
WRL VKAM Emerging Growth 301,047.760 2.585245 778,282
WRL Janus Global 652,947.842 2.067073 1,349,691
WRL Janus Growth 55,771.471 50.230109 2,801,407
</TABLE>
26
<PAGE>
PFL Retirement Builder Variable Annuity Account
- Retirement Income Builder II Variable Annuity
Notes to Financial Statements (continued)
3. Contract Owners' Equity (continued)
A summary of changes in contract owners' account units for the year ended
December 31, 1999 and the period from September 30, 1998 through December 31,
1998, follows:
<TABLE>
<CAPTION>
AIM V.I. AIM V.I.
AIM V.I. Capital Government Growth & AIM V.I. Dreyfus Stock
Appreciation Securities Income Value Index
Subaccount Subaccount Sub-account Sub-account Sub-account
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Units purchased 18,744 2,002 32,040 98,945 21,335
Units redeemed and transferred 3,039 240 2,144 4,429 1,815
------------------------------------------------------------------------------------
Units outstanding at December 31, 1998 21,783 2,242 34,184 103,374 23,150
Units purchased 137,967 226,184 760,343 907,636 874,980
Units redeemed and transferred 74,263 (38,753) 85,012 488,490 316,571
------------------------------------------------------------------------------------
Units outstanding at December 31, 1999 234,013 189,673 879,539 1,499,500 1,214,701
====================================================================================
</TABLE>
<TABLE>
<CAPTION>
MFS Foreign &
Dreyfus Money Dreyfus Small MFS Emerging Colonial Emerging
Market Company Stock Growth Markets Equity MFS Research
Sub-account Sub-account Sub-account Sub-account Sub-account
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Units purchased 54,284 3,238 25,310 2,002 2,002
Units redeemed and transferred (2) 305 283 312 (2)
-------------------------------------------------------------------------------------
Units outstanding at December 31, 1998 54,282 3,543 25,593 2,314 2,000
Units purchased 448,011 98,374 302,962 403 90,931
Units redeemed and transferred (255,111) 39,394 68,482 2,745 16,514
-------------------------------------------------------------------------------------
Units outstanding at December 31, 1999 247,182 141,311 397,037 5,462 109,445
=====================================================================================
</TABLE>
27
<PAGE>
PFL Retirement Builder Variable Annuity Account
- Retirement Income Builder II Variable Annuity
Notes to Financial Statements (continued)
3. Contract Owners' Equity (continued)
<TABLE>
<CAPTION>
MFS Oppenheimer
Total MFS Oppenheimer Capital Oppenheimer Main
Return Utilities Global Securities Appreciation Street Growth &
Sub-account Sub-account Subaccount Subaccount Income Subaccount
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Units purchased 39,438 71,973 4,802 33,172 57,402
Units redeemed and transferred 1,051 2,189 383 751 1,088
-------------------------------------------------------------------------------------
Units outstanding at December 31, 1998 40,489 74,162 5,185 33,923 58,490
Units purchased 637,119 1,109,560 19,717 164,058 532,390
Units redeemed and transferred 262,862 503,707 33,476 8,316 278,722
-------------------------------------------------------------------------------------
Units outstanding at December 31, 1999 940,470 1,687,429 58,378 206,297 869,602
=====================================================================================
</TABLE>
<TABLE>
<CAPTION>
Oppenheimer WRL VKAM WRL Janus WRL Janus
Oppenheimer High Strategic Bond Emerging Growth Global Growth
Income Subaccount Subaccount Sub-account Sub-account Sub-account
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Units purchased 2,975 2,504 20,432 98,571 85,911
Units redeemed and transferred 1,502 236 (2) 5,256 3,998
----------------------------------------------------------------------------------
Units outstanding at December 31, 1998 4,477 2,740 20,430 103,827 89,909
Units purchased 271,039 144,725 377,563 845,752 1,607,303
Units redeemed and transferred 186,040 131,304 182,490 390,428 177,681
----------------------------------------------------------------------------------
Units outstanding at December 31, 1999 461,556 278,769 580,483 1,340,007 1,874,893
==================================================================================
</TABLE>
4. Administrative, Mortality and Expense Risk Charges
PFL Life deducts a daily administrative charge from the net assets of the Mutual
Fund Account at an effective annual rate of .15% of net assets. In addition,
administrative charges include an annual charge of the lesser of 2% of the
policy value or $30 per contract.
28
<PAGE>
PFL Retirement Builder Variable Annuity Account
- Retirement Income Builder II Variable Annuity
Notes to Financial Statements (continued)
4. Administrative, Mortality and Expense Risk Charges (continued)
PFL Life deducts a daily charge for assuming certain mortality and expense
risks. For the 5% Annually Compounding Death Benefit and the Annual Step-Up
Death Benefit, this charge is equal to an effective annual rate of 1.25% of the
value of the contract owners' individual account. For the Return of Premium
Death Benefit, the corresponding charge is equal to an effective annual rate of
1.10% of the value of the contract owners' individual account. PFL Life also
deducts a daily charge equal to an annual rate of .15% of the contract owners'
account for administrative expenses.
5. Taxes
Operations of the Mutual Fund Account form a part of PFL Life, which is taxed as
a life insurance company under Subchapter L of the Internal Revenue Code of
1986, as amended (the "Code"). The operations of the Mutual Fund Account are
accounted for separately from other operations of PFL Life for purposes of
federal income taxation. The Mutual Fund Account is not separately taxable as a
regulated investment company under Subchapter M of the Code and is not otherwise
taxable as an entity separate from PFL Life. Under existing federal income tax
laws, the income of the Mutual Fund Account, to the extent applied to increase
reserves under the variable annuity contracts, is not taxable to PFL Life.
29
<PAGE>
PORTFOLIO SELECT
VARIABLE ANNUITYSM
Issued Through
PFL RETIREMENT BUILDER VARIABLE
ANNUITY ACCOUNT
by
PFL LIFE INSURANCE COMPANY
Prospectus May 1, 2000
This flexible premium annuity policy has many investment choices. There is a
fixed account, which offers interest at rates that are guaranteed by PFL Life
Insurance Company (PFL), and thirty-nine mutual fund portfolios offered by
various underlying funds. You can choose any combination of the investment
choices. You bear the entire investment risk for all amounts you put in the
mutual fund portfolios.
This prospectus and the mutual fund prospectuses give you important
information about the policies and the mutual funds. Please read them
carefully before you invest and keep them for future reference.
If you would like more information about the Portfolio Select Variable
AnnuitySM policy, you can obtain a free copy of the Statement of Additional
Information (SAI) dated May 1, 2000. Please call us at (800) 525-6205 or write
us at: PFL Life Insurance Company, Financial Markets Division, Variable
Annuity Department, 4333 Edgewood Road N.E., Cedar Rapids, Iowa, 52499-0001. A
registration statement, including the SAI, has been filed with the Securities
and Exchange Commission (SEC) and is incorporated herein by reference.
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 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 policies and the mutual funds:
. are not bank deposits
. are not federally insured
. are not endorsed by any bank or government agency
. are not guaranteed to achieve their goal
. are subject to risks, including loss of premium
The Securities and Exchange Commission has not approved or disapproved these
securities, or passed upon the adequacy of this prospectus. Any representation
to the contrary is a criminal offense.
AIM Variable Insurance Funds
AIM V.I. Capital Appreciation Fund
AIM V.I. Growth and Income Fund
AIM V.I. International Equity Fund
AIM V.I. Value Fund
AIM V.I. Dent Demographic Trends Fund
Davis Variable Account Fund, Inc.
Davis Value Portfolio
Evergreen Variable Trust
Evergreen VA Fund
Evergreen VA Foundation Fund
Evergreen VA Global Leaders Fund
Evergreen VA Growth and Income Fund
Evergreen VA International Growth Fund
Evergreen VA Capital Growth Fund
Evergreen VA Growth Fund
Evergreen VA High Income Fund
Federated Insurance Series
Federated American Leaders Fund II
Federated High Income Bond Fund II
FranklinTempleton Variable Insurance
Products Trust - Class 2
Franklin Small Cap Fund
Templeton Asset Strategy Fund
Templeton International Securities Fund
Templeton Developing Markets Securities Fund
MFS(R) Variable Insurance Trust SM
MFS Emerging Growth Series
MFS Research Series
MFS Total Return Series
MFS Utilities Series
Oppenheimer Variable Account Funds
Oppenheimer Capital Appreciation Fund/VA
Oppenheimer Main Street Growth & Income Fund/VA
Oppenheimer Multiple Strategies Fund/VA
Oppenheimer Strategic Bond Fund/VA
Putnam Variable Trust - Class IB Shares
Putnam VT Global Growth Fund
Putnam VT Growth and Income Fund
Putnam VT Growth Opportunities Fund
Putnam VT Money Market Fund
Putnam VT New Value Fund
Variable Insurance Products Fund
(VIP) - Service Class
Fidelity - VIP High Income Portfolio
Variable Insurance Products Fund
(VIP) - Service Class 2
Fidelity - VIP Equity-Income Portfolio
Fidelity - VIP Growth Portfolio
Variable Insurance Products Fund II (VIP II) - Initial Class
Fidelity - VIP II Index 500 Portfolio
Fidelity - VIP II Investment Grade Bond Portfolio
Variable Insurance Products Fund III
(VIP III) - Service Class
Fidelity - VIP III Growth Opportunities Portfolio
<PAGE>
TABLE OF CONTENTS Page
<TABLE>
<S> <C>
GLOSSARY OF TERMS........................................................... 3
SUMMARY..................................................................... 4
ANNUITY POLICY FEE TABLE.................................................... 8
EXAMPLES.................................................................... 11
1.THE ANNUITY POLICY........................................................ 14
2.PURCHASE.................................................................. 14
Policy Issue Requirements................................................. 14
Premium Payments.......................................................... 14
Initial Premium Requirements.............................................. 14
Additional Premium Payments............................................... 15
Maximum Total Premium Payments............................................ 15
Allocation of Premium Payments............................................ 15
Policy Value.............................................................. 15
3.INVESTMENT CHOICES........................................................ 15
The Separate Account...................................................... 15
The Fixed Account......................................................... 17
Transfers................................................................. 17
4.PERFORMANCE............................................................... 18
5.EXPENSES.................................................................. 18
Surrender Charges......................................................... 18
Excess Interest Adjustment................................................ 19
Mortality and Expense Risk Fee............................................ 19
Administrative Charges.................................................... 19
Premium Taxes............................................................. 19
Federal, State and Local Taxes............................................ 20
Transfer Fee.............................................................. 20
Family Income Protector................................................... 20
Portfolio Management Fees................................................. 20
6.ACCESS TO YOUR MONEY...................................................... 20
Surrenders................................................................ 20
Delay of Payment and Transfers............................................ 20
Excess Interest Adjustment................................................ 21
7. ANNUITY PAYMENTS (THE INCOME PHASE)...................................... 21
Annuity Payment Options................................................... 21
8.DEATH BENEFIT............................................................. 23
When We Pay A Death Benefit............................................... 23
When We Do Not Pay A Death Benefit........................................ 23
Amount of Death Benefit................................................... 24
Guaranteed Minimum Death Benefit.......................................... 24
Adjusted Partial Withdrawal............................................... 25
</TABLE>
<TABLE>
<S> <C>
9.TAXES..................................................................... 25
Annuity Policies in General............................................... 25
Qualified and Nonqualified Policies....................................... 25
Withdrawals - Qualified Policies.......................................... 25
Withdrawals - 403(b) Policies............................................. 26
Diversification and Distribution Requirements............................. 26
Withdrawals - Nonqualified Policies....................................... 26
Taxation of Death Benefit Proceeds........................................ 26
Annuity Payments.......................................................... 27
Transfers, Assignments and Exchanges of Policies.......................... 27
Possible Tax Law Changes.................................................. 27
10.ADDITIONAL FEATURES...................................................... 27
Systematic Payout Option.................................................. 27
Family Income Protector................................................... 28
Nursing Care and Terminal Condition....................................... 30
Withdrawal Option......................................................... 30
Unemployment Waiver....................................................... 30
Telephone Transactions.................................................... 30
Dollar Cost Averaging..................................................... 30
Asset Rebalancing......................................................... 31
11.OTHER INFORMATION........................................................ 31
Ownership................................................................. 31
Assignment................................................................ 31
PFL Life Insurance Company................................................ 31
The Separate Account...................................................... 31
Mixed and Shared Funding.................................................. 32
Reinstatements............................................................ 32
Voting Rights............................................................. 32
Distributor of the Policies............................................... 32
Variations in Policy Provisions........................................... 33
IMSA...................................................................... 33
Legal Proceedings......................................................... 33
Financial Statements...................................................... 33
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION................ 33
APPENDIX A
Condensed Financial Information............................................. 34
APPENDIX B
Historical Performance Data................................................. 38
</TABLE>
2
<PAGE>
GLOSSARY OF TERMS
Accumulation Unit - An accounting unit of measure used in calculating the
policy value in the separate account before the annuity commencement date.
Annuitant - The person during whose life any annuity payments involving life
contingencies will continue.
Annuity Commencement Date - The date upon which annuity payments are to
commence. The annuity commencement date may not be later than the last day of
the policy month starting after the annuitant attains age 85, except as
expressly allowed by PFL. In no event will this date be later than the last day
of the policy month following the month in which the annuitant attains age 95.
The annuity commencement date may be required to be earlier for qualified
policies.
Annuity Payment Option - A method of receiving a stream of annuity payments
selected by the owner.
Cash Value - The policy value increased or decreased by an excess interest
adjustment, less the annual service charge, and less any applicable surrender
charge, premium taxes and family income protector rider fee.
Cumulative Free Percentage - The percentage (as applied to the policy value)
which is available free of any surrender charge.
Excess Interest Adjustment - A positive or negative adjustment to amounts
withdrawn upon partial or full surrenders from the fixed account guaranteed
period options, or to amounts applied to annuity payment options. The
adjustment reflects changes in the interest rates declared by PFL since the
date any payment was received by (or an amount was transferred to) the
guaranteed period option. The excess interest adjustment can either decrease or
increase the amount to be received by the owner upon full surrender or
commencement of annuity payments, depending upon whether there has been an
increase or decrease in interest rates, respectively.
Fixed Account - One or more investment choices under the policy that are part
of PFL's general assets that are not in separate account.
Guaranteed Period Options - The various guaranteed interest rate periods of the
fixed account which PFL may offer and into which premium payments may be paid
or amounts transferred.
Owner - The person who may exercise all rights and privileges under the policy.
The owner during the lifetime of the annuitant and prior to the annuity
commencement date is the person designated as the owner or a successor owner in
the information that we require to issue a policy.
Policy Value - On or before the annuity commencement date, the policy value is
equal to the owner's:
. premium payments; minus
. partial withdrawals (including the net effect of any applicable excess
interest adjustments and/or surrender charges on such withdrawals); plus
. interest credited in the fixed account; plus or minus
. accumulated gains or losses in the separate account; minus
. service charges, rider fees, premium taxes and transfer fees, if any.
Separate Account - The Portfolio Select Variable Annuity division of the PFL
Retirement Builder Variable Annuity Account. The PFL Retirement Builder
Variable Annuity Account is a separate account established and registered as a
unit investment trust under the Investment Company Act of 1940, as amended (the
"1940 Act"), to which premium payments under the policies may be allocated.
Subaccount - A subdivision within the separate account, the assets of which are
invested in a specified portfolio of the underlying funds.
(Note: The SAI contains a more extensive Glossary.)
3
<PAGE>
SUMMARY
The sections in this summary correspond to sections in this prospectus, which
discuss the topics in more detail.
1. THE ANNUITY POLICY
The flexible premium variable annuity policy offered by PFL Life Insurance
Company (PFL, we, us, or our) through First Union Brokerage Services, Inc. is a
policy between you, as the owner, and PFL, an insurance company. The policy
provides a way for you to invest on a tax-deferred basis in the following
investment choices: subaccounts of the separate account, and a fixed account of
PFL. The policy is intended to accumulate money for retirement or other long-
term investment purposes.
This policy offers thirty-nine subaccounts that are listed in Section 3. Each
subaccount invests exclusively in shares of one of the portfolios of the
underlying funds. The policy value may depend on the investment experience of
the selected subaccounts. Therefore, you bear the entire investment risk with
respect to all policy value in any subaccount. You could lose the amount that
you invest.
The fixed account offers an interest rate that PFL guarantees. We guarantee to
return your investment with interest credited for all amounts allocated to the
fixed account.
You can transfer money between any of the investment choices within certain
limits. We reserve the right to impose a $10 fee for each transfer in excess of
12 transfers per policy year.
The policy, like all deferred annuity policies, has two phases: the
"accumulation phase" and the "income phase." During the accumulation phase,
earnings accumulate on a tax-deferred basis and are taxed as ordinary income
when you take them out of the policy. The income phase occurs when you begin
receiving regular payments from your policy. The money you can accumulate
during the accumulation phase will largely determine the income payments you
receive during the income phase.
2. PURCHASE
You can buy this policy with $2,000 or more under most circumstances. You can
add as little as $50 at any time during the accumulation phase.
3. INVESTMENT OPTIONS
You can allocate your premium payments to one or more of the following
investment choices described in the underlying fund prospectuses:
AIM V.I. Capital Appreciation Fund
AIM V.I. Growth and Income Fund
AIM V.I. International Equity Fund
AIM V.I. Value Fund
AIM V.I. Dent Demographic Trends Fund
Davis Value Portfolio
Evergreen VA Fund
Evergreen VA Foundation Fund
Evergreen VA Global Leaders Fund
Evergreen VA Growth and Income Fund
Evergreen VA International Growth Fund
Evergreen VA Capital Growth Fund
Evergreen VA Growth Fund
Evergreen VA High Income Fund
Federated American Leaders Fund II
Federated High Income Bond Fund II
Franklin Small Cap Fund - Class 2 (/1/)
Templeton Asset Strategy Fund - Class 2 (/2/)
Templeton International Securities Fund - Class 2 (/3/)
Templeton Developing Markets Securities Fund - Class 2
MFS Emerging Growth Series
MFS Research Series
MFS Total Return Series
MFS Utilities Series
Oppenheimer Capital Appreciation Fund/VA
Oppenheimer Main Street Growth & Income Fund/VA
Oppenheimer Multiple Strategies Fund/VA
Oppenheimer Strategic Bond Fund/VA
Putnam VT Global Growth Fund - Class IB Shares
Putnam VT Growth and Income Fund - Class IB Shares
Putnam VT Growth Opportunities Fund - Class IB Shares
Putnam VT Money Market Fund - Class IB Shares
Putnam VT New Value Fund - Class IB Shares
Fidelity - VIP High Income Portfolio - Service Class
Fidelity - VIP Equity-Income Portfolio - Service Class 2
Fidelity - VIP Growth Portfolio - Service Class 2
Fidelity - VIP II Index 500 Portfolio - Initial Class
Fidelity - VIP II Investment Grade Bond Portfolio - Initial Class
Fidelity - VIP III Growth Opportunities Portfolio - Service Class
(/1/Merged)with Franklin Small Cap Investment Fund, which was previously
offered under the contract.
4
<PAGE>
(/2/Formerly)known as Templeton Asset Allocation Fund
(/3/Formerly)known as Templeton International Fund
Depending upon their investment performance, you can make or lose money in any
of these subaccounts.
You can also allocate your premium payments to the fixed account.
4. PERFORMANCE
The value of the policy will vary up or down depending upon the investment
performance of the subaccounts you choose. We provide performance information
in Appendix B and in the SAI. This data does not indicate future performance.
5. EXPENSES
No deductions are made from premium payments at the time you buy the policy so
that the full amount of each premium payment is invested in one or more of your
investment choices.
We may deduct a surrender charge of up to 6.0% of premium payments withdrawn
within five years after the premium is paid. However, after the tenth policy
year, no surrender charges apply, regardless of when you made your last premium
payment. To calculate surrender charges, we consider the premium you paid to
come out before any earnings.
Full surrenders and partial withdrawals from a guaranteed period option of the
fixed account may also be subject to an excess interest adjustment, which may
increase or decrease the amount you receive. This adjustment may also apply to
amounts applied to an annuity payment option from a guaranteed period option of
the fixed account.
We deduct daily mortality and expense risk fees and administrative charges of
either 1.25% or 1.40% per year from the assets in each subaccount, depending on
the guaranteed minimum death benefit you choose.
During the accumulation phase, we deduct an annual service charge of no more
than $30 from the policy value on each policy anniversary and at the time of
surrender. The charge is waived if either the policy value or the sum of all
premium payments, minus all partial withdrawals, is at least $50,000.
We will deduct state premium taxes, which currently range from 0% to 3.50%,
upon total surrender, payment of a death benefit or when annuity payments
begin.
If you elect the family income protector rider, there is an annual fee during
the accumulation phase of 0.30% of the minimum annuitization value. If you
receive annuity payments under the rider, then during the income phase there is
a guaranteed payment fee at an annual rate of 1.25% of the daily net asset
value in the separate account.
The value of the net assets of the subaccounts will reflect the management fee
and other expenses incurred by the underlying fund portfolios.
6. ACCESS TO YOUR MONEY
You can take out $500 or more anytime during the accumulation phase (except
under certain qualified policies). You may take out up to 10% of the policy
value free of surrender charges each policy year. The percentage that may be
taken free of surrender charges is referred to as the cumulative free
percentage. Also, withdrawals from the fixed account up to this percentage will
not be subject to an excess interest adjustment. Any cumulative free percentage
that is not taken in one year is carried forward and is available to be taken
in the following policy year free of surrender charges. Amounts withdrawn in
excess of the cumulative free percentage may be subject to a surrender charge
and excess interest adjustment. You may also have to pay income tax and a tax
penalty on any money you take out.
Access to amounts held in qualified policies may be restricted or prohibited.
7. ANNUITY PAYMENTS (THE INCOME PHASE)
The policy allows you to receive income under one of five annuity payment
options. You may choose from fixed payment options, variable payment options,
or a combination of both. If you select a variable payment option, the dollar
amount of your payments may go up or down.
5
<PAGE>
8. DEATH BENEFIT
If you are both the owner and the annuitant and you die before the income
phase begins, then your beneficiary will receive a death benefit.
Naming different persons as owner and annuitant can affect whether the death
benefit is payable and to whom amounts will be paid. Use care when naming
owners, annuitants and beneficiaries, and consult your agent if you have
questions.
You may choose one of the following guaranteed minimum death benefits:
. 5% Annually Compounding
. Annual Step-Up
. Return of Premium
Charges are lower for the Return of Premium Death Benefit than they are for
the other two.
If the owner is not the annuitant, no death benefit is paid if the owner dies.
9. TAXES
Your earnings, if any, are not taxed until you take them out. If you take
money out during the accumulation phase, earnings come out first for federal
tax purposes, and are taxed as ordinary income. If you are younger than 59 1/2
when you take money out, you may be charged a 10% federal penalty tax on the
earnings. Payments during the income phase may be considered partly a return
of your original investment so that part of each payment would not be taxable
as income.
10. ADDITIONAL FEATURES
This policy has additional features that might interest you. These include the
following:
. You can arrange to have money automatically sent to you monthly, quarterly,
semi-annually, or annually while your policy is in the accumulation phase.
This feature is referred to as the "systematic payout option." Amounts you
receive may be included in your gross income, and in certain circumstances,
may be subject to penalty taxes.
. You can elect an optional rider that guarantees you a minimum annuitization
value. This feature is called the "family income protector." There is an
extra charge for this rider and the rider may vary by state.
. Under certain medically related circumstances, we will allow you to
surrender or partially withdraw your policy value without a surrender
charge and excess interest adjustment. This feature is called the "nursing
care and terminal condition withdrawal option."
. Under certain unemployment circumstances, you may withdraw all or a portion
of the policy value free of surrender charges and excess interest
adjustments. This feature is called the "unemployment waiver."
. You may make transfer and/or change the allocation of additional premium
payments by telephone.
. You can arrange to have a certain amount of money automatically transferred
from the fixed account, either monthly or quarterly, to your choice of
subaccounts. This feature is called "dollar cost averaging."
. We will, upon your request, automatically transfer amounts among the
subaccounts on a regular basis to maintain a desired allocation of the
policy value among the various subaccounts. This feature is called "asset
rebalancing."
These features are not available in all states and may not be suitable for
your particular situation.
11. OTHER INFORMATION
Right to Cancel Period. You may return your policy for a refund. The amount of
time you have to return the policy will depend on the state where the policy
was issued. It is generally only 20 days. The amount of the refund will
generally be the policy value. We will pay the refund within 7 days after we
receive written notice of cancellation and the returned policy. The policy
will then be deemed void. In some states you may have more or less than 20
days to return a policy, or receive a refund of more (or less) than the policy
value.
No Probate. Usually, when the annuitant dies, the person you choose as your
beneficiary will
6
<PAGE>
receive the death benefit without going through probate. State laws vary on how
the amount that may be paid is treated for estate tax purposes.
Who should purchase the Policy? This policy is designed for people seeking
long-term tax-deferred accumulation of assets, generally for retirement or
other long-term purposes; and for persons who have maximized their use of other
retirement savings methods, such as 401(k) plans. The tax-deferred feature is
most attractive to people in high federal and state tax brackets. The tax
deferral features of variable annuities are unnecessary when purchased to fund
a qualified plan. You should not buy this policy if you are looking for a
short-term investment or if you cannot take the risk of losing the money that
you put in.
There are various fees and charges associated with variable annuities. You
should consider whether the features and benefits of this policy, such as the
opportunity for lifetime income payments, a guaranteed death benefit, the
guaranteed level of certain charges, and the family income protector, make this
policy appropriate for your needs.
Financial Statements. Financial statements for PFL and the subaccounts are in
the SAI.
12. 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
You may check your policy at www.pfllife.com/fmd. Follow the logon procedures.
You will need your pre-assigned Personal Identification Number ("PIN") to
access information about your policy.
7
<PAGE>
ANNUITY POLICY FEE TABLE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Policy Owner Transaction Expenses
- ------------------------------------------------
<S> <C>
Sales Load On Purchase
Payments 0
Maximum Surrender Charge (as a
% of Premium Payments
Surrendered)(/1/)(/2/) 6%
Annual Service Charge(/2/) $30 Per Policy
Transfer Fee(/2/) Currently No Fee
</TABLE>
<TABLE>
<CAPTION>
Separate Account Annual Expenses
(as a percentage of average account value)
<S> <C>
Mortality and Expense Risk Fee(/3/) 1.25%
Administrative Charge 0.15%
-----
TOTAL SEPARATE ACCOUNT ANNUAL EXPENSES 1.40%
</TABLE>
<TABLE>
- --------------------------------------------------------------------------------
<CAPTION>
Portfolio Annual Expenses/(4)/
(as a percentage of average net assets
and after expense reimbursements)
- --------------------------------------------------------------------------------
Total Portfolio
Management Other Rule Annual
Fees Expenses 12b-1 Fees Expenses
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AIM V.I. Capital Appreciation
Fund........................ 0.62% 0.11% -- 0.73%
AIM V.I. Growth and Income
Fund........................ 0.61% 0.16% -- 0.77%
AIM V.I. International Equity
Fund........................ 0.75% 0.22% -- 0.97%
AIM V.I. Value Fund.......... 0.61% 0.15% -- 0.76%
AIM V.I. Dent Demographic
Trends Fund................. 0.85% 0.55% -- 1.40%
Davis Value Portfolio(/5/)... 0.00% 1.00% -- 1.00%
Evergreen VA Fund(/6/)....... 0.87% 0.15% -- 1.02%
Evergreen VA Foundation
Fund........................ 0.83% 0.12% -- 0.95%
Evergreen VA Global Leaders
Fund(/6/)................... 0.76% 0.25% -- 1.01%
Evergreen VA Growth and In-
come Fund(/6/).............. 0.88% 0.13% -- 1.01%
Evergreen VA International
Growth Fund(/6/)............ 0.00% 1.03% -- 1.03%
Evergreen VA Capital Growth
Fund........................ 0.80% 0.38% -- 1.18%
Evergreen VA Growth Fund..... 0.70% 0.63% -- 1.33%
Evergreen VA High Income
Fund(/6/)................... 0.00% 1.02% -- 1.02%
Federated American Leaders
Fund II..................... 0.75% 0.13% -- 0.88%
Federated High Income Bond
Fund II..................... 0.60% 0.19% -- 0.79%
Franklin Small Cap Fund -
Class 2(/7/)(/8/).......... 0.55% 0.27% 0.25% 1.07%
Templeton Asset Strategy
Fund - Class 2(/7/)(/8/).... 0.60% 0.18% 0.25% 1.03%
Templeton International Secu-
rities Fund - Class
2(/7/)(/8/)................. 0.69% 0.19% 0.25% 1.13%
Templeton Developing Markets
Securities Fund -
Class 2(/7/)(/8/)........... 1.25% 0.31% 0.25% 1.81%
MFS Emerging Growth Se-
ries(/9/)................... 0.75% 0.09% -- 0.84%
MFS Research Series(/9/)..... 0.75% 0.11% -- 0.86%
MFS Total Return Se-
ries(/9/)................... 0.75% 0.15% -- 0.90%
MFS Utilities Series(/9/).... 0.75% 0.16% -- 0.91%
Oppenheimer Capital Apprecia-
tion Fund/VA................ 0.68% 0.02% -- 0.70%
Oppenheimer Main Street
Growth & Income Fund/VA..... 0.73% 0.05% -- 0.78%
Oppenheimer Multiple Strate-
gies Fund/VA................ 0.72% 0.01% -- 0.73%
Oppenheimer Strategic Bond
Fund/VA..................... 0.74% 0.04% -- 0.79%
Putnam VT Global Growth
Fund - Class IB
Shares(/10/)................ 0.61% 0.12% 0.15% 0.88%
Putnam VT Growth and Income
Fund - Class IB
Shares(/10/)................ 0.46% 0.04% 0.15% 0.65%
Putnam VT Growth
Opportunities Fund -
Class IB Shares(/10/)(/11/).. 0.70% 0.20% 0.15% 1.05%
Putnam VT Money Market Fund -
Class IB Shares(/10/)...... 0.41% 0.08% 0.15% 0.64%
Putnam VT New Value Fund -
Class IB Shares(/10/)...... 0.70% 0.10% 0.15% 0.95%
Fidelity - VIP High Income
Portfolio - Service
Class(/12/)................. 0.58% 0.11% 0.10% 0.79%
Fidelity - VIP Equity-Income
Portfolio - Service Class
2(/13/)..................... 0.48% 0.10% 0.25% 0.83%
Fidelity - VIP Growth Portfo-
lio -Service Class 2(/13/).. 0.58% 0.10% -- 0.93%
Fidelity - VIP II Index 500
Portfolio - Initial
Class(/14/)................. 0.24% 0.04% -- 0.28%
Fidelity - VIP II Investment
Grade Bond Portfolio -
Initial Class............... 0.43% 0.11% -- 0.54%
Fidelity - VIP III Growth
Opportunities Portfolio -
Service Class(/12/)......... 0.58% 0.11% 0.10% 0.79%
</TABLE>[/R]
- --------------------------------------------------------------------------------
8
<PAGE>
(/1/) The surrender charge is decreased based on the number of years since the
premium payment was made, from 6% in the year in which the premium
payment was made to 0% in the sixth year after the premium payment was
made. However, after the tenth policy year, no surrender charges apply,
regardless of when you made your last premium payment. If applicable, a
surrender charge will only be applied to withdrawals that exceed the
amount available under certain listed exceptions.
(/2/) The surrender charge and transfer fee, if any are imposed, apply to each
policy, regardless of how policy value is allocated among the separate
account and the fixed account. The service charge is the lesser of $30 or
2% of the policy value. It applies to both the fixed account and the
separate account, and is assessed on a pro rata basis relative to each
account's policy value as a percentage of the policy's total policy
value. There is no fee for the first 12 transfers per year. For
additional transfers, PFL may charge a fee of $10 per transfer, but
currently PFL does not charge for any transfers. Separate account and
annual expenses do not apply to the fixed account.
(/3/) Mortality and expense risk fees shown (1.25%) are for the "5% Annually
Compounding Death Benefit" and the "Annual Step Up Death Benefit." This
reflects a fee that is 0.15% higher than the 1.10% corresponding fee for
the "Return of Premium Death Benefit."
(/4/) The fee table information relating to the underlying funds was provided
to PFL by the underlying funds, their investment advisers or managers,
and PFL has not independently verified such information. Actual future
expenses of the portfolios may be greater or less than those shown in the
Table.
(/5/) For the Davis Value Portfolio, the management fees before waivers were
0.75% and other expenses before reimbursements were 1.54%. Therefore,
Total Portfolio Annual Expenses before waivers and other expenses before
reimbursements (reduced by custodial offset arrangements) for the period
ended December 31, 1999 were 2.29%.
(/6/) Annual results for the Evergreen VA Funds for the year ended December 31,
1999, net of expense waivers and reimbursements. If the underlying funds
had borne all expenses that were assumed or waived by the investment
advisor, the ratios for Other Expenses and Total Underlying Fund Annual
Expenses (reduced by custodial offset arrangements), respectively, would
have been as follows: 0.15%, 1.10% - Evergreen VA Fund; 0.25%, 1.20% -
Evergreen VA Global Leaders Fund; 0.13%, 1.08% - Evergreen VA Growth and
Income Fund; 1.72%, 2.47% - Evergreen VA International Growth Fund; and
1.13%, 1.83% - Evergreen VA High Income Fund.
(/7/) The fund's class 2 distribution plan or "rule 12b-1 plan" is described in
the underlying fund's prospectus. While the maximum amount payable under
the fund's class 2 rule 12b-1 plan is 0.35% per year of the fund's
average daily net assets, the Board of Trustees of Franklin Templeton
Variable Insurance Products Trust has set the current rate at 0.25% per
year.
(/8/) On February 8, 2000, a merger and reorganization was approved that
combined the assets of the fund with a similar fund of the Templeton
Variable Products Series Fund, effective May 1, 2000. On February 8,
2000, fund shareholders approved new management fees, which apply to the
combined fund effective May 1, 2000. The table shows restated total
expenses based on the new fees and assets of the fund as of December 31,
1999, and not the assets of the combined fund. However, if the table
refelcted both the new Management Fees, Other Expenses, Distribution and
Service Fees, and Total Fund Operation Expenses and the combined assets,
the funds expenses after May 1, 2000 would be estimated as: 0.55%, 0.27%,
0.25%, 1.07% - Franklin Small Cap Fund; 0.60%, 0.14%, 0.25%, 0.99% -
Templeton Asset Strategy Fund; 0.65%, 0.20%, 0.25%, 1.10% - Templeton
International Securities Fund; and 1.25%, 0.29%, 0.25%, 1.79% - Templeton
Developing Markets Securities Fund, respectively.
(/9/) Each series has an expense offset arrangement which reduces the series'
custodian fee based upon the amount of cash maintained by the series with
its custodian and dividend disbursing agent. Each series may enter into
other such arrangements and directed brokerage arrangements, which would
also have the effect of reducing the series' expenses. Other expenses do
not take into account these expense reductions, and are therefore higher
than the actual expenses of the series. The ratios for Other Expenses and
Total Underlying Fund Annual Expenses (reduced by custodial offset
arrangements), respectively, would have been as follows: 0.08%, 0.83% -
MFS Emerging Growth Series; 0.10%, 0.85% - MFS Research Series;
9
<PAGE>
0.14%, 0.85% - MFS Total Return Series; and 0.15%, 0.90% - MFS Utilities
Series.
(/10/The)Class IB 12b-1 plans provided for payments by each fund to Putnam
Mutual Funds at the annual rate of up to 0.35%. The Trustees currently
limit 12b-1 payments on Class IB shares to 0.15% of average net assets.
(/11/Expenses)shown are based on estimated expenses for the fund's first
fiscal year.
(/12/Service)Class 2 expenses are based on estimated expenses for the first
year. VIP expenses are without any reimbursement.
(/13/Fidelity)Management & Research Company agreed to reimburse a portion of
Index 500 Portfolios expenses during the period. The expenses presented
in the table are shown with this reimbursement. Without this
reimbursement, the Portfolios management fee, other expenses and total
expenses would have been: 0.24%, 0.10%, 0.34%, respectively.
(/14/A)portion of the brokerage commissions that certain funds pay was used to
reduce fund expenses. In addition, certain funds, or Fidelity Management
& Research Company 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 a portion of each
applicable fund's expenses. The total operating expenses presented in the
table are shown without these reductions. With these reductions, the
total operating expenses presented in the table for the VIP III Growth
Opportunities Portfolio would have been 0.78%.
10
<PAGE>
EXAMPLES
You would pay the following expenses on a $1,000 investment, assuming a
hypothetical 5% annual return on assets, assuming the entire policy value is in
the applicable subaccount, and assuming the family income protector rider has
not been selected:
The expenses reflect different mortality and expense risk fees depending on
which death benefit you select:
A = Return of Premium Death Benefit (1.10% charge)
B = 5% Annually Compounding Death Benefit or the Annual Step-Up Death Benefit
(1.25% charge)
<TABLE>
<CAPTION>
If the Policy is
annuitized at the end
If the Policy is of the applicable time
surrendered at the end period or if the Policy
of the applicable time is still in the
period. accumulation phase.
-----------------------------------------------
1 3 5 10 1 3 5 10
Subaccounts Year Years Years Years Year Years Years Years
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AIM V.I. Capital
Appreciation Fund A $74 $104 $118 $236 $21 $64 $110 $236
--------------------------------------------------
B $76 $109 $126 $252 $22 $68 $117 $252
- -------------------------------------------------------------------------------
AIM V.I. Growth and Income
Fund A $75 $105 $120 $241 $21 $65 $112 $241
--------------------------------------------------
B $76 $110 $128 $256 $23 $70 $119 $256
- -------------------------------------------------------------------------------
AIM V.I. International
Equity Fund A $77 $112 $130 $261 $23 $71 $122 $261
--------------------------------------------------
B $78 $116 $138 $276 $25 $76 $129 $276
- -------------------------------------------------------------------------------
AIM V.I. Value Fund A $75 $105 $120 $240 $21 $65 $111 $240
--------------------------------------------------
B $76 $110 $127 $255 $22 $69 $119 $255
- -------------------------------------------------------------------------------
AIM V.I. Dent Demographic
Trends Fund A $81 $125 $152 $304 $27 $84 $143 $304
--------------------------------------------------
B $83 $129 $160 $318 $29 $88 $151 $318
- -------------------------------------------------------------------------------
Davis Value Portfolio A $77 $113 $132 $264 $23 $72 $123 $264
--------------------------------------------------
B $79 $117 $140 $279 $25 $77 $131 $279
- -------------------------------------------------------------------------------
Evergreen VA Fund A $77 $113 $133 $266 $24 $73 $124 $266
--------------------------------------------------
B $79 $118 $141 $281 $25 $77 $132 $281
- -------------------------------------------------------------------------------
Evergreen VA Foundation
Fund A $77 $111 $129 $259 $23 $71 $121 $259
--------------------------------------------------
B $78 $116 $137 $274 $24 $75 $128 $274
- -------------------------------------------------------------------------------
Evergreen VA Global
Leaders Fund A $77 $113 $132 $264 $23 $72 $123 $264
--------------------------------------------------
B $79 $117 $140 $279 $25 $77 $131 $279
- -------------------------------------------------------------------------------
Evergreen VA Growth and
Income Fund A $77 $113 $132 $265 $25 $77 $132 $282
--------------------------------------------------
B $79 $117 $140 $280 $25 $77 $131 $280
- -------------------------------------------------------------------------------
Evergreen VA International
Growth Fund A $78 $113 $133 $267 $24 $73 $125 $267
--------------------------------------------------
B $79 $118 $141 $282 $25 $77 $132 $282
- -------------------------------------------------------------------------------
Evergreen VA Capital
Growth Fund A $79 $118 $141 $282 $25 $77 $132 $282
--------------------------------------------------
B $81 $123 $149 $297 $27 $82 $140 $297
- -------------------------------------------------------------------------------
Evergreen VA Growth Fund A $81 $123 $149 $297 $27 $82 $140 $297
--------------------------------------------------
B $82 $127 $156 $311 $28 $86 $147 $311
- -------------------------------------------------------------------------------
Evergreen VA High Income
Fund A $77 $113 $133 $266 $24 $73 $124 $266
--------------------------------------------------
B $79 $118 $141 $281 $25 $77 $132 $281
</TABLE>
- --------------------------------------------------------------------------------
11
<PAGE>
EXAMPLES continued
If the Policy is annuitized at
the end of the applicable time
period or if the Policy is still
If tehPolicy is surrendered in the
at tehend of the applicable accumulation
time period. phase.
--------------------------------
<TABLE>
<CAPTION>
1 3 5 10 1 3 5 10
Subaccounts Year Years Years Years Year Years Years Years
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Federated American Leaders
Fund II A $76 $109 $126 $252 $22 $68 $117 $252
--------------------------------------------------
B $78 $113 $133 $267 $24 $73 $125 $267
- -------------------------------------------------------------------------------
Federated High Income Bond
Fund II A $75 $106 $121 $243 $21 $66 $113 $243
--------------------------------------------------
B $77 $111 $129 $258 $23 $70 $120 $258
- -------------------------------------------------------------------------------
Franklin Small Cap Fund -
Class 2 A $78 $115 $135 $271 $24 $74 $127 $271
--------------------------------------------------
B $79 $119 $143 $286 $26 $79 $134 $286
- -------------------------------------------------------------------------------
Templeton Asset Strategy
Fund - Class 2 A $78 $113 $133 $267 $24 $73 $125 $267
--------------------------------------------------
B $79 $118 $141 $282 $25 $77 $132 $282
- -------------------------------------------------------------------------------
Templeton International
Securities A $79 $117 $139 $277 $25 $76 $130 $277
--------------------------------------------------
Fund - Class 2 B $80 $121 $146 $292 $26 $80 $137 $292
- -------------------------------------------------------------------------------
Templeton Developing
Markets Securities A $85 $137 $172 $343 $31 $96 $163 $343
--------------------------------------------------
Fund - Class 2 B $87 $142 $180 $356 $33 $101 $171 $356
- -------------------------------------------------------------------------------
MFS Emerging Growth Series A $76 $108 $124 $248 $22 $67 $115 $248
--------------------------------------------------
B $77 $112 $131 $263 $23 $72 $123 $263
- -------------------------------------------------------------------------------
MFS Research Series A $76 $108 $125 $250 $22 $68 $116 $250
--------------------------------------------------
B $77 $113 $132 $265 $23 $72 $124 $265
- -------------------------------------------------------------------------------
MFS Total Return Series A $76 $109 $127 $254 $22 $69 $118 $254
--------------------------------------------------
B $78 $114 $134 $269 $24 $74 $126 $269
- -------------------------------------------------------------------------------
MFS Utilities Series A $76 $110 $127 $255 $22 $69 $119 $255
--------------------------------------------------
B $78 $114 $135 $270 $24 $74 $126 $270
- -------------------------------------------------------------------------------
Oppenheimer Capital
Appreciation A $74 $103 $116 $233 $20 $63 $108 $233
--------------------------------------------------
Fund/VA B $76 $108 $124 $249 $22 $67 $116 $249
- -------------------------------------------------------------------------------
Oppenheimer Main Street A $75 $106 $121 $242 $21 $65 $112 $242
--------------------------------------------------
Growth & Income Fund/VA B $77 $110 $128 $257 $23 $70 $120 $257
- -------------------------------------------------------------------------------
Oppenheimer Multiple
Strategies Fund/VA A $74 $104 $118 $236 $21 $64 $110 $236
--------------------------------------------------
B $76 $109 $126 $252 $22 $68 $117 $252
- -------------------------------------------------------------------------------
Oppenheimer Strategic Bond
Fund/VA A $75 $106 $121 $243 $21 $66 $113 $243
--------------------------------------------------
B $77 $111 $129 $258 $23 $70 $120 $258
- -------------------------------------------------------------------------------
Putnam VT Global Growth
Fund A $76 $109 $126 $252 $22 $68 $117 $252
--------------------------------------------------
Class IB Shares B $78 $113 $133 $267 $24 $73 $125 $267
- -------------------------------------------------------------------------------
Putnam VT Growth and
Income Fund A $74 $102 $114 $228 $20 $61 $106 $228
--------------------------------------------------
Class IB Shares B $75 $106 $122 $244 $21 $66 $113 $244
</TABLE>
- --------------------------------------------------------------------------------
12
<PAGE>
EXAMPLES continued
<TABLE>
<CAPTION>
If the Policy is surrendered If the Policy is annuitized at
at the end of the applicable the end of the applicable time
time period. period or if the Policy is still
in the
accumulation
phase.
- ---------------------------- --------------------------------
<CAPTION>
1 3 5 10 1 3 5 10
Subaccounts Year Years Years Years Year Years Years Years
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Putnam VT Growth
Opportunities Fund A $78 $114 $134 $269 $24 $74 $126 $269
--------------------------------------------------
Class IB Shares B $79 $119 $142 $284 $25 $78 $133 $284
- -------------------------------------------------------------------------------
Putnam VT Money Market
Fund A $74 $101 $113 $227 $20 $61 $105 $227
--------------------------------------------------
Class IB Shares B $75 $106 $121 $243 $21 $66 $113 $243
- -------------------------------------------------------------------------------
Putnam VT New Value Fund A $77 $111 $129 $259 $23 $71 $121 $259
--------------------------------------------------
Class IB Shares B $78 $116 $137 $274 $24 $75 $128 $274
- -------------------------------------------------------------------------------
Fidelity - VIP High Income
Service Class A $75 $106 $121 $243 $21 $66 $113 $243
--------------------------------------------------
B $77 $111 $129 $258 $23 $70 $120 $258
- -------------------------------------------------------------------------------
Fidelity - VIP Equity-
Income Service Class 2 A $75 $107 $123 $247 $22 $67 $115 $247
--------------------------------------------------
B $77 $112 $131 $262 $23 $71 $122 $262
- -------------------------------------------------------------------------------
Fidelity - VIP Growth
Service Class 2 A $75 $106 $121 $243 $23 $70 $120 $257
--------------------------------------------------
B $78 $115 $136 $272 $24 $74 $127 $272
- -------------------------------------------------------------------------------
Fidelity - VIP II Index
500 Initial Class A $70 $90 $95 $188 $16 $50 $86 $188
--------------------------------------------------
B $71 $95 $102 $205 $18 $55 $94 $205
- -------------------------------------------------------------------------------
Fidelity - VIP II
Investment Grade Bond A $73 $98 $108 $217 $19 $58 $100 $217
--------------------------------------------------
Initial Class B $74 $103 $116 $232 $20 $63 $108 $232
- -------------------------------------------------------------------------------
Fidelity - VIP III Growth
Opportunities A $75 $106 $121 $243 $21 $66 $113 $243
--------------------------------------------------
Service Class 2 B $77 $111 $129 $258 $23 $70 $120 $258
</TABLE>
- --------------------------------------------------------------------------------
The above table will assist you in understanding the costs and expenses of the
policy and the underlying funds that you will bear, directly or indirectly.
These include the 1999 expenses of the underlying fund portfolios. In addition
to the expenses listed above, premium taxes may be applicable.
The examples should not be considered a representation of past or future
expenses, and actual expenses may be greater or less than those shown. The
assumed 5% annual return is hypothetical and should not be considered a
representation of past or future annual returns, which may be greater or less
than the assumed rate.
In these examples, the annual $30 service charge is reflected as a charge of
0.055162% based on an estimated average policy value of $54,385.00.
These examples do not reflect the annual fee of 0.30% of the minimum
annuitization value for the family income protector rider. The above expense
figures would be approximately $3 per year higher if you elected that rider.
Financial Information. Condensed financial information for the subaccounts is
in Appendix A to this prospectus.
13
<PAGE>
1. THE ANNUITY POLICY
This prospectus describes the Portfolio Select Variable Annuity policy offered
by PFL Life Insurance Company through First Union Brokerage Services, Inc.
First Union Brokerage Services, Inc. is a corporate affiliate of First Union
National Bank of North Carolina, which in turn is a subsidiary of First Union
Corporation, the sixth largest bank holding company in the United States.
An annuity is a policy between you, the owner, and an insurance company (in
this case PFL), where the insurance company promises to pay you an income in
the form of annuity payments. These payments begin on a designated date,
referred to as the annuity commencement date. Until the annuity commencement
date, your annuity is in the accumulation phase and the earnings (if any) are
tax deferred. Tax deferral means you generally are not taxed on your annuity
until you take money out of your annuity. After the annuity commencement date,
your annuity switches to the income phase.
The policy is a flexible premium variable annuity. You can use the policy to
accumulate funds for retirement or other long-term financial planning purposes.
The policy is a "flexible premium" policy because after you purchase it, you
can generally make additional investments of any amount of $50 or more, until
the annuity commencement date. But you are not required to make any additional
investments.
The policy is a "variable" annuity because the value of your investments can go
up or down based on the performance of your investment choices. If you invest
in the variable annuity portion of the policy, the amount of money you are able
to accumulate in your policy during the accumulation phase depends upon the
performance of your investment choices. The amount of annuity payments you
receive during the income phase from the variable annuity portion of your
policy also depends upon the investment performance of your investment choices
for the income phase. However, if you annuitize under the family income
protector rider, then PFL will guarantee a minimum amount of your annuity
payments. There is an extra charge for this rider.
The policy also contains a fixed account. The fixed account offers an interest
rate that we guarantee will not decrease during the selected guranteed period.
There may be different interest rates for each different guaranteed period that
you select.
2. PURCHASE
Policy Issue Requirements
PFL will not issue a policy unless:
. PFL receives all information needed to issue the policy;
. PFL receives a minimum initial premium payment; and
. The annuitant and any joint owner are age 84 or younger.
We reserve the right to reject any application or premium payment.
Premium Payments
You should make checks or drafts for premium payments payable only to PFL Life
Insurance Company and send them to the administrative and service office. Your
check or draft must be honored in order for PFL to pay any associated payments
and benefits due under the policy.
Initial Premium Requirements
The initial premium payment for most policies must be at least $2,000. There is
no minimum initial premium payment for policies issued under section 403(b) of
the Internal Revenue Code; however, your premium must be received within 90
days of the policy date or your policy will be canceled. We will credit your
initial premium payment to your policy within two business days after the day
we receive it and your complete policy information. If we are unable to credit
your initial premium payment, we will contact you within five business days and
explain why. We will also return your initial premium payment at that time
unless you tell us to keep it and credit it as soon as possible.
14
<PAGE>
The date on which we credit your initial premium payment to your policy is the
policy date. The policy date is used to determine policy years, policy months
and policy anniversaries.
Additional Premium Payments
You are not required to make any additional premium payments. However, you can
make additional premium payments as often as you like during the lifetime of
the annuitant and during the accumulation phase. Additional premium payments
must be at least $50. We will credit additional premium payments to your
policy as of the business day we receive your premium and required
information. Additional premium payments must be received before the New York
Stock Exchange closes to get same-day pricing of the additional premium
payment.
Maximum Total Premium Payments
We allow premium payments up to a total of $1,000,000 without prior approval.
Allocation of Premium Payments
When you purchase a policy, we will allocate your premium payment to the
investment choices you select. Your allocation must be in whole percentages
and must total 100%. We will allocate additional premium payments the same
way, unless you request a different allocation.
If you allocate your premium payment to the dollar cost averaging fixed
account, you must give us instructions regarding the subaccount(s) to which
transfers are to be made or we cannot accept your premium payment.
You may change allocations for future additional premium payments by sending
us written instructions or by telephone, subject to the limitations described
below under "Telephone Transactions." The allocation change will apply to
premium payments received after the date we receive the change request.
Policy Value
You should expect your policy value to change from valuation period to
valuation period. A valuation period begins at the close of trading on the New
York Stock Exchange on each business day and ends at the close of trading on
the next succeeding business day. A business day is each day that the New York
Stock Exchange is open. The New York Stock Exchange generally closes at 4:00
p.m eastern time. Holidays are generally not business days.
3. INVESTMENT CHOICES
The Separate Account
The Portfolio Select Variable Annuity separate account currently consists of
thirty-nine subaccounts.
The subaccounts invest in shares of the underlying fund portfolios. The
companies that provide investment advice and administrative services for all
of the underlying fund portfolios offered through this policy are listed
below. The following investment choices are currently offered through this
policy:
AIM VARIABLE INSURANCE FUNDS
Managed by A I M Advisors, Inc.:
AIM V.I. Capital Appreciation Fund
AIM V.I. Growth and Income Fund
AIM V.I. International Equity Fund
AIM V.I. Value Fund
Subadvised by H.S. Dent Advisors, Inc.
AIM V.I. Dent Demographic Trends Fund
DAVIS VARIABLE ACCOUNT FUND, INC.
Managed by Davis Selected Advisors, L.P.
Davis Value Portfolio
EVERGREEN VARIABLE TRUST
Managed by Evergreen Asset Management Corp.
Evergreen VA Fund
Evergreen VA Foundation Fund
Evergreen VA Global Leaders Fund
Evergreen VA Growth and Income Fund
Managed by Evergreen Investment Management Company
Evergreen VA International Growth Fund
Managed by Mentor Investment Advisors, LLC
Evergreen VA Capital Growth Fund
Evergreen VA Growth Fund
Evergreen VA High Income Fund
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FEDERATED INSURANCE SERIES
Managed by Federated Investment Management Company
Federated American Leaders Fund II
Federated High Income Bond Fund II
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST - CLASS 2
Managed by Franklin Advisers, Inc.
Franklin Small Cap Fund
Managed by Templeton Investment Counsel, Inc.
Templeton Asset Strategy Fund
Templeton International Securities Fund
Managed by Templeton Asset Management Ltd.
Templeton Developing Markets Securities Fund
MFS(R) VARIABLE INSURANCE TRUST SM
Managed by Massachusetts Financial Services Company
MFS Emerging Growth Series
MFS Research Series
MFS Total Return Series
MFS Utilities Series
OPPENHEIMER VARIABLE ACCOUNT FUNDS
Managed by OppenheimerFunds, Inc.
Oppenheimer Capital Appreciation Fund/VA
Oppenheimer Main Street Growth & Income Fund/VA
Oppenheimer Multiple Strategies Fund/VA
Oppenheimer Strategic Bond Fund/VA
PUTNAM VARIABLE TRUST - CLASS IB SHARES
Managed by Putnam Investment Management, Inc.
Putnam VT Global Growth Fund
Putnam VT Growth and Income Fund
Putnam VT Growth Opportunities Fund
Putnam VT Money Market Fund
Putnam VT New Value Fund
VARIABLE INSURANCE PRODUCTS FUND
(VIP) - SERVICE CLASS
Managed by Fidelity Management & Research Company
Fidelity - VIP High Income Portfolio
VARIABLE INSURANCE PRODUCTS FUND
(VIP) - SERVICE CLASS 2
Managed by Fidelity Management & Research Company
Fidelity - VIP Equity-Income Portfolio
Fidelity - VIP Growth Portfolio
VARIABLE INSURANCE PRODUCTS FUND II
(VIP II) - INITIAL CLASS
Managed by Fidelity Management & Research Company
VIP II Index 500 Portfolio
VIP II Investment Grade Bond Portfolio
VARIABLE INSURANCE PRODUCTS FUND III
(VIP III) - SERVICE CLASS
Managed by Fidelity Management & Research Company
VIP III Growth Opportunities Portfolio
The general public may not purchase shares of these underlying fund portfolios.
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 underlying fund portfolios to be the same as those of other portfolios or
mutual funds.
More detailed information, including an explanation of the portfolio's
investment objectives, may be found in the current prospectuses for the
underlying fund portfolios, which are attached to this prospectus. You should
read the prospectuses for each of the underlying fund portfolios carefully
before you invest.
We may receive expense reimbursements or other revenues from the underlying
funds or their managers. The amount of these reimbursements or revenues, if
any, may be different for different funds and portfolios, and may be based on
the amount of assets that PFL or the separate account invests in the underlying
fund portfolios.
We do not guarantee that any of the subaccounts will always be available for
premium payments, allocations, or transfers. See the SAI for more information
concerning the possible addition, deletion or substitution of investments.
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<PAGE>
The Fixed Account
Premium payments allocated and amounts transferred to the fixed account become
part of PFL's general account. Interests in the general account have not been
registered under the Securities Act of 1933 (the "1933 Act"), nor is the
general account registered as an investment company under the 1940 Act.
Accordingly, neither the general account nor any interests therein are
generally subject to the provisions of the 1933 or 1940 Acts. PFL has been
advised that the staff of the SEC has not reviewed the disclosures in this
prospectus which relate to the fixed account.
We guarantee that the interest credited to the fixed account will not be less
than 3% per year. At the end of a guaranteed period option you selected, the
value in that guaranteed period option will automatically be transferred into a
new guaranteed period option of the same length (or the next shorter period if
the same period is no longer offered) at the current interest rate for that
period. You can transfer to another investment choice by giving us notice
within 30 days before the end of the expiring guaranteed period.
Surrenders or partial withdrawals from a guaranteed period option of the fixed
account are subject to an excess interest adjustment. This adjustment may
increase or decrease the amount of interest credited to your policy. The excess
interest adjustment will not decrease the interest credited to your policy
below 3% per year, however. You bear the risk that we will not credit interest
greater than 3% per year. We determine credited rates, which are guaranteed for
at least one year, in our sole discretion.
If you select the fixed account, your money will be placed with PFL's other
general assets. The amount of money you are able to accumulate in the fixed
account during the accumulation phase depends upon the total interest credited.
The amount of annuity payments you receive during the income phase from the
fixed portion of your policy will remain level for the entire income phase.
Transfers
During the accumulation phase, you may make transfers to or from any subaccount
or the fixed account as often as you wish within certain limitations.
Transfers from a guaranteed period option of the fixed account are limited to
the following:
. Within 30 days prior to the end of the guaranteed period you must notify us
that you wish to transfer the amount in the guaranteed period option to
another investment choice. No excess interest adjustment will apply.
. Transfers of amounts equal to interest credited on a monthly, quarterly,
semi-annual or annual basis. This may affect your overall interest-crediting
rate, because transfers are deemed to come from the oldest premium payment
first.
Otherwise, you cannot transfer out of the fixed account.
There are no transfers permitted out of the dollar cost averaging fixed account
option except through the dollar cost averaging program.
Each transfer must be at least $500, or the entire subaccount value. Transfers
of guaranteed period option amounts equal to interest credited must be at least
$50. If less than $500 remains, then we reserve the right to include that
amount in the transfer. Transfers must be received while the New York Stock
Exchange is open to get same-day pricing of the transaction.
During the income phase of your policy, you may transfer values out of any
subaccount up to four times per policy year. However, you cannot transfer
values out of the fixed account in this phase. The minimum amount that can be
transferred during this phase is the lesser of $10 of monthly income, or the
entire monthly income of the annuity units in the subaccount from which the
transfer is being made.
Transfers may be made by telephone, subject to the limitations described below
under "Telephone Transactions."
Currently, there is no charge for transfers and no limit on the number of
transfers during the
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accumulation phase. However, in the future, the number of transfers permitted
may be limited and a $10 charge per transfer may apply.
We reserve the right to prohibit transfers to the fixed account if we are
crediting an effective annual interest rate of 3.0% (the guaranteed minimum).
The policy you are purchasing was not designed for professional market timing
organizations or other persons that use programmed, large, or frequent
transfers. The use of such transfers may be disruptive to an underlying fund
portfolio. We reserve the right to reject any premium payment or transfer
request from any person, if, in our judgment, an underlying fund portfolio
would be unable to invest effectively in accordance with its investment
objectives and policies or would otherwise be potentially adversely affected or
if an underlying portfolio would reject our purchase order.
4. PERFORMANCE
PFL periodically advertises performance of the various investment portfolios.
We may disclose at least four different kinds of performance. First, we may
calculate performance by determining the percentage change in the value of an
accumulation unit by dividing the increase (decrease) for that unit by the
value of the accumulation unit at the beginning of the period. This performance
number reflects the deduction of the mortality and expense risk fees and
administrative charges. It does not reflect the deduction of any applicable
premium taxes or surrender charges. The deduction of any applicable premium
taxes or surrender charges would reduce the percentage increase or make greater
any percentage decrease.
Second, any advertisement will also include total return figures, which reflect
the deduction of the mortality and expense risk fees, administrative charges
and surrender charges.
Third, for periods starting prior to the date the policies were first offered,
the performance will be based on the historical performance of the
corresponding investment portfolios for the periods commencing from the date on
which the particular investment portfolio was made available through the
separate account.
Fourth, in addition, for certain investment portfolios, performance may be
shown for the period commencing from the inception date of the investment
portfolio. These figures should not be interpreted to reflect actual historical
performance of the separate account.
We also may, from time to time, include in our advertising and sales materials,
tax deferred compounding charts and other hypothetical illustrations, which may
include, comparisons of currently taxable and tax deferred investment programs,
based on selected tax brackets.
Appendix B contains performance information that you may find useful. It is
divided into various parts, depending upon the type of performance information
shown. Future performance will vary and future results will not be the same as
the results shown.
5. EXPENSES
There are charges and expenses associated with your policy that reduce the
return on your investment in the policy.
Surrender Charges
During the accumulation phase, you can withdraw part or all of the cash value.
Cash value is the policy value increased or decreased by any excess interest
adjustment, less the annual service charge, and less any applicable surrender
charge, premium taxes and family income protector rider fees. We may deduct a
surrender charge to compensate us for expenses relating to policy sales,
including commission to registered representatives and other promotional
expenses.
You can withdraw up to 10% of your policy value each year free of surrender
charges. This free amount is cumulative and is referred to as the cumulative
free percentage and is determined at the time of the withdrawal. If you
withdraw money in excess of the cumulative free percentage, you might have to
pay a surrender charge, which is a contingent deferred sales charge, on the
excess amount. The following schedule shows the surrender charges that apply
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during the five years following each premium payment:
<TABLE>
<CAPTION>
Surrender Charge
Number of Years Since (as a percentage of
Premium Payment Date premium withdrawn)
- ------------------------------------------------------------------------------
<S> <C>
0 - 1 6%
1 - 2 6%
2 - 3 6%
3 - 4 4%
4 - 5 2%
5 or more 0%
</TABLE>
For example, assume your policy value is $100,000 at the beginning of policy
year 2 and you withdraw $30,000. Since that amount is more than your cumulative
free percentage of 20% that is available at that time, you would pay a
surrender charge of $600 on the remaining $10,000 (6% of $30,000 - $20,000).
You receive the full amount of a requested partial withdrawal because we deduct
any surrender charge and any applicable excess interest adjustment from your
remaining policy value. You receive your cash value upon full surrender.
For surrender charge purposes, the oldest premium is considered to be withdrawn
first. After the tenth policy year, no surrender charges apply, regardless of
when you made your last premium payment.
Keep in mind that withdrawals may be taxable, and if made before age 59 1/2,
may be subject to a 10% federal penalty tax. For tax purposes, withdrawals are
considered to come from earnings first.
Surrender charges are waived if you withdraw money under the nursing care and
terminal condition withdrawal option or unemployment waiver.
Excess Interest Adjustment
Withdrawals of cash value from the fixed account may be subject to an excess
interest adjustment. This adjustment could retroactively reduce the interest
credited in the fixed account to the guaranteed minimum of 3% per year. See the
"Excess Interest Adjustment" section of this prospectus.
Mortality and Expense Risk Fee
We charge a fee as compensation for bearing certain mortality and expense risks
under the policy. Examples include a guarantee of annuity rates, the death
benefits, certain expenses of the policy, and assuming the risk that the
current charges will be insufficient in the future to cover costs of
administering the policy. For the Return of Premium Death Benefit the mortality
and expense risk fee is at an annual rate of 1.10% of assets. During the
accumulation phase, for the 5% Annually Compounding Death Benefit and the
Annual Step-Up Death Benefit, the mortality and expense risk fee is at an
annual rate of 1.25% of assets. During the income phase, the mortality and
expense risk fee for these benefits is at an annual rate of 1.10% of assets.
This annual fee is assessed daily based on the net asset value of each
subaccount.
If this charge does not cover our actual costs, we absorb the loss. Conversely,
if the charge more than covers actual costs, the excess is added to our
surplus. We expect to profit from this charge. We may use our profit or surplus
for any proper purpose, including distribution expenses.
Administrative Charges
We deduct an annual administrative charge to cover the costs of administering
the policies. This charge is equal to an annual rate of 0.15% per year of the
daily net asset value of the separate account.
In addition, an annual service charge of $30 (but not more than 2% of the
policy value) is charged on each policy anniversary and at surrender. The
service charge is waived if your policy value or the sum of your premiums, less
all partial withdrawals, is at least $50,000.
Premium Taxes
Some states assess premium taxes on the premium payments you make. We currently
do not deduct for these taxes at the time you make a premium payment. However,
we will deduct the total amount of premium taxes, if any, from the policy value
when:
. you elect to begin receiving annuity payments;
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<PAGE>
. you surrender the policy; or
. you die and a death benefit is paid (you must also be the annuitant for the
death benefit to be paid).
Generally, premium taxes range from 0% to 3.50%, depending on the state.
Federal, State and Local Taxes
We may in the future deduct charges from the policy for any taxes we incur
because of the policy. However, no deductions are being made at the present
time.
Transfer Fee
Currently there is no charge for transfers. However, if you make more than 12
transfers per year, during the accumulation phase, we reserve the right to
charge $10 for each additional transfer. Premium payments, asset rebalancing
and dollar cost averaging transfers are not considered transfers. All transfer
requests made at the same time are treated as a single request.
Family Income Protector
If you elect the family income protector, there is an annual rider fee during
the accumulation phase of 0.30% of the minimum annuitization value, and a
guaranteed payment fee during the income phase of 1.25% of the daily net asset
value if you annuitize under the rider. The annual rider fee is also deducted
upon a complete withdrawal.
Portfolio Management Fees
The value of the assets in each subaccount will reflect the fees and expenses
paid by the underlying fund. A description of these expenses is found in the
"Fee Table" section of this prospectus. See the prospectuses for the underlying
funds for more information.
6. ACCESS TO YOUR MONEY
During the accumulation phase, you can have access to the money in your policy
in several ways:
. by making a withdrawal (either a complete or partial withdrawal); or
. by taking systematic payouts.
Surrenders
If you want to make a complete withdrawal, you will receive:
. the value of your policy; plus or minus
. any excess interest adjustment; minus
. any applicable surrender charges, premium taxes, service charges and family
income protector rider fees.
If you want to take a partial withdrawal, in most cases it must be for at least
$500. Unless you tell us otherwise, we will take the withdrawal from each of
the investment choices in proportion to the policy value.
You may take out up to 10% of the policy value free of surrender charges each
policy year. The free amount is cumulative so any free amount not taken one
year is available to be taken the following year free of surrender charges.
Remember that any withdrawal you take will reduce the policy value, and might
reduce the amount of the death benefit. See Section 8, Death Benefit, for more
details.
Withdrawals may be subject to a surrender charge. Withdrawals from the fixed
account may also be subject to an excess interest adjustment. Income taxes,
federal tax penalties and certain restrictions may apply to any withdrawals you
make.
Withdrawals from qualified policies may be restricted or prohibited.
During the income phase, you will receive payments under the annuity payment
option you select; however, you generally may not take any other withdrawals,
either complete or partial.
Delay of Payment and Transfers
Payment of any amount due from the separate account for a surrender, a death
benefit, or the death of the owner of a nonqualified policy, will generally
occur within seven business days from
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<PAGE>
the date PFL receives all required information. PFL may defer such payment from
the separate account if:
. the New York Stock Exchange is closed other than for usual weekends or
holidays or trading on the Exchange is otherwise restricted; or
. an emergency exists as defined by the SEC or the SEC requires that trading
be restricted; or
. the SEC permits a delay for the protection of owners.
In addition, transfers of amounts from the subaccounts may be deferred under
these circumstances.
Pursuant to the requirements of certain state laws, we reserve the right to
defer payment of the cash value from the fixed account for up to six months. We
may defer payment of any amount until your premium check has cleared your bank.
Excess Interest Adjustment
Money that you withdraw from a guaranteed period option of the fixed account
before the end of its guaranteed period (the number of years you specified the
money would remain in the guaranteed period option) may be subject to an excess
interest adjustment. At the time you request a withdrawal, if interest rates
set by PFL have risen since the date of the initial guarantee, the excess
interest adjustment will result in a lower cash value on surrender. However, if
interest rates have fallen since the date of the initial guarantee, the excess
interest adjustment will result in a higher cash value on surrender.
Any amount withdrawn in excess of the cumulative free percentage available is
generally subject to an excess interest adjustment.
There will be no excess interest adjustment on any of the following:
. lump sum withdrawals of the cumulative free percentage available;
. nursing care and terminal condition withdrawals;
. unemployment withdrawals;
. periodic withdrawals of cumulative interest credited;
. withdrawals to satisfy any minimum distribution requirements; and
. systematic payout option payments, which do not exceed the cumulative
interest credited.
Please note that in these circumstances, you will not receive a higher cash
value if interest rates have fallen, nor will you receive a lower cash value if
interest rates have risen.
7. ANNUITY PAYMENTS (THE INCOME PHASE)
You choose the annuity commencement date. You can change this date by giving us
written notice 30 days before the annuity commencement date. The new annuity
commencement date must be at least 30 days after we receive notice of the
change. The latest annuity commencement date generally cannot be after the
policy month following the month in which the annuitant attains age 85. We may
allow a later annuity commencement date, but in no event will that date be
later than the last day of the policy month following the month in which the
annuitant attains age 95.
Election of Annuity Payment Option. Before the annuity commencement date, if
the annuitant is alive, you may choose an annuity payment option or change your
election. If the annuitant dies before the annuity commencement date, the
beneficiary may elect to receive the death benefit in a lump sum or under one
of the annuity payment options (unless you become the new annuitant).
Unless you specify otherwise, the annuitant will receive the annuity payments.
After the annuitant's death, the beneficiary will receive any remaining
guaranteed payments.
Annuity Payment Options
The policy provides five annuity payment options that are described below. You
may chose any combination of annuity payment options. We will use your
"adjusted policy value" to provide these annuity payments. The adjusted policy
value is the policy value increased or decreased by any applicable excess
interest adjustment. If the
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<PAGE>
adjusted policy value on the annuity commencement date is less than $2,000, PFL
reserves the right to pay it in one lump sum in lieu of applying it under an
annuity payment option. You can receive payments monthly, quarterly, semi-
annually, or annually. (We reserve the right to change the frequency if
payments would be less than $50.)
Unless you choose to receive variable payments under annuity payment options 3
or 5, the amount of each payment will be set on the annuity commencement date
and will not change. You may, however, choose to receive variable payments
under payment options 3 and 5. The dollar amount of the first variable payment
will be determined in accordance with the annuity payment rates set forth in
the applicable table contained in the policy. The dollar amount of additional
variable payments will vary based on the investment performance of the
subaccount(s) that you select. The dollar amount of each variable payment after
the first may increase, decrease or remain constant. If the actual investment
performance exactly matched the assumed investment return of 5% at all times,
the amount of each variable annuity payment would remain equal. If actual
investment performance exceeds the assumed investment return, the amount of the
variable annuity payments would increase. Conversely, if actual investment
performance is lower than the assumed investment return, the amount of the
variable annuity payments would decrease.
A charge for premium taxes and an excess interest adjustment may be made when
annuity payments begin.
The annuity payment options are explained below. Options 1, 2, and 4 are fixed
only. Options 3 and 5 can be fixed or variable.
Payment Option 1 - Interest Payments. We will pay the interest on the amount we
use to provide annuity payments in equal payments, or this amount may be left
to accumulate for a period of time you and PFL agree to. You and PFL will agree
on withdrawal rights when you elect this option.
Payment Option 2 - Income for a Specified Period. We will make level payments
only for the fixed period you choose. No funds will remain at the end.
Payment Option 3 - Life Income. You may choose between:
Fixed Payments
. No Period Certain - We will make level payments only during the annuitant's
lifetime.
. 10 Years Certain - We will make level payments for the longer of the
annuitant's lifetime or ten years.
. Guaranteed Return of Policy Proceeds - We will make level payments for the
longer of the annuitant's lifetime or until the total dollar amount of
payments we made to you equals the amount applied to this option.
Variable Payments
. No Period Certain - Payments will be made only during the lifetime of the
annuitant.
. 10 Years Certain - Payments will be made for the longer of the annuitant's
lifetime or ten years.
Payment Option 4 - Income of a Specified Amount. Payments are made for any
specified amount until the amount applied to this option, with interest, is
exhausted. This will be a series of level payments followed by a smaller final
payment.
Payment Option 5 - Joint and Survivor Annuity. You may choose between:
Fixed Payments
. Payments are made during the joint lifetime of the annuitant and a joint
annuitant of your selection. Payments will be made as long as either person
is living.
Variable Payments
. Payments are made during the joint lifetime of the annuitant and a joint
annuitant of your selection. Payments will be made as long as either person
is living.
Other annuity payment options may be arranged by agreement with PFL. Certain
annuity payment options may not be available in all states.
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<PAGE>
NOTE CAREFULLY:
IF:
. you choose Life Income with No Period Certain or a Joint and Survivor
Annuity; and
. the annuitant(s) dies before the due date of the second (third, fourth,
etc.) annuity payment;
THEN:
. we may make only one (two, three, etc.) annuity payments.
IF:
. you choose Income for a Specified Period, Life Income with 10 years Certain,
Life Income with Guaranteed Return of Policy Proceeds, or Income of a
Specified Amount; and
. the person receiving payments dies prior to the end of the guaranteed
period;
THEN:
. the remaining guaranteed payments will be continued to that person's
beneficiary, or their present value may be paid in a single sum.
We will not pay interest on amounts represented by uncashed annuity payment
checks if the postal or other delivery service is unable to deliver checks to
the payee's address of record. The person receiving payments is responsible for
keeping PFL informed of their current address.
8. DEATH BENEFIT
We will pay a death benefit to your beneficiary, under certain circumstances,
if the annuitant dies during the accumulation phase and the annuitant was also
an owner. (If the annuitant was not an owner, a death benefit may or may not be
paid. See below.) The beneficiary may choose an annuity payment option, or may
choose to receive a lump sum.
When We Pay A Death Benefit
Before the Annuity Commencement Date
We will pay a death benefit to your beneficiary IF:
. you are both the annuitant and the owner of the policy; and
. you die before the annuity commencement date.
If the only beneficiary is your surviving spouse, then he or she may elect to
continue the policy as the new annuitant and owner, instead of receiving the
death benefit. All future surrender charges will be waived.
We will also pay a death benefit to your beneficiary IF:
. you are not the annuitant; and
. the annuitant dies before the annuity commencement date; and
. you specifically requested that the death benefit be paid upon the
annuitant's death.
Distribution requirements apply to the policy value upon the death of any
owner. These requirements are detailed in the SAI.
After the Annuity Commencement Date
The death benefit payable, if any, on or after the annuity commencement date
depends on the annuity payment option selected.
IF:
. you are not the annuitant; and
. you die on or after the annuity commencement date; and
. the entire interest in the policy has not been paid to you;
THEN:
. the remaining portion of such interest in the policy will be distributed at
least as rapidly as under the method of distribution being used as of the
date of your death.
When We Do Not Pay A Death Benefit
No death benefit is paid in the following cases:
IF:
. you are not the annuitant; and
. the annuitant dies prior to the annuity commencement date; and
. you did not specifically request that the death benefit be paid upon the
annuitant's death;
THEN:
. you will become the new annuitant and the policy will continue.
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<PAGE>
IF:
. you are not the annuitant; and
. you die prior to the annuity commencement date;
THEN:
. the new owner (unless it is your spouse) must generally surrender the policy
within five years of your death for the policy value increased or decreased
by an excess interest adjustment.
Note carefully. If the owner does not name a contingent owner, the owner's
estate will become the new owner. If no probate estate is opened (because, for
example, the owner has precluded the opening of a probate estate by means of a
trust or other instrument), and PFL has not received written notice of the
trust as a successor owner signed prior to the owner's death, then that trust
may not exercise ownership rights to the policy. It may be necessary to open a
probate estate in order to exercise ownership rights to the policy if no
contingent owner is named in a written notice PFL receives.
Amount of Death Benefit
Death benefit provisions may differ from state to state. The death benefit may
be paid as a lump sum or as annuity payments. The amount of the death benefit
depends on the guaranteed minimum death benefit option you chose when you
bought the policy. The death benefit will be the greatest of:
. policy value on the date we receive the required information; or
. cash value on the date we receive the required information (this could be
more than the policy value if there is a positive excess interest adjustment
that exceeds the surrender charge); or
. guaranteed minimum death benefit, if any, (discussed below), plus premium
payments, less partial withdrawals from the date of death to the date the
death benefit is paid.
Guaranteed Minimum Death Benefit
On the policy application, you generally may choose one of the three guaranteed
minimum death benefit options listed below.
After the policy is issued, you cannot make an election and the death benefit
cannot be changed.
A.Return of Premium Death Benefit
The Return of Premium Death Benefit is the total premium payments, less any
adjusted partial withdrawals (discussed below) as of the date of death.
The Return of Premium Death Benefit will be in effect if you do not choose
one of the other options on the policy application.
B.5% Annually Compounding Death Benefit
The 5% Annually Compounding Death Benefit is the total premium payments,
less any adjusted partial withdrawals, plus interest at an effective annual
rate of 5% from the premium payment date or withdrawal date to the date of
death (but not later than your 81st birthday). There is an extra charge for
this death benefit.
C.Annual Step-Up Death Benefit
On each policy anniversary before your 81st birthday, a new "stepped-up"
death benefit is determined and becomes the guaranteed minimum death
benefit for that policy year. The death benefit is equal to:
. the largest policy value on the policy date or on any policy anniversary
before you reach age 81; plus
. any premium payments you have made since then; minus
. any adjusted partial withdrawals we have paid to you since then.
There is an extra charge for this death benefit.
IF, under all three death benefit options:
. the surviving spouse elects to continue the policy instead of receiving the
death benefit; and
. the guaranteed minimum death benefit is greater than the policy value;
THEN:
. we will increase the policy value to be equal to the guaranteed minimum
death benefit.
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. This increase is made only at the time the surviving spouse elects to
continue the policy.
Adjusted Partial Withdrawal
When you request a partial withdrawal, your guaranteed minimum death benefit
will be reduced by an amount called the adjusted partial withdrawal. Under
certain circumstances, the adjusted partial withdrawal may be more than the
amount of your withdrawal request. It is also possible that if a death benefit
is paid after you have made a partial withdrawal, then the total amount paid
could be less than the total premium payments. We have included a detailed
explanation of this adjustment in the SAI.
9. 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
SAI.
Annuity Policies in General
Deferred annuity policies are a way of setting aside money for future needs
like retirement. Congress recognized how important saving for retirement is and
provided special rules in the Internal Revenue Code for annuities. Simply
stated, these rules provide that generally you will not be taxed on the
earnings, if any, on the money held in your annuity policy until you take the
money out. This is referred to as tax deferral. There are different rules as to
how you will be taxed depending on how you take the money out and the type of
policy - qualified or nonqualified (discussed below).
You will not be taxed on increases in the value of your policy until a
distribution occurs - either as a withdrawal or as annuity payments.
When a non-natural person (e.g., corporation or certain other entities other
than tax-qualified trusts) owns a nonqualified policy, the policy will
generally not be treated as an annuity for tax purposes.
Qualified and Nonqualified Policies
If you purchase the policy under an individual retirement annuity, a pension
plan, or specially sponsored program, your policy is referred to as a qualified
policy.
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 - Qualified Policies
The information herein 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:
25
<PAGE>
. 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 date. The terms of the plan may limit the rights
otherwise available to you under the policies. We have provided more
information in the SAI.
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 withdrawal 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
. declares 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 SAI. PFL may modify the policy to attempt to maintain favorable tax
treatment.
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. The tax treatment of excess interest adjustments is uncertain. You
should consult a tax adviser if a withdrawal results in an excess interest
adjustment.) 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 an owner 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 PFL (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.
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.
26
<PAGE>
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). The same tax treatment applies to any amounts
distributed after an owner's death.
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 payee or other beneficiary who is not also the owner, the
selection of certain annuity commencement dates, or a change of 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 with
respect to the potential tax effects of such a transaction.
Possible Tax Law Changes
Although the likelihood of legislative changes is 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
legal developments and their effect on the policy.
10. ADDITIONAL FEATURES
Systematic Payout Option
You can select at any time (during the accumulation phase) to receive regular
payments from your policy by using the systematic payout option. Under this
option, you can receive up to 10% (annually) of your policy's value free of
surrender charges. Payments can be made monthly, quarterly, semi-annually, or
annually. Each payment must be at least $50, and cannot exceed the cumulative
free percentage divided by the number of payments per year. Monthly and
quarterly payments must be made by electronic funds transfer directly to your
checking or savings account. There is no charge for this benefit.
27
<PAGE>
Family Income Protector
The family income protector may vary by state and may not be available in all
states.
The "family income protector" assures you of a minimum level of income in the
future by guaranteeing a minimum annuitization value (discussed below) after 10
years. You may elect to purchase this benefit, which guarantees the total
amount you will have to apply to a family income protector payment option and
which guarantees a minimum for the amounts of those payments once you begin to
receive them. By electing this benefit, you can participate in the gains of the
underlying variable investment options you select while knowing that you are
guaranteed a minimum level of income in the future, regardless of the
performance of the underlying variable investment options.
You can annuitize under the family income protector (subject to the conditions
described below) at the greater of the adjusted policy value or the minimum
annuitization value.
Minimum Annuitization Value. The minimum annuitization value is:
. the policy value on the date the rider is issued; plus
. any additional premium payments; minus
. an adjustment for any withdrawals made after the date the rider is issued;
. which is accumulated at the annual growth rate written on page one of the
rider; minus
. any premium taxes.
The annual growth rate is currently 6% per year; PFL may, at its discretion,
change the rate in the future, but the rate will never be less than 3% per
year. Once the rider is added to your policy, the annual growth rate will not
vary during the life of that rider. Withdrawals may reduce the minimum
annuitization value on a basis greater than dollar-for-dollar. See the SAI for
more information.
The minimum annuitization value may only be used to annuitize using the family
income protector payment options and may not be used with any of the annuity
payment options listed in section 7 of this prospectus. The family income
protector payment options are:
. Life Income - An election may be made for "No Period Certain" or "10 Years
Certain". In the event of the death of the annuitant prior to the end of the
chosen period certain, the remaining period certain payments will be
continued to the beneficiary.
. Joint and Full Survivor - An election may be made for "No Period Certain" or
"10 Years Certain". Payments will be made as long as either the annuitant or
joint annuitant is living. In the event of the death of both the annuitant
and joint annuitant prior to the end of the chosen period certain, the
remaining period certain payments will be continued to the beneficiary.
The minimum annuitization value is used solely to calculate the family income
protector annuity payments. The family income protector does not establish or
guarantee policy value or guarantee performance of any investment option.
Because this benefit is based on conservative actuarial factors, the level of
lifetime income that it guarantees may be less than the level that would be
provided by application of the policy value at otherwise applicable annuity
factors. Therefore, the family income protector should be regarded as a safety
net. The costs of annuitizing under the family income protector include the
guaranteed payment fee, and also the lower payout levels inherent in the
annuity tables used for those minimum payouts.
In addition to the annual growth rate, other benefits and fees under the rider
(the rider fee, the fee waiver threshold, the guaranteed payment fee, and the
waiting period before the family income protector can be exercised) are also
guaranteed not to change after the rider is added. However, all of these
benefit specifications may change if you elect to upgrade the minimum
annuitization value.
Minimum Annuitization Value Upgrade. You can upgrade your minimum annuitization
value to the policy value within 30 days after any policy anniversary before
your 85th birthday (earlier if required by state law). For your convenience, we
will put the last date to upgrade on page one of the rider.
28
<PAGE>
If you upgrade:
. the current rider will terminate and a new one will be issued with its own
specified guaranteed benefits and fees;
. the new rider's specified benefits and fees may not be as advantageous as
before; and
. you will have a new ten year waiting period before you can exercise the
family income protector.
It generally will not be to your advantage to upgrade unless your policy value
exceeds your minimum annuitization value on the applicable policy anniversary.
Conditions of Exercise of the Family Income Protector. You can only annuitize
using the family income protector within the 30 days after the tenth or later
policy anniversary after the family income protector is elected or, in the case
of an upgrade of the minimum annuitization value, the tenth or later policy
anniversary following the upgrade. PFL may, at its discretion, change the
waiting period before the family income protector can be exercised in the
future. You cannot, however, annuitize using the family income protector after
the policy anniversary after your 94th birthday (earlier if required by state
law). For your convenience, we will put the first and last date to annuitize
using the family income protector on page one of the rider.
Note Carefully - If you annuitize at any time other than indicated above, you
cannot use the family income protector.
Guaranteed Minimum Stabilized Payments. Annuity payments under the family
income protector are guaranteed to never be less than the initial annuity
payment. See the SAI for information concerning the calculation of the initial
payment. The payments will also be "stabilized" or held constant during each
policy year.
During the first policy year after annuitizing using the family income
protector, each stabilized payment will equal the initial payment. On each
policy anniversary thereafter, the stabilized payment will increase or decrease
depending on the performance of the investment options you selected (but will
never be less than the initial payment), and then be held constant at that
amount for that policy year. The stabilized payment on each policy anniversary
will equal the greater of the initial payment or the payment. supportable by
the annuity units in the selected investment options. See the SAI for
additional information concerning stabilized payments.
Family Income Protector Rider Fee. A rider fee, currently 0.30% of the minimum
annuitization value on the policy anniversary, is charged annually prior to
annuitization. We will also charge this fee if you make a complete withdrawal.
The rider fee is deducted from each variable investment option in proportion to
the amount of policy value in each subaccount.
The rider fee on any given policy anniversary will be waived if the policy
value exceeds the fee waiver threshold. The fee waiver threshold currently is
two times the minimum annuitization value. PFL may, at its discretion, change
the fee waiver threshold in the future, but it will never be greater than two
and one-half times the minimum annuitization value.
Guaranteed Payment Fee. A guaranteed payment fee, currently equal to an
effective annual rate of 1.25% of the daily net asset value in the separate
account, is reflected in the amount of the variable payments you receive if you
annuitize under the family income protector rider. The guaranteed payment fee
is included on page one of the rider.
Termination. The family income protector is irrevocable. You have the option
not to use the benefit but you will not receive a refund of any fees you have
paid. The family income protector will terminate upon the earliest of the
following:
. annuitization (you will still get guaranteed minimum stabilized payments if
you annuitize using the minimum annuitization value under the family income
protector),
. upgrade of the minimum annuitization value (although a new rider will be
issued),
. termination of your policy, or
. 30 days after the policy anniversary after your 94th birthday (earlier if
required by state law).
29
<PAGE>
Nursing Care and Terminal Condition Withdrawal Option
No surrender charges or excess interest adjustment will apply if you or your
spouse has been:
. confined in a hospital or nursing facility for 30 days in a row; or
. diagnosed with a terminal condition (usually a life expectancy of 12 months
or less).
This benefit is also available to the annuitant or annuitant's spouse if the
owner is not a natural person.
You may exercise this benefit at any time (during the accumulation phase) and
there is no charge for this benefit.
This benefit may not be available in all states. See the policy or endorsement
for details and conditions.
Unemployment Waiver
No surrender charges or excess interest adjustment will apply to withdrawals if
you or your spouse is unemployed. In order to qualify, you (or your spouse,
whichever is applicable) must have been:
. employed full time for at least two years prior to becoming unemployed; and
. employed full time on the policy date; and
. unemployed for at least 60 days in a row at the time of withdrawal; and
. must have a minimum cash value at the time of withdrawal of $5,000.
You must provide written proof from your State's Department of Labor, which
verifies that you qualify for and are receiving unemployment benefits at the
time of withdrawal.
You may exercise this benefit at any time (during the accumulation phase) and
there is no charge for this benefit.
This benefit is also available to the annuitant or annuitant's spouse if the
owner is not a natural person. This benefit may not be available in all states.
See the policy for details.
Telephone Transactions
You may make transfers and change the allocation of additional premium payments
by telephone IF:
. you select the "Telephone Transfer/Reallocation Authorization" box in the
policy application or enrollment information; or
. you later complete an authorization form.
You will be required to provide certain information for identification purposes
when requesting a transaction by telephone and we may record your telephone
call. We may also require written confirmation of your request. We will not be
liable for following telephone requests that we believe are genuine.
Telephone requests must be received while the New York Stock Exchange is open
to get same-day pricing of the transaction. We may discontinue this option at
any time.
Dollar Cost Averaging Program
During the accumulation phase, you may instruct us to automatically transfer
money from the dollar cost averaging fixed account option into one or more
variable subaccounts. There is no charge for this program.
Complete and clear instructions must be received before a dollar cost averaging
program will begin. The instructions must include:
. the subaccounts into which money from the dollar cost averaging fixed
account (or other subaccount(s) used for dollar cost averaging) is to be
transferred; and
. either the dollar amount to transfer monthly or quarterly (each transfer
must be at least $500) or the number of transfers (minimum of 6 monthly or 4
quarterly and maximum of 24 monthly or 8 quarterly).
Transfers must begin within 30 days. We will make the transfers on the 28th day
of the applicable month. You may change your allocations at anytime.
Only one dollar cost averaging program can run at one time. This means that any
addition to a
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<PAGE>
dollar cost averaging program must change either the length of the program or
the dollar amount of the transfers. New instructions must be received each time
there is an addition to a dollar cost averaging program.
Any amount in the dollar cost averaging fixed account (or other subaccount(s)
used for dollar cost averaging) for which we have not received complete and
clear instructions will remain in the dollar cost averaging fixed account (or
other such subaccount) until we receive the instructions. If we have not
received complete and clear instructions within 30 days, the interest credited
in the dollar cost averaging fixed account may be adjusted downward, but not
below the guaranteed effective annual interest rate of 3%.
Dollar cost averaging buys more accumulation units when prices are low and
fewer accumulation units when prices are high. It does not guarantee profits or
assure that you will not experience a loss. You should consider your ability to
continue the dollar cost averaging program during all economic conditions.
We may credit different interest rates for dollar cost averaging programs of
varying time periods. If you discontinue the dollar cost averaging program
before its completion, then the interest credited on amounts in the dollar cost
averaging fixed account may be adjusted downward, but not below the minimum
guaranteed effective annual interest rate of 3%.
Asset Rebalancing
During the accumulation phase you can instruct us to automatically rebalance
the amounts in your subaccounts to maintain your desired asset allocation. This
feature is called asset rebalancing and can be started and stopped at any time
free of charge. However, we will not rebalance if you are in the dollar cost
averaging program or if any other transfer is requested. If a transfer is
requested, we will honor the requested transfer and discontinue asset
rebalancing. New instructions are required to start asset rebalancing. Asset
rebalancing ignores amounts in the fixed account. You can choose to rebalance
monthly, quarterly, semi-annually, or annually.
11. OTHER INFORMATION
Ownership
You, as owner of the policy, exercise all rights under the policy. You can
change the owner at any time by notifying us in writing. An ownership change
may be a taxable event.
Assignment
You can also assign the policy any time during your lifetime. PFL will not be
bound by the assignment until we receive written notice of the assignment. We
will not be liable for any payment or other action we take in accordance with
the policy before we receive notice of the assignment. There may be limitations
on your ability to assign a qualified policy. An assignment may have tax
consequences.
PFL Life Insurance Company
PFL Life Insurance Company was incorporated under the laws of the State of Iowa
on April 19, 1961 as NN Investors Life Insurance Company, Inc. It is engaged in
the sale of life and health insurance and annuity policies. PFL is a
Transamerica Company and a wholly-owned indirect subsidiary of AEGON USA, Inc.
which conducts most of its operations through subsidiary companies engaged in
the insurance business or in providing non-insurance financial services. All of
the stock of AEGON USA, Inc., is indirectly owned by AEGON N.V. of The
Netherlands, the securities of which are publicly traded. AEGON N.V., a holding
company, conducts its business through subsidiary companies engaged primarily
in the insurance business. PFL is licensed in the District of Columbia, Guam,
and in all states except New York.
All obligations arising under the policies, including the promise to make
annuity payments, are general corporate obligations of PFL.
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,
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1996. The Portfolio Select Variable Annuity divisions of the separate account
receive and currently invest the premium payments that are allocated to the
separate account for investment in shares of the underlying mutual fund
portfolios.
The separate account is registered with the SEC as a unit investment trust
under the 1940 Act. However, the SEC does not supervise the management, the
investment practices, or the policies of the separate account or PFL. Income,
gains, and losses, whether or not realized, from assets allocated to the
separate account are, in accordance with the policies, credited or charged
against the separate account without regard to PFL's other income, gains or
losses.
The assets of the separate account are held in PFL's name on behalf of the
separate account and belong to PFL. However, those assets that underlie the
policies are not chargeable with liabilities arising out of any other business
PFL may conduct. The separate account includes other subaccounts that are not
available under these policies.
Mixed and Shared Funding
Before making a decision concerning the allocation of premium payments to a
particular subaccount, please read the prospectuses for the underlying funds.
The underlying funds are not limited to selling their shares to this separate
account and can accept investments from any separate account or qualified
retirement plan. Since the underlying fund portfolios are available to
registered separate accounts offering variable annuity products of PFL, as well
as variable annuity and variable life products of other insurance companies,
and qualified retirement plans, there is a possibility that a material conflict
may arise between the interests of this separate account and one or more of the
other accounts of another participating insurance company. In the event of a
material conflict, the affected insurance companies, including PFL, agree to
take any necessary steps to resolve the matter. This includes removing their
separate accounts from the underlying funds. See the prospectuses for the
underlying funds for more details.
Reinstatements
You may exchange your policy for one issued by another life insurance company
(sometimes referred to as a 1035 Exchange or a trustee-to-trustee transfer).
You may also request us to reinstate your policy after such an exchange by
returning the same total dollar amount of funds to the applicable investment
choices. The dollar amount will be used to purchase new accumulation units at
the then current price. Because of changes in market value, your new
accumulation units may be worth more or less than the units you previously
owned. We recommend that you consult a tax professional to explain the possible
tax consequences of exchanges and/or reinstatements.
Voting Rights
PFL will vote all shares of the underlying funds in accordance with
instructions we receive from you and other owners that have voting interests in
the portfolios. We will send you and other owners written requests for
instructions on how to vote those shares. When we receive those instructions,
we will vote all of the shares in proportion to those instructions. If,
however, we determine that we are permitted to vote the shares in our own
right, we may do so.
Each person having a voting interest will receive proxy material, reports, and
other materials relating to the appropriate portfolio.
Distributor of the Policies
AFSG Securities Corporation is the principal underwriter of the policies. Like
PFL, it is a Transamerica Company and 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. Commissions of up to 5% of premium payments will be
paid to broker/dealers who sell the policies under agreements with AFSG
Securities Corporation. These commissions are not deducted from premium
payments. In addition, certain production, persistency and
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<PAGE>
managerial bonuses may be paid. PFL may also pay compensation to banks and
other financial institutions for their services in connection with the sale and
servicing of the policies.
Variations in Policy Provisions
Certain provisions of the policies may vary from the descriptions in this
prospectus in order to comply with different state laws. See your policy for
variations since any such state variations will be included in your policy or
in riders or endorsements attached to your policy.
IMSA
PFL is a member of the Insurance Marketplace Standards Association (IMSA). IMSA
is an independent, voluntary organization of life insurance companies. It
promotes high ethical standards in the sales and advertising of individual life
insurance and annuity products. Companies must undergo a rigorous self and
independent assessment of their practices to become a member of IMSA. The IMSA
logo in our sales literature shows our ongoing commitment to these standards.
Legal Proceedings
There are no legal proceedings to which the separate account is a party or to
which the assets of the account are subject. PFL, like other life insurance
companies, is involved in lawsuits. In some class action and other lawsuits
involving other insurers, substantial damages have been sought and/or material
settlement payments have been made. Although the outcome of any litigation
cannot be predicted with certainty, PFL believes that at the present time there
are no pending or threatened lawsuits that are reasonably likely to have a
material adverse impact on the separate account or PFL.
Financial Statements
The financial statements of PFL and the subaccounts are included in the SAI.
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
<S> <C>
Glossary of Terms
The Policy - General Provisions
Certain Federal Income Tax Consequences
Investment Experience
Family Income Protector - Additional Information
Historical Performance Data
Published Ratings
State Regulation of PFL
Administration
Records and Reports
Distribution of the Policies
Voting Rights
Other Products
Custody of Assets
Legal Matters
Independent Auditors
Other Information
Financial Statements
</TABLE>
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<PAGE>
APPENDIX A
CONDENSED FINANCIAL INFORMATION
The accumulation unit values and the number of accumulation units outstanding
for each subaccount from the date of inception are shown in the following
tables.
5% Annually Compounding Death Benefit or Annual Step-Up Death Benefit
(Total Separate Account Annual Expenses: 1.40%)
<TABLE>
<CAPTION>
Accumulation Unit Accumulation Unit Number of
Value Value Accumulation
Subaccount at Beginning of Year at End of Year Units at End of Year
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
AIM V.I. Growth and
Income Fund
1999................... $1.260851 $1.671780 1,394,637.971
1998(/1/).............. $1.086034 $1.260851 4,908.801
- -------------------------------------------------------------------------------------
AIM V.I. International
Equity Fund
1999................... $1.077586 $1.650174 127,260.241
1998(/1/).............. $1.000000 $1.077586 14,039.712
- -------------------------------------------------------------------------------------
AIM V.I. Value Fund
1999................... $1.266642 $1.624758 2,833,844.055
1998(/1/).............. $1.083189 $1.266642 90,487.213
- -------------------------------------------------------------------------------------
Evergreen VA Fund
1999................... $1.123643 $1.365381 171,468.896
1998(/1/).............. $1.000000 $1.123643 24,377.368
- -------------------------------------------------------------------------------------
Evergreen VA Foundation
Fund
1999................... $1.066605 $1.165505 2,531,434.571
1998(/1/).............. $1.000000 $1.066605 60,151.622
- -------------------------------------------------------------------------------------
Evergreen VA Global
Leaders Fund
1999(/2/).............. $1.000000 $1.158565 153,400.950
- -------------------------------------------------------------------------------------
Evergreen VA Growth and
Income Fund
1999................... $1.077823 $1.262163 409,988.014
1998(/1/).............. $1.000000 $1.077823 99,286.054
- -------------------------------------------------------------------------------------
Evergreen VA
International Growth
Fund
1999(/2/).............. $1.000000 $1.347956 997.750
- -------------------------------------------------------------------------------------
Evergreen VA Capital
Growth Fund
1999(/2/).............. $1.000000 $0.968280 211,661.420
- -------------------------------------------------------------------------------------
Evergreen VA Growth Fund
1999(/2/).............. $1.000000 $1.358002 64,450.995
- -------------------------------------------------------------------------------------
Evergreen VA High Income
Fund
1999(/2/).............. $1.000000 $1.039068 39,367.491
- -------------------------------------------------------------------------------------
Federated High Income
Bond Fund II
1999................... $1.053867 $1.064849 1,415,579.765
1998(/1/).............. $1.000000 $1.053867 26,497.028
- -------------------------------------------------------------------------------------
MFS Emerging Growth
Series
1999................... $1.266452 $2.210407 904,988.039
1998(/1/).............. $1.023216 $1.266452 53,172.589
- -------------------------------------------------------------------------------------
MFS Research Series
1999................... $1.212676 $1.485750 1,146,554.165
1998(/1/).............. $1.056392 $1.212676 31,821.450
- -------------------------------------------------------------------------------------
MFS Total Return Series
1999................... $1.076484 $1.095980 975,006.756
1998(/1/).............. $1.025771 $1.076484 97,238.01
- -------------------------------------------------------------------------------------
</TABLE>
34
<PAGE>
5% Annually Compounding Death Benefit or Annual Step-Up Death Benefit
(Total Separate Account Annual Expenses: 1.40%)
continued
<TABLE>
<CAPTION>
Accumulation Unit Accumulation Unit Number of
Value Value Accumulation
Subaccount at Beginning of Year at End of Year Units at End of Year
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
MFS Utilities Series
1999(/2/).............. $1.000000 $1.416577 333,234.967
- -------------------------------------------------------------------------------------
Oppenheimer Capital
Appreciation Fund/VA
1999................... $1.263592 $1.767873 1,048,763.736
1998(/1/).............. $1.084275 $1.263592 2,801.984
- -------------------------------------------------------------------------------------
Oppenheimer Multiple
Strategies Fund/VA
1999................... $1.062052 $1.172691 623,644.728
1998(/1/).............. $1.000000 $1.062052 110,363.654
- -------------------------------------------------------------------------------------
Oppenheimer Strategic
Bond Fund/VA
1999................... $1.014714 $1.030527 1,178,165.433
1998(/1/).............. $0.989048 $1.014714 11,646.573
- -------------------------------------------------------------------------------------
Putnam VT Global Growth
Fund -Class IB Shares
1999................... $1.165076 $1.893641 424,898.296
1998(/1/).............. $1.000000 $1.165076 14,249.515
- -------------------------------------------------------------------------------------
Putnam VT Money Market
Fund -Class IB Shares
1999................... $ 1.00594 1.040234 402,501.656
1998(/1/).............. $1.000000 $ 1.00594 1,000.00
- -------------------------------------------------------------------------------------
Putnam VT New Value
Fund -Class IB Shares
1999................... $1.084332 $1.073725 231,596.430
1998(/1/).............. $1.000000 $1.084332 95,008.528
- -------------------------------------------------------------------------------------
Templeton Asset
Allocation Fund -
Class 2
1999(/2/).............. $1.000000 $1.085065 80,830.337
- -------------------------------------------------------------------------------------
Templeton International
Fund - Class 2
1999(/2/).............. $1.000000 $1.114141 90,499.960
- -------------------------------------------------------------------------------------
Franklin Small Cap
Fund - Class 2
1999(/2/).............. $1.000000 $1.617750 90,047.993
- -------------------------------------------------------------------------------------
Fidelity - VIP High
Income - Service Class
1999(/2/).............. $1.000000 $1.175901 264,879.935
- -------------------------------------------------------------------------------------
Fidelity - VIP II Index
500 - Initial Class
1999(/2/).............. $1.000000 $1.987714 922,263.939
- -------------------------------------------------------------------------------------
Fidelity - VIP II
Investment Grade Bond -
Initial Class
1999(/2/).............. $1.000000 $1.136386 245,256.660
- -------------------------------------------------------------------------------------
Fidelity - VIP III
Growth Opportunities -
Service Class
1999(/2/).............. $1.000000 $1.557744 635,438.753
</TABLE>
35
<PAGE>
Return of Premium Death Benefit
(Total Separate Account Annual Expenses: 1.25%)
<TABLE>
<CAPTION>
Accumulation Unit Accumulation Unit Number of
Value Value Accumulation
Subaccount at Beginning of Year at End of Year Units at End of Year
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
AIM V.I. Growth and
Income Fund
1999................... $1.260383 $1.668693 6,521,679.805
1998(/1/).............. $1.085904 $1.260383 213,324.783
- -------------------------------------------------------------------------------------
AIM V.I. International
Equity Fund
1999................... $1.077315 $1.647309 974,356.520
1998(/1/).............. $1.000000 $1.077315 85,589.093
- -------------------------------------------------------------------------------------
AIM V.I. Value Fund
1999................... $1.265957 $1.621757 14,061,168.861
1998(/1/).............. $ 1.08306 $1.265957 710,879.859
- -------------------------------------------------------------------------------------
Evergreen VA Fund
1999................... $ 1.12336 $1.363015 1,133,327.786
1998(/1/).............. $1.000000 $ 1.12336 176,094.122
- -------------------------------------------------------------------------------------
Evergreen VA Foundation
Fund
1999................... $1.066334 $1.163482 10,212,042.456
1998(/1/).............. $1.000000 $1.066334 730,048.182
- -------------------------------------------------------------------------------------
Evergreen VA Global
Leaders Fund
1999(/2/).............. $1.000000 $1.157425 495,392.640
- -------------------------------------------------------------------------------------
Evergreen VA Growth and
Income Fund
1999................... $1.077551 $1.259978 1,897,269.471
1998(/1/).............. $1.000000 $1.077551 423,067.758
- -------------------------------------------------------------------------------------
Evergreen VA
International Growth
Fund
1999(/2/).............. $1.000000 $1.346634 97,099.617
- -------------------------------------------------------------------------------------
Evergreen VA Capital
Growth Fund
1999(/2/).............. $1.000000 $0.967344 1,910,289.545
- -------------------------------------------------------------------------------------
Evergreen VA Growth Fund
1999(/2/).............. $1.000000 $1.356656 360,299.090
- -------------------------------------------------------------------------------------
Evergreen VA High Income
Fund
1999(/2/).............. $1.000000 $1.038416 138,172.993
- -------------------------------------------------------------------------------------
Federated High Income
Bond Fund II
1999................... $1.029959 $1.039161 4,889,829.326
1998(/1/).............. $ 0.97756 $1.029959 565,655.506
- -------------------------------------------------------------------------------------
Franklin Small Cap
Fund - Class 2
1999(/2/).............. $1.000000 $1.616150 780,075.201
- -------------------------------------------------------------------------------------
Templeton Asset Strategy
Fund -Class 2
1999(/2/).............. $1.000000 $1.083998 248,746.829
- -------------------------------------------------------------------------------------
Templeton International
Securities Fund - Class
2
1999(/2/).............. $1.000000 $1.113051 729,680.581
- -------------------------------------------------------------------------------------
MFS Emerging Growth
Series
1999................... $1.265976 $2.206323 5,268,344.689
1998(/1/).............. $1.023088 $1.265976 370,997.778
- -------------------------------------------------------------------------------------
MFS Research Series
1999................... $1.212231 $1.482998 5,446,898.645
1998(/1/).............. $1.056268 $1.212231 420,718.942
- -------------------------------------------------------------------------------------
MFS Total Return Series
1999................... $1.076083 $1.093953 4,709,530.689
1998(/1/).............. $1.025646 $1.076083 361,289.760
</TABLE>
36
<PAGE>
Return of Premium Death Benefit
(Total Separate Account Annual Expenses: 1.25%)
continued
<TABLE>
<CAPTION>
Accumulation Unit Accumulation Unit Number of
Value Value Accumulation
Subaccount at Beginning of Year at End of Year Units at End of Year
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
MFS Utilities Series
1999(/2/).............. $1.000000 $1.413957 $1,657,355.059
- -------------------------------------------------------------------------------------
Oppenheimer Capital
Appreciation Fund/VA
1999................... $1.263125 $1.764620 4,797,474.137
1998(/1/).............. $1.084144 $1.263125 323,537.371
- -------------------------------------------------------------------------------------
Oppenheimer Multiple
Strategies Fund/VA
1999................... $1.061787 $1.170664 1,503,090.531
1998(/1/).............. $1.000000 $1.061787 118,249.261
- -------------------------------------------------------------------------------------
Oppenheimer Strategic
Bond Fund/VA
1999................... $1.014327 $1.028609 3,502,331.278
1998(/1/).............. $0.988927 $1.014327 543,298.914
- -------------------------------------------------------------------------------------
Putnam VT Global Growth
Fund Class IB Shares
1999................... $ 1.16479 $1.890365 2,378,366.267
1998(/1/).............. $1.000000 $ 1.16479 58,681.348
- -------------------------------------------------------------------------------------
Putnam VT Money Market
Fund Class IB Shares
1999................... $ 1.00569 $ 1038440 2,941,174.912
1998(/1/).............. $1.000000 $ 1.00569 78,629.855
- -------------------------------------------------------------------------------------
Putnam VT New Value Fund
Class IB Shares
1999................... $1.084061 $1.071862 1,133,575.798
1998(/1/).............. $1.000000 $1.084061 62,564.405
- -------------------------------------------------------------------------------------
Fidelity - VIP High
Income -Service Class
1999(/2/).............. $1.000000 $1.170692 615,977.656
- -------------------------------------------------------------------------------------
Fidelity - VIP II Index
500 -Initial Class
1999(/2/).............. $1.000000 $1.978931 4,949,460.935
- -------------------------------------------------------------------------------------
Fidelity - VIP II
Investment Grade Bond -
Initial Class
1999(/2/).............. $1.000000 $1.131353 828,979.275
- -------------------------------------------------------------------------------------
Fidelity - VIP III
Growth Opportunities -
Service Class
1999(/2/).............. $1.000000 $1.551609 3,266,566.939
</TABLE>
(/1/)Period from October 30, 1998 through December 31, 1998.
(/2/)Period from May 3, 1999 through December 31, 1999.
The AIM V.I. Capital Appreciation Fund Subaccount, AIM V.I. Dent Demographic
Trends Fund Subaccount, Davis Value Subaccount, Federated American Leaders Fund
II Subaccount, Templeton Developing Markets Securities Fund Subaccount,
Oppenheimer Main Street Growth & Income Fund/VA Subaccount, Putnam VT Growth
and Income Fund Subaccount, Putnam VT Growth Opportunities Fund Subaccount,
Fidelity - VIP Equity-Income Subaccount and the Fidelity - VIP Growth
Subaccount had not commenced operations as of December 31, 1999, therefore,
comparable data is not available.
37
<PAGE>
APPENDIX B
HISTORICAL PERFORMANCE DATA
Standardized Performance Data
PFL may advertise historical yields and total returns for the subaccounts of
the separate account. These figures are based on historical earnings and are
calculated according to guidelines from the SEC. They do not indicate future
performance.
Putnam VT Money Market Fund Subaccount. The yield of the Putnam VT Money Market
Fund Subaccount for a policy refers to the annualized income generated by an
investment under a policy in the subaccount over a specified seven-day period.
The yield is calculated by assuming that the income generated for that seven-
day period is generated each seven-day period over a 52-week period and is
shown as a percentage of the investment. The effective yield is calculated
similarly but, when annualized, the income earned by an investment under a
policy in the subaccount is assumed to be reinvested. The effective yield will
be slightly higher than the yield because of the compounding effect of this
assumed reinvestment.
Other Subaccounts. The yield of a subaccount of the separate account (other
than the Putnam VT Money Market Fund Subaccount) for a policy refers to the
annualized income generated by an investment under a policy in the subaccount
over a specified 30-day period. The yield is calculated by assuming that the
income generated by the investment during that 30-day period is generated each
30-day period over a 12-month period and is shown as a percentage of the
investment.
The total return of a subaccount of the separate account refers to return
quotations assuming an investment under a policy has been held in the
subaccount for various periods of time including a period measured from the
date the subaccount commenced operations. When a subaccount has been in
operation for 1, 5, and 10 years, respectively, the total return for these
periods will be provided. The total return quotations for a subaccount will
represent the average annual compounded rates of return that equate an initial
investment of $1,000 in the subaccount to the redemption value of that
investment as of the last day of each of the periods for which total return
quotations are provided.
The yield and total return calculations for a subaccount do not reflect the
effect of any premium taxes that may be applicable to a particular policy and
they do not reflect the rider charge for the optional family income protector.
The yield calculations also do not reflect the effect of any surrender charge
that may be applicable to a particular policy. To the extent that any or all of
a premium tax and/or surrender charge is applicable to a particular policy, the
yield and/or total return of that policy will be reduced. For additional
information regarding yields and total returns calculated using the standard
formats briefly summarized above, please refer to the SAI, a copy of which may
be obtained from the administrative and service office upon request.
Based on the method of calculation described in the Statement of Additional
Information, the average annual total returns for periods from inception of the
subaccounts to December 31, 1999, and for the one and five year periods ended
December 31, 1999 are shown in Table 1 below. Total returns shown reflect
deductions for the mortality and expense risk fee and the administrative
charges. Performance figures may reflect the 1.25% mortality and expense risk
fee for the 5% Annually Compounding and Annual Step-Up Death Benefits, or the
1.10% mortality and expense risk fee for the Return of Premium Death Benefit.
Standard total return calculations will reflect the effect of surrender charges
that may be applicable to a particular period.
38
<PAGE>
TABLE 1 - A
Standard Average Annual Total Return
(Assuming No Family Income Protector)
- --------------------------------------------------------------------------------
Return of Premium Death Benefit
(Total Mutual Fund Account Annual Expenses: 1.25%)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1 Year 5 Year Inception of the Subaccount
Ended Ended Subaccount to Inception
Subaccount 12/31/99 12/31/99 12/31/99 Date
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AIM V.I. Capital
Appreciation Fund(/1/)... N/A N/A N/A May 1, 2000
AIM V.I. Growth and Income
Fund..................... 28.12% N/A 41.30% October 31, 1998
AIM V.I. International
Equity Fund.............. 48.91% N/A 50.32% October 31, 1998
AIM V.I. Value Fund....... 23.77% N/A 38.07% October 31, 1998
AIM V.I. Dent Demographic
Trends Fund(/1/)......... N/A N/A N/A May 1, 2000
Davis Value(/1/).......... N/A N/A N/A May 1, 2000
Evergreen VA Fund......... 16.941% N/A 26.94% October 31, 1998
Evergreen VA Foundation
Fund..................... 4.52% N/A 10.09% October 31, 1998
Evergreen VA Global
Leaders Fund............. N/A N/A 10.51% May 3, 1999
Evergreen VA Growth and
Income Fund.............. 12.44% N/A 18.29% October 31, 1998
Evergreen VA International
Growth Fund.............. N/A N/A N/A May 3, 1999
Evergreen VA Capital
Growth Fund(/2/)......... N/A N/A (8.63%) May 3, 1999
Evergreen VA Growth
Fund(/2/)................ N/A N/A 30.57% May 3, 1999
Evergreen VA High Income
Fund(/2/)................ N/A N/A (0.78%) July 29, 1999
Federated American Leaders
Fund II(/1/)............. N/A N/A N/A May 1, 2000
Federated High Income Bond
Fund II.................. (3.81%) N/A 1.44% October 31, 1998
Franklin Small Cap Fund -
Class 2................. N/A N/A 56.70% May 3, 1999
Templeton Asset Strategy
Fund - Class 2........... N/A N/A 3.11% May 3, 1999
Templeton International
Securities Fund - Class
2........................ N/A N/A 6.04% May 3, 1999
Templeton Developing
Markets Securities Fund -
Class 2(/1/)........... N/A N/A N/A May 1, 2000
MFS Emerging Growth
Series................... 70.57% N/A 90.78% October 31, 1998
MFS Research Series....... 17.92% N/A 30.35% October 31, 1998
MFS Total Return Series... (3.03%) N/A 1.76% October 31, 1998
MFS Utilities Series...... N/A N/A 16.14% May 3, 1999
Oppenheimer Capital
Appreciation Fund/VA..... 35.52% N/A 48.72% October 31, 1998
Oppenheimer Main Street
Growth &
Income Fund/VA(/1/)...... N/A N/A N/A May 1, 2000
Oppenheimer Multiple
Strategies Fund/VA....... 5.68% N/A 10.70% October 31, 1998
Oppenheimer Strategic Bond
Fund/VA.................. (3.29%) N/A (0.54%) October 31, 1998
Putnam VT Global Growth
Fund - Class IB Shares... 58.42% N/A 69.84% October 31, 1998
Putnam VT Growth and
Income Fund -
Class IB Shares(/1/)..... N/A N/A N/A May 1, 2000
Putnam VT Growth
Opportunities Fund -
Class IB Shares(/1/)..... N/A N/A N/A May 1, 2000
Putnam VT New Value Fund -
Class IB Shares......... (5.85%) N/A 2.21% October 31, 1998
Fidelity - VIP High
Income - Service Class... N/A N/A 1.44% May 3, 1999
Fidelity - VIP Equity-
Income - Service Class
2(/1/)................... N/A N/A N/A May 1, 2000
Fidelity - VIP Growth -
Service Class 2(/1/).... N/A N/A N/A May 1, 2000
Fidelity - VIP II Index
500 - Initial Class...... N/A N/A 2.89% May 3, 1999
Fidelity - VIP II
Investment Grade Bond -
Initial Class........... N/A N/A (7.40%) May 3, 1999
Fidelity - VIP III Growth
Opportunities -
Service Class............ N/A N/A (6.35%) May 3, 1999
</TABLE>
- --------------------------------------------------------------------------------
39
<PAGE>
TABLE 1 - B
Standard Average Annual Total Returns
(Assuming No Family Income Protector)
- --------------------------------------------------------------------------------
5% Annually Compounding Death Benefit or Annual Step-Up Death Benefit
(Total Mutual Fund Account Annual Expenses: 1.40%)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1 Year 5 Year Inception of the Subaccount
Ended Ended Subaccount to Inception
Subaccount 12/31/99 12/31/99 12/31/99 Date
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AIM V.I. Capital
Appreciation Fund(/1/)... N/A N/A N/A May 1, 2000
AIM V.I. Growth and Income
Fund..................... 27.92% N/A 41.07% October 31, 1998
AIM V.I. International
Equity Fund.............. 48.68% N/A 50.09% October 31, 1998
AIM V.I. Value Fund....... 23.58% N/A 37.84% October 31, 1998
AIM V.I. Dent Demographic
Trends Fund(/1/)......... N/A N/A N/A May 1, 2000
Davis Value(/1/).......... N/A N/A N/A May 1, 2000
Evergreen VA Fund......... 16.73% N/A 26.74% October 31, 1998
Evergreen VA Foundation
Fund..................... 4.36% N/A 9.92% October 31, 1998
Evergreen VA Global
Leaders Fund............. N/A N/A 10.39% May 3, 1999
Evergreen VA Growth and
Income Fund.............. 12.27% N/A 18.10% October 31, 1998
Evergreen VA International
Growth Fund.............. N/A N/A 29.43% May 3, 1999
Evergreen VA Capital
Growth Fund(/2/)......... N/A N/A (8.73%) May 3, 1999
Evergreen VA Growth
Fund(/2/)................ N/A N/A 30.44% May 3, 1999
Evergreen VA High Income
Fund(/2/)................ N/A N/A (0.86%) July 29, 1999
Federated American Leaders
Fund II(/1/)............. N/A N/A N/A May 1, 2000
Federated High Income Bond
Fund II.................. (3.86%) N/A 1.29% October 31, 1998
Franklin Small Cap Fund -
Class 2................. N/A N/A 56.54% May 3, 1999
Templeton Asset Strategy
Fund - Class 2........... N/A N/A 3.01% May 3, 1999
Templeton International
Securities Fund - Class
2........................ N/A N/A 5.93% May 3, 1999
Templeton Developing
Markets Securities Fund -
Class 2(/1/)............. N/A N/A N/A May 1, 2000
MFS Emerging Growth
Series................... 70.31% N/A 90.47% October 31, 1998
MFS Research Series....... 17.74% N/A 30.13% October 31, 1998
MFS Total Return Series... (3.18%) N/A 1.58% October 31, 1998
MFS Utilities Series...... N/A N/A 16.02% May 3, 1999
Oppenheimer Capital
Appreciation Fund/VA..... 35.31% N/A 48.48% October 31, 1998
Oppenheimer Main Street
Growth & Income
Fund/VA(/1/)............. N/A N/A N/A May 1, 2000
Oppenheimer Multiple
Strategies Fund/VA....... 5.51% N/A 10.53% October 31, 1998
Oppenheimer Strategic Bond
Fund/VA.................. (3.44%) N/A (0.71%) October 31, 1998
Putnam VT Global Growth
Fund - Class IB Shares... 58.18% N/A 69.58% October 31, 1998
Putnam VT Growth and
Income Fund -
Class IB Shares(/1/)..... N/A N/A N/A May 1, 2000
Putnam VT Growth
Opportunities Fund -
Class IB Shares(/1/)..... N/A N/A N/A May 1, 2000
Putnam VT New Value Fund -
Class IB Shares......... (6.00%) N/A 2.05% October 31, 1998
Fidelity - VIP High
Income - Service Class... N/A N/A (8.44%) May 3, 1999
Fidelity - VIP Equity-
Income - Service Class
2(/1/)................... N/A N/A N/A May 1, 2000
Fidelity - VIP Growth -
Service Class 2(/1/).... N/A N/A N/A May 1, 2000
Fidelity - VIP II Index
500 - Initial Class...... N/A N/A 2.79% May 3, 1999
Fidelity - VIP II
Investment Grade Bond -
Initial Class............ N/A N/A (7.50%) May 3, 1999
Fidelity - VIP III Growth
Opportunities -
Service Class............ N/A N/A (6.45%) May 3, 1999
- -------------------------------------------------------------------------------
</TABLE>
40
<PAGE>
(/1/) The AIM V.I. Capital Appreciation Fund Subaccount, AIM V.I. Dent
Demographic Trends Fund Subaccount, Davis Value Subaccount, Federated
American Leaders Fund II Subaccount, Templeton Developing Markets
Securities Fund Subaccount, Oppenheimer Main Street Growth & Income
Fund/VA Subaccount, Putnam VT Growth and Income Fund Subaccount, Putnam VT
Growth Opportunities Fund Subaccount, Fidelity - VIP Equity-Income
Subaccount and the Fidelity - VIP Growth Subaccount had not commenced
operations as of December 31, 1999, therefore, comparable data is not
available.
(/2/) Effective February 1, 2000, shares of the Mentor VIP Capital Growth
Portfolio, Mentor VIP Growth Portfolio and Mentor VIP High Income
Portfolio, were removed and replaced with shares of the Evergreen VA
Capital Growth Fund, Evergreen VA Growth Fund and Evergreen VA High Income
Fund, respectively. The Evergreen VA Capital Growth Fund, Evergreen VA
Growth Fund and Evergreen VA High Income Fund have the same investment
objectives, the same investment adviser (Mentor Investment Advisors, LLC)
and the same advisory fees as the Mentor VIP Capital Growth Portfolio,
Mentor VIP Growth Portfolio and Mentor VIP High Income Portfolio,
respectively. Performance prior to February 2, 2000 reflects performance
of the annuity subaccounts while they were invested in the Mentor VIP
Capital Growth Portfolio, Mentor VIP Growth Portfolio and Mentor VIP High
Income Portfolio.
Non-Standardized Performance Data
In addition to the standardized data discussed above, similar performance data
for other periods may also be shown.
PFL may from time to time also advertise or disclose average annual total
return or other performance data in non-standard formats for a subaccount of
the separate account. The non-standardized performance data may assume that no
surrender charge is applicable, and may also make other assumptions such as the
amount invested in a subaccount, differences in time periods to be shown, or
the effect of partial withdrawals or annuity payments.
All non-standardized performance data will be advertised only if the
standardized performance data is also disclosed. For additional information
regarding the calculation of other performance data, please refer to the SAI.
The non-standardized average annual total return figures shown in Table 2 are
based on the assumption that the policy is not surrendered, and therefore the
surrender charge is not imposed. Also, Table 2 does not reflect the rider
charge for the optional family income protector.
41
<PAGE>
TABLE 2 - A
Non-Standard Average Annual Total Returns
(Assuming No Family Income Protector)
- --------------------------------------------------------------------------------
Return of Premium Death Benefit
(Total Mutual Fund Account Annual Expenses: 1.25%)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1 Year 5 Year Inception of the Subaccount
Ended Ended Subaccount to Inception
Subaccount 12/31/99 12/31/99 12/31/99 Date
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AIM V.I. Capital
Appreciation Fund(/1/)... N/A N/A N/A May 1, 2000
AIM V.I. Growth and Income
Fund..................... 32.59% N/A 44.71% October 31, 1998
AIM V.I. International
Equity Fund.............. 53.14% N/A 53.60% October 31, 1998
AIM V.I. Value Fund....... 28.30% N/A 41.54% October 31, 1998
AIM V.I. Dent Demographic
Trends Fund(/1/)......... N/A N/A N/A May 1, 2000
Davis Value(/1/).......... N/A N/A N/A May 1, 2000
Evergreen VA Fund......... 21.51% N/A 30.58% October 31, 1998
Evergreen VA Foundation
Fund..................... 9.27% N/A 14.02% October 31,1998
Evergreen VA Global
Leaders Fund............. N/A N/A 15.86% May 3, 1999
Evergreen VA Growth and
Income Fund.............. 17.10% N/A 22.08% October 31, 1998
Evergreen VA International
Growth Fund.............. N/A N/A 34.80% May 3, 1999
Evergreen VA Capital
Growth Fund(/2/)......... N/A N/A (3.17%) May 3, 1999
Evergreen VA Growth
Fund(/2/)................ N/A N/A 35.80% May 3, 1999
Evergreen VA High Income
Fund(/2/)................ N/A N/A 4.62% July 29, 1999
Federated American Leaders
Fund II(/1/)............. N/A N/A N/A May 1, 2000
Federated High Income Bond
Fund II.................. 1.04% N/A 5.53% October 31, 1998
Franklin Small Cap Fund -
Class 2.................. N/A N/A 61.78% May 3, 1999
Templeton Asset Strategy
Fund - Class 2 .......... N/A N/A 8.51% May 3, 1999
Templeton International
Securities Fund - Class
2........................ N/A N/A 11.41% May 3, 1999
Templeton Developing
Markets Securities Fund -
Class 2(/1/)............. N/A N/A N/A May 1, 2000
MFS Emerging Growth
Series................... 74.54% N/A 93.47% October 31, 1998
MFS Research Series....... 22.52% N/A 33.94% October 31, 1998
MFS Total Return Series... 1.81% N/A 5.84% October 31, 1998
MFS Utilities Series...... N/A N/A 21.45% May 3, 1999
Oppenheimer Capital
Appreciation Fund/VA..... 39.91% N/A 52.02% October 31, 1998
Oppenheimer Main Street
Growth & Income
Fund/VA(/1/)............. N/A N/A N/A May 1, 2000
Oppenheimer Multiple
Strategies Fund/VA....... 10.42% N/A 14.62% October 31, 1998
Oppenheimer Strategic Bond
Fund/VA.................. 1.56% N/A 3.58% October 31, 1998
Putnam VT Global Growth
Fund - Class IB Shares... 62.53% N/A 72.82% October 31, 1998
Putnam VT Growth and
Income Fund - Class IB
Shares(/1/).............. N/A N/A N/A May 1, 2000
Putnam VT Growth
Opportunities Fund -
Class IB Shares(/1/)..... N/A N/A N/A May 1, 2000
Putnam VT New Value Fund -
Class IB Shares.......... (0.98%) N/A 6.28% October 31, 1998
Fidelity - VIP High Income
- Service Class.......... N/A N/A (2.88%) May 3, 1999
Fidelity - VIP Equity-
Income - Service Class
2(/1/)................... N/A N/A N/A May 1, 2000
Fidelity - VIP Growth -
Service Class 2(/1/)..... N/A N/A N/A May 1, 2000
Fidelity - VIP II Index
500 - Initial Class...... N/A N/A 8.29% May 3, 1999
Fidelity - VIP II
Investment Grade Bond -
Initial Class............ N/A N/A (1.95%) May 3, 1999
Fidelity - VIP III Growth
Opportunities -
Service Class............ N/A N/A (0.91%) May 3, 1999
</TABLE>
- --------------------------------------------------------------------------------
42
<PAGE>
TABLE 2 - B
Non-Standard Average Annual Total Return
(Assuming No Family Income Protector)
- --------------------------------------------------------------------------------
5% Annually Compounding Death Benefit or Annual Step-Up Death Benefit
(Total Mutual Fund Account Annual Expenses: 1.40%)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1 Year 5 Year Inception of the Subaccount
Ended Ended Subaccount to Inception
Subaccount 12/31/99 12/31/99 12/31/99 Date
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AIM V.I. Capital
Appreciation Fund(/1/)... N/A N/A N/A N/A
AIM V.I. Growth and Income
Fund..................... 32.40% N/A 44.49% October 31, 1998
AIM V.I. International
Equity Fund.............. 52.91% N/A 53.37% October 31, 1998
AIM V.I. Value Fund....... 28.11% N/A 41.31% October 31, 1998
AIM V.I. Dent Demographic
Trends Fund(/1/)......... N/A N/A N/A May 1, 2000
Davis Value(/1/).......... N/A N/A N/A May 1, 2000
Evergreen VA Fund......... 21.33% N/A 30.39% October 31, 1998
Evergreen VA Foundation
Fund..................... 9.11% N/A 13.85% October 31,1998
Evergreen VA Global
Leaders Fund............. N/A N/A 15.74% May 3, 1999
Evergreen VA Growth and
Income Fund.............. 16.93% N/A 21.90% October 31, 1998
Evergreen VA International
Growth Fund.............. N/A N/A 34.66% May 3, 1999
Evergreen VA Capital
Growth Fund(/2/)......... N/A N/A (3.27%) May 3, 1999
Evergreen VA Growth
Fund(/2/)................ N/A N/A 35.67% May 3, 1999
Evergreen VA High Income
Fund(/2/)................ N/A N/A 4.54% July 29, 1999
Federated American Leaders
Fund II(/1/)............. N/A N/A N/A May 1, 2000
Federated High Income Bond
Fund II.................. 0.89% N/A 5.38% October 31, 1998
Franklin Small Cap Fund -
Class 2.................. N/A N/A 61.62% May 3, 1999
Templeton Asset Strategy
Fund - Class 2........... N/A N/A 8.40% May 3, 1999
Templeton International
Securities Fund - Class
2........................ N/A N/A 11.31% May 3, 1999
Templeton Developing
Markets Securities Fund -
Class 2(/1/)............. N/A N/A N/A May 1, 2000
MFS Emerging Growth
Series................... 74.28% N/A 93.16% October 31, 1998
MFS Research Series....... 22.34% N/A 33.73% October 31, 1998
MFS Total Return Series... 1.66% N/A 5.67% October 31, 1998
MFS Utilities Series...... N/A N/A 21.33% May 3, 1999
Oppenheimer Capital
Appreciation Fund/VA..... 39.70% N/A 51.78% October 31, 1998
Oppenheimer Main Street
Growth & Income
Fund/VA(/1/)............. N/A N/A N/A May 1, 2000
Oppenheimer Multiple
Strategies Fund/VA....... 10.25% N/A 14.45% October 31, 1998
Oppenheimer Strategic Bond
Fund/VA.................. 1.41% N/A 3.42% October 31, 1998
Putnam VT Global Growth
Fund - Class IB Shares... 62.29% N/A 72.56% October 31, 1998
Putnam VT Growth and
Income Fund - Class IB
Shares(/1/).............. N/A N/A N/A May 1, 2000
Putnam VT Growth
Opportunities Fund -
Class IB Shares(/1/)..... N/A N/A N/A May 1, 2000
Putnam VT New Value Fund -
Class IB Shares.......... (1.13%) N/A 6.13% October 31, 1998
Fidelity - VIP High Income
- Service Class.......... N/A N/A (1.00%) May 3, 1999
Fidelity - VIP Equity-
Income - Service Class
2(/1/)................... N/A N/A N/A May 1, 2000
Fidelity - VIP Growth -
Service Class 2(/1/)..... N/A N/A N/A May 1, 2000
Fidelity - VIP II Index
500 - Initial Class...... N/A N/A 8.18% May 3, 1999
Fidelity - VIP II
Investment Grade Bond -
Initial Class............ N/A N/A (2.05%) May 3, 1999
Fidelity - VIP III Growth
Opportunities -
Service Class............ N/A N/A (1.00%) May 3, 1999
</TABLE>
- --------------------------------------------------------------------------------
43
<PAGE>
(/1/) The AIM V.I. Capital Appreciation Fund Subaccount, AIM V.I. Dent
Demographic Trends Fund Subaccount, Davis Value Subaccount, Federated
American Leaders Fund II Subaccount, Templeton Developing Markets
Securities Fund Subaccount, Oppenheimer Main Street Growth & Income
Fund/VA Subaccount, Putnam VT Growth and Income Fund Subaccount, Putnam VT
Growth Opportunities Fund Subaccount, Fidelity - VIP Equity-Income
Subaccount and the Fidelity - VIP Growth Subaccount had not commenced
operations as of December 31, 1999, therefore, comparable data is not
available.
(/2/) Effective February 1, 2000, shares of the Mentor VIP Capital Growth
Portfolio, Mentor VIP Growth Portfolio and Mentor VIP High Income
Portfolio, were removed and replaced with shares of the Evergreen VA
Capital Growth Fund, Evergreen VA Growth Fund and Evergreen VA High Income
Fund, respectively. The Evergreen VA Capital Growth Fund, Evergreen VA
Growth Fund and Evergreen VA High Income Fund have the same investment
objectives, the same investment adviser (Mentor Investment Advisors, LLC)
and the same advisory fees as the Mentor VIP Capital Growth Portfolio,
Mentor VIP Growth Portfolio and Mentor VIP High Income Portfolio,
respectively. Performance prior to February 2, 2000 reflects performance
of the annuity subaccounts while they were invested in the Mentor VIP
Capital Growth Portfolio, Mentor VIP Growth Portfolio and Mentor VIP High
Income Portfolio.
Adjusted Historical Performance. The following performance data is historic
performance data for the underlying portfolios since their inception reduced by
some or all of the fees and charges under the policy. Such adjusted historic
performance includes data that precedes the inception dates of the subaccounts.
This data is designed to show the performance that would have resulted if the
policy had been in existence during that time, based on the performance of the
applicable portfolio and the assumption that the applicable subaccount was in
existence for the same period as the portfolio with a level of charges equal to
those currently assessed under the policies. This data is not intended to
indicate future performance.
For instance, as shown in Table 3, PFL Life may disclose average annual total
returns for the portfolios reduced by all fees and charges under the policy, as
if the policy had been in existence since the inception of the portfolio. Such
fees and charges include the mortality and expense risk fee, administrative
charge and surrender charges. Table 3 assumes that the policy is not
surrendered, and therefore the surrender charge is not deducted. Also, Table 3
does not reflect the rider charge for the optional family income protector.
44
<PAGE>
The following information is also based on the method of calculation described
in the Statement of Additional Information. The adjusted historical average
annual total returns for periods ended December 31, 1999, were as follows:
TABLE 3 - A
Adjusted Historical Average Annual Total Returns(/1/)
(Assuming No Surrender Charge or Family Income Protector)
- --------------------------------------------------------------------------------
Return of Premium Death Benefit
(Total Mutual Fund Account Annual Expenses: 1.25%)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Corresponding
10 Year or Portfolio
Portfolio 1 Year 5 Year Inception Inception Date
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AIM V.I. Capital Appreciation
Fund............................ 44.61% 25.59% 22.32% May 5, 1993
AIM V.I. Growth and Income Fund.. 32.59% 26.61% 22.95% May 2, 1994
AIM V.I. International Equity
Fund............................ 53.14% 20.43% 17.35% May 5, 1993
AIM V.I. Value Fund.............. 28.30% 25.67% 21.55% May 5, 1993
AIM V.I. Dent Demographic Trends
Fund............................ N/A N/A 0.00% December 29, 1999
Davis Value...................... N/A N/A 2.63% July 1, 1999
Evergreen VA Fund................ 21.51% N/A 19.29% March 1, 1996
Evergreen VA Foundation Fund..... 9.27% N/A 15.18% March 1, 1996
Evergreen VA Global Leaders
Fund............................ 23.15% N/A 17.01% March 6, 1997
Evergreen VA Growth and Income
Fund............................ 17.10% N/A 18.19% March 1, 1996
Evergreen VA International Growth
Fund............................ 36.52% N/A 19.43% August 17, 1998
Evergreen VA Capital Growth
Fund(/2/)....................... 4.88% N/A 6.79% March 3, 1998
Evergreen VA Growth Fund(/2/).... 19.52% N/A 4.52% March 3, 1998
Evergreen VA High Income
Fund(/2/)....................... N/A N/A 4.62% July 29, 1999
Federated American Leaders Fund
II.............................. 6.67% 21.97% 18.22% February 10, 1994
Federated High Income Bond Fund
II.............................. 1.04% 9.11% 6.89% February 2, 1994
Franklin Small Cap Fund - Class
2(/4/).......................... 72.13% N/A 31.31% May 1, 1998
Templeton Asset Strategy Fund -
Class 2(/3/).................... 21.04% 15.50% 11.62%+ August 24, 1988
Templeton International
Securities Fund - Class 2(/3/).. 21.72% 15.59% 13.82% May 1, 1992
Templeton Developing Markets
Securities Fund - Class 2....... 53.27% N/A (5.46%) May 4, 1996
MFS Emerging Growth Series....... 74.54% N/A 34.74% July 24, 1995
MFS Research Series.............. 22.52% N/A 21.33% July 26, 1995
MFS Total Return Series.......... 1.81% N/A 13.99% January 3, 1995
MFS Utilities Series............. 29.20% N/A 24.90% January 3, 1995
Oppenheimer Capital Appreciation
Fund/VA......................... 39.91% 29.06% 17.00%+ April 3, 1985
Oppenheimer Main Street Growth &
Income Fund/VA.................. 21.71% N/A 25.77% July 5, 1995
Oppenheimer Multiple Strategies
Fund/VA......................... 10.42% 12.99% 9.47%+ February 9, 1987
Oppenheimer Strategic Bond
Fund/VA......................... 1.56% 6.92% 4.87% May 3, 1993
Putnam VT Global Growth Fund -
Class IB Shares................. 62.53% 25.35% 15.59% May 1, 1990
Putnam VT Growth and Income Fund
- Class IB Shares............... 1.46% 19.23% 13.83%+ February 1, 1988
Putnam VT Growth Opportunities
Fund - Class IB Shares.......... N/A N/A N/A February 1, 2000
Putnam VT New Value Fund - Class
IB Shares....................... (0.98%) N/A 6.45% January 1, 1997
Fidelity - VIP High Income -
Service Class(/3/).............. 6.83% 9.51% 11.05%+ September 19, 1985
Fidelity - VIP Equity-Income -
Service Class 2(/4/)............ 6.25% 18.57% 14.47%+ October 9, 1986
Fidelity - VIP Growth - Service
Class 2(/4/).................... 37.29% 29.70% 19.92%+ October 9, 1986
Fidelity - VIP II Index 500 -
Initial Class................... 19.03% 26.60% 19.59% August 27, 1992
Fidelity - VIP II Investment
Grade Bond - Initial Class...... (2.27%) 5.97% 5.86%+ December 5, 1988
Fidelity - VIP III Growth
Opportunities - Service
Class(/3/)...................... 3.07% N/A 20.03% January 3, 1995
- -------------------------------------------------------------------------------
+Ten Year Date
</TABLE>
- --------------------------------------------------------------------------------
45
<PAGE>
TABLE 3 - B
Adjusted Historical Average Annual Total Returns(/1/)
(Assuming No Surrender Charge or Family Income Protector)
- --------------------------------------------------------------------------------
5% Annually Compounding Death Benefit or Annual Step-Up Death Benefit
(Total Mutual Fund Account Annual Expenses: 1.40%)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Corresponding
10 Year or Portfolio
Portfolio 1 Year 5 Year Inception Inception Date
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AIM V.I. Capital Appreciation
Fund............................ 44.61% 25.59% 22.32% May 5, 1993
AIM V.I. Growth and Income Fund.. 32.40% 26.42% 22.77% May 2, 1994
AIM V.I. International Equity
Fund............................ 52.91% 20.25% 17.18% May 5, 1993
AIM V.I. Value Fund.............. 28.11% 25.48% 21.36% May 5, 1993
AIM V.I. Dent Demographic Trends
Fund............................ N/A N/A 0.00% December 29, 1999
Davis Value...................... N/A N/A 2.63% July 1, 1999
Evergreen VA Fund................ 21.33% N/A 19.12% March 1, 1996
Evergreen VA Foundation Fund..... 9.11% N/A 15.01% March 1, 1996
Evergreen VA Global Leaders
Fund............................ 22.97% N/A 16.84% March 6, 1997
Evergreen VA Growth and Income
Fund............................ 16.93% N/A 18.01% March 1, 1996
Evergreen VA International Growth
Fund............................ 36.32% N/A 19.25% August 17, 1998
Evergreen VA Capital Growth
Fund(/2/)....................... 4.72% N/A 6.63% March 3, 1998
Evergreen VA Growth Fund(/2/).... 19.34% N/A 4.36% March 3, 1998
Evergreen VA High Income
Fund(/2/)....................... N/A N/A 4.54% July 29, 1999
Federated American Leaders Fund
II.............................. 6.67% 21.97% 18.22% February 10, 1994
Federated High Income Bond Fund
II.............................. 0.89% 8.95% 6.73% February 2, 1994
Franklin Small Cap Fund - Class
2(/4/).......................... 71.88% N/A 31.11% May 1, 1998
Templeton Asset Strategy Fund -
Class 2(/3/).................... 20.86% 15.33% 11.46%+ August 24, 1988
Templeton International
Securities Fund - Class 2(/3/).. 21.54% 15.42% 13.65% May 1, 1992
Templeton Developing Markets
Securities Fund - Class 2....... 53.27% N/A (5.46%) May 4, 1996
MFS Emerging Growth Series....... 74.28% N/A 34.53% July 24, 1995
MFS Research Series.............. 22.34% N/A 21.15% July 26, 1995
MFS Total Return Series.......... 1.66% N/A 13.82% January 3, 1995
MFS Utilities Series............. 29.01% N/A 24.72% January 3, 1995
Oppenheimer Capital Appreciation
Fund/VA......................... 39.70% 28.87% 16.83%+ April 3, 1985
Oppenheimer Main Street Growth &
Income Fund/VA.................. 21.71% N/A 25.77% July 5, 1995
Oppenheimer Multiple Strategies
Fund/VA......................... 10.25% 12.82% 9.30%+ February 9, 1987
Oppenheimer Strategic Bond
Fund/VA......................... 1.41% 6.75% 4.71% May 3, 1993
Putnam VT Global Growth Fund -
Class IB Shares................. 62.29% 25.16% 15.41% May 1, 1990
Putnam VT Growth and Income Fund
- Class IB Shares............... 1.46% 19.23% 13.83%+ February 1, 1988
Putnam VT Growth Opportunities
Fund - Class IB Shares.......... N/A N/A N/A February 1, 2000
Putnam VT New Value Fund - Class
IB Shares....................... (1.13%) N/A 6.29% January 1, 1997
Fidelity - VIP High Income -
Service Class(/3/).............. 6.67% 9.35% 10.89%+ September 19, 1985
Fidelity - VIP Equity-Income -
Service Class 2(/4/)............ 6.25% 18.57% 14.47%+ October 9, 1986
Fidelity - VIP Growth - Service
Class 2(/4/).................... 37.29% 29.70% 19.92% October 9, 1986
Fidelity - VIP II Index 500 -
Initial Class................... 18.85% 26.41% 19.41% August 27, 1992
Fidelity - VIP II Investment
Grade Bond - Initial Class...... (2.42%) 5.81% 5.71%+ December 5, 1988
Fidelity - VIP III Growth
Opportunities - Service
Class(/3/)...................... 2.92% N/A 19.85% January 3, 1995
- -------------------------------------------------------------------------------
+Ten Year Date
</TABLE>
- --------------------------------------------------------------------------------
46
<PAGE>
(/1/) The calculation of total return performance for periods prior to inception
of the subaccounts reflects deductions for the mortality and expense risk
fee and administrative charge on a monthly basis, rather than a daily
basis. The monthly deduction is made at the beginning of each month and
generally approximates the performance that would have resulted if the
subaccounts had actually been in existence since the inception of the
portfolio.
(/2/) Effective February 1, 2000, shares of the Mentor VIP Capital Growth
Portfolio, Mentor VIP Growth Portfolio and Mentor VIP High Income
Portfolio, were removed and replaced with shares of the Evergreen VA
Capital Growth Fund, Evergreen VA Growth Fund and Evergreen VA High Income
Fund, respectively. The Evergreen VA Capital Growth Fund, Evergreen VA
Growth Fund and Evergreen VA High Income Fund have the same investment
objectives, the same investment adviser (Mentor Investment Advisors, LLC)
and the same advisory fees as the Mentor VIP Capital Growth Portfolio,
Mentor VIP Growth Portfolio and Mentor VIP High Income Portfolio,
respectively. Performance prior to February 2, 2000 reflects performance
of the annuity subaccounts while they were invested in the Mentor VIP
Capital Growth Portfolio, Mentor VIP Growth Portfolio and Mentor VIP High
Income Portfolio.
(/3/) Returns prior to November 3, 1997 for the portfolios are based on
historical returns for Initial Class Shares.
(/4/) Returns prior to January 12, 2000 for the portfolios are based on
historical returns for Initial Class Shares.
47
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PORTFOLIO SELECT VARIABLE ANNUITY
Issued through
PFL RETIREMENT BUILDER VARIABLE ANNUITY ACCOUNT
Offered by
PFL LIFE INSURANCE COMPANY
4333 Edgewood Road, N.E.
Cedar Rapids, Iowa 52499-0001
This Statement of Additional Information expands upon subjects discussed in the
current prospectus for the Portfolio Select Variable Annuity offered by PFL
Life Insurance Company. You may obtain a copy of the prospectus dated May 1,
2000, by calling 1-800-525-6205, or by writing to the Administrative and
Service Office, Financial Markets Division-Variable Annuity Dept., 4333
Edgewood Road, N.E., Cedar Rapids, Iowa 52499-0001. The prospectus sets forth
information that a prospective investor should know before investing in a
policy. Terms used in the current prospectus for the policy are incorporated in
this Statement of Additional Information.
This Statement of Additional Information (SAI) is not a prospectus and should
be read only in conjunction with the prospectuses for the policy and for the
underlying fund portfolios.
Dated: May 1, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
GLOSSARY OF TERMS.......................................................... 3
THE POLICY--GENERAL PROVISIONS............................................. 6
Owner.................................................................... 6
Entire Policy............................................................ 6
Misstatement of Age or Sex............................................... 7
Addition, Deletion, or Substitution of Investments....................... 7
Excess Interest Adjustment............................................... 7
Reallocation of Annuity Units After the Annuity Commencement Date........ 12
Annuity Payment Options.................................................. 13
Death Benefit............................................................ 14
Death of Owner........................................................... 16
Assignment............................................................... 16
Evidence of Survival..................................................... 16
Non Participating........................................................ 16
Amendments............................................................... 16
Employee and Agent Purchases............................................. 17
CERTAIN FEDERAL INCOME TAX CONSEQUENCES.................................... 17
Tax Status of the Policy................................................. 17
Taxation of PFL.......................................................... 21
INVESTMENT EXPERIENCE...................................................... 21
Accumulation Units....................................................... 21
Annuity Unit Value and Annuity Payment Rates............................. 23
FAMILY INCOME PROTECTOR--ADDITIONAL INFORMATION............................ 25
HISTORICAL PERFORMANCE DATA................................................ 28
Money Market Yields...................................................... 28
Other Subaccount Yields.................................................. 29
Total Returns............................................................ 29
Other Performance Data................................................... 30
Adjusted Historical Performance Data..................................... 30
PUBLISHED RATINGS.......................................................... 31
STATE REGULATION OF PFL.................................................... 31
ADMINISTRATION............................................................. 31
RECORDS AND REPORTS........................................................ 31
DISTRIBUTION OF THE POLICIES............................................... 31
VOTING RIGHTS.............................................................. 32
OTHER PRODUCTS............................................................. 32
CUSTODY OF ASSETS.......................................................... 32
LEGAL MATTERS.............................................................. 33
INDEPENDENT AUDITORS....................................................... 33
OTHER INFORMATION.......................................................... 33
FINANCIAL STATEMENTS....................................................... 33
</TABLE>
-2-
<PAGE>
GLOSSARY OF TERMS
Accumulation Unit--An accounting unit of measure used in calculating the policy
value in the separate account before the annuity commencement date.
Adjusted Policy Value--An amount equal to the policy value increased or
decreased by any excess interest adjustments.
Administrative and Service Office--Financial Markets Division Variable Annuity
Department, 4333 Edgewood Road, N.E., Cedar Rapids, Iowa 52499-0001.
Annuitant--The person during whose life any annuity payments involving life
contingencies will continue.
Annuity Commencement Date--The date upon which annuity payments are to
commence. The annuity commencement date may not be later than the last day of
the policy month starting after the annuitant attains age 85, except as
expressly allowed by PFL. In no event will this date be later than the last day
of the policy month following the month in which the annuitant attains age 95.
The annuity commencement date may be required to be earlier for qualified
policies.
Annuity Payment Option--A method of receiving a stream of annuity payments
selected by the owner.
Annuity Unit--An accounting unit of measure used in the calculation of the
amount of the second and each subsequent variable annuity payment.
Application--A written application, order form, or any other information
received electronically or otherwise upon which the policy is issued and/or is
reflected on the data or specifications page.
Beneficiary--The person who has the right to the death benefit set forth in the
policy.
Business Day--A day when the New York Stock Exchange is open for business.
Cash Value--The policy value increased or decreased by an excess interest
adjustment, less the annual service charge, and less any applicable surrender
charge, premium taxes and family income protector rider fee.
Code--The Internal Revenue Code of 1986, as amended.
Cumulative Free Percentage--The percentage (as applied to the policy value)
which is available free of any surrender charge.
Excess Interest Adjustment ("EIA")--A positive or negative adjustment to
amounts withdrawn upon partial or full surrenders from the fixed account
guaranteed period options, or to amounts applied to annuity payment options.
The adjustment reflects changes in the interest rates declared by PFL since the
date any payment was received by (or an amount was transferred to) the
guaranteed period option. The excess interest adjustment can either decrease or
increase the amount to be received by the owner upon full surrender or
commencement of annuity payments, depending upon whether there has been an
increase or decrease in interest rates, respectively.
Excess Partial Withdrawal--The portion of a partial withdrawal (surrender) that
exceeds the cumulative free percentage.
Fixed Account--One or more investment choices under the policy that are part of
PFL's general assets and are not in the separate account.
-3-
<PAGE>
Guaranteed Period Options--The various guaranteed interest rate periods of the
fixed account which PFL may offer and into which premium payments may be paid
or amounts transferred.
Nonqualified Policy--A policy other than a qualified policy.
Owner--The person who may exercise all rights and privileges under the policy.
The owner during the lifetime of the annuitant and prior to the annuity
commencement date is the person designated as the owner or a successor owner in
the information that we require to issue a policy.
Policy Value--On or before the annuity commencement date, the policy value is
equal to the owner's:
. premium payments; minus
. partial withdrawals (including the net effect of any applicable excess
interest adjustments and/or surrender charges on such withdrawals); plus
. interest credited in the fixed account; plus or minus
. accumulated gains or losses in the separate account; minus
. service charges, rider fees, premium taxes and transfer fees, if any.
Policy Year--A policy year begins on the policy date in which the policy
becomes effective and on each anniversary thereof.
Premium Payment--An amount paid to PFL by the owner or on the owner's behalf as
consideration for the benefits provided by the policy.
Qualified Policy--A policy issued in connection with retirement plans that
qualify for special federal income tax treatment under the Code.
Separate Account--The Portfolio Select Variable Annuity division of the PFL
Retirement Builder Variable Annuity Account. The PFL Retirement Builder
Variable Annuity Account is a separate account established and registered as a
unit investment trust under the Investment Company Act of 1940, as amended (the
"1940 Act"), and to which premium payments under the policies may be allocated.
Service Charge--There is an annual service charge on each policy anniversary
(and a charge at the time of surrender during any policy year) for policy
maintenance and related administrative expenses. This annual charge is $30, but
in no event will the service charge be more than 2% of the policy value.
Subaccount--A subdivision within the separate account, the assets of which are
invested in a specified portfolio of the underlying funds.
Successor Owner--A person appointed by the owner to succeed to ownership of the
policy in the event of the death of the owner who is not the annuitant before
the annuity commencement date.
Surrender Charge--The applicable contingent deferred sales charge, assessed on
certain full surrenders or partial withdrawals of premium payments to cover
expenses relating to the sale of the policies.
Underlying Funds--The designated portfolios of: (1) AIM Variable Insurance
Funds, managed by A I M Advisors, Inc. and the AIM V.I. Dent Demographic Trends
Fund subadvised by H.S. Dent Advisors, Inc.; (2) Davis Variable Account Fund,
Inc., managed by Davis Seleted Advisors, L.P.; (3) Evergreen Variable Trust,
managed by Evergreen Asset Management Corp., Evergreen Investment Management
Company, and Mentor Investment Advisors, LLC; (4) Federated Insurance Series,
managed by Federated Investment Management Company; (5) Franklin Templeton
Variable Insurance Products Trust, managed by Templeton Asset Management Ltd.,
managed by Templeton Investment Counsel, Inc. and managed by Franklin Advisers,
Inc.; (6) MFS Variable Insurance Trust, managed by Massachusetts Financial
Services
-4-
<PAGE>
Company; (7) Oppenheimer Variable Account Funds, managed by OppenheimerFunds,
Inc.; (8) Putnam Variable Trust, managed by Putnam Investment Management, Inc.;
and (9) Variable Insurance Products Fund--Service Class, Variable Insurance
Products Funds--Service Class 2, Variable Insurance Products Fund II--Initial
Class, and Variable Insurance Products Fund III--Service Class, managed by
Fidelity Management & Research Company;
Valuation Period--The period of time from one determination of accumulation
unit and annuity unit values to the next subsequent determination of values.
Such determinations shall be made on each business day.
Variable Annuity Payment(s)--Payment(s) made pursuant to an annuity payment
option which fluctuate as to dollar amount or payment term in relation to the
investment performance of the specified subaccounts within the separate
account.
Written Notice--Written notice, signed by the owner, that gives PFL the
information it requires and is received at the administrative and service
office. For some transactions, PFL may accept an electronic notice such as
telephone instructions. Such electronic notice must meet the requirements PFL
establishes for such notices.
-5-
<PAGE>
In order to supplement the description in the prospectus, the following
provides additional information about PFL and the policy, which may be of
interest to a prospective purchaser.
THE POLICY--GENERAL PROVISIONS
Owner
The policy shall belong to the owner upon issuance of the policy after
completion of an application and delivery of the initial premium payment. While
the annuitant is living, the owner may: (1) assign the policy; (2) surrender
the policy; (3) amend or modify the policy with PFL's consent; (4) receive
annuity payments or name a payee to receive the payments; and (5) exercise,
receive and enjoy every other right and benefit contained in the policy. The
exercise of these rights may be subject to the consent of any assignee or
irrevocable beneficiary; and of the owner's spouse in a community or marital
property state.
Unless PFL has been notified of a community or marital property interest in the
policy, it will rely on its good faith belief that no such interest exists and
will assume no responsibility for inquiry.
A successor owner can be named in the application or in a written notice. The
successor owner will become the new owner upon your death, if you predecease
the annuitant. If no successor owner survives you and you predecease the
annuitant, your estate will become the owner.
Note Carefully. If the owner does not name a successor owner, the owner's
estate will become the new owner if the owner predeceases the annuitant. If no
probate estate is opened because the owner has precluded the opening of a
probate estate by means of a trust or other instrument, unless PFL has received
written notice of the trust as a successor owner signed prior to the owner's
death, that trust may not exercise ownership rights to the policy. It may be
necessary to open a probate estate in order to exercise ownership rights to the
policy if no successor owner is named in a written notice received by PFL.
The owner may change the ownership of the policy in a written notice. When this
change takes effect, all rights of ownership in the policy will pass to the new
owner. A change of ownership may have tax consequences.
When there is a change of owner or successor owner, the change will not be
effective until it is recorded in our records. Once recorded, it will take
effect as of the date the owner signs the written notice, subject to any
payment PFL has made or action PFL has taken before recording the change.
Changing the owner or naming a new successor owner cancels any prior choice of
successor owner, but does not change the designation of the beneficiary or the
annuitant.
If ownership is transferred (except to the owner's spouse) because the owner
dies before the annuitant, the adjusted policy value generally must be
distributed to the successor owner within five years of the owner's death, or
if the first payment begins within one year of the owner's death, payments must
be made for a period certain which does not exceed that successor owner's life
expectancy.
Entire Policy
The policy, any endorsements thereon, the application, and information provided
in lieu thereof, constitute the entire contract between PFL and the owner. All
statements in the application are representations and not warranties. No
statement will cause the policy to be void or to be used in defense of a claim
unless contained in the application or information provided in lieu thereof.
-6-
<PAGE>
Misstatement of Age or Sex
If the age or sex of the annuitant has been misstated, PFL will change the
annuity benefit payable to that which the premium payments would have purchased
for the correct age or sex. The dollar amount of any underpayment made by PFL
shall be paid in full with the next payment due such person or the beneficiary.
The dollar amount of any overpayment made by PFL due to any misstatement shall
be deducted from payments subsequently accruing to such person or beneficiary.
Any underpayment or overpayment will include interest at 5% per year, from the
date of the wrong payment to the date of the adjustment. The age of the
annuitant may be established at any time by the submission of proof
satisfactory to PFL.
Addition, Deletion, or Substitution of Investments
PFL cannot and does not guarantee that any of the subaccounts or portfolios
will always be available for premium payments, allocations, or transfers. PFL
retains the right, subject to any applicable law, to make certain changes in
the separate account and its investments. PFL reserves the right to eliminate
the shares of any portfolio held by a subaccount and/or to substitute shares of
another portfolio of the underlying funds, or of another registered open-end
management investment company for the shares of any portfolio, if the shares of
the portfolio are no longer available for investment or if, in PFL's judgment,
investment in any portfolio would be inappropriate in view of the purposes of
the separate account. To the extent required by the 1940 Act, substitutions of
shares attributable to an owner's interest in a subaccount will not be made
without prior notice to the owner and the prior approval of the Securities and
Exchange Commission (SEC). Nothing contained herein shall prevent the separate
account from purchasing other securities for other series or classes of
variable annuity policies, or from effecting an exchange between series or
classes of variable annuity policies on the basis of your requests.
New subaccounts may be established when, in the sole discretion of PFL,
marketing, tax, investment or other conditions warrant. Any new subaccounts may
be made available to existing owners on a basis to be determined by PFL. Each
additional subaccount will purchase shares in a mutual fund portfolio or other
investment vehicle. PFL may also eliminate one or more subaccounts if, in its
sole discretion, marketing, tax, investment or other conditions warrant such
change. In the event any subaccount is eliminated, PFL will notify owners and
request a reallocation of the amounts invested in the eliminated subaccount. If
no such reallocation is provided by the owner, PFL will reinvest the amounts
invested in the eliminated subaccount in the subaccount that invests in the
Money Market portfolio (or in a similar portfolio of money market instruments)
or in another subaccount, if appropriate.
In the event of any such substitution or change, PFL may, by appropriate
endorsement, make such changes in the policies as may be necessary or
appropriate to reflect such substitution or change. Furthermore, if deemed to
be in the best interests of persons having voting rights under the policies,
the separate account may be (i) operated as a management company under the 1940
Act or any other form permitted by law, (ii) deregistered under the 1940 Act in
the event such registration is no longer required or (iii) combined with one or
more other separate accounts. To the extent permitted by applicable law, PFL
also may (1) transfer the assets of the separate account associated with the
policies to another account or accounts, (2) restrict or eliminate any voting
rights of owners or other persons who have voting rights as to the separate
account, (3) create new separate accounts, (4) add new subaccounts to or remove
existing subaccounts from the separate account, or combine subaccounts, or (5)
add new underlying funds, or substitute a new fund for an existing fund.
Excess Interest Adjustment
Money that you withdraw from or apply to an annuity payment option from a
guaranteed period option of the fixed account before the end of its guaranteed
period (the number of years you specified the
-7-
<PAGE>
money would remain in the guaranteed period option) may be subject to an excess
interest adjustment. At the time you request a withdrawal, if interest rates
PFL set have risen since the date of the initial guarantee, the excess interest
adjustment will result in a lower cash value. However, if interest rates have
fallen since the date of the initial guarantee, the excess interest adjustment
will result in a higher cash value.
Excess interest adjustments will not reduce the adjusted policy value for a
guaranteed period option below the amount paid into it, less any prior partial
withdrawals and transfers from that guaranteed period option, plus interest at
the policy's minimum guaranteed effective annual interest rate of 3%. This is
referred to as the excess interest adjustment floor.
The formula which will be used to determine the excess interest adjustment is:
S*(G - C)* (M/12)
S= Gross amount being withdrawn that is subject to the excess interest
adjustment
G= Guaranteed Interest Rate applicable to S.
C= Current Guaranteed Interest Rate then being offered on new premium payments
for the next longer guaranteed period than "M". If this policy form or such
a guaranteed period is no longer offered, "C" will be the U.S. Treasury rate
for the next longer maturity (in whole years) than "M" on the 25th day of
the previous calendar month, plus up to 2%.
M= Number of months remaining in the current guaranteed period, rounded up to
the next higher whole number of months.
*= multiplication
/\= exponentiation
-8-
<PAGE>
Example 1 (Full Surrender, rates increase by 3%):
<TABLE>
<S> <C>
Single premium: $50,000
- -----------------------------------------------------------------------------------------
Guarantee period: 5 Years
- -----------------------------------------------------------------------------------------
Guarantee rate: 5.50% per annum
- -----------------------------------------------------------------------------------------
Full surrender: middle of contract year 3
- -----------------------------------------------------------------------------------------
Policy value at middle of contract year 3 = 50,000* (1.055)/\2.5 = 57,161.18
- -----------------------------------------------------------------------------------------
Surrender charge free amount at middle of
policy year 3 = 57,161.18* .30 = 17,148.35
- -----------------------------------------------------------------------------------------
Excess interest adjustment free amount at = 57,161.18 - 50,000 = 7,161.18
middle of policy year 3
- -----------------------------------------------------------------------------------------
Amount subject to excess interest = 57,161.18 - 7,161.18 = 50,000.00
adjustment
- -----------------------------------------------------------------------------------------
Excess interest adjustment floor = 50,000* (1.03)/\2.5 = 53,834.80
- -----------------------------------------------------------------------------------------
Excess interest adjustment
G= .055
C= .085
M= 30
- -----------------------------------------------------------------------------------------
Excess interest adjustment = S* (G-C)* (M/12)
- -----------------------------------------------------------------------------------------
= 50,000.00* (.055 - .085)* (30/12)
- -----------------------------------------------------------------------------------------
= -3,750.00, but excess interest
adjustment0 cannot cause the adjusted
policy value to fall below the excess
interest adjustment floor,
so the adjustment is limited to
53,834.80 - 57,161.18 = -3,326.38
- -----------------------------------------------------------------------------------------
Adjusted policy value = policy value + excess interest adjustment
- -----------------------------------------------------------------------------------------
= 57,161.18 - 3,326.38 = 53,834.80
- -----------------------------------------------------------------------------------------
Surrender charge = (50,000 - 17,148.35)* .06 = 1,971.10
- -----------------------------------------------------------------------------------------
Cash value at middle of policy year 3 = policy value + excess interest
adjustment - surrender charge
- -----------------------------------------------------------------------------------------
= 57,161.18 - 3,326.38 - 1,971.10
- -----------------------------------------------------------------------------------------
= 51,863.70
</TABLE>
-9-
<PAGE>
Example 2 (Full Surrender, rates decrease by 1%):
<TABLE>
<S> <C>
Single premium: $50,000
- -----------------------------------------------------------------------------------------
Guarantee period: 5 Years
- -----------------------------------------------------------------------------------------
Guarantee rate: 5.50% per annum
- -----------------------------------------------------------------------------------------
Full surrender: middle of contract year 3
- -----------------------------------------------------------------------------------------
Policy value at middle of policy year 3 = 50,000* (1.055)/\2.5 = 57,161.18
- -----------------------------------------------------------------------------------------
Surrender charge free amount at middle of
policy year 3 = 57,161.18* .30 = 17,148.35
- -----------------------------------------------------------------------------------------
Excess interest adjustment free amount at = 57,161.18 - 50,000 = 7,161.18
middle of policy year 3
- -----------------------------------------------------------------------------------------
Amount subject to excess interest = 57,161.18 - 7,161.18 = 50,000.00
adjustment
- -----------------------------------------------------------------------------------------
Excess interest adjustment floor = 50,000* (1.03)/\2.5 = 53,834.80
- -----------------------------------------------------------------------------------------
Excess interest adjustment
G = .055
C = .045
M = 30
- -----------------------------------------------------------------------------------------
Excess interest adjustment = S* (G - C)* (M/12)
- -----------------------------------------------------------------------------------------
= 50,000* (.055 - .045)* (30/12)
- -----------------------------------------------------------------------------------------
= 1,250.00
- -----------------------------------------------------------------------------------------
Adjusted policy value = policy value + excess interest adjustment
- -----------------------------------------------------------------------------------------
= 57,161.18 + 1,250.00 = 58,411.18
- -----------------------------------------------------------------------------------------
Surrender charge = (50,000 - 17,148.35)* .06 = 1,971.10
- -----------------------------------------------------------------------------------------
Cash value at middle of policy year 3 = policy value + excess interest
adjustment - surrender charge
- -----------------------------------------------------------------------------------------
= 57,161.18 + 1,250 - 1,971.10
- -----------------------------------------------------------------------------------------
= 56,440.08
</TABLE>
On a partial withdrawal, PFL will pay the owner the full amount of withdrawal
requested (as long as the policy value is sufficient). Surrender charge--Free
withdrawals will reduce the policy value by the amount withdrawn. Amounts
withdrawn in excess of the surrender charge--Free amount will reduce the policy
value by an amount equal to:
X - Y + Z
X= excess partial withdrawal = requested withdrawal less surrender charge -
free amount
A= amount of partial withdrawal which is subject to excess interest
adjustment = requested withdrawal - excess interest adjustment - free
amount, where excess interest adjustment - free amount = cumulative interest
credited at time of, but prior to, withdrawal.
Y= excess interest adjustment = (A)*(G - C)*(M/12) where G, C, and M are
defined above, with "A" substituted for "S" in the definition of G and M.
Z= surrender charge on X minus Y.
-10-
<PAGE>
Example 3 (Partial Withdrawal, rates increase by 1%):
<TABLE>
<S> <C>
Single premium: $50,000
- ------------------------------------------------------------------------------------------
Guarantee period: 5 Years
- ------------------------------------------------------------------------------------------
Guarantee rate: 5.50% per annum
- ------------------------------------------------------------------------------------------
Partial surrender: $30,000; middle of contract year 3
- ------------------------------------------------------------------------------------------
Policy value at middle of policy year 3 = 50,000* (1.055)/\ 2.5 = 57,161.18
- ------------------------------------------------------------------------------------------
Surrender charge free amount at middle of
policy year 3 = 57,161.18* .30 = 17,148.35
- ------------------------------------------------------------------------------------------
Excess interest adjustment free amount at = 57,161.18 - 50,000 = 7,161.18
middle of policy year 3
- ------------------------------------------------------------------------------------------
Excess interest adjustment/surrender charge
X= 30,000 - 17,148.35 = 12,851.65
A= 30,000 - 7,161.18 = 22,838.82
G= .055
C= .065
M= 30
Y= 22,838.82* (.055 - .065)* (30/12) = -
570.97
Z= .06* [12,851.65 - (-570.97)] = 805.36
- ------------------------------------------------------------------------------------------
Reduction to policy value due to surrender
charge--free withdrawal = 17,148.35
- ------------------------------------------------------------------------------------------
Reduction to policy value due to excess
withdrawal = X - Y + Z
- ------------------------------------------------------------------------------------------
= 12,851.65 - (-570.97) + 805.36
- ------------------------------------------------------------------------------------------
= 14,227.98
- ------------------------------------------------------------------------------------------
Policy Value after withdrawal at middle of
policy year 3 = 57,161.18 - [17,148.35 + 14,227.98]
- ------------------------------------------------------------------------------------------
= 57,161.18 - [17,148.35 + 12,851.65 -
(-570.97) + 805.36]
- ------------------------------------------------------------------------------------------
= 57,161.18 - [30,000 - (-570.97) + 805.36]
- ------------------------------------------------------------------------------------------
= 57,161.18 - 31,376.33 = 25,784.85
</TABLE>
-11-
<PAGE>
Example 4 (Partial Withdrawal, rates decrease by 1%):
<TABLE>
<S> <C>
Single premium: $50,000
- -----------------------------------------------------------------------------------------
Guarantee period: 5 Years
- -----------------------------------------------------------------------------------------
Guarantee rate: 5.50% per annum
- -----------------------------------------------------------------------------------------
Partial surrender: $30,000; middle of contract year 3
- -----------------------------------------------------------------------------------------
Policy value at middle of policy year 3 = 50,000* (1.055)/\ 2.5 = 57,161.18
- -----------------------------------------------------------------------------------------
Surrender charge free amount at middle of
policy year 3 = 57,161.18* .30 = 17,148.35
- -----------------------------------------------------------------------------------------
Excsss interest adjustment free amount at = 57,161.18 - 50,000 = 7,161.18
middle of policy year 3
- -----------------------------------------------------------------------------------------
Excess interest adjustment/surrender charge
X= 30,000 - 17,148.35 = 12,851.65
A= 30,000 - 7,161.18 = 22,838.82
G= .055
C= .045
M= 30
Y= 22,838.82* (.055 - .045)*
(30/12) = 570.97
Z= .06* [12,851.65 - (570.97)] = 736.84
- -----------------------------------------------------------------------------------------
Reduction to policy value due to surrender
charge--free withdrawal = 17,148.35
- -----------------------------------------------------------------------------------------
Reduction to policy value due to excess
withdrawal = X - Y + Z
- -----------------------------------------------------------------------------------------
= 12,851.65 - 570.97 + 736.84
- -----------------------------------------------------------------------------------------
= 13,017.52
- -----------------------------------------------------------------------------------------
Policy value after withdrawal at middle of
policy year 3 = 57,161.18 - [17,148.35 + 13,017.52]
- -----------------------------------------------------------------------------------------
= 57,161.18 - [17,148.35 + 12,851.65 -
570.97 + 736.84]
- -----------------------------------------------------------------------------------------
= 57,161.18 - [30,000 - (570.97) + 736.84]
- -----------------------------------------------------------------------------------------
= 57,161.18 - 30,165.87 = 26,995.31
</TABLE>
Reallocation of Annuity Units After the Annuity Commencement Date
After the annuity commencement date, the owner may reallocate the value of a
designated number of annuity units of a subaccount of the separate account then
credited to a policy into an equal value of annuity units of one or more other
subaccounts of the separate account, or the fixed account. An annuity unit is
an accounting unit used in the calculation of the amount of the second and each
subsequent variable annuity payment. The reallocation shall be based on the
relative value of the annuity units of the account(s) or subaccount(s) at the
end of the business day on the next payment date. The minimum amount which may
be reallocated is the lesser of (1) $10 of monthly income or (2) the entire
monthly income of the annuity units in the account or subaccount from which the
transfer is being made. If the monthly income of the annuity units remaining in
an account or subaccount after a reallocation is less than $10, PFL reserves
the right to include the value of those annuity units as part of the transfer.
The request must be in writing to PFL's administrative and service office.
There is no charge assessed in connection with such reallocation. A
reallocation of annuity units may be made up to four times in any given policy
year.
-12-
<PAGE>
After the annuity commencement date, no transfers may be made from the fixed
account to the separate account.
Annuity Payment Options
During the lifetime of the annuitant and prior to the annuity commencement
date, the owner may choose an annuity payment option or change the election,
but written notice of any election or change of election must be received by
PFL at its administrative and service office at least thirty (30) days prior to
the annuity commencement date. If no election is made prior to the annuity
commencement date, annuity payments will be made under (i) Payment Option 3,
life income with fixed (level) payments for 10 years certain, using the
existing adjusted policy value of the fixed account, or (ii) under Payment
Option 3, life income with variable payments for 10 years certain using the
existing policy value of the separate account, or (iii) in a combination of (i)
and (ii).
The person who elects an annuity payment option can also name one or more
successor payees to receive any unpaid amount PFL has at the death of a payee.
Naming these payees cancels any prior choice of a successor payee.
A payee who did not elect the annuity payment option does not have the right to
advance or assign payments, take the payments in one sum, or make any other
change. However, the payee may be given the right to do one or more of these
things if the person who elects the option tells PFL in writing and PFL agrees.
Variable Payment Options. The dollar amount of the first variable annuity
payment will be determined in accordance with the annuity payment rates set
forth in the applicable table contained in the policy. The tables are based on
a 5% effective annual Assumed Investment Return and the "1983 Table a" (male,
female, and unisex if required by law) mortality table with projection using
projection Scale G factors, assuming a maturity date in the year 2000. ("The
1983 Table a" mortality rates are adjusted based on improvements in mortality
since 1983 to more appropriately reflect increased longevity. This is
accomplished using a set of improvement factors referred to as projection scale
G.) The dollar amount of additional variable annuity payments will vary based
on the investment performance of the subaccount(s) of the separate account
selected by the annuitant or beneficiary.
Determination of the First Variable Payment. The amount of the first variable
payment depends upon the sex (if consideration of sex is allowed under state
law) and adjusted age of the annuitant. The adjusted age is the annuitant's
actual age nearest birthday, on the annuity commencement date, adjusted as
follows:
<TABLE>
<CAPTION>
Annuity
Commencement
Date Adjusted Age
------------ --------------------
<S> <C>
Before 2001 Actual Age
2001-2010 Actual Age minus 1
2011-2020 Actual Age minus 2
2021-2030 Actual Age minus 3
2031-2040 Actual Age minus 4
After 2040 As determined by PFL
</TABLE>
This adjustment assumes an increase in life expectancy, and therefore it
results in lower payments than without such an adjustment.
Determination of Additional Variable Payments. All variable annuity payments
other than the first are calculated using annuity units which are credited to
the policy. The number of annuity units to be credited in respect of a
particular subaccount is determined by dividing that portion of the first
variable annuity payment attributable to that subaccount by the annuity unit
value of that subaccount on the
-13-
<PAGE>
annuity commencement date. The number of annuity units of each particular
subaccount credited to the policy then remains fixed, assuming no transfers to
or from that subaccount occur. The dollar value of variable annuity units in
the chosen subaccount will increase or decrease reflecting the investment
experience of the chosen subaccount. The dollar amount of each variable annuity
payment after the first may increase, decrease or remain constant, and is equal
to the sum of the amounts determined by multiplying the number of annuity units
of each particular subaccount credited to the policy by the annuity unit value
for the particular subaccount on the date the payment is made.
Death Benefit
Adjusted Partial Withdrawal. The amount of your guaranteed minimum death
benefit is reduced due to a partial withdrawal called the adjusted partial
withdrawal. The reduction amount depends on the relationship between your
guaranteed minimum death benefit and policy value. The adjusted partial
withdrawal is the sum of (1) and (2), where:
(1) The surrender charge-free withdrawal amount taken; and
(2) The amount that an excess partial withdrawal (the portion of a
withdrawal that can be subject to a surrender charge) reduces the
policy value times [(a) divided by (b)] where:
(a) is the amount of the death benefit prior to the excess partial
withdrawal; and
(b) is the policy value prior to the excess partial withdrawal.
The following examples describe the effect of a withdrawal on the guaranteed
minimum death benefit and policy value.
EXAMPLE 1
(Assumed Facts for Example)
<TABLE>
- ----------------------------------------------------------------------------------------------
<S> <C>
$75,000 current guaranteed minimum death benefit before withdrawal
- ----------------------------------------------------------------------------------------------
$50,000 current policy value before withdrawal
- ----------------------------------------------------------------------------------------------
$75,000 current death benefit (larger of policy value and guaranteed minimum death benefit)
- ----------------------------------------------------------------------------------------------
6% current surrender charge percentage
- ----------------------------------------------------------------------------------------------
$15,000 requested withdrawal
- ----------------------------------------------------------------------------------------------
$10,000 surrender charge-free amount (assumes 20% cumulative free percentage is available)
- ----------------------------------------------------------------------------------------------
$ 5,000 excess partial withdrawal (amount subject to surrender charge)
- ----------------------------------------------------------------------------------------------
$ 100 excess interest adjustment--
(assumes interest rates have decreased since initial guarantee)
- ----------------------------------------------------------------------------------------------
$ 294 surrender charge on(excess partial withdrawal less excess interest
adjustment) = 0.06*(5000 - 100)
- ----------------------------------------------------------------------------------------------
$ 5,194 reduction in policy value due to excess partial withdrawal = 5000 - 100 + 294
- ----------------------------------------------------------------------------------------------
$17,791 adjusted partial withdrawal = $10,000 + [$5,194* (75,000/50,000)]
- ----------------------------------------------------------------------------------------------
$57,209 new guaranteed minimum death benefit (after withdrawal) = 75,000 - 17,791
- ----------------------------------------------------------------------------------------------
$34,806 new policy value (after withdrawal) = 50,000 - 10,000 - 5,194
</TABLE>
<TABLE>
<CAPTION>
Summary:
- --------
<S> <C>
Reduction in guaranteed minimum death benefit = $17,791
Reduction in policy value = $15,194
</TABLE>
Note, guaranteed minimum death benefit is reduced more than the policy value
since the guaranteed minimum death benefit was greater than the policy value
just prior to the withdrawal.
-14-
<PAGE>
EXAMPLE 2
(Assumed Facts for Example)
<TABLE>
- -------------------------------------------------------------------------------------------------
<S> <C>
$50,000 current guaranteed minimum death benefit before withdrawal
- -------------------------------------------------------------------------------------------------
$75,000 current policy value before withdrawal
- -------------------------------------------------------------------------------------------------
$75,000 current death benefit (larger of policy value and guaranteed minimum death benefit)
- -------------------------------------------------------------------------------------------------
6% current surrender charge percentage
- -------------------------------------------------------------------------------------------------
$15,000 requested withdrawal
- -------------------------------------------------------------------------------------------------
$11,250 surrender charge-free amount (assumes 15% cumulative free percentage is available)
- -------------------------------------------------------------------------------------------------
$ 3,750 excess partial withdrawal (amount subject to surrender charge)
- -------------------------------------------------------------------------------------------------
$ -100 excess interest adjustment--
(assumes interest rates have increased since initial guarantee)
- -------------------------------------------------------------------------------------------------
$ 231 surrender charge on
(excess partial withdrawal less excess interest adjustment) = 0.06*[(3750 - ( - 100))]
- -------------------------------------------------------------------------------------------------
$ 4,081 reduction in policy value due to excess partial withdrawal = 3750 -
(-100) + 231 = 3750 + 100 + 231
- -------------------------------------------------------------------------------------------------
$15,331 adjusted partial withdrawal = $11,250 + [$4,081* (75,000/75,000)]
- -------------------------------------------------------------------------------------------------
$34,669 new guaranteed minimum death benefit (after withdrawal) = 50,000 - 15,331
- -------------------------------------------------------------------------------------------------
$59,669 new policy value (after withdrawal) = 75,000 - 11,250 - 4,081
</TABLE>
<TABLE>
<CAPTION>
Summary:
- --------
<S> <C>
Reduction in guaranteed minimum death benefit = $15,331
Reduction in policy value = $15,331
</TABLE>
Note, guaranteed minimum death benefit and policy value are reduced by the same
amount since the policy value was higher than the guaranteed minimum death
benefit just prior to the withdrawal.
Due proof of death of the annuitant is proof that the annuitant who is the
owner died prior to the commencement of annuity payments. A certified copy of a
death certificate, a certified copy of a decree of a court of competent
jurisdiction as to the finding of death, a written statement by the attending
physician, or any other proof satisfactory to PFL, will constitute due proof of
death. Upon receipt of this proof and an election of a method of settlement and
return of the policy, the death benefit generally will be paid within seven
days, or as soon thereafter as PFL has sufficient information about the
beneficiary to make the payment. The beneficiary may receive the amount payable
in a lump sum cash benefit, or, subject to any limitation under any state or
federal law, rule, or regulation, under one of the annuity payment options
described above, unless a settlement agreement is effective at the death of the
owner preventing such election.
Distribution Requirements. If the annuitant was the owner, and the beneficiary
was not the annuitant's spouse, the death benefit must (1) be distributed
within five years of the date of the deceased owner's death, or (2) payments
under an annuity payment option must begin no later than one year after the
deceased owner's death and must be made for the beneficiary's lifetime or for a
period certain (so long as any period certain does not exceed the beneficiary's
life expectancy). Death proceeds which are not paid to or for the benefit of a
natural person must be distributed within five years of the date of the
deceased owner's death. If the sole beneficiary is the deceased owner's
surviving spouse, such spouse may elect to continue the policy as the new
annuitant and owner instead of receiving the death benefit. (See "Certain
Federal Income Tax Consequences")
-15-
<PAGE>
If the annuitant is not the owner, and the owner dies prior to the annuity
commencement date, a successor owner may surrender the policy at any time for
the amount of the adjusted policy value. If the successor owner is not the
deceased owner's spouse, however, the adjusted policy value must be
distributed: (1) within five years after the date of the deceased owner's
death, or (2) payments under an annuity payment option must begin no later than
one year after the deceased owner's death and must be made for the successor
owner's lifetime or for a period certain (so long as any period certain does
not exceed the successor owner's life expectancy).
Beneficiary. The beneficiary designation in the application will remain in
effect until changed. The owner may change the designated beneficiary by
sending written notice to PFL. The beneficiary's consent to such change is not
required unless the beneficiary was irrevocably designated or law requires
consent. (If an irrevocable beneficiary dies, the owner may then designate a
new beneficiary.) The change will take effect as of the date the owner signs
the written notice, whether or not the owner is living when the Notice is
received by PFL. PFL will not be liable for any payment made before the written
notice is received. If more than one beneficiary is designated, and the owner
fails to specify their interests, they will share equally.
Death of Owner
Federal tax law requires that if any owner (including any joint owner or any
successor owner who has become a current owner) dies before the annuity
commencement date, then the entire value of the policy must generally be
distributed within five years of the date of death of such owner. Certain rules
apply where (1) the spouse of the deceased owner is the sole beneficiary; (2)
the owner is not a natural person and the primary annuitant dies or is changed;
or (3) any owner dies after the annuity commencement date. See "Certain Federal
Income Tax Consequences" below for more information about these rules. Other
rules may apply to qualified policies.
Assignment
During the lifetime of the annuitant the owner may assign any rights or
benefits provided by the policy if your policy is a nonqualified policy. An
assignment will not be binding on PFL until a copy has been filed at its
administrative and service office. The rights and benefits of the owner and
beneficiary are subject to the rights of the assignee. PFL assumes no
responsibility for the validity or effect of any assignment. Any claim made
under an assignment shall be subject to proof of interest and the extent of the
assignment. An assignment may have tax consequences.
Unless the owner so directs by filing written notice with PFL, no beneficiary
may assign any payments under the policy before they are due. To the extent
permitted by law, no payments will be subject to the claims of any
beneficiary's creditors.
Ownership under qualified policies is restricted to comply with the Code.
Evidence of Survival
PFL reserves the right to require satisfactory evidence that a person is alive
if a payment is based on that person being alive. No payment will be made until
PFL receives such evidence.
Non-Participating
The policy will not share in PFL's surplus earnings; no dividends will be paid.
Amendments
No change in the policy is valid unless made in writing by PFL and approved by
one of PFL's officers. No registered representative has authority to change or
waive any provision of the policy.
-16-
<PAGE>
PFL reserves the right to amend the policy to meet the requirements of the
Code, regulations or published rulings. You can refuse such a change by giving
written notice, but a refusal may result in adverse tax consequences.
Employee and Agent Purchases
The policy may be acquired by an employee or registered representative of any
broker/dealer authorized to sell the policy or their spouse or minor children,
or by an officer, director, trustee or bona-fide full-time employee of PFL or
its affiliated companies or their spouse or minor children. In such a case, PFL
may credit an amount equal to a percentage of each premium payment to the
policy due to lower acquisition costs PFL experiences on those purchases. The
credit will be reported to the Internal Revenue Service as taxable income to
the employee or registered representative. PFL may offer certain employer
sponsored savings plans, in its discretion reduced fees and charges including,
but not limited to, the annual service charge, the surrender charges, the
mortality and expense risk fee and the administrative charge for certain sales
under circumstances which may result in savings of certain costs and expenses.
In addition, there may be other circumstances of which PFL is not presently
aware which could result in reduced sales or distribution expenses. Credits to
the policy or reductions in these fees and charges will not be unfairly
discriminatory against any owner.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following summary does not constitute tax advice. It is a general
discussion of certain of the expected federal income tax consequences of
investment in and distributions with respect to a policy, based on the Internal
Revenue Code of 1986, as amended, proposed and final Treasury Regulations
thereunder, judicial authority, and current administrative rulings and
practice. This summary discusses only certain federal income tax consequences
to "United States Persons," and does not discuss state, local, or foreign tax
consequences. United States Persons means citizens or residents of the United
States, domestic corporations, domestic partnerships and trusts or estates that
are subject to United States federal income tax regardless of the source of
their income.
Tax Status of the Policy
The following discussion is based on the assumption that the policy qualifies
as an annuity contract for federal income tax purposes.
Diversification Requirements. Section 817(h) of the Code provides that in order
for a variable contract which is based on a segregated asset account to qualify
as an annuity contract under the Code, the investments made by such account
must be "adequately diversified" in accordance with Treasury regulations. The
Treasury regulations issued under Section 817(h) (Treas. Reg. ((S)) 1.817-5)
apply a diversification requirement to each of the subaccounts of the separate
account. The separate account, through the underlying funds and their
portfolios, intends to comply with the diversification requirements of the
Treasury. PFL has entered into agreements regarding participation in the
Retirement Income Builder that require the underlying funds and their
portfolios to be operated in compliance with the Treasury regulations.
Owner Control. In certain circumstances, owners of variable annuity contracts
may be considered the owners, for federal income tax purposes, of the assets of
the separate account used to support their contracts. In those circumstances,
income and gains from the separate account assets would be includable in the
variable annuity contractowner's gross income. Several years ago, the Internal
Revenue Service stated in published rulings that a variable contractowner will
be considered the owner of separate account assets if the contractowner
possesses incidents of ownership in those assets, such as
-17-
<PAGE>
the ability to exercise investment control over the assets. More recently, the
Treasury Department announced, in connection with the issuance of regulations
concerning investment diversification, that those regulations "do not provide
guidance concerning the circumstances in which investor control of the
investments of a segregated asset account may cause the investor, rather than
the insurance company, to be treated as the owner of the assets in the
account." This announcement also stated that guidance would be issued by way of
regulations or rulings on the "extent to which policyholders may direct their
investments to particular subaccounts without being treated as owners of
underlying assets."
The ownership rights under the contract are similar to, but different in
certain respects from those described by the IRS in rulings in which it was
determined that contractowners were not owners of separate account assets. For
example, the owner of a policy has the choice of one or more subaccounts in
which to allocate premiums and policy values, and may be able to transfer among
these accounts more frequently than in such rulings. These differences could
result in policyowners being treated as the owners of the assets of the
separate account. In addition, PFL does not know what standards will be set
forth, if any, in the regulations or rulings which the Treasury Department has
stated it expects to issue. PFL therefore reserves the right to modify the
policies as necessary to attempt to prevent the policyowners from being
considered the owners of a pro rata share of the assets of the separate
account.
Distribution Requirements. The Code also requires that nonqualified policies
contain specific provisions for distribution of policy proceeds upon the death
of any owner. In order to be treated as an annuity contract for federal income
tax purposes, the Code requires that such policies provide that if any owner
dies on or after the annuity commencement date and before the entire interest
in the policy has been distributed, the remaining portion must be distributed
at least as rapidly as under the method in effect on such owner's death. If any
owner dies before the annuity commencement date, the entire interest in the
policy must generally be distributed within five years after such owner's date
of death or be applied to provide an immediate annuity under which payments
will begin within one year of such owner's death and will be made for the life
of the beneficiary 0 or for a period not extending beyond the life expectancy
of the beneficiary. However, if such owner's death occurs prior to the annuity
commencement date, and such owner's surviving spouse is named the beneficiary,
then the policy may be continued with the surviving spouse as the new owner. If
any owner is not a natural person, then for purposes of these distribution
requirements, the primary annuitant shall be treated as the owner and any death
or change of such primary annuitant shall be treated as the death of an owner.
The policy contains provisions intended to comply with these requirements of
the Code. No regulations interpreting these requirements of the Code have yet
been issued and thus no assurance can be given that the provisions contained in
the policies satisfy all such Code requirements. The provisions contained in
the policies will be reviewed and modified if necessary to maintain their
compliance with the Code requirements when clarified by regulation or
otherwise.
Withholding. The portion of any distribution under a policy that is includable
in gross income will be subject to federal income tax withholding unless the
recipient of such distribution elects not to have federal income tax withheld.
Election forms will be provided at the time distributions are requested or
made. The withholding rate varies according to the type of distribution and the
owner's tax status. For qualified policies, "eligible rollover distributions"
from Section 401(a) plans, Section 403(a) annuities, and Section 403(b) tax-
sheltered annuities are subject to a mandatory federal income tax withholding
of 20%. An eligible rollover distribution is the taxable portion of any
distribution from such a plan, except certain distributions such as
distributions required by the Code or distributions in a specified annuity
form. The 20% withholding does not apply, however, if the owner chooses a
"direct rollover" from the plan to another tax-qualified plan or IRA. Different
withholding requirements may apply in the case of non-United States persons.
Qualified Policies. The qualified policy is designed for use with several types
of tax-qualified retirement plans. The tax rules applicable to participants and
beneficiaries in tax-qualified retirement plans vary
-18-
<PAGE>
according to the type of plan and the terms and conditions of the plan. Special
favorable tax treatment may be available for certain types of contributions and
distributions. Adverse tax consequences may result from contributions in excess
of specified limits; distributions prior to age 59 1/2 (subject to certain
exceptions); distributions that do not conform to specified commencement and
minimum distribution rules; and in other specified circumstances. Some
retirement plans are subject to distribution and other requirements that are
not incorporated into the policies or PFL's policy administration procedures.
Owners, participants and beneficiaries are responsible for determining that
contributions, distributions and other transactions with respect to the
policies comply with applicable law.
For qualified plans under Section 401(a), 403(a), 403(b), and 457, the Code
requires that distributions generally must commence no later than the later of
April 1 of the calendar year following the calendar year in which the owner (or
plan participant) (i) reaches age 70 1/2 or (ii) retires, and must be made in a
specified form or manner. If the plan participant is a "5 percent owner" (as
defined in the Code), or if the policy is a traditional individual retirement
annuity, then distributions generally must begin no later than April 1 of the
calendar year in which the owner (or plan participant) reaches age 70 1/2. Each
owner is responsible for requesting distributions under the policy that satisfy
applicable tax rules.
PFL makes no attempt to provide more than general information about use of the
policy with the various types of retirement plans. Purchasers of policies for
use with any retirement plan should consult their legal counsel and tax adviser
regarding the suitability of the policy.
Individual Retirement Annuities. In order to qualify as a traditional
individual retirement annuity under Section 408(b) of the Code, a policy must
contain certain provisions: (i) the owner must be the annuitant; (ii) the
policy generally is not transferable by the owner, e.g., the owner may not
designate a new owner, designate a successor owner or assign the policy as
collateral security; (iii) the total premium payments for any calendar year on
behalf of any individual may not exceed $2,000, except in the case of a
rollover amount or contribution under Sections 402(c), 403(a)(4), 403(b)(8) or
408(d)(3) of the Code; (iv) annuity payments or partial withdrawals must begin
no later than April 1 of the calendar year following the calendar year in which
the annuitant attains age 70 1/2; (v) an annuity payment option with a Period
Certain that will guarantee annuity payments beyond the life expectancy of the
annuitant and the beneficiary may not be selected; (vi) certain payments of
death benefits must be made in the event the annuitant dies prior to the
distribution of the policy value; and (vii) the entire interest of the owner is
non-forfeitable. Policies intended to qualify as traditional individual
retirement annuities under Section 408(b) of the Code contain such provisions.
Amounts in the IRA (other than nondeductible contributions) are taxed when
distributed from the IRA. Distributions prior to age 59 1/2 (unless certain
exceptions apply) are subject to a 10% penalty tax.
No part of the funds for an individual retirement account (including a Roth
IRA) or annuity may be invested in a life insurance contract, but the
regulations thereunder allow such funds to be invested in an annuity policy
that provides a death benefit that equals the greater of the premiums paid or
the cash value for the contract. The policy provides an enhanced death benefit
that could exceed the amount of such a permissible death benefit, but it is
unclear to what extent such an enhanced death benefit could disqualify the
policy as an IRA. The Internal Revenue Service has not reviewed the policy for
qualification as an IRA, and has not addressed in a ruling of general
applicability whether an enhanced death benefit provision, such as the
provision in the policy, comports with IRA qualification requirements.
Roth Individual Retirement Annuities (Roth IRA). The Roth IRA, under Section
408A of the Code, contains many of the same provisions as a traditional IRA.
However, there are some differences. First, the contributions are not
deductible and must be made in cash or as a rollover or transfer from another
Roth IRA or other IRA. A rollover from or conversion of an IRA to a Roth IRA
may be subject to tax and other special rules may apply to the rollover or
conversion and to distributions attributable thereto. You should consult a tax
adviser before combining any converted amounts with any other Roth IRA
-19-
<PAGE>
contributions, including any other conversion amounts from other tax years. The
Roth IRA is available to individuals with earned income and whose modified
adjusted gross income is under $110,000 for single filers, $160,000 for married
filing jointly, and $10,000 for married filing separately. The amount per
individual that may be contributed to all IRAs (Roth and traditional) is
$2,000. Secondly, the distributions are taxed differently. The Roth IRA offers
tax-free distributions when made 5 tax years after the first contribution to
any Roth IRA of the individual and made after attaining age 59 1/2, to pay for
qualified first time homebuyer expenses (lifetime maximum of $10,000) or due to
death or disability. All other distributions are subject to income tax when
made from earnings and may be subject to a premature withdrawal penalty tax
unless an exception applies. Unlike the traditional IRA, there are no minimum
required distributions during the owner's lifetime; however, required
distributions at death are generally the same.
Section 403(b) Plans. Under Section 403(b) of the Code, payments made by public
school systems and certain tax exempt organizations to purchase policies for
their employees are excludable from the gross income of the employee, subject
to certain limitations. However, such payments may be subject to FICA (Social
Security) taxes. The policy includes a death benefit that in some cases may
exceed the greater of the premium payments or the policy value. The death
benefit could be characterized as an incidental benefit, the amount of which is
limited in any tax-sheltered annuity under Section 403(b). Because the death
benefit may exceed this limitation, employers using the policy in connection
with such plans should consult their tax adviser. Additionally, in accordance
with the requirements of the Code, Section 403(b) annuities generally may not
permit distribution of (i) elective contributions made in years beginning after
December 31, 1988, and (ii) earnings on those contributions and (iii) earnings
on amounts attributed to elective contributions held as of the end of the last
year beginning before January 1, 1989. Distributions of such amounts will be
allowed only upon the death of the employee, on or after attainment of age 59
1/2, separation from service, disability, or financial hardship, except that
income attributable to elective contributions may not be distributed in the
case of hardship.
Corporate Pension and Profit Sharing Plans and H.R. 10 Plans. Sections 401(a)
and 403(a) of the Code permit corporate employers to establish various types of
retirement plans for employees and self-employed individuals to establish
qualified plans for themselves and their employees. Such retirement plans may
permit the purchase of the policies to accumulate retirement savings. Adverse
tax consequences to the plan, the participant or both may result if the policy
is assigned or transferred to any individual as a means to provide benefit
payments. The policy includes a death benefit that in some cases may exceed the
greater of the premium payments or the policy value. The death benefit could be
characterized as an incidental benefit, the amount of which is limited in an
pension or profit-sharing plan. Because the death benefit may exceed this
limitation, employers using the policy in connection with such plans should
consult their tax adviser.
Deferred Compensation Plans. Section 457 of the Code, while not actually
providing for a qualified plan (as that term is not used in the Code), provides
for certain deferred compensation plans with respect to service for state
governments, local governments, political sub-divisions, agencies,
instrumentalities and certain affiliates of such entities, and tax exempt
organizations. The policies can be used with such plans. Under such plans a
participant may specify the form of investment in which his or her
participation will be made. For non-governmental 457 plans, all such
investments, however, are owned by, and are subject to, the claims of the
general creditors of the sponsoring employer. Depending on the terms of the
particular plan, a non-governmental employer may be entitled to draw on
deferred amounts for purposes unrelated to its Section 457 plan obligations. In
general, all amounts received under a Section 457 plan are taxable and are
subject to federal income tax withholding as wages.
Non-natural Persons. Pursuant to Section 72(u) of the code, an annuity contract
held by a taxpayer other than a natural person generally will not be treated as
an annuity contract under the code; accordingly, an owner who is not a natural
person will recognize as ordinary income for a taxable year the excess of (i)
the sum of the cash value as of the close of the taxable year and all previous
distributions under the
-20-
<PAGE>
policy over (ii) the sum of the premium payments paid for the taxable year and
any prior taxable year and the amounts includable in gross income for any prior
taxable year with respect to the policy. For these purposes, the policy value
at year end may have to be increased by any positive excess interest adjustment
which could result from a full surrender at such time. There is, however, no
definitive guidance on the proper tax treatment of excess interest adjustments
and the owner should contact a competent tax adviser with respect to the
potential tax consequences of an excess interest adjustment. Notwithstanding
the preceding sentences in that paragraph, Section 72(u) of the code does not
apply to (i) a policy where the nominal owner is not a natural person but the
beneficial owner of which is a natural person, (ii) a policy acquired by the
estate of a decedent by reason of such decedent's death, (iii) a qualified
policy (other than one qualifying under Section 457) or (iv) a single-payment
annuity where the commencement date is no later than one year from the date of
the single premium payment; such policies are taxed as described in the
prospectus.
Taxation of PFL
PFL at present is taxed as a life insurance company under part I of subchapter
L of the code. The separate account is treated as part of PFL and, accordingly,
will not be taxed separately as a "regulated investment company" under
subchapter M of the code. PFL does not expect to incur any federal income tax
liability with respect to investment income and net capital gains arising from
the activities of the separate account retained as part of the reserves under
the policy. Based on this expectation, it is anticipated that no charges will
be made against the separate account for federal income taxes. If, in future
years, any federal income taxes are incurred by PFL with respect to the
separate account, PFL may make a charge to the separate account.
INVESTMENT EXPERIENCE
A "Net Investment Factor" is used to determine the value of accumulation units
and annuity units, and to determine annuity payment rates.
Accumulation Units
Allocations of a premium payment directed to a subaccount are credited in the
form of accumulation units. Each subaccount has a distinct accumulation unit
value. The number of units credited is determined by dividing the premium
payment or amount transferred to the subaccount by the accumulation unit value
of the subaccount as of the end of the valuation period during which the
allocation is made. For each subaccount, the accumulation unit value for a
given business day is based on the net asset value of a share of the
corresponding portfolio of the underlying funds less any applicable charges or
fees. The investment performance of the portfolio, expenses, and deductions of
certain charges affect the value of an accumulation unit.
Upon allocation to the selected subaccount of the separate account, premium
payments are converted into accumulation units of the subaccount. The number of
accumulation units to be credited is determined by dividing the dollar amount
allocated to each subaccount by the value of an accumulation unit for that
subaccount as next determined after the premium payment is received at the
administrative and service office or, in the case of the initial premium
payment, when the application is completed, whichever is later. The value of an
accumulation unit was arbitrarily established at $1.000000 at the inception of
each subaccount. Thereafter, the value of an accumulation unit is determined as
of the close of trading on each day the New York Stock Exchange is open for
business.
An index (the "Net Investment Factor") which measures the investment
performance of a subaccount during a valuation period, is used to determine the
value of an accumulation unit for the next subsequent valuation period. The Net
Investment Factor may be greater or less than or equal to one;
-21-
<PAGE>
therefore, the value of an accumulation unit may increase, decrease or remain
the same from one valuation period to the next. The owner bears this investment
risk. The net investment performance of a subaccount and deduction of certain
charges affect the accumulation unit value.
The Net Investment Factor for any subaccount for any valuation period is
determined by dividing (a) by (b) and subtracting (c) from the result, where:
(a) is the net result of:
(1) the net asset value per share of the shares held in the subaccount
determined at the end of the current valuation period, plus
(2) the per share amount of any dividend or capital gain distribution
made with respect to the shares held in the subaccount if the ex-
dividend date occurs during the current valuation period, plus or minus
(3) a per share credit or charge for any taxes determined by PFL to
have resulted from the investment operations of the subaccount;
(b) the net asset value per share of the shares held in the subaccount
determined as of the end of the immediately preceding valuation period; and
(c) is the charge for mortality and expense risk during the valuation
period (equal on an annual basis to 1.10% for the Return of Premium Death
Benefit and 1.25% for both the 5% Annually Compounding Death Benefit or the
Annual Step-Up Death Benefit) of the daily net asset value of the
subaccount0, plus the .15% administrative charge for all three Death
Benefit Options.
Illustration of Accumulation Unit Value Calculations
Formula and Illustration for Determining the Net Investment Factor
(Assume Either the 5% Annually Compounding Death Benefit or
the Annual Step-Up Death Benefit is in effect.)
Investment Experience Factor = (A + B - C) - E
-----------
D
<TABLE>
<C> <S> <C>
Where: A = The Net Asset Value of an underlying fund share as of the end of
the current valuation period.
Assume.....................................A = $11.57
B = The per share amount of any dividend or capital gains distribution
since the end of the immediately preceding valuation period.
Assume..........................................B = 0
C = The per share charge or credit for any taxes reserved for at the
end of the current valuation period.
Assume..........................................C = 0
D = The Net Asset Value of an underlying fund share at the end of the
immediately preceding valuation period.
Assume.....................................D = $11.40
E = The daily deduction for mortality and expense risk fee and
administrative charges, which totals 1.40% on an annual basis.
On a daily basis....................... = .0000380909
</TABLE>
Then, the Investment Experience Factor = (11.57 + 0 - 0) -.0000380909 = Z =
1.0148741898 ---------------
11.40
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<PAGE>
Formula and Illustration for Determining Accumulation Unit Value
Accumulation Unit Value = A * B
<TABLE>
<C> <S> <C>
Where: A = The accumulation unit value for the immediately preceding valuation
period.
Assume............................................ = $X
B = The Net Investment Factor for the current valuation period.
Assume............................................. = Y
</TABLE>
Then, the accumulation unit value = $X * Y = $Z
Annuity Unit Value and Annuity Payment Rates
The amount of variable annuity payments will vary with annuity unit values.
Annuity unit values rise if the net investment performance of the subaccount
exceeds the assumed interest rate of 5% annually.
Conversely, annuity unit values fall if the net investment performance of the
subaccount is less than the assumed rate. The value of a variable annuity unit
in each subaccount was established at $1.00 on the date operations began for
that subaccount. The value of a variable annuity unit on any subsequent
business day is equal to (a) multiplied by (b) multiplied by (c), where:
(a) is the variable annuity unit value for that subaccount on the
immediately preceding business day;
(b) is the net investment factor for that subaccount for the valuation
period; and
(c) is the investment result adjustment factor for the valuation period.
The investment result adjustment factor for the valuation period is the product
of discount factors of .99986634 per day to recognize the 5% effective annual
Assumed Investment Return. The valuation period is the period from the close of
the immediately preceding business day to the close of the current business
day.
The net investment factor for the policy used to calculate the value of a
variable annuity unit in each subaccount for the valuation period is determined
by dividing (i) by (ii) and subtracting (iii) from the result, where:
(i) is the result of:
(1) the net asset value of a fund share held in that subaccount
determined at the end of the current valuation period; plus
(2) the per share amount of any dividend or capital gain distributions
made by the fund for shares held in that subaccount if the ex-dividend
date occurs during the valuation period; plus or minus
(3) a per share charge or credit for any taxes reserved for, which PFL
determines to have resulted from the investment operations of the
subaccount.
(ii) is the net asset value of a fund share held in that subaccount
determined as of the end of the immediately preceding valuation period.
(iii) is a factor representing the mortality and expense risk fee and
administrative charge. This factor is equal, on an annual basis, to 1.25%
(for Death Benefit Option A) or 1.40% (for Death Benefit Options B and C)
of the daily net asset value of a fund share held in that subaccount.
The dollar amount of subsequent variable annuity payments will depend upon
changes in applicable annuity unit values.
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<PAGE>
The annuity payment rates vary according to the annuity option elected and the
sex and adjusted age of the annuitant at the annuity commencement date. The
policy also contains a table for determining the adjusted age of the annuitant.
Illustration of Calculations for Annuity Unit Value
and Variable Annuity Payments
Formula and Illustration for Determining Annuity Unit Value
Annuity unit value = A * B * C
<TABLE>
<C> <S> <C>
Where: A = Annuity unit value for the immediately preceding valuation period.
Assume..............................................= $X
B = Investment Experience Factor for the valuation period for which the
annuity unit value is being calculated.
Assume..............................................= Y
C = A factor to neutralize the assumed interest rate of 5% built into the
annuity tables used.
Assume..............................................= Z
</TABLE>
Then, the annuity unit value is:
$X * Y * Z = $Q
Formula and Illustration for Determining
Amount of First Monthly Variable Annuity Payment
First monthly variable annuity payment = A * B
-------
$1,000
<TABLE>
<C> <S> <C>
Where: A = The policy value as of the annuity commencement date.
Assume..........................................= $X
B = The Annuity purchase rate per $1,000 based upon the option
selected, the sex and adjusted age of the annuitant according to
the tables contained in the policy.
Assume..........................................= $Y
</TABLE>
Then, the first monthly variable annuity payment = $X * $Y = $Z
---------
1,000
Formula and Illustration for Determining the Number of Annuity Units
Represented by Each Monthly Variable Annuity Payment
Number of annuity units = A
-
B
<TABLE>
<C> <S> <C>
Where: A = The dollar amount of the first monthly variable annuity payment.
Assume............................................= $X
B = The annuity unit value for the valuation date on which the first
monthly payment is due.
Assume............................................= $Y
</TABLE>
Then, the number of annuity units = $X = Z
--
$Y
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<PAGE>
FAMILY INCOME PROTECTOR -- ADDITIONAL INFORMATION
The amounts shown below are hypothetical guaranteed minimum monthly payment
amounts under the "family income protector" for a $100,000 premium when annuity
payments do not begin until the rider anniversary indicated in the left-hand
column. These figures assume the following:
.there were no subsequent premium payments, or withdrawals;
.there were no premium taxes;
.the $100,000 premium is subject to the family income protector;
.the annuitant is (or both annuitants are) 60 years old when the rider is
issued;
. the annual growth rate is 6.0% (once established an annual growth rate will
not change during the life of the family income protector rider); and
.there was no upgrade of the minimum annuitization value.
Six different annuity payment options are illustrated: a male annuitant, a
female annuitant and a joint and survivor annuity, each on a Life Only and a
Life with 10 Year Certain basis. The figures below, which are the amount of the
first monthly payment, are based on an assumed investment return of 3%.
Subsequent payments will never be less than the amount of the first payment
(although subsequent payments are calculated using a 5% assumed investment
return).
Illustrations of guaranteed minimum payments based on other assumptions will be
provided upon request.
Life Only = Life Annuity with No Period Certain
Life 10 = Life Annuity with 10 Years
Certain
<TABLE>
<CAPTION>
Rider Anniversary at
Exercise Date Male Female Joint & Survivor
- ------------------------------------------------------------------------------
Life Only Life 10 Life Only Life 10 Life Only Life 10
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
10 (age 70) $1,135 $1,067 $ 976 $ 949 $ 854 $ 852
- ------------------------------------------------------------------------------
15 1,833 1,634 1,562 1,469 1,332 1,318
- ------------------------------------------------------------------------------
20 (age 80) 3,049 2,479 2,597 2,286 2,145 2,078
</TABLE>
This hypothetical illustration should not be deemed representative of past or
future performance of any underlying variable investment option.
Withdrawals will affect the minimum annuitization value as follows: Each policy
year, withdrawals up to the limit of the total free amount (the minimum
annuitization value on the last policy anniversary multiplied by the annual
growth rate) reduce the minimum annuitization value on a dollar-for-dollar
basis. Withdrawals over this free amount will reduce the minimum annuitization
value on a pro rata basis by an amount equal to the minimum annuitization value
immediately prior to the excess withdrawal multiplied by the percentage
reduction in the policy value resulting from the excess withdrawal. The free
amount will always be a relatively small fraction of the minimum annuitization
value.
-25-
<PAGE>
Examples of the effect of withdrawals on the minimum annuitization value are as
follows:
EXAMPLE 1
- --------------------------------------------------------------------------------
Assumptions
<TABLE>
- ------------------------------------------------------------------------------------
<C> <S>
. minimum annuitization value on last policy anniversary: $10,000
- ------------------------------------------------------------------------------------
. minimum annuitization value at time of distribution: $10,500
- ------------------------------------------------------------------------------------
. policy value at time of distribution: $15,000
- ------------------------------------------------------------------------------------
. distribution amount: $500
- ------------------------------------------------------------------------------------
. prior distribution in current policy year: None
- ------------------------------------------------------------------------------------
Calculations
- ------------------------------------------------------------------------------------
. maximum annual free amount: $10,000 x 6% = $600
- ------------------------------------------------------------------------------------
. policy value after distribution: $15,000 - $500 = $14,500
- ------------------------------------------------------------------------------------
. minimum annual value after distribution: $10,500 - $500 = $10,000
</TABLE>
EXAMPLE 2
- --------------------------------------------------------------------------------
Assumptions
<TABLE>
- ------------------------------------------------------------------------------
<C> <S>
. minimum annuitization value on last policy anniversary: $10,000
- ------------------------------------------------------------------------------
. minimum annuitization value at time of distribution: $10,500
- ------------------------------------------------------------------------------
. policy value at time of distribution: $15,000
- ------------------------------------------------------------------------------
. distribution amount: $1,500
- ------------------------------------------------------------------------------
. prior distribution in current policy year: $1,000
- ------------------------------------------------------------------------------
Calculations
- ------------------------------------------------------------------------------
. maximum annual free amount: $0.0
- ------------------------------------------------------------------------------
(prior distributions have exceeded the current year free amount of $600
[$10,000 x 6% = $600])
- ------------------------------------------------------------------------------
. policy value after distribution: $15,000 - $1,500 =
$13,500
- ------------------------------------------------------------------------------
(since the policy value is reduced 10% ($1,500/$15,000), the minimum
annuitization value is also reduced 10%)
- ------------------------------------------------------------------------------
. minimum annual value after distribution: $10,500 - (10% x
$10,500) = $9,450
- ------------------------------------------------------------------------------
</TABLE>
-26-
<PAGE>
EXAMPLE 3
- --------------------------------------------------------------------------------
Assumptions
<TABLE>
- ------------------------------------------------------------------------------------
<C> <S>
.minimum annuitization value on last policy anniversary: $10,000
- ------------------------------------------------------------------------------------
.minimum annuitization value at time of distribution: $10,500
- ------------------------------------------------------------------------------------
.policy value at time of distribution: $7,500
- ------------------------------------------------------------------------------------
.distribution amount: $1,500
- ------------------------------------------------------------------------------------
.prior distribution in current policy year: $1,000
- ------------------------------------------------------------------------------------
Calculations
- ------------------------------------------------------------------------------------
.maximum annual free amount: $0.0
- ------------------------------------------------------------------------------------
(prior distributions have exceeded the current year free amount of $600 [$10,000
x 6% = $600])
- ------------------------------------------------------------------------------------
.policy value after distribution: $7,500 - $1,500 = $6,000
- ------------------------------------------------------------------------------------
(since the policy value is reduced 20% ($1,500/$7,500), the minimum annuitization
value is also reduced 20%)
- ------------------------------------------------------------------------------------
.minimum annual value after distribution: $10,500 - (20% x
$10,500) = $8,400
- ------------------------------------------------------------------------------------
</TABLE>
The amount of the first payment provided by the family income protector will be
determined by multiplying each $1,000 of minimum annuitization value by the
applicable annuity factor shown on Schedule I of the family income protector
rider. The applicable annuity factor depends upon the annuitant's (and joint
annuitant's, if any) sex (or without regard to gender if required by law), age,
and the family income protector payment option selected and is based on a
guaranteed interest rate of 3% and the "1983 Table a" mortality table with
projection using projection Scale G Factors, asuming a maturity date in the
year 2000. Subsequent payments will be calculated as described in the family
income protector rider using a 5% assumed investment return. Subsequent
payments may fluctuate annually in accordance with the investment performance
of the annuity subaccounts. However, subsequent payments are guaranteed to
never be less than the initial payment.
The stabilized payment on each subsequent policy anniversary after
annuitization using the family income protector will equal the greater of the
initial payment or the payment supportable by the annuity units in the selected
subaccounts. The supportable payment is equal to the number of variable annuity
units in the selected subaccounts multiplied by the variable annuity unit
values in those subaccounts on the date the payment is made. The variable
annuity unit values used to calculate the supportable payment will assume a 5%
assumed investment return. If the supportable payment at any payment date
during a policy year is greater than the stabilized payment for that policy
year, the excess will be used to purchase additional annuity units. Conversely,
if the supportable payment at any payment date during a policy year is less
than the stabilized payment for that policy year, there will be a reduction in
the number of annuity units credited to the policy to fund the deficiency. In
the case of a reduction, you will not participate as fully in the future
investment performance of the subaccounts you selected since fewer annuity
units are credited to your policy. Purchases and reductions will be allocated
to each subaccount on a proportionate basis.
PFL bears the risk that it will need to make payments if all annuity units have
been used in an attempt to maintain the stabilized payment at the initial
payment level. In such an event, PFL will make all future payments equal to the
initial payment. Once all the annuity units have been used, the amount of your
payment will not increase or decrease and will not depend upon the performance
of any subaccounts. To compensate PFL for this risk, a guaranteed payment fee
will be deducted.
-27-
<PAGE>
HISTORICAL PERFORMANCE DATA
Money Market Yields
PFL may from time to time disclose the current annualized yield of the Money
Market Subaccount for a 7-day period in a manner which does not take into
consideration any realized or unrealized gains or losses on shares of the
portfolio securities. This current annualized yield is computed by determining
the net change (exclusive of realized gains and losses on the sale of
securities and unrealized appreciation and depreciation and income other than
investment income) at the end of the 7-day period in the value of a
hypothetical account having a balance of 1 unit at the beginning of the 7-day
period, dividing such net change in account value by the value of the account
at the beginning of the period to determine the base period return, and
annualizing this quotient on a 365-day basis. The net change in account value
reflects (i) net income from the portfolio attributable to the hypothetical
account; and (ii) charges and deductions imposed under a policy that are
attributable to the hypothetical account. The charges and deductions include
the per unit charges for the hypothetical account for (i) the administrative
charges; and (ii) the mortality and expense risk fee. Current Yield will be
calculated according to the following formula:
Current Yield = ((NCS * ES)/UV) * (365/7)
Where:
NCS= The net change in the value of the portfolio (exclusive of realized
gains and losses on the sale of securities and unrealized
appreciation and depreciation and income other than investment
income) for the 7-day period attributable to a hypothetical account
having a balance of 1 subaccount unit.
ES= Per unit expenses of the subaccount for the 7-day period.
UV= The unit value on the first day of the 7-day period.
Because of the charges and deductions imposed under a policy, the yield for the
Money Market Subaccount will be lower than the yield for the Money Market
Portfolio. The yield calculations do not reflect the effect of any premium
taxes or surrender charges that may be applicable to a particular policy.
Surrender charges range from 6% to 0% of the amount of premium payments
withdrawn based on the number of years since the premium payment was made.
However, surrender charges will not be assessed after the tenth policy year.
PFL may also disclose the effective yield of the Money Market Subaccount for
the same 7-day period, determined on a compounded basis. The effective yield is
calculated by compounding the base period return according to the following
formula:
Effective Yield = (1 + ((NCS - ES)/UV))/365///7/ - 1
Where:
NCS= The net change in the value of the account (exclusive of realized
gains and losses on the sale of securities and unrealized
appreciation and depreciation and income other than investment
income) for the 7-day period attributable to a hypothetical account
having a balance of 1 subaccount unit.
ES= Per unit expenses of the subaccount for the 7-day period.
UV=
The unit value on the first day of the 7-day period.
-28-
<PAGE>
The yield on amounts held in the Money Market Subaccount normally will
fluctuate on a daily basis. Therefore, the disclosed yield for any given past
period is not an indication or representation of future yields or rates of
return. The Money Market Subaccount actual yield is affected by changes in
interest rates on money market securities, average portfolio maturity of the
Money Market Portfolio, the types and quality of portfolio securities held by
the Money Market Portfolio and its operating expenses. For the seven days ended
December 31, 1999, the yield of the Putnam VT Money Market Subaccount was
3.90%, and the effective yield was 3.97% for the Return of Premium Death
Benefit. For the seven days ended December 31, 1999, the yield of the Putnam VT
Money Market Subaccount was 3.74%, and the effective yield was 3.81% for the 5%
Annually Compounding Death Benefit or Annual Step-Up Death Benefit.
Other Subaccount Yields
PFL may from time to time advertise or disclose the current annualized yield of
one or more of the subaccounts of the separate account (except the Money Market
Subaccount) for 30-day periods. The annualized yield of a subaccount refers to
income generated by the subaccount over a specific 30-day period. Because the
yield is annualized, the yield generated by a subaccount during the 30-day
period is assumed to be generated each 30-day period over a 12-month period.
The yield is computed by: (i) dividing the net investment income of the
subaccount less subaccount expenses for the period, by (ii) the maximum
offering price per unit on the last day of the period times the daily average
number of units outstanding for the period, compounding that yield for a 6-
month period, and (iii) multiplying that result by 2. Expenses attributable to
the subaccount include (i) the administrative charge and (ii) the mortality and
expense risk fee. The 30-day yield is calculated according to the following
formula:
Yield = 2 * ((((NI - ES)/(U * 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 and deductions imposed by the separate account, the
yield for a subaccount of the separate account will be lower than the yield for
its corresponding portfolio. The yield calculations do not reflect the effect
of any premium taxes or surrender charges that may be applicable to a
particular policy. Surrender charges range from 6% to 0% of the amount of
premium payments withdrawn based on the number of years since the premium
payment was made. However, surrender charges will not be assessed after the
tenth policy year.
The yield on amounts held in the subaccounts of the separate account normally
will fluctuate over time. Therefore, the disclosed yield for any given past
period is not an indication or representation of future yields or rates of
return. The types and quality of its investments and its operating expenses
affect a subaccount's actual yield.
Total Returns
PFL may from time to time also advertise or disclose total returns for one or
more of the subaccounts of the separate account for various periods of time.
One of the periods of time will include the period
-29-
<PAGE>
measured from the date the subaccount commenced operations. When a subaccount
has been in operation for 1, 5 and 10 years, respectively, the total return for
these periods will be provided. Total returns for other periods of time may
from time to time also be disclosed. Total returns represent the average annual
compounded rates of return that would equate an initial investment of $1,000 to
the redemption value of that investment as of the last day of each of the
periods. The ending date for each period for which total return quotations are
provided will be for the most recent month end practicable, considering the
type and media of the communication and will be stated in the communication.
Total returns will be calculated using subaccount unit values which PFL
calculates on each business day based on the performance of the subaccount's
underlying portfolio, and the deductions for the mortality and expense risk fee
and the administrative charges. Total return calculations will reflect the
effect of surrender charges that may be applicable to a particular period. The
total return will then be calculated according to the following formula:
P (1 + T)N = ERV
Where:
T = The average annual total return net of subaccount recurring charges.
ERV = The ending redeemable value of the hypothetical account at the end of the
period.
P = A hypothetical initial payment of $1,000.
N = The number of years in the period.
Other Performance Data
PFL may from time to time also disclose average annual total returns in a non-
standard format in conjunction with the standard format described above. The
non-standard format will be identical to the standard format except that the
surrender charge percentage will be assumed to be 0%.
PFL may from time to time also disclose cumulative total returns in conjunction
with the standard format described above. The cumulative returns will be
calculated using the following formula assuming that the surrender charge
percentage will be 0%.
CTR = (ERV/P) - 1
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-standardized performance data will only be advertised if the
standardized performance data 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
-30-
<PAGE>
subaccounts will be calculated based on the performance of the various
portfolios and the assumption that the subaccounts were in existence for the
same periods as those indicated for the portfolios, with the level of policy
charges that are currently in effect.
PUBLISHED RATINGS
PFL may from time to time publish in advertisements, sales literature and
reports to owners, the ratings and other information assigned to it by one or
more independent rating organizations such as A.M. Best Company, Standard &
Poor's Insurance Ratings Services, Moody's Investors Service and Duff & Phelps
Credit Rating Co. The purpose of the ratings is to reflect the financial
strength and/or claims-paying ability of PFL and they should not be considered
as bearing on the investment performance of assets held in the separate account
or of the safety or riskiness of an investment in the separate account. Each
year the A.M. Best Company reviews the financial status of thousands of
insurers, culminating in the assignment of Best's ratings. These ratings
reflect their current opinion of the relative financial strength and operating
performance of an insurance company in comparison to the norms of the
life/health insurance industry. In addition, the claims-paying ability of PFL
as measured by Standard & Poor's Insurance Ratings Services, Moody's Investors
Service or Duff & Phelps Credit Rating Co. may be referred to in advertisements
or sales literature or in reports to owners. These ratings are opinions of an
operating insurance company's financial capacity to meet the obligations of its
insurance policies in accordance with their terms. Claims-paying ability
ratings do not refer to an insurer's ability to meet non-policy obligations
such as debt or commercial paper obligations.
STATE REGULATION OF PFL
PFL is subject to the laws of Iowa governing insurance companies and to
regulation by the Iowa Division of Insurance. An annual statement in a
prescribed form is filed with the Division of Insurance each year covering the
operation of PFL for the preceding year and its financial condition as of the
end of such year. Regulation by the Division of Insurance includes periodic
examination to determine PFL's contract liabilities and reserves so that the
Division may determine the items are correct. PFL's books and accounts are
subject to review by the Division of Insurance at all times and a full
examination of its operations is conducted periodically by the National
Association of Insurance Commissioners. In addition, PFL is subject to
regulation under the insurance laws of other jurisdictions in which it may
operate.
ADMINISTRATION
PFL performs administrative services for the policies. These services include
issuance of the policies, maintenance of records concerning the policies, and
certain valuation services.
RECORDS AND REPORTS
All records and accounts relating to the separate account will be maintained by
PFL. As presently required by the Investment Company Act of 1940 and
regulations promulgated thereunder, PFL will mail to all 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 POLICIES
The policies are offered to the public through brokers licensed under the
federal securities laws and state insurance laws. The offering of the policies
is continuous and PFL does not anticipate discontinuing the offering of the
policies, however, PFL reserves the right to do so.
-31-
<PAGE>
AFSG Securities Corporation, an affiliate of PFL, is the principal underwriter
of the policies and may enter into agreements with broker-dealers for the
distribution of the policies. During 1999 and 1998, the amount paid to AFSG
Securities Corporation, AEGON USA Securities, Inc. and/or the broker-dealers
for their services related to Portfolio Select Variable Annuity policies was
$11,221,687.00 and $868,731.60, respectively. No fees had been paid to any
broker/dealers for their services prior to 1998. Prior to April 30, 1998, AEGON
USA Securities, Inc. (also an affiliate of PFL) was the principal underwriter.
VOTING RIGHTS
To the extent required by law, PFL will vote the underlying funds' shares held
by the mutual fund account at regular and special shareholder meetings of the
underlying funds in accordance with instructions received from persons having
voting interests in the portfolios, although none of the underlying funds hold
regular annual shareholder meetings. If, however, the 1940 Act or any
regulation thereunder should be amended or if the present interpretation
thereof should change, and as a result PFL determines that it is permitted to
vote the underlying funds shares in its own right, it may elect to do so.
Before the annuity commencement date, you hold the voting interest in the
selected portfolios. The number of votes that you have the right to instruct
will be calculated separately for each subaccount. The number of votes that you
have the right to instruct for a particular Subaccount will be determined by
dividing your policy value in the Subaccount by the net asset value per share
of the corresponding portfolio in which the subaccount invests. Fractional
shares will be counted.
After the annuity commencement date, the person receiving annuity payments has
the voting interest, and the number of votes decreases as annuity payments are
made and as the reserves for the policy decrease. The person's number of votes
will be determined by dividing the reserve for the policy allocated to the
applicable subaccount by the net asset value per share of the corresponding
portfolio. Fractional shares will be counted.
The number of votes that you or the person receiving income payments has the
right to instruct will be determined as of the date established by the
underlying fund for determining shareholders eligible to vote at the meeting of
the underlying fund. PFL will solicit voting instructions by sending you, or
other persons entitled to vote, written requests for instructions prior to that
meeting in accordance with procedures established by the underlying fund.
Portfolio shares as to which no timely instructions are received and shares
held by PFL in which you, or other persons entitled to vote, have no beneficial
interest will be voted in proportion to the voting instructions that are
received with respect to all policies participating in the same subaccount.
Each person having a voting interest in a subaccount will receive proxy
material, reports, and other materials relating to the appropriate portfolio.
OTHER PRODUCTS
PFL makes other variable annuity policies available that may also be funded
through the separate account. These variable annuity policies may have
different features, such as different investment choices or charges.
CUSTODY OF ASSETS
PFL holds assets of each of the subaccounts of the separate account. The assets
of each of the subaccounts of the separate account are segregated and held
separate and apart from the assets of the
-32-
<PAGE>
other subaccounts and from PFL's general account assets. PFL maintains records
of all purchases and redemptions of shares of the underlying funds held by each
of the subaccounts. Additional protection for the assets of the separate
account is afforded by PFL's fidelity bond, presently in the amount of
$5,000,000, covering the acts of officers and employees of PFL.
LEGAL MATTERS
Sutherland Asbill & Brennan LLP, of Washington D.C. has provided legal advice
to PFL relating to certain matters under the federal securities laws applicable
to the issue and sale of the policies.
INDEPENDENT AUDITORS
The statutory-basis financial statements and schedules of PFL as of December
31, 1999 and 1998, and for each of the three years in the period ended December
31, 1999, and the financial statements of certain subaccounts of the PFL
Retirement Builder Variable Annuity Account which are available for investment
by the Portfolio Select Variable Annuity contract owners as of December 31,
1999 and for the year ended December 31, 1999 and the period October 31, 1998
(commencement of operations) through December 31, 1998, included in this SAI
have been audited by Ernst & Young LLP, Independent Auditors, Suite 3400, 801
Grand Avenue, Des Moines, Iowa 50309.
OTHER INFORMATION
A Registration Statement has been filed with the Securities and Exchange
Commission, under the Securities Act of 1933 as amended, with respect to the
policies discussed in this SAI. Not all of the information set forth in the
Registration Statement, amendments and exhibits thereto has been included in
the prospectus or this SAI. Statements contained in the prospectus and this SAI
concerning the content of the policies and other legal instruments are intended
to be summaries. For a complete statement of the terms of these documents,
reference should be made to the instruments filed with the Securities and
Exchange Commission.
FINANCIAL STATEMENTS
The values of the interest of owners in the separate account will be affected
solely by the investment results of the selected subaccount(s). Financial
statements of certain subaccounts of PFL Retirement Builder Variable Annuity
Account which are available for investment by the Portfolio Select Variable
Annuity are contained herein. The financial statements of PFL, which are
included in this SAI, should be considered only as bearing on the ability of
PFL to meet its obligations under the policies. They should not be considered
as bearing on the investment performance of the assets held in the separate
account.
-33-
<PAGE>
Financial Statements--Statutory Basis
PFL Life Insurance Company
Years ended December 31, 1999, 1998 and 1997
with Report of Independent Auditors
<PAGE>
PFL Life Insurance Company
Financial Statements--Statutory Basis
Years ended December 31, 1999, 1998 and 1997
Contents
<TABLE>
<S> <C>
Report of Independent Auditors.............................................. 1
Audited Financial Statements
Balance Sheets--Statutory Basis........................................... 3
Statements of Operations--Statutory Basis................................. 5
Statements of Changes in Capital and Surplus--Statutory Basis............. 6
Statements of Cash Flows--Statutory Basis................................. 7
Notes to Financial Statements--Statutory Basis............................ 9
Statutory-Basis Financial Statement Schedules
Summary of Investments--Other Than Investments in Related Parties......... 28
Supplementary Insurance Information....................................... 29
Reinsurance............................................................... 31
</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, an indirect wholly-owned subsidiary of AEGON N.V., as of
December 31, 1999 and 1998, 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, 1999. 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 auditing standards generally
accepted in the United States. 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 accounting principles generally accepted in
the United States. The variances between such practices and accounting
principles generally accepted in the United States 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 effect of the matter described in the preceding
paragraph, the financial statements referred to above do not present fairly,
in conformity with accounting principles generally accepted in the United
States, the financial position of PFL Life Insurance Company at December 31,
1999 and 1998, or the results of its operations or its cash flows for each of
the three years in the period ended December 31, 1999.
1
<PAGE>
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, 1999 and 1998, and the results of its operations and
its cash flows for each of the three years in the period ended December 31,
1999, 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 18, 2000
2
<PAGE>
PFL Life Insurance Company
Balance Sheets--Statutory Basis
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
December 31
1999 1998
----------- ----------
<S> <C> <C>
Admitted Assets
Cash and invested assets:
Cash and short-term investments........................ $ 53,695 $ 83,289
Bonds.................................................. 4,892,156 4,822,442
Stocks:
Preferred............................................ 17,074 14,754
Common (cost: 1999--$61,813; 1998--$34,731).......... 71,658 49,448
Affiliated entities (cost: 1999--$10,318; 1998--
$8,060)............................................. 6,764 5,613
Mortgage loans on real estate.......................... 1,339,202 1,012,433
Real estate, at cost less accumulated depreciation
($10,891 in 1999; $9,500 in 1998):
Home office properties............................... 7,829 8,056
Properties acquired in satisfaction of debt.......... 16,336 11,778
Investment properties................................ 33,707 44,325
Policy loans........................................... 59,871 60,058
Other invested assets.................................. 123,722 76,482
----------- ----------
Total cash and invested assets..................... 6,622,014 6,188,678
Premiums deferred and uncollected....................... 14,656 15,318
Accrued investment income............................... 65,364 65,308
Receivable from affiliate............................... -- 643
Federal income taxes recoverable........................ 1,335 639
Transfers from separate accounts due or accrued......... 92,309 70,866
Other assets............................................ 30,119 29,511
Separate account assets................................. 4,905,374 3,348,611
----------- ----------
Total admitted assets................................... $11,731,171 $9,719,574
=========== ==========
</TABLE>
3
<PAGE>
PFL Life Insurance Company
Balance Sheets--Statutory Basis
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
December 31
1999 1998
----------- ----------
<S> <C> <C>
Liabilities and Capital and Surplus
Liabilities:
Aggregate reserves for policies and contracts:
Life................................................. $ 1,552,781 $1,357,175
Annuity.............................................. 4,036,751 3,925,293
Accident and health.................................. 254,571 205,736
Policy and contract claim reserves:
Life................................................. 8,681 9,101
Accident and health.................................. 37,466 48,906
Other policyholders' funds............................. 172,774 162,266
Remittances and items not allocated.................... 33,020 19,690
Asset valuation reserve................................ 103,193 91,588
Interest maintenance reserve........................... 36,120 50,575
Short-term notes payable to affiliates................. 144,500 9,421
Other liabilities...................................... 70,717 76,766
Payable for securities................................. 15,136 57,645
Payable to affiliates.................................. 11,517 --
Separate account liabilities........................... 4,899,289 3,342,884
----------- ----------
Total liabilities....................................... 11,376,516 9,357,046
Commitments and contingencies (Note 10)
Capital and surplus:
Common stock, $10 par value, 500,000 shares autho-
rized, 266,000 issued and outstanding................. 2,660 2,660
Paid-in surplus........................................ 154,282 154,282
Unassigned surplus..................................... 197,713 205,586
----------- ----------
Total capital and surplus............................... 354,655 362,528
----------- ----------
Total liabilities and capital and surplus............... $11,731,171 $9,719,574
=========== ==========
</TABLE>
See accompanying notes.
4
<PAGE>
PFL Life Insurance Company
Statements of Operations--Statutory Basis
(Dollars in thousands)
<TABLE>
<CAPTION>
Year ended December 31
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Premiums and other considerations, net of
reinsurance:
Life.................................... $ 227,510 $ 516,111 $ 202,435
Annuity................................. 1,413,049 667,920 657,695
Accident and health..................... 160,570 178,593 207,982
Net investment income..................... 437,549 446,984 446,424
Amortization of interest maintenance re-
serve.................................... 7,588 8,656 3,645
Commissions and expense allowances on
reinsurance ceded........................ 24,741 32,781 49,859
Separate account fee income............... 49,826 37,137 --
---------- ---------- ----------
2,320,833 1,888,182 1,568,040
Benefits and expenses:
Benefits paid or provided for:
Life and accident and health benefits... 115,621 135,184 146,583
Surrender benefits...................... 1,046,611 732,796 658,071
Other benefits.......................... 169,479 152,209 126,495
Increase (decrease) in aggregate
reserves for policies and contracts:
Life.................................... 195,606 473,158 149,575
Annuity................................. 111,427 (278,665) (203,139)
Accident and health..................... 48,835 36,407 30,059
Other................................... 10,480 17,550 16,998
---------- ---------- ----------
1,698,059 1,268,639 924,642
Insurance expenses:
Commissions............................... 167,146 136,569 157,300
General insurance expenses................ 54,191 48,018 57,571
Taxes, licenses and fees.................. 12,382 19,166 8,715
Net transfers to separate accounts........ 309,307 302,839 297,480
Other expenses............................ 229 1,016 119
---------- ---------- ----------
543,255 507,608 521,185
---------- ---------- ----------
2,241,314 1,776,247 1,445,827
---------- ---------- ----------
Gain from operations before federal income
tax expense and net realized capital gains
on investments............................. 79,519 111,935 122,213
Federal income tax expense.................. 25,316 49,835 43,381
---------- ---------- ----------
Gain from operations before net realized
capital gains on investments............... 54,203 62,100 78,832
Net realized capital gains on investments
(net of related federal income taxes and
amounts transferred to interest maintenance
reserve)................................... 6,365 3,398 7,159
---------- ---------- ----------
Net income.................................. $ 60,568 $ 65,498 $ 85,991
========== ========== ==========
</TABLE>
See accompanying notes.
5
<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, 1997 $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
Net income.............................. -- -- 60,568 60,568
Change in net unrealized capital gains.. -- -- (20,217) (20,217)
Change in non-admitted assets........... -- -- (980) (980)
Change in asset valuation reserve....... -- -- (11,605) (11,605)
Dividend to stockholder................. -- -- (40,000) (40,000)
Tax benefit on stock options exercised.. -- -- 1,305 1,305
Change in surplus in separate accounts.. -- -- 245 245
Settlement of prior period tax returns
and other tax-related adjustments...... -- -- 2,811 2,811
------ -------- -------- --------
Balance at December 31, 1999.............. $2,660 $154,282 $197,713 $354,655
====== ======== ======== ========
</TABLE>
See accompanying notes.
6
<PAGE>
PFL Life Insurance Company
Statements of Cash Flows--Statutory Basis
(Dollars in thousands)
<TABLE>
<CAPTION>
Year ended December 31
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Operating activities
Premiums and other considerations, net
of reinsurance......................... $ 1,830,365 $ 1,396,428 $ 1,119,936
Net investment income................... 441,737 469,246 452,091
Life and accident and health claims..... (124,178) (138,249) (154,383)
Surrender benefits and other fund
withdrawals............................ (1,046,611) (732,796) (658,071)
Other benefits to policyholders......... (169,476) (152,167) (126,462)
Commissions, other expenses and other
taxes.................................. (238,192) (197,135) (225,042)
Net transfers to separate accounts...... (280,923) (276,375) (319,146)
Federal income taxes.................... (24,709) (72,176) (47,909)
Cash paid in conjunction with an
amendment of a reinsurance agreement... -- -- (4,826)
Cash received in connection with a
reinsurance agreement.................. -- -- 1,477
Other, net.............................. (23,047) (93,095) 89,693
----------- ----------- -----------
Net cash provided by operating
activities............................. 364,966 203,681 127,358
Investing activities
Proceeds from investments sold, matured
or repaid:
Bonds and preferred stocks............ 3,283,038 3,347,174 3,284,095
Common stocks......................... 60,293 34,564 34,004
Mortgage loans on real estate......... 158,739 192,210 138,162
Real estate........................... 13,367 5,624 6,897
Policy loans.......................... 186 -- --
Cash received from ceding commissions
associated with the sale of a
division............................. -- -- 8
Other................................. 6,133 7,210 57,683
----------- ----------- -----------
3,521,756 3,586,782 3,520,849
Cost of investments acquired:
Bonds and preferred stocks............ (3,398,158) (3,251,822) (3,411,442)
Common stocks......................... (76,200) (36,379) (37,339)
Mortgage loans on real estate......... (480,750) (257,039) (159,577)
Real estate........................... (7,568) (11,458) (2,013)
Policy loans.......................... -- (2,922) (2,922)
Cash paid in association with the sale
of a division........................ -- -- (591)
Other................................. (48,719) (44,514) (15,674)
----------- ----------- -----------
(4,011,395) (3,604,134) (3,629,558)
----------- ----------- -----------
Net cash used in investing activities... (489,639) (17,352) (108,709)
</TABLE>
7
<PAGE>
PFL Life Insurance Company
Statements of Cash Flows--Statutory Basis
(Dollars in thousands)
<TABLE>
<CAPTION>
Year ended December 31
1999 1998 1997
-------- -------- -------
<S> <C> <C> <C>
Financing activities
Issuance (repayment) of short-term intercompany
notes payable................................... $135,079 $ (6,979) $16,400
Capital contribution............................. -- -- 153
Dividends to stockholder......................... (40,000) (120,000) (62,000)
-------- -------- -------
Net cash provided by (used in) financing
activities...................................... 95,079 (126,979) (45,447)
-------- -------- -------
Increase (decrease) in cash and short-term
investments..................................... (29,594) 59,350 (26,798)
Cash and short-term investments at beginning of
year............................................ 83,289 23,939 50,737
-------- -------- -------
Cash and short-term investments at end of year... $ 53,695 $ 83,289 $23,939
======== ======== =======
</TABLE>
See accompanying notes.
8
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis
(Dollars in thousands)
December 31, 1999
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.
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 and Guam. 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
9
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
1. Organization and Summary of Significant Accounting Policies (continued)
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 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) stock options settled in cash are recorded as expense of
the Company's indirect parent rather than charged to current operations; (m)
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; (n) 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 (o) 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") effective January 1,
2001. 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 anticipated that 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.
10
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
1. Organization and Summary of Significant Accounting Policies (continued)
Cash and Short-Term Investments
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 short-term investments.
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 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. During 1999, 1998 and 1997, the Company
excluded investment income due and accrued of $530, $102 and $177,
respectively, with respect to such practices.
11
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
1. Organization and Summary of Significant Accounting Policies (continued)
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 agreement
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.
12
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
1. Organization and Summary of Significant Accounting Policies (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 contract owners 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 contract owners. The Company received variable contract
premiums of $486,282, $345,319 and $281,095 in 1999, 1998 and 1997,
respectively. All variable account contracts are subject to discretionary
withdrawal by the contract owner 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 1998 and 1997 financial
statements to conform to the 1999 presentation.
13
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
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 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
amount.
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.
14
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
2. Fair Values of Financial Instruments (continued)
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.
Short-term notes payable to affiliates: The fair values for short-term
notes payable to affiliates are assumed to equal their carrying amount.
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.
The following sets forth a comparison of the fair values and carrying amounts
of the Company's financial instruments subject to the provisions of SFAS No.
107 and No. 119:
<TABLE>
<CAPTION>
December 31
1999 1998
--------------------- ---------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Admitted assets
Cash and short-term investments... $ 53,695 $ 53,695 $ 83,289 $ 83,289
Bonds............................. 4,892,156 4,757,325 4,822,442 4,900,516
Preferred stocks.................. 17,074 15,437 14,754 14,738
Common stocks..................... 71,658 71,658 49,448 49,448
Affiliated common stock........... 6,764 6,764 5,613 5,613
Mortgage loans on real estate..... 1,339,202 1,299,160 1,012,433 1,089,315
Policy loans...................... 59,871 59,871 60,058 60,058
Interest rate cap................. 4,959 1,784 4,445 725
Interest rate swaps............... 8,134 10,609 1,916 6,667
Separate account assets........... 4,905,374 4,905,374 3,348,611 3,348,611
Liabilities
Investment contract liabilities... 4,207,369 4,059,842 4,084,683 4,017,509
Separate account liabilities...... 4,377,676 4,212,615 3,271,005 3,213,251
Short-term notes payable to
affiliates....................... 144,500 144,500 9,421 9,421
</TABLE>
15
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
3. Investments
The carrying amounts and estimated fair values of investments in debt
securities were as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Carrying Unrealized Unrealized Fair
Amount Gains Losses Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
December 31, 1999
Bonds:
United States Government and
agencies........................ $ 141,390 $ 142 $ 4,520 $ 137,012
State, municipal and other
government...................... 137,745 5,168 1,627 141,286
Public utilities................. 219,791 1,148 6,777 214,162
Industrial and miscellaneous..... 2,078,145 20,042 84,919 2,013,268
Mortgage and other asset-backed
securities...................... 2,315,085 24,214 87,702 2,251,597
---------- -------- -------- ----------
4,892,156 50,714 185,545 4,757,325
Preferred stocks................... 17,074 2 1,639 15,437
---------- -------- -------- ----------
$4,909,230 $ 50,716 $187,184 $4,772,762
========== ======== ======== ==========
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>
The carrying amounts and estimated fair values of bonds at December 31, 1999,
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
Amount Fair Value
---------- ----------
<S> <C> <C>
Due in one year or less............................... $ 194,654 $ 192,453
Due after one year through five years................. 1,151,170 1,121,353
Due after five years through ten years................ 908,926 873,402
Due after ten years................................... 322,321 318,520
---------- ----------
2,577,071 2,505,728
Mortgage and other asset-backed securities............ 2,315,085 2,251,597
---------- ----------
$4,892,156 $4,757,325
========== ==========
</TABLE>
16
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
3. Investments (continued)
A detail of net investment income is presented below:
<TABLE>
<CAPTION>
Year ended December 31
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Interest on bonds and preferred stock............... $347,639 $374,478 $373,496
Dividends on equity investments..................... 734 1,357 1,460
Interest on mortgage loans.......................... 92,325 77,960 80,266
Rental income on real estate........................ 7,322 6,553 7,501
Interest on policy loans............................ 4,141 4,080 3,400
Other investment income............................. 7,978 2,576 613
-------- -------- --------
Gross investment income............................. 460,139 467,004 466,736
Less investment expenses............................ 22,590 20,020 20,312
-------- -------- --------
Net investment income............................... $437,549 $446,984 $446,424
======== ======== ========
</TABLE>
Proceeds from sales and maturities of debt securities and related gross
realized gains and losses were as follows:
<TABLE>
<CAPTION>
Year ended December 31
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Proceeds.................................... $3,283,038 $3,347,174 $3,284,095
========== ========== ==========
Gross realized gains........................ $ 21,171 $ 48,760 $ 30,094
Gross realized losses....................... (32,259) (8,072) (17,265)
---------- ---------- ----------
Net realized gains (losses)................. $ (11,088) $ 40,688 $ 12,829
========== ========== ==========
</TABLE>
At December 31, 1999, investments with an aggregate carrying value of
$6,346,831 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.
17
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
3. Investments (continued)
Realized investment gains (losses) and changes in unrealized gains (losses)
for investments are summarized below:
<TABLE>
<CAPTION>
Realized
----------------------------
Year ended December 31
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Debt securities......... $(11,088) $ 40,688 $ 12,829
Equity securities....... 11,433 (879) 6,972
Mortgage loans on real
estate................. 4,661 12,637 2,252
Real estate............. 900 3,176 4,252
Short-term investments.. (1,407) 1,533 (19)
Other invested assets... 534 (2,523) 1,632
-------- -------- --------
5,033 54,632 27,918
Tax effect.............. (5,535) (22,290) (10,572)
Transfer from (to)
interest maintenance
reserve................ 6,867 (28,944) (10,187)
-------- -------- --------
Net realized gains...... $ 6,365 $ 3,398 $ 7,159
======== ======== ========
<CAPTION>
Change in Unrealized
----------------------------
Year ended December 31
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Bonds................... $(12,711) $ (836) $ 2,498
Preferred stocks........ (2,753) -- --
Common stocks........... (3,980) 3,751 1,097
Mortgage loans.......... (147) (150) --
Other invested assets... (626) 1,739 (3)
-------- -------- --------
Change in unrealized.... $(20,217) $ 4,504 $ 3,592
======== ======== ========
Gross unrealized gains and gross unrealized losses on equity securities are as
follows:
<CAPTION>
December 31
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Unrealized gains........ $ 11,369 $ 15,980 $ 10,356
Unrealized losses....... (5,078) (3,710) (3,836)
-------- -------- --------
Net unrealized gains.... $ 6,291 $ 12,270 $ 6,520
======== ======== ========
</TABLE>
18
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
3. Investments (continued)
During 1999, the Company issued mortgage loans with interest rates ranging
from 6.42% to 8.67%. The maximum percentage of any one mortgage loan to the
value of the underlying real estate at origination was 84%. Mortgage loans
with a carrying value of $248 were non-income producing for the previous
twelve months. Accrued interest of $95 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, 1999 and 1998, the Company held a mortgage loan loss reserve
in the asset valuation reserve of $15,173 and $16,104, respectively. The
mortgage loan portfolio is diversified by geographic region and specific
collateral property type as follows:
Geographic Distribution
<TABLE>
<CAPTION>
December 31
1999 1998
----- -----
<S> <C> <C>
South Atlantic.......... 27% 32%
Pacific................. 18 15
E. North Central........ 17 16
Middle Atlantic......... 15 10
Mountain................ 9 10
W. South Central........ 6 6
W. North Central........ 4 5
E. South Central........ 3 3
New England............. 1 3
</TABLE>
<TABLE>
<CAPTION>
Property Type Distribution
December 31
1999 1998
----- -----
<S> <C> <C>
Office.................. 39% 30%
Retail.................. 28 35
Industrial.............. 18 21
Apartment............... 11 12
Other................... 4 2
</TABLE>
At December 31, 1999, 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,
collectively.
19
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
3. Investments (continued)
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 swaps and caps. 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 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, 1999 and 1998, 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
1999 1998
-------- --------
<S> <C> <C>
Derivative securities:
Interest rate swaps:
Receive fixed--pay floating............................... $115,000 $100,000
Receive floating--pay fixed............................... 64,017 --
Receive floating (uncapped)--pay floating (capped)........ 41,617 53,011
Receive floating (LIBOR--pay floating (S&P)............... 60,000 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.
20
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
4. Reinsurance (continued)
Reinsurance assumption and cession treaties are transacted primarily with
affiliates. Premiums earned reflect the following reinsurance assumed and
ceded amounts:
<TABLE>
<CAPTION>
Year ended December 31
----------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Direct premiums.......................... $1,942,716 $1,533,822 $1,312,446
Reinsurance assumed...................... 2,723 2,366 2,038
Reinsurance ceded........................ (144,310) (173,564) (246,372)
---------- ---------- ----------
Net premiums earned...................... $1,801,129 $1,362,624 $1,068,112
========== ========== ==========
</TABLE>
The Company received reinsurance recoveries in the amount of $139,138,
$173,297 and $183,638 during 1999, 1998 and 1997, respectively. At December
31, 1999 and 1998, estimated amounts recoverable from reinsurers that have
been deducted from policy and contract claim reserves totaled $35,511 and
$47,956, respectively. The aggregate reserves for policies and contracts were
reduced for reserve credits for reinsurance ceded at December 31, 1999 and
1998 of $1,870,190 and $2,163,905, respectively.
At December 31, 1999, amounts recoverable from unauthorized reinsurers of
$39,996 (1998--$55,379) and reserve credits for reinsurance ceded of $48,297
(1998--$49,835) were associated with a single reinsurer and its affiliates.
The Company holds collateral under these reinsurance agreements in the form of
trust agreements totaling $85,431 at December 31, 1999, that can be drawn on
for amounts that remain unpaid for more than 120 days.
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.
21
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
5. Income Taxes (continued)
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
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Computed tax at federal statutory rate (35%)..... $27,832 $39,177 $42,775
IMR amortization................................. (2,656) (3,030) (1,276)
Tax reserve adjustment........................... 1,390 607 2,004
Excess tax depreciation.......................... (219) (223) (392)
Deferred acquisition costs-- tax basis........... 5,979 11,827 4,308
Prior year under (over) accrual ................. (3,492) 1,750 (1,016)
Dividend received deduction...................... (1,666) (1,053) (941)
Charitable contributions......................... -- -- (848)
Other items--net................................. (1,852) 780 (1,233)
------- ------- -------
Federal income tax expense....................... $25,316 $49,835 $43,381
======= ======= =======
</TABLE>
Federal income tax expense differs from the amount computed by applying the
statutory federal income tax rate to realized gains (losses) due to the
differences in book and tax asset bases at the time certain investments are
sold.
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, 1999). 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.
In 1999, the Company reached a final settlement with the Internal Revenue
Service for 1990 and 1991, resulting in a tax refund of $904 and interest
received of $548. These amounts were credited directly to unassigned surplus.
The Company also corrected an error in 1999 which related to the 1997 tax-
sharing agreement between the Company and various affiliates. This resulted in
a credit to unassigned surplus of $1,359.
The Company's federal income tax returns have been examined and closing
agreements have been executed with the Internal Revenue Service through 1992.
An examination is underway for years 1993 through 1997.
22
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
6. Policy and Contract Attributes
A portion of the Company's policy reserves and other policyholders' funds
(including separate account liabilities) relate to liabilities established on
a variety of the Company's annuity and deposit fund products. There may be
certain restrictions placed upon 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
1999 1998
------------------- ------------------
Percent Percent
of of
Amount Total Amount Total
----------- ------- ---------- -------
<S> <C> <C> <C> <C>
Subject to discretionary withdrawal with
market value adjustment................ $ 114,544 1% $ 82,048 1%
Subject to discretionary withdrawal at
book value less surrender charge....... 828,490 8 515,778 5
Subject to discretionary withdrawal at
market value........................... 4,313,445 41 3,211,896 34
Subject to discretionary withdrawal at
book value (minimal or no charges or
adjustments)........................... 5,021,762 48 5,519,265 58
Not subject to discretionary withdrawal
provision.............................. 248,444 2 228,030 2
----------- --- ---------- ---
10,526,685 100% 9,557,017 100%
Less reinsurance ceded.................. 1,863,810 2,124,769
----------- ----------
Total policy reserves on annuities and
deposit fund liabilities............... $ 8,662,875 $7,432,248
=========== ==========
</TABLE>
A reconciliation of the amounts transferred to and from the separate accounts
is presented below:
<TABLE>
<CAPTION>
Year ended December 31
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Transfers as reported in the summary of
operations of the separate accounts statement:..
Transfers to separate accounts................. $486,282 $345,319 $281,095
Transfers from separate accounts............... (175,822) (42,671) (9,819)
-------- -------- --------
Net transfers to separate accounts............... 310,460 302,648 271,276
Reconciling adjustments--change in miscellaneous
income.......................................... (1,153) 191 26,204
-------- -------- --------
Transfers as reported in the summary of
operations of the life, accident and health
annual statement................................ $309,307 $302,839 $297,480
======== ======== ========
</TABLE>
23
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
6. Policy and Contract Attributes (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, 1999 and 1998, 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, 1999
Life and annuity:
Ordinary direct first year business................ $ 2,823 $2,085 $ 738
Ordinary direct renewal business................... 20,950 6,289 14,661
Group life direct business......................... 638 243 395
Reinsurance ceded.................................. (1,269) (16) (1,253)
------- ------ -------
23,142 8,601 14,541
Accident and health:
Direct............................................. 138 -- 138
Reinsurance ceded.................................. (23) -- (23)
------- ------ -------
Total accident and health............................ 115 -- 115
------- ------ -------
$23,257 $8,601 $14,656
======= ====== =======
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
======= ====== =======
</TABLE>
At December 31, 1999 and 1998, the Company had insurance in force aggregating
$41,720 and $44,233, 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 $871 and $998 to cover these
deficiencies at December 31, 1999 and 1998, respectively.
24
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
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 before net
realized capital gains (losses) on investments for the preceding year. Subject
to the availability of unassigned surplus at the time of such dividend, the
maximum payment which may be made in 2000, without the prior approval of
insurance regulatory authorities, is $54,203.
The Company paid dividends to its parent of $40,000, $120,000 and $62,000 in
1999, 1998 and 1997, 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
SFAS 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 $408, $380 and $422 for the
years ended December 31, 1999, 1998 and 1997, 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 $267, $233 and $226 for
the years ended December 31, 1999, 1998 and 1997, respectively.
25
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
8. Retirement and Compensation Plans (continued)
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 are charged to affiliates in accordance with an
intercompany cost sharing arrangement. The Company expensed $28, $62 and $62
for the years ended December 31, 1999, 1998 and 1997, 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 1999,
1998 and 1997, the Company paid $19,983, $18,706 and $18,705, respectively,
for these services, which approximates their costs to the affiliates.
Payables to affiliates bear interest at the thirty-day commercial paper rate
of 5.7% at December 31, 1999. During 1999, 1998 and 1997, the Company paid net
interest of $1,994, $1,491 and $1,188, respectively, to affiliates.
During 1997, the Company received a capital contribution of $153 in cash from
its parent.
At December 31, 1999 and 1998, the Company has short-term notes payable to an
affiliate of $144,500 and $9,421, respectively. Interest on these notes
accrues at rates ranging from 4.85% to 5.90% at December 31, 1999 and 5.13% to
5.52% at December 31, 1998.
26
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
9. Related Party Transactions (continued)
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 $190,299 and
$181,720 at December 31, 1999 and 1998, respectively.
10. Commitments and Contingencies
The Company has issued Trust (synthetic) GIC contracts to plan sponsors
totaling $374,124 at December 31, 1999, pursuant to terms under which the plan
sponsor retains ownership of the assets related to these contracts. The
Company guarantees benefit responsiveness in the event that plan benefit
requests and other contractual commitments exceed plan cash flows. The plan
sponsor agrees to reimburse the Company for such benefit payments with
interest, either at a fixed or floating rate, from future plan and asset cash
flows. In return for this guarantee, the Company receives a premium which
varies based on such elements as benefit responsive exposure and contract
size. The Company underwrites the plans for the possibility of having to make
benefit payments and also must agree to the investment guidelines to ensure
appropriate credit quality and cash flow matching. The assets relating to such
contracts are not recognized in the Company's statutory-basis financial
statements.
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 $19,662 and $17,901 and an offsetting
premium tax benefit of $7,429 and $7,631 at December 31, 1999 and 1998,
respectively, for its estimated share of future guaranty fund assessments
related to several major insurer insolvencies. The guaranty fund expense
(benefit) was $1,994, $1,985 and $(975) for the years ended December 31, 1999,
1998 and 1997, respectively.
27
<PAGE>
PFL Life Insurance Company
Summary of Investments--Other than
Investments in Related Parties
(Dollars in thousands)
December 31, 1999
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............... $ 195,119 $ 189,752 $ 195,119
States, municipalities and political
subdivisions........................... 545,562 535,945 545,562
Foreign governments..................... 134,584 138,767 134,584
Public utilities........................ 219,791 214,162 219,791
All other corporate bonds............... 3,797,100 3,678,699 3,797,100
Redeemable preferred stock................ 17,074 15,437 17,074
---------- --------- ----------
Total fixed maturities.................... 4,909,230 4,772,762 4,909,230
Equity securities
Common stocks:
Banks, trust and insurance.............. 2,676 2,809 2,809
Industrial, miscellaneous and all
other.................................. 59,137 68,849 68,849
---------- --------- ----------
Total equity securities................... 61,813 71,658 71,658
Mortgage loans on real estate............. 1,339,202 1,339,202
Real estate............................... 41,536 41,536
Real estate acquired in satisfaction of
debt..................................... 16,336 16,336
Policy loans.............................. 59,871 59,871
Other long-term investments............... 123,722 123,722
Cash and short-term investments........... 53,695 53,695
---------- ----------
Total investments......................... $6,605,405 $6,615,250
========== ==========
</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.
28
<PAGE>
PFL Life Insurance Company
Supplementary Insurance Information
(Dollars in thousands)
SCHEDULE III
<TABLE>
<CAPTION>
Future
Policy Policy
Benefits and
and Unearned Contract
Expenses Premiums Liabilities
---------- -------- -----------
<S> <C> <C> <C>
Year ended December 31, 1999
Individual life................................. $1,550,188 $ -- $ 8,607
Individual health............................... 133,214 10,311 10,452
Group life and health........................... 105,035 8,604 27,088
Annuity......................................... 4,036,751 -- --
---------- ------- -------
$5,825,188 $18,915 $46,147
========== ======= =======
Year ended December 31, 1998
Individual life................................. $1,355,283 $ -- $ 8,976
Individual health............................... 94,294 9,631 12,123
Group life and health........................... 93,405 10,298 36,908
Annuity......................................... 3,925,293 -- --
---------- ------- -------
$5,468,275 $19,929 $58,007
========== ======= =======
Year ended December 31, 1997
Individual life................................. $ 882,003 $ -- $ 8,550
Individual health............................... 62,033 9,207 12,821
Group life and health........................... 88,211 11,892 44,977
Annuity......................................... 4,204,125 -- --
---------- ------- -------
$5,236,372 $21,099 $66,348
========== ======= =======
</TABLE>
29
<PAGE>
PFL Life Insurance Company
Supplementary Insurance Information
(Dollars in thousands)
SCHEDULE III
<TABLE>
<CAPTION>
Benefits,
Claims
Net Losses and Other
Premium Investment Settlement Operating Premiums
Revenue Income* Expenses Expenses* Written
---------- ---------- ---------- --------- --------
<S> <C> <C> <C> <C> <C>
Year ended December 31,
1999
Individual life........... $ 226,456 $104,029 $ 274,730 $141,030 $ --
Individual health......... 77,985 10,036 58,649 35,329 77,716
Group life and health..... 83,639 10,422 61,143 38,075 81,918
Annuity................... 1,413,049 313,062 1,303,537 278,995 --
---------- -------- ---------- --------
$1,801,129 $437,549 $1,698,059 $493,429
========== ======== ========== ========
Year ended December 31,
1998
Individual life........... $ 514,194 $ 85,258 $ 545,720 $ 87,455 $ --
Individual health......... 68,963 8,004 48,144 30,442 68,745
Group life and health..... 111,547 11,426 82,690 54,352 108,769
Annuity................... 667,920 342,296 592,085 298,222 --
---------- -------- ---------- --------
$1,362,624 $446,984 $1,268,639 $470,471
========== ======== ========== ========
Year ended December 31,
1997
Individual life........... $ 200,175 $ 75,914 $ 211,921 $ 36,185 $ --
Individual health......... 63,548 5,934 37,706 29,216 63,383
Group life and health..... 146,694 11,888 103,581 91,568 143,580
Annuity................... 657,695 352,688 571,434 364,216 --
---------- -------- ---------- --------
$1,068,112 $446,424 $ 924,642 $521,185
========== ======== ========== ========
</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.
30
<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,
1999
Life insurance in
force.................. $6,538,901 $(500,192) $415,910 $6,454,619 6.4%
========== ========= ======== ========== ===
Premiums:
Individual life....... $ 227,363 $ 3,967 $ 2,723 $ 226,119 1.2%
Individual health..... 83,489 5,504 -- 77,985 --
Group life and
health............... 205,752 122,113 -- 83,639 --
Annuity............... 1,426,112 12,726 -- 1,413,386 --
---------- --------- -------- ---------- ---
$1,942,716 $ 144,310 $ 2,723 $1,801,129 0.2%
========== ========= ======== ========== ===
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%
========== ========= ======== ========== ===
</TABLE>
31
<PAGE>
Financial Statements
PFL Retirement Builder Variable Annuity
Account - Portfolio Select Variable Annuity
Year ended December 31, 1999
with Report of Independent Auditors
<PAGE>
PFL Retirement Builder Variable Annuity
Account - Portfolio Select Variable Annuity
Financial Statements
Year ended December 31, 1999
Contents
<TABLE>
<S> <C>
Report of Independent Auditors....................................... 1
Financial Statements
Balance Sheets....................................................... 2
Statements of Operations............................................. 14
Statements of Changes in Contract Owners' Equity..................... 20
Notes to Financial Statements........................................ 30
</TABLE>
<PAGE>
Report of Independent Auditors
The Board of Directors and Contract Owners
of the Portfolio Select Variable Annuity,
PFL Life Insurance Company
We have audited the accompanying balance sheets of certain subaccounts of PFL
Retirement Builder Variable Annuity Account (the "Separate Account", comprised
of AIM V.I. Growth and Income Fund, AIM V.I. International Equity Fund, AIM V.I.
Value Fund, Evergreen VA Fund, Evergreen VA Foundation Fund, Evergreen VA Growth
and Income Fund, Evergreen VA Global Leaders Fund, Evergreen VA International
Growth Fund, Federated High Income Bond Fund II, MFS Emerging Growth Series, MFS
Research Series, MFS Total Return Series, MFS Utilities Series, Oppenheimer
Growth Fund, Oppenheimer Multiple Strategies Fund, Oppenheimer Strategic Bond
Fund, Putnam VT Global Growth Fund, Putnam VT Money Market Fund, Putnam VT New
Value Fund, Mentor VIP Capital Growth, Mentor VIP Growth, Mentor VIP High
Income, VIP High Income, VIP II Index 500, VIP II Investment Grade Bond, VIP III
Growth Opportunities, Templeton International, Templeton Asset Allocation, and
Franklin Small Cap Investments subaccounts), which are available for investment
by contract owners of the Portfolio Select Variable Annuity, as of December 31,
1999, and the related statements of operations for the period then ended as
indicated thereon and changes in contract owners' equity for the periods
indicated thereon. These financial statements are the responsibility of the
Separate Account's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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. Our
procedures included confirmation of mutual fund shares owned as of December 31,
1999, by correspondence with the mutual funds' transfer agents. 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.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of each of the respective
subaccounts of PFL Retirement Builder Variable Annuity Account which are
respective for investment by contract owners of the Portfolio Select Variable
Annuity at December 31, 1999, and the results of their operations for the period
then ended as indicated thereon and changes in their contract owners' equity for
the periods indicated thereon in conformity with accounting principles generally
accepted in the United States.
/s/ Ernst & Young LLP
Des Moines, Iowa
January 28, 2000
1
<PAGE>
PFL Retirement Builder Variable Annuity
Account - Portfolio Select Variable Annuity
Balance Sheets
December 31, 1999
<TABLE>
<CAPTION>
AIM V.I. AIM V.I.
Growth and International AIM V.I.
Income Fund Equity Fund Value Fund
Subaccount Subaccount Subaccount
-----------------------------------------------------------
<S> <C> <C> <C>
Assets
Cash $ - $ - $ -
Investments in mutual funds, at current market
value:
AIM Variable Insurance Funds, Inc.:
AIM V.I. Growth and Income Fund 13,214,393 - -
AIM V.I. International Equity Fund - 1,815,088 -
AIM V.I. Value Fund - - 27,408,353
Evergreen Variable Trust:
Evergreen VA Fund - - -
Evergreen VA Foundation Fund - - -
Evergreen VA Growth and Income Fund - - -
Evergreen VA Global Leaders Fund - - -
Evergreen VA International Growth Fund - - -
Federated Insurance Series:
Federated High Income Bond Fund II - - -
MFS Variable Insurance Trust:
MFS Emerging Growth Series - - -
MFS Research Series - - -
MFS Total Return Series - - -
MFS Utilities Series - - -
Oppenheimer Variable Account Funds:
Oppenheimer Growth Fund - - -
Oppenheimer Multiple Strategies Fund - - -
Oppenheimer Strategic Bond Fund - - -
Putnam Variable Trust:
Putnam VT Global Growth Fund - - -
Putnam VT Money Market Fund - - -
Putnam VT New Value Fund - - -
Mentor Variable Investment Portfolios:
Mentor VIP Capital Growth Portfolio - - -
Mentor VIP Growth Portfolio - - -
Mentor VIP High Income Portfolio - - -
Variable Insurance Products Fund:
VIP High Income Portfolio - - -
Variable Insurance Products Fund II:
VIP II Index 500 Portfolio - - -
VIP II Investment Grade Bond Portfolio - - -
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
Evergreen
Evergreen VA VA Growth Evergreen VA Evergreen VA Federated
Evergreen Foundation and Income Global International High Income
VA Fund Fund Fund Leaders Fund Growth Fund Bond Fund II
Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ - $ - $ - $ - $ - $ 3
- - - - - -
- - - - - -
- - - - - -
1,782,297 - - - - -
- 14,831,971 - - - -
- - 2,908,235 - - -
- - - 751,111 - -
- - - - 132,112 -
- - - - - 6,588,695
- - - - - -
- - - - - -
- - - - - -
- - - - - -
- - - - - -
- - - - - -
- - - - - -
- - - - - -
- - - - - -
- - - - - -
- - - - - -
- - - - - -
- - - - - -
- - - - - -
- - - - - -
- - - - - -
</TABLE>
3
<PAGE>
PFL Retirement Builder Variable Annuity
Account - Portfolio Select Variable Annuity
Balance Sheets (continued)
<TABLE>
<CAPTION>
AIM V.I. AIM V.I.
Growth and International AIM V.I.
Income Fund Equity Fund Value Fund
Subaccount Subaccount Subaccount
---------------------------------------------------------
<S> <C> <C> <C>
Assets (continued)
Investments in mutual funds, at current market
value (continued):
Variable Insurance Products Fund III:
VIP III Growth Opportunities Portfolio $ - $ - $ -
Templeton Variable Products Series Fund:
Templeton International Fund - - -
Templeton Asset Allocation Fund - - -
Franklin Small Cap Investments Fund - - -
---------------------------------------------------------
Total investments in mutual funds 13,214,393 1,815,088 27,408,353
---------------------------------------------------------
Total assets $ 13,214,393 $ 1,815,088 $ 27,408,353
=========================================================
Liabilities and contract owners' equity
Liabilities:
Contract terminations payable $ 184 $ 20 $ 243
---------------------------------------------------------
Total liabilities 184 20 243
Contract owners' equity:
Deferred annuity contracts terminable by owners 13,214,209 1,815,068 27,408,110
---------------------------------------------------------
Total liabilities and contract owners' equity $ 13,214,393 $ 1,815,088 $ 27,408,353
=========================================================
</TABLE>
See accompanying notes.
4
<PAGE>
<TABLE>
<CAPTION>
Evergreen
Evergreen VA VA Growth Evergreen VA Evergreen VA Federated
Evergreen Foundation and Income Global International High Income
VA Fund Fund Fund Leaders Fund Growth Fund Bond Fund II
Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ - $ - $ - $ - $ - $ -
- - - - - -
- - - - - -
- - - - - -
- ------------------------------------------------------------------------------------------------------------------
1,782,297 14,831,971 2,908,235 751,111 132,112 6,588,695
- ------------------------------------------------------------------------------------------------------------------
$ 1,782,297 $14,831,971 $ 2,908,235 $ 751,111 $ 132,112 $ 6,588,698
==================================================================================================================
$ 3,434 $ 43 $ 245 $ 6 $ 9 $ -
- ------------------------------------------------------------------------------------------------------------------
3,434 43 245 6 9 -
1,778,863 14,831,928 2,907,990 751,105 132,103 6,588,698
- ------------------------------------------------------------------------------------------------------------------
$ 1,782,297 $14,831,971 $ 2,908,235 $ 751,111 $ 132,112 $ 6,588,698
==================================================================================================================
</TABLE>
5
<PAGE>
PFL Retirement Builder Variable Annuity
Account - Portfolio Select Variable Annuity
Balance Sheets (continued)
<TABLE>
<CAPTION>
MFS
Emerging MFS Research MFS Total
Growth Series Series Return Series
Subaccount Subaccount Subaccount
------------------------------------------------
<S> <C> <C> <C>
Assets
Cash $ - $ - $ -
Investments in mutual funds, at current market
value:
AIM Variable Insurance Funds, Inc.:
AIM V.I. Growth and Income Fund - - -
AIM V.I. International Equity Fund - - -
AIM V.I. Value Fund - - -
Evergreen Variable Trust:
Evergreen VA Fund - - -
Evergreen VA Foundation Fund - - -
Evergreen VA Growth and Income Fund - - -
Evergreen VA Global Leaders Fund - - -
Evergreen VA International Growth Fund - - -
Federated Insurance Series:
Federated High Income Bond Fund II - - -
MFS Variable Insurance Trust:
MFS Emerging Growth Series 13,624,269 - -
MFS Research Series - 9,781,330 -
MFS Total Return Series - - 6,220,616
MFS Utilities Series - - -
Oppenheimer Variable Account Funds:
Oppenheimer Growth Fund - - -
Oppenheimer Multiple Strategies Fund - - -
Oppenheimer Strategic Bond Fund - - -
Putnam Variable Trust:
Putnam VT Global Growth Fund - - -
Putnam VT Money Market Fund - - -
Putnam VT New Value Fund - - -
Mentor Variable Investment Portfolios:
Mentor VIP Capital Growth Portfolio - - -
Mentor VIP Growth Portfolio - - -
Mentor VIP High Income Portfolio - - -
Variable Insurance Products Fund:
VIP High Income Portfolio - - -
Variable Insurance Products Fund II:
VIP II Index 500 Portfolio - - -
VIP II Investment Grade Bond Portfolio - - -
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
Oppenheimer Putnam VT Putnam VT
MFS Multiple Oppenheimer Global Money Putnam VT
Utilities Oppenheimer Strategies Strategic Growth Market New Value
Series Growth Fund Fund Bond Fund Fund Fund Fund
Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ - $ - $ - $ 1 $ - $ 4 $ -
- - - - - - -
- - - - - - -
- - - - - - -
- - - - - - -
- - - - - - -
- - - - - - -
- - - - - - -
- - - - - - -
- - - - - - -
- - - - - - -
- - - - - - -
- - - - - - -
2,815,515 - - - - - -
- 10,319,948 - - - - -
- - 2,490,973 - - - -
- - - 4,816,659 - - -
- - - - 5,300,636 - -
- - - - - 3,472,926 -
- - - - - - 1,463,725
- - - - - - -
- - - - - - -
- - - - - - -
- - - - - - -
- - - - - - -
- - - - - - -
</TABLE>
7
<PAGE>
PFL Retirement Builder Variable Annuity
Account - Portfolio Select Variable Annuity
Balance Sheets (continued)
<TABLE>
<CAPTION>
MFS
Emerging MFS Research MFS Total
Growth Series Series Return Series
Subaccount Subaccount Subaccount
--------------------------------------------------
<S> <C> <C> <C>
Assets (continued)
Investments in mutual funds, at current market
value (continued):
Variable Insurance Products Fund III:
VIP III Growth Opportunities Portfolio $ - $ - $ -
Templeton Variable Products Series Fund:
Templeton International Fund - - -
Templeton Asset Allocation Fund - - -
Franklin Small Cap Investments Fund - - -
--------------------------------------------------
Total investments in mutual funds 13,624,269 9,781,330 6,220,616
--------------------------------------------------
Total assets $13,624,269 $9,781,330 $6,220,616
==================================================
Liabilities and contract owners' equity
Liabilities:
Contract terminations payable $ 207 $ 97 $ 23
--------------------------------------------------
Total liabilities 207 97 23
Contract owners' equity:
Deferred annuity contracts terminable by owners 13,624,062 9,781,233 6,220,593
--------------------------------------------------
Total liabilities and contract owners' equity $13,624,269 $9,781,330 $6,220,616
==================================================
</TABLE>
See accompanying notes.
8
<PAGE>
<TABLE>
<CAPTION>
Oppenheimer Putnam VT Putnam VT
MFS Multiple Oppenheimer Global Money Putnam VT
Utilities Oppenheimer Strategies Strategic Growth Market New Value
Series Growth Fund Fund Bond Fund Fund Fund Fund
Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ - $ - $ - $ - $ - $ - $ -
- - - - - - -
- - - - - - -
- - - - - - -
- ------------------------------------------------------------------------------------------------------------------------
2,815,515 10,319,948 2,490,973 4,816,659 5,300,636 3,472,926 1,463,725
- ------------------------------------------------------------------------------------------------------------------------
$2,815,515 $10,319,948 $2,490,973 $4,816,660 $ 5,300,636 $ 3,472,930 $ 1,463,725
========================================================================================================================
$ 33 $ 148 $ 16 $ - $ 51 $ - $ 17
- ------------------------------------------------------------------------------------------------------------------------
33 148 16 - 51 - 17
2,815,482 10,319,800 2,490,957 4,816,660 5,300,585 3,472,930 1,463,708
- ------------------------------------------------------------------------------------------------------------------------
$2,815,515 $10,319,948 $2,490,973 $4,816,660 $ 5,300,636 $ 3,472,930 $ 1,463,725
========================================================================================================================
</TABLE>
9
<PAGE>
PFL Retirement Builder Variable Annuity
Account - Portfolio Select Variable Annuity
Balance Sheets (continued)
<TABLE>
<CAPTION>
Mentor VIP
Capital Mentor VIP Mentor VIP
Growth Growth High Income
Subaccount Subaccount Subaccount
----------------------------------------------------------
<S> <C> <C> <C>
Assets
Cash $ - $ - $ -
Investments in mutual funds, at current market
value:
AIM Variable Insurance Funds, Inc.:
AIM V.I. Growth and Income Fund - - -
AIM V.I. International Equity Fund - - -
AIM V.I. Value Fund - - -
Evergreen Variable Trust:
Evergreen VA Fund - - -
Evergreen VA Foundation Fund - - -
Evergreen VA Growth and Income Fund - - -
Evergreen VA Global Leaders Fund - - -
Evergreen VA International Growth Fund - - -
Federated Insurance Series:
Federated High Income Bond Fund II - - -
MFS Variable Insurance Trust:
MFS Emerging Growth Series - - -
MFS Research Series - - -
MFS Total Return Series - - -
MFS Utilities Series - - -
Oppenheimer Variable Account Funds:
Oppenheimer Growth Fund - - -
Oppenheimer Multiple Strategies Fund - - -
Oppenheimer Strategic Bond Fund - - -
Putnam Variable Trust:
Putnam VT Global Growth Fund - - -
Putnam VT Money Market Fund - - -
Putnam VT New Value Fund - - -
Mentor Variable Investment Portfolios:
Mentor VIP Capital Growth Portfolio 2,052,911 - -
Mentor VIP Growth Portfolio - 576,335 -
Mentor VIP High Income Portfolio - - 184,389
Variable Insurance Products Fund:
VIP High Income Portfolio - - -
Variable Insurance Products Fund II:
VIP II Index 500 Portfolio - - -
VIP II Investment Grade Bond Portfolio - - -
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
VIP II VIP III Templeton Franklin
VIP High VIP II Investment Growth Templeton Asset Small Cap
Income Index 500 Grade Bond Opportunities International Allocation Investments
Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ - $ - $ - $ - $ - $ - $ -
- - - - - - -
- - - - - - -
- - - - - - -
- - - - - - -
- - - - - - -
- - - - - - -
- - - - - - -
- - - - - - -
- - - - - - -
- - - - - - -
- - - - - - -
- - - - - - -
- - - - - - -
- - - - - - -
- - - - - - -
- - - - - - -
- - - - - - -
- - - - - - -
- - - - - - -
- - - - - - -
- - - - - - -
- - - - - - -
1,032,593 - - - - - -
- 11,627,886 - - - - -
- - 1,216,574 - - - -
</TABLE>
11
<PAGE>
PFL Retirement Builder Variable Annuity
Account - Portfolio Select Variable Annuity
Balance Sheets (continued)
<TABLE>
<CAPTION>
Mentor VIP Mentor VIP Mentor VIP
Capital Growth Growth High Income
Subaccount Subaccount Subaccount
---------------------------------------------------
<S> <C> <C> <C>
Assets (continued)
Investments in mutual funds, at current market
value (continued)
Variable Insurance Products Fund III:
VIP III Growth Opportunities Portfolio $ - $ - $ -
Templeton Variable Products Series Fund:
Templeton International Fund - - -
Templeton Asset Allocation Fund - - -
Franklin Small Cap Investments Fund - - -
---------------------------------------------------
Total investments in mutual funds 2,052,911 576,335 184,389
---------------------------------------------------
Total assets $2,052,911 $ 576,335 $ 184,389
===================================================
Liabilities and contract owners' equity
Liabilities:
Contract terminations payable $ 56 $ 8 $ 2
---------------------------------------------------
Total liabilities 56 8 2
Contract owners' equity:
Deferred annuity contracts terminable by owners 2,052,855 576,327 184,387
---------------------------------------------------
Total liabilities and contract owners' equity $2,052,911 $ 576,335 $ 184,389
===================================================
</TABLE>
See accompanying notes.
12
<PAGE>
<TABLE>
<CAPTION>
VIP II VIP III Templeton Franklin
VIP High VIP II Investment Growth Templeton Asset Small Cap
Income Index 500 Grade Bond Opportunities International Allocation Investments
Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ - $ - $ - $ 6,058,336 $ - $ - $ -
- - - - 913,013 - -
- - - - - 357,351 -
- - - - - - 1,406,404
- ------------------------------------------------------------------------------------------------------------------
1,032,593 11,627,886 1,216,574 6,058,336 913,013 357,351 1,406,404
- ------------------------------------------------------------------------------------------------------------------
$ 1,032,593 $ 11,627,886 $ 1,216,574 $ 6,058,336 $ 913,013 $ 357,351 $1,406,404
==================================================================================================================
$ - $ 47 $ - $ 50 $ 11 $ 4 $ 10
- ------------------------------------------------------------------------------------------------------------------
- 47 - 50 11 4 10
1,032,593 11,627,839 1,216,574 6,058,286 913,002 357,347 1,406,394
- ------------------------------------------------------------------------------------------------------------------
$ 1,032,593 $ 11,627,886 $ 1,216,574 $ 6,058,336 $ 913,013 $ 357,351 $1,406,404
==================================================================================================================
</TABLE>
13
<PAGE>
PFL Retirement Builder Variable Annuity
Account - Portfolio Select Variable Annuity
Statements of Operations
Year ended December 31, 1999, except as noted
<TABLE>
<CAPTION>
AIM V.I. AIM V.I.
Growth and International AIM V.I.
Income Fund Equity Fund Value Fund
Subaccount Subaccount Subaccount
-----------------------------------------------
<S> <C> <C> <C>
Net investment income (loss)
Income:
Dividends $ 101,942 $ 55,235 $ 421,783
Expenses:
Administrative, mortality and expense risk charges 67,926 8,136 152,177
-----------------------------------------------
Net investment income (loss) 34,016 47,099 269,606
Net realized and unrealized capital gain (loss) from
investments
Net realized capital gain (loss) from sales of investments:
Proceeds from sales 530,920 84,397 365,248
Cost of investments sold 457,516 72,157 307,393
-----------------------------------------------
Net realized capital gain (loss) from sales of investments 73,404 12,240 57,855
Net change in unrealized appreciation/depreciation of
investments:
Beginning of period 14,814 2,580 29,306
End of period 1,997,508 444,480 3,304,237
-----------------------------------------------
Net change in unrealized appreciation/depreciation of
investments 1,982,694 441,900 3,274,931
-----------------------------------------------
Net realized and unrealized capital gain (loss) from
investments 2,056,098 454,140 3,332,786
-----------------------------------------------
Increase (decrease) from operations $2,090,114 $501,239 $3,602,392
===============================================
</TABLE>
(1) Commencement of operations, May 3, 1999.
(2) Commencement of operations, July 30, 1999.
See accompanying notes.
14
<PAGE>
<TABLE>
<CAPTION>
Evergreen
Evergreen VA VA Growth Evergreen VA Evergreen VA Federated
Evergreen Foundation and Income Global International High Income
VA Fund Fund Fund Leaders Fund Growth Fund Bond Fund II
Subaccount Subaccount Subaccount Subaccount (1) Subaccount (1) Subaccount
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 117,009 $ 251,007 $ 133,491 $ 2,390 $ 2,184 $ 131,813
12,929 98,746 22,954 2,418 376 45,314
- -----------------------------------------------------------------------------------------------------------------
104,080 152,261 110,537 (28) 1,808 86,499
85,870 404,879 108,302 76,875 51,622 486,567
75,705 397,611 102,335 74,039 43,133 517,747
- ----------------------------------------------------------------------------------------------------------------
10,165 7,268 5,967 2,836 8,489 (31,180)
7,610 4,053 14,333 - - 1,692
116,512 811,190 243,753 71,464 11,453 (65,775)
- ----------------------------------------------------------------------------------------------------------------
108,902 807,137 229,420 71,464 11,453 (67,467)
- ----------------------------------------------------------------------------------------------------------------
119,067 814,405 235,387 74,300 19,942 (98,647)
---------------------------------------------------------------------------------------------------------------
$ 223,147 $ 966,666 $ 345,924 $ 74,272 $ 21,750 $ (12,148)
================================================================================================================
</TABLE>
15
<PAGE>
PFL Retirement Builder Variable Annuity
Account - Portfolio Select Variable Annuity
Statements of Operations (continued)
<TABLE>
<CAPTION>
MFS
Emerging MFS Research MFS Total
Growth Series Series Return Series
Subaccount Subaccount Subaccount
-----------------------------------------------
<S> <C> <C> <C>
Net investment income (loss)
Income:
Dividends $ - $ 29,678 $ 110,837
Expenses:
Administrative, mortality and expense risk charges 60,988 60,113 44,986
----------------------------------------------
Net investment income (loss) (60,988) (30,435) 65,851
Net realized and unrealized capital gain (loss)
from investments
Net realized capital gain (loss) from sales of
investments:
Proceeds from sales 577,046 284,185 198,553
Cost of investments sold 375,865 248,120 197,933
----------------------------------------------
Net realized capital gain (loss) from sales of
investments 201,181 36,065 620
Net change in unrealized appreciation/depreciation
of investments:
Beginning of period 32,092 24,590 6,524
End of period 4,533,648 1,452,548 (39,904)
Net change in unrealized appreciation/depreciation ----------------------------------------------
of investments 4,501,556 1,427,958 (46,428)
----------------------------------------------
Net realized and unrealized capital gain (loss)
from investments 4,702,737 1,464,023 (45,808)
----------------------------------------------
Increase (decrease) from operations $ 4,641,749 $1,433,588 $ 20,043
==============================================
</TABLE>
(1) Commencement of operations, May 3, 1999.
(2) Commencement of operations, July 30, 1999.
See accompanying notes.
16
<PAGE>
<TABLE>
<CAPTION>
Oppenheimer Putnam VT Putnam VT
Multiple Oppenheimer Global Money Putnam VT
MFS Utilities Oppenheimer Strategies Strategic Growth Market New Value
Series Growth Fund Fund Bond Fund Fund Fund Fund
Subaccount (1) Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ - $ 61,602 $ 50,523 $ 82,729 $ 59,455 $ 71,812 $ 7,020
8,902 57,174 16,677 38,421 22,747 20,746 10,722
- --------------------------------------------------------------------------------------------------------------------
(8,902) 4,428 33,846 44,308 36,708 51,066 (3,702)
15,611 337,583 54,293 373,541 119,487 1,045,559 79,858
14,825 268,158 54,423 389,471 107,113 1,045,559 74,880
- --------------------------------------------------------------------------------------------------------------------
786 69,425 (130) (15,930) 12,374 - 4,978
- 17,186 3,928 2,340 5,637 - 906
355,871 2,026,811 109,670 51,887 1,514,361 - (79,451)
- --------------------------------------------------------------------------------------------------------------------
355,871 2,009,625 105,742 49,547 1,508,724 - (80,357)
- --------------------------------------------------------------------------------------------------------------------
356,657 2,079,050 105,612 33,617 1,521,098 - (75,379)
- ---------------------------------------------------------------------------------------------------------------------
$ 347,755 $2,083,478 $ 139,458 $ 77,925 $1,557,806 $ 51,066 $ (79,081)
====================================================================================================================
</TABLE>
17
<PAGE>
PFL Retirement Builder Variable Annuity
Account - Portfolio Select Variable Annuity
Statements of Operations (continued)
<TABLE>
<CAPTION>
Mentor VIP
Capital Mentor VIP Mentor VIP
Growth Growth High Income
Subaccount (1) Subaccount (1) Subaccount (2)
------------------------------------------------------
<S> <C> <C> <C>
Net investment income (loss)
Income:
Dividends $ 1,821 $ 141 $ 5,262
Expenses:
Administrative, mortality and expense risk charges 7,237 1,440 224
------------------------------------------------------
Net investment income (loss) (5,416) (1,299) 5,038
Net realized and unrealized capital gain (loss)
from investments
Net realized capital gain (loss) from sales of
investments:
Proceeds from sales 86,888 7,952 3,096
Cost of investments sold 90,678 7,394 3,060
------------------------------------------------------
Net realized capital gain (loss) from sales of
investments (3,790) 558 36
Net change in unrealized appreciation/depreciation
of investments:
Beginning of period - - -
End of period 54,430 98,084 (4,344)
Net change in unrealized appreciation/depreciation ------------------------------------------------------
of investments 54,430 98,084 (4,344)
------------------------------------------------------
Net realized and unrealized capital gain (loss)
from investments 50,640 98,642 (4,308)
-----------------------------------------------------
Increase (decrease) from operations $45,224 $97,343 $ 730
======================================================
</TABLE>
(1) Commencement of operations, May 3, 1999.
(2) Commencement of operations, July 30, 1999.
See accompanying notes.
18
<PAGE>
<TABLE>
<CAPTION>
VIP II VIP III Templeton Franklin
VIP High VIP II Index Investment Growth Templeton Asset Small Cap
Income 500 Grade Bond Opportunities International Allocation Investments
Subaccount (1) Subaccount (1) Subaccount (1) Subaccount (1) Subaccount (1) Subaccount (1) Subaccount (1)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ - $ - $ - $ - $ - $ - $ -
4,228 40,782 4,066 22,168 3,071 1,311 3,352
- ------------------------------------------------------------------------------------------------------------------------------
(4,228) (40,782) (4,066) (22,168) (3,071) (1,311) (3,352)
53,902 86,457 44,668 92,273 5,802 2,709 65,707
54,820 81,671 45,200 94,113 5,848 2,640 50,349
- ------------------------------------------------------------------------------------------------------------------------------
(918) 4,786 (532) (1,840) (46) 69 15,358
- - - - - - -
20,830 919,556 4,101 123,444 85,334 28,651 286,704
- ------------------------------------------------------------------------------------------------------------------------------
20,830 919,556 4,101 123,444 85,334 28,651 286,704
- ------------------------------------------------------------------------------------------------------------------------------
19,912 924,342 3,569 121,604 85,288 28,720 302,062
- ------------------------------------------------------------------------------------------------------------------------------
$ 15,684 $ 883,560 $ (497) $ 99,436 $ 82,217 $ 27,409 $ 298,710
==============================================================================================================================
</TABLE>
19
<PAGE>
PFL Retirement Builder Variable Annuity
Account - Portfolio Select Variable Annuity
Statements of Changes in Contract Owners' Equity
Year ended December 31, 1999 and the
period from October 31, 1998 (commencement
of operations) through December 31, 1998, except as noted
<TABLE>
<CAPTION>
AIM V.I.
AIM V.I. Growth and International Equity Fund
Income Fund Subaccount Subaccount
--------------------------------- ---------------------------------
1999 1998 1999 1998
--------------------------------- ---------------------------------
<S> <C> <C> <C> <C>
Operations:
Net investment income (loss) $ 34,016 $ 2,723 $ 47,099 $ 891
Net realized capital gain (loss) 73,404 95 12,240 1,922
Net change in unrealized appreciation/
depreciation of investments 1,982,694 14,814 441,900 2,580
--------------------------------- ---------------------------------
Increase (decrease) from operations 2,090,114 17,632 501,239 5,393
Contract transactions:
Net contract purchase payments 5,437,325 221,460 752,167 163,982
Transfer payments from (to) other
subaccounts or general account 5,658,870 35,968 500,282 10,057
Contract terminations, withdrawals, and
other deductions (247,160) - (45,955) (72,097)
--------------------------------- ---------------------------------
Increase from contract transactions 10,849,035 257,428 1,206,494 101,942
--------------------------------- ---------------------------------
Net increase in contract owners' equity 12,939,149 275,060 1,707,733 107,335
Contract owners' equity:
Beginning of period 275,060 - 107,335 -
--------------------------------- ---------------------------------
End of period $13,214,209 $275,060 $1,815,068 $107,335
================================= =================================
</TABLE>
(1) Commencement of operations, May 3, 1999.
(2) Commencement of operations, July 30, 1999.
See accompanying notes.
20
<PAGE>
<TABLE>
<CAPTION>
AIM V.I. Value Fund Evergreen VA Fund Evergreen VA Foundation
Subaccount Subaccount Fund Subaccount
- ------------------------------------ --------------------------------------- ---------------------------------------
1999 1998 1999 1998 1999 1998
- ------------------------------------ --------------------------------------- ---------------------------------------
<S> <C> <C> <C> <C> <C>
$ 269,606 $ 27,760 $ 104,080 $ 317 $ 152,261 $ 10,172
57,855 5,641 10,165 325 7,268 -
3,274,931 29,306 108,902 7,610 807,137 4,053
- ------------------------------------ --------------------------------------- ---------------------------------------
3,602,392 62,707 223,147 8,252 966,666 14,225
12,912,737 982,593 934,086 200,260 6,879,339 750,146
10,269,708 85,240 417,633 16,696 6,560,019 78,262
(391,265) (116,002) (21,211) - (416,729) -
- ------------------------------------ --------------------------------------- ---------------------------------------
22,791,180 951,831 1,330,508 216,956 13,022,629 828,408
- ------------------------------------ --------------------------------------- ---------------------------------------
26,393,572 1,014,538 1,553,655 225,208 13,989,295 842,633
1,014,538 - 225,208 - 842,633 -
- ------------------------------------ --------------------------------------- ---------------------------------------
$ 27,408,110 $1,014,538 $1,778,863 $225,208 $14,831,928 $842,633
==================================== ======================================= =======================================
</TABLE>
21
<PAGE>
PFL Retirement Builder Variable Annuity
Account - Portfolio Select Variable Annuity
Statements of Changes in Contract Owners' Equity (continued)
<TABLE>
<CAPTION>
Evergreen VA Growth Evergreen VA
and Income Fund Global Leaders
Subaccount Fund Subaccount
------------------------------ -----------------------
1999 1998 1999 (1)
------------------------------ -----------------------
<S> <C> <C> <C>
Operations:
Net investment income (loss) $ 110,537 $ 2,995 $ (28)
Net realized capital gain (loss) 5,967 10 2,836
Net change in unrealized appreciation/
depreciation of investments 229,420 14,333 71,464
------------------------------ -----------------------
Increase (decrease) from operations 345,924 17,338 74,272
Contract transactions:
Net contract purchase payments 1,104,153 510,222 389,389
Transfer payments from (to) other subaccounts or
general account 958,648 35,661 335,609
Contract terminations, withdrawals, and other
deductions (63,625) (331) (48,165)
------------------------------ -----------------------
Increase from contract transactions 1,999,176 545,552 676,833
------------------------------ -----------------------
Net increase in contract owners' equity 2,345,100 562,890 751,105
Contract owners' equity:
Beginning of period 562,890 - -
------------------------------ -----------------------
End of period $2,907,990 $562,890 $751,105
============================== =======================
</TABLE>
(1) Commencement of operations, May 3, 1999.
(2) Commencement of operations, July 30, 1999.
See accompanying notes.
22
<PAGE>
<TABLE>
<CAPTION>
Evergreen VA International Federated High Income Bond MFS Emerging Growth
Growth Fund Subaccount Fund II Subaccount Series Subaccount
- -------------------------------- --------------------------------------- ---------------------------------------
1999 (1) 1999 1998 1999 1998
- -------------------------------- --------------------------------------- ---------------------------------------
<S> <C> <C> <C> <C>
$ 1,808 $ 86,499 $ (409) $ (60,988) $ (344)
8,489 (31,180) 5 201,181 -
11,453 (67,467) 1,692 4,501,556 32,092
- -------------------------------- --------------------------------------- ---------------------------------------
21,750 (12,148) 1,288 4,641,749 31,748
103,925 3,472,076 555,215 5,487,877 469,969
7,973 2,738,998 54,212 3,514,893 35,407
(1,545) (220,754) (189) (557,472) (109)
- -------------------------------- --------------------------------------- ---------------------------------------
110,353 5,990,320 609,238 8,445,298 505,267
- -------------------------------- --------------------------------------- ---------------------------------------
132,103 5,978,172 610,526 13,087,047 537,015
- 610,526 - 537,015 -
- -------------------------------- --------------------------------------- ---------------------------------------
$ 132,103 $6,588,698 $610,526 $13,624,062 $537,015
================================ ======================================= =======================================
</TABLE>
23
<PAGE>
PFL Retirement Builder Variable Annuity
Account - Portfolio Select Variable Annuity
Statements of Changes in Contract Owners' Equity (continued)
<TABLE>
<CAPTION>
MFS Research MFS Total Return
Series Subaccount Series Subaccount
-------------------------------- ---------------------------------
1999 1998 1999 1998
-------------------------------- ---------------------------------
<S> <C> <C> <C> <C>
Operations:
Net investment income (loss) $ (30,435) $ (421) $ 65,851 $ (329)
Net realized capital gain (loss) 36,065 5,002 620 8
Net change in unrealized appreciation/
depreciation of investments 1,427,958 24,590 (46,428) 6,524
-------------------------------- ---------------------------------
Increase (decrease) from operations 1,433,588 29,171 20,043 6,203
Contract transactions:
Net contract purchase payments 4,295,133 564,741 2,870,568 414,561
Transfer payments from (to) other
subaccounts or general account 3,676,833 48,044 2,906,101 72,881
Contract terminations, withdrawals, and
other deductions (172,919) (93,358) (69,572) (192)
-------------------------------- ---------------------------------
Increase from contract transactions 7,799,047 519,427 5,707,097 487,250
-------------------------------- ---------------------------------
Net increase in contract owners' equity 9,232,635 548,598 5,727,140 493,453
Contract owners' equity:
Beginning of period 548,598 - 493,453 -
-------------------------------- ---------------------------------
End of period $9,781,233 $548,598 $6,220,593 $493,453
================================ =================================
</TABLE>
(1) Commencement of operations, May 3, 1999.
(2) Commencement of operations, July 30, 1999.
See accompanying notes.
24
<PAGE>
<TABLE>
<CAPTION>
MFS Utilities Series Oppenheimer Growth Fund Oppenheimer Multiple
Subaccount Subaccount Strategies Fund Subaccount
- ------------------------- --------------------------------------- ---------------------------------------
1999 (1) 1999 1998 1999 1998
- ------------------------- --------------------------------------- ---------------------------------------
<S> <C> <C> <C> <C>
$ (8,902) $ 4,428 $ (226) $ 33,846 $ (142)
786 69,425 - (130) 14
355,871 2,009,625 17,186 105,742 3,928
- ------------------------- --------------------------------------- ---------------------------------------
347,755 2,083,478 16,960 139,458 3,800
1,216,794 4,241,807 351,436 997,361 231,350
1,262,922 3,758,749 43,813 1,142,320 7,710
(11,989) (176,443) - (30,950) (92)
- ------------------------- --------------------------------------- ---------------------------------------
2,467,727 7,824,113 395,249 2,108,731 238,968
- ------------------------- --------------------------------------- ---------------------------------------
2,815,482 9,907,591 412,209 2,248,189 242,768
- 412,209 - 242,768 -
- ------------------------- --------------------------------------- ---------------------------------------
$ 2,815,482 $10,319,800 $412,209 $2,490,957 $242,768
========================= ======================================= =======================================
</TABLE>
25
<PAGE>
PFL Retirement Builder Variable Annuity
Account - Portfolio Select Variable Annuity
Statements of Changes in Contract Owners' Equity (continued)
<TABLE>
<CAPTION>
Oppenheimer Strategic Putnam VT Global
Bond Fund Subaccount Growth Fund Subaccount
-------------------------------- ----------------------------------
1999 1998 1999 1998
-------------------------------- ----------------------------------
<S> <C> <C> <C> <C>
Operations:
Net investment income (loss) $ 44,308 $ (415) $ 36,708 $ (73)
Net realized capital gain (loss) (15,930) 566 12,374 21
Net change in unrealized appreciation/
depreciation of investments 49,547 2,340 1,508,724 5,637
-------------------------------- ----------------------------------
Increase (decrease) from operations 77,925 2,491 1,557,806 5,585
Contract transactions:
Net contract purchase payments 2,205,327 589,303 1,965,363 56,340
Transfer payments from (to) other
subaccounts or general account 2,119,621 58,616 1,739,625 23,279
Contract terminations, withdrawals, and
other deductions (149,114) (87,509) (47,162) (251)
-------------------------------- ----------------------------------
Increase from contract transactions 4,175,834 560,410 3,657,826 79,368
-------------------------------- ----------------------------------
Net increase in contract owners' equity 4,253,759 562,901 5,215,632 84,953
Contract owners' equity:
Beginning of period 562,901 - 84,953 -
-------------------------------- ----------------------------------
End of period $4,816,660 $562,901 $5,300,585 $84,953
================================ ==================================
</TABLE>
(1) Commencement of operations, May 3, 1999.
(2) Commencement of operations, July 30, 1999.
See accompanying notes.
26
<PAGE>
<TABLE>
<CAPTION>
Putnam VT Money Putnam VT New Mentor VIP Mentor VIP
Market Fund Value Fund Capital Growth Growth
Subaccount Subaccount Subaccount Subaccount
- --------------------------- -------------------------------- --------------------- --------------------
1999 1998 1999 1998 1999 (1) 1999 (1)
- --------------------------- -------------------------------- --------------------- --------------------
<S> <C> <C> <C> <C> <C>
$ 51,066 $ 77 $ (3,702) $ 1,847 $ (5,416) $ (1,299)
- - 4,978 - (3,790) 558
- - (80,357) 906 54,430 98,084
- --------------------------- -------------------------------- --------------------- --------------------
51,066 77 (79,081) 2,753 45,224 97,343
3,414,705 79,999 709,476 149,022 1,219,368 272,502
114,097 7 706,595 19,070 792,629 213,116
(187,021) - (44,127) - (4,366) (6,634)
- --------------------------- -------------------------------- --------------------- --------------------
3,341,781 80,006 1,371,944 168,092 2,007,631 478,984
- --------------------------- -------------------------------- --------------------- --------------------
3,392,847 80,083 1,292,863 170,845 2,052,855 576,327
80,083 - 170,845 - - -
- --------------------------- -------------------------------- --------------------- --------------------
$ 3,472,930 $80,083 $1,463,708 $170,845 $2,052,855 $576,327
=========================== ================================ ===================== ====================
</TABLE>
27
<PAGE>
PFL Retirement Builder Variable Annuity
Account - Portfolio Select Variable Annuity
Statements of Changes in Contract Owners' Equity (continued)
<TABLE>
<CAPTION>
Mentor VIP VIP High VIP II
High Income Income Index 500
Subaccount Subaccount Subaccount
------------------- ----------------- -----------------
1999 (2) 1999 (1) 1999 (1)
------------------- ----------------- -----------------
<S> <C> <C> <C>
Operations:
Net investment income (loss) $ 5,038 $ (4,228) $ (40,782)
Net realized capital gain (loss) 36 (918) 4,786
Net change in unrealized appreciation/
depreciation of investments (4,344) 20,830 919,556
------------------- ----------------- -----------------
Increase (decrease) from operations 730 15,684 883,560
Contract transactions:
Net contract purchase payments 142,000 615,050 5,758,959
Transfer payments from (to) other subaccounts
or general account 42,450 430,520 5,111,130
Contract terminations, withdrawals, and other
deductions (793) (28,661) (125,810)
------------------- ----------------- -----------------
Increase from contract transactions 183,657 1,016,909 10,744,279
------------------- ----------------- -----------------
Net increase in contract owners' equity 184,387 1,032,593 11,627,839
Contract owners' equity:
Beginning of period - - -
------------------- ----------------- -----------------
End of period $184,387 $1,032,593 $11,627,839
=================== ================= =================
</TABLE>
(1) Commencement of operations, May 3, 1999.
(2) Commencement of operations, July 30, 1999.
See accompanying notes.
28
<PAGE>
<TABLE>
<CAPTION>
VIP II VIP III Templeton Franklin
Investment Growth Templeton Asset Small Cap
Grade Bond Opportunities International Allocation Investments
Subaccount Subaccount Subaccount Subaccount Subaccount
- ----------------- -------------------- --------------------- -------------------- --------------------
1999 (1) 1999 (1) 1999 (1) 1999 (1) 1999 (1)
- ----------------- -------------------- --------------------- -------------------- --------------------
<S> <C> <C> <C> <C>
$ (4,066) $ (22,168) $ (3,071) $ (1,311) $ (3,352)
(532) (1,840) (46) 69 15,358
4,101 123,444 85,334 28,651 286,704
- ----------------- -------------------- --------------------- -------------------- --------------------
(497) 99,436 82,217 27,409 298,710
442,643 3,117,430 372,050 146,563 670,913
796,717 2,884,268 459,095 184,781 440,283
(22,289) (42,848) (360) (1,406) (3,512)
- ----------------- -------------------- --------------------- -------------------- --------------------
1,217,071 5,958,850 830,785 329,938 1,107,684
- ----------------- -------------------- --------------------- -------------------- --------------------
1,216,574 6,058,286 913,002 357,347 1,406,394
- - - - -
- ----------------- -------------------- --------------------- -------------------- --------------------
$ 1,216,574 $6,058,286 $913,002 $357,347 $1,406,394
================= ==================== ===================== ==================== ====================
</TABLE>
29
<PAGE>
PFL Retirement Builder Variable Annuity
Account - Portfolio Select Variable Annuity
Notes to Financial Statements
December 31, 1999
1. Organization and Summary of Significant Accounting Policies
Organization
The PFL Retirement Builder Variable Annuity Account (the "Mutual Fund Account")
is a segregated investment account of PFL Life Insurance Company ("PFL Life"),
an indirect wholly-owned subsidiary of AEGON N.V., a holding company organized
under the laws of The Netherlands.
The Mutual Fund Account is registered with the Securities and Exchange
Commission as a Unit Investment Trust pursuant to provisions of the Investment
Company Act of 1940. The Mutual Fund Account consists of sixty-one investment
subaccounts, three of which are invested in specified portfolios of the AIM
Variable Insurance Funds, Inc., five of which are invested in specified
portfolios of the Evergreen Variable Trust, one of which is invested in the
Federated High Income Bond Fund II of the Federated Insurance Series, four of
which are invested in specified portfolios of the MFS Variable Insurance Trust,
three of which are invested in specified portfolios of the Oppenheimer Variable
Account Funds, three of which are invested in specified portfolios of the Putnam
Variable Trust, three of which are invested in specified portfolios of the
Mentor Variable Investment Portfolios, one of which is invested in the VIP High
Income Portfolio of the Variable Insurance Products Fund, two of which are
invested in specified portfolios of the Variable Insurance Products Fund II, one
of which is invested in the VIP III Growth Opportunities Portfolio of the
Variable Insurance Products Fund III, and three of which are invested in
specified portfolios of the Templeton Variable Products Series Fund (each a
"Series Fund" and collectively "the Series Funds"). Activity in these twenty-
nine subaccounts is available to contract owners of the Portfolio Select
Variable Annuity offered through First Union Brokerage Services. Activity in the
remaining thirty-two subaccounts (not included herein), as well as certain of
the aforementioned twenty-nine subaccounts, are available to contract owners of
the Retirement Income Builder Variable Annuity, PFL Immediate Income Builder,
The One Income Annuity, and Retirement Income Builder II Variable Annuity, also
offered by PFL Life. The amounts reported herein represent the activity related
to contract owners of the Portfolio Select Variable Annuity only.
Investments
Net purchase payments received by the Mutual Fund Account are invested in the
portfolios of the Series Funds, as selected by the contract owner. Investments
are stated at the closing net asset values per share as of December 31, 1999.
Realized capital gains and losses from sale of shares in the mutual funds are
determined on the first-in, first-out basis. Investment transactions are
accounted for on the trade date (date the order to buy or sell is executed) and
dividend income is recorded on the ex-dividend date. Unrealized gains or losses
from investments in the mutual funds are credited or charged to contract owners'
equity.
30
<PAGE>
PFL Retirement Builder Variable Annuity
Account - Portfolio Select Variable Annuity
Notes to Financial Statements (continued)
1. Organization and Summary of Significant Accounting Policies (continued)
Dividend Income
Dividends received from the Series Funds investments are reinvested to purchase
additional mutual fund shares.
2. Investments
A summary of the mutual fund investments at December 31, 1999 follows:
<TABLE>
<CAPTION>
Number of Net Asset Value Market
Shares Held Per Share Value Cost
------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AIM Variable Insurance Funds, Inc.:
AIM V.I. Growth and Income Fund 418,309.370 $31.59 $13,214,393 $11,216,885
AIM V.I. International Equity Fund 61,969.553 29.29 1,815,088 1,370,608
AIM V.I. Value Fund 818,159.797 33.50 27,408,353 24,104,116
Evergreen Variable Trust:
Evergreen VA Fund 102,963.438 17.31 1,782,297 1,665,785
Evergreen VA Foundation Fund 944,711.553 15.70 14,831,971 14,020,781
Evergreen VA Growth and Income Fund 166,756.602 17.44 2,908,235 2,664,482
Evergreen VA Global Leaders Fund 47,388.715 15.85 751,111 679,647
Evergreen VA International Growth
Fund 10,386.129 12.72 132,112 120,659
Federated Insurance Series:
Federated High Income Bond Fund II 643,427.231 10.24 6,588,695 6,654,470
MFS Variable Insurance Trust:
MFS Emerging Growth Series 359,100.408 37.94 13,624,269 9,090,621
MFS Research Series 419,080.115 23.34 9,781,330 8,328,782
MFS Total Return Series 350,457.216 17.75 6,220,616 6,260,520
MFS Utilities Series 116,536.226 24.16 2,815,515 2,459,644
Oppenheimer Variable Account Funds:
Oppenheimer Growth Fund 207,061.564 49.84 10,319,948 8,293,137
Oppenheimer Multiple Strategies
Fund 142,667.387 17.46 2,490,973 2,381,303
Oppenheimer Strategic Bond Fund 969,146.751 4.97 4,816,659 4,764,772
</TABLE>
31
<PAGE>
PFL Retirement Builder Variable Annuity
Account - Portfolio Select Variable Annuity
Notes to Financial Statements (continued)
2. Investments (continued)
<TABLE>
<CAPTION>
Number of Net Asset Value Market
Shares Held Per Share Value Cost
------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Putnam Variable Trust:
Putnam VT Global Growth Fund 174,305.693 $ 30.41 $ 5,300,636 $ 3,786,275
Putnam VT Money Market Fund 3,472,926.230 1.00 3,472,926 3,472,926
Putnam VT New Value Fund 123,521.121 11.85 1,463,725 1,543,176
Mentor Variable Investments
Portfolio:
Mentor VIP Capital Growth Fund 142,365.524 14.42 2,052,911 1,998,481
Mentor VIP Growth Fund 41,552.597 13.87 576,335 478,251
Mentor VIP High Income Fund 18,166.382 10.15 184,389 188,733
Variable Insurance Products Fund:
VIP High Income Portfolio 91,299.103 11.31 1,032,593 1,011,763
Variable Insurance Products Fund II:
VIP II Index 500 Portfolio 69,457.535 167.41 11,627,886 10,708,330
VIP II Investment Grade Bond
Portfolio 100,047.180 12.16 1,216,574 1,212,473
Variable Insurance Products Fund
III:
VIP III Growth Opportunities
Portfolio 261,699.195 23.15 6,058,336 5,934,892
Templeton Variable Products Series
Fund:
Templeton International Fund 41,256.810 22.13 913,013 827,679
Templeton Asset Allocation Fund 15,356.731 23.27 357,351 328,700
Franklin Small Cap Investments Fund 89,352.205 15.74 1,406,404 1,119,700
</TABLE>
32
<PAGE>
PFL Retirement Builder Variable Annuity
Account - Portfolio Select Variable Annuity
Notes to Financial Statements (continued)
2. Investments (continued)
The aggregate cost of purchases and proceeds from sales of investments were as
follows:
<TABLE>
<CAPTION>
Period ended December 31
1999 1998
--------------------------------- ----------------------------------
Purchases Sales Purchases Sales
--------------------------------- ----------------------------------
<S> <C> <C> <C> <C>
AIM Variable Insurance Funds, Inc.:
AIM V.I. Growth and Income Fund $11,414,145 $ 530,920 $ 260,902 $ 741
AIM V.I. International Equity Fund 1,338,004 84,397 174,936 72,097
AIM V.I. Value Fund 23,426,246 365,248 1,095,515 115,893
Evergreen Variable Trust:
Evergreen VA Fund 1,523,887 85,870 223,938 6,660
Evergreen VA Foundation Fund 13,584,753 404,879 833,639 -
Evergreen VA Growth and Income Fund 2,219,780 108,302 547,361 334
Evergreen VA Global Leaders Fund 753,686 76,875 - -
Evergreen VA International Growth Fund 163,792 51,622 - -
Federated Insurance Series:
Federated High Income Bond Fund II 6,563,382 486,567 608,921 91
MFS Variable Insurance Trust:
MFS Emerging Growth Series 8,961,549 577,046 504,937 -
MFS Research Series 8,052,878 284,185 612,172 93,150
MFS Total Return Series 5,971,519 198,553 487,118 192
MFS Utilities Series 2,474,469 15,611 - -
Oppenheimer Variable Account Funds:
Oppenheimer Growth Fund 8,166,265 337,583 395,030 -
Oppenheimer Multiple Strategies Fund 2,196,884 54,293 239,062 234
Oppenheimer Strategic Bond Fund 4,593,681 373,541 647,407 87,411
Putnam Variable Trust:
Putnam VT Global Growth Fund 3,814,069 119,487 79,451 153
Putnam VT Money Market Fund 4,438,402 1,045,559 80,114 31
Putnam VT New Value Fund 1,448,115 79,858 169,941 -
Mentor Variable Investment Portfolios:
Mentor VIP Capital Growth Portfolio 2,089,159 86,888 - -
Mentor VIP Growth Portfolio 485,645 7,952 - -
Mentor VIP High Income Portfolio 191,793 3,096 - -
Variable Insurance Products Fund:
VIP High Income Portfolio 10,790,001 86,457 - -
Variable Insurance Products Fund II:
VIP II Index 500 Portfolio 1,257,673 44,668 - -
VIP II Investment Grade Bond Portfolio 6,029,005 92,273 - -
Variable Insurance Products Fund III:
VIP III Growth Opportunities 1,066,583 53,902 - -
Templeton Variable Products Series Fund:
Templeton International 753,686 5,802 - -
Templeton Asset Allocation 163,792 2,709 - -
Franklin Small Cap Investments 2,474,469 65,707 - -
</TABLE>
33
<PAGE>
PFL Retirement Builder Variable Annuity
Account - Portfolio Select Variable Annuity
Notes to Financial Statements (continued)
3. Contract Owners' Equity
A summary of deferred annuity contracts terminable by owners at December 31,
1999 follows:
<TABLE>
<CAPTION>
Return of Premium Death Benefit
---------------------------------------------------------
Accumulation Accumulation Total Contract
Subaccounts Units Owned Unit Value Value
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
AIM V.I. Growth and Income Fund 6,521,679.805 $1.668693 $10,882,681
AIM V.I. International Equity Fund 974,356.520 1.647309 1,605,066
AIM V.I. Value Fund 14,061,168.861 1.621757 22,803,799
Evergreen VA Fund 1,133,327.786 1.363015 1,544,743
Evergreen VA Foundation Fund 10,212,042.456 1.163482 11,881,528
Evergreen VA Growth and Income Fund 1,897,269.471 1.259978 2,390,518
Evergreen VA Global Leaders Fund 495,392.640 1.157425 573,380
Evergreen VA International Growth Fund 97,099.617 1.346634 130,758
Federated High Income Bond Fund II 4,889,829.326 1.039161 5,081,320
MFS Emerging Growth Series 5,268,344.689 2.206323 11,623,670
MFS Research Series 5,446,898.645 1.482998 8,077,740
MFS Total Return Series 4,709,530.689 1.093953 5,152,005
MFS Utilities Series 1,657,355.059 1.413957 2,343,429
Oppenheimer Growth Fund 4,797,474.137 1.764620 8,465,719
Oppenheimer Multiple Strategies Fund 1,503,090.531 1.170664 1,759,614
Oppenheimer Strategic Bond Fund 3,502,331.278 1.028609 3,602,529
Putnam VT Global Growth Fund 2,378,366.267 1.890365 4,495,980
Putnam VT Money Market Fund 2,941,174.912 1.038440 3,054,234
Putnam VT New Value Fund 1,133,575.798 1.071862 1,215,037
Mentor VIP Capital Growth 1,910,289.545 0.967344 1,847,907
Mentor VIP Growth 360,299.090 1.356656 488,802
Mentor VIP High Income 138,172.993 1.038416 143,481
VIP High Income 615,977.656 1.170692 721,120
VIP II Index 500 4,949,460.935 1.978931 9,794,642
VIP II Investment Grade Bond 828,979.275 1.131353 937,868
VIP III Growth Opportunities 3,266,566.939 1.551609 5,068,435
Templeton International 729,680.581 1.113051 812,172
Templeton Asset Allocation 248,746.829 1.083998 269,641
Franklin Small Cap Investments 780,075.201 1.616150 1,260,719
</TABLE>
34
<PAGE>
PFL Retirement Builder Variable Annuity
Account - Portfolio Select Variable Annuity
Notes to Financial Statements (continued)
3. Contract Owners' Equity (continued)
<TABLE>
<CAPTION>
5% Annually Compounding Death Benefit
Annual Step-Up Death Benefit
---------------------------------------------------------
Accumulation Accumulation Total Contract
Subaccounts Units Owned Unit Value Value
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
AIM V.I. Growth and Income Fund 1,394,637.971 $1.671780 $2,331,528
AIM V.I. International Equity Fund 127,260.241 1.650174 210,002
AIM V.I. Value Fund 2,833,844.055 1.624758 4,604,311
Evergreen VA Fund 171,468.896 1.365381 234,120
Evergreen VA Foundation Fund 2,531,434.571 1.165505 2,950,400
Evergreen VA Growth and Income Fund 409,988.014 1.262163 517,472
Evergreen VA Global Leaders Fund 153,400.950 1.158565 177,725
Evergreen VA International Growth Fund 997.750 1.347956 1,345
Federated High Income Bond Fund II 1,415,578.765 1.064849 1,507,378
MFS Emerging Growth Series 904,988.039 2.210407 2,000,392
MFS Research Series 1,146,554.165 1.485750 1,703,493
MFS Total Return Series 975,006.756 1.095980 1,068,588
MFS Utilities Series 333,234.967 1.416577 472,053
Oppenheimer Growth Fund 1,048,763.736 1.767873 1,854,081
Oppenheimer Multiple Strategies Fund 623,644.728 1.172691 731,343
Oppenheimer Strategic Bond Fund 1,178,165.433 1.030527 1,214,131
Putnam VT Global Growth Fund 424,898.296 1.893641 804,605
Putnam VT Money Market Fund 402,501.656 1.040234 418,696
Putnam VT New Value Fund 231,596.430 1.073725 248,671
Mentor VIP Capital Growth 211,661.420 0.968280 204,948
Mentor VIP Growth 64,450.995 1.358002 87,525
Mentor VIP High Income 39,367.491 1.039068 40,906
VIP High Income 264,879.935 1.175901 311,473
VIP II Index 500 922,263.939 1.987714 1,833,197
VIP II Investment Grade Bond 245,256.660 1.136386 278,706
VIP III Growth Opportunities 635,438.753 1.557744 989,851
Templeton International 90,499.960 1.114141 100,830
Templeton Asset Allocation 80,830.337 1.085065 87,706
Franklin Small Cap Investments 90,047.993 1.617750 145,675
</TABLE>
35
<PAGE>
PFL Retirement Builder Variable Annuity
Account - Portfolio Select Variable Annuity
Notes to Financial Statements (continued)
3. Contract Owners' Equity (continued)
A summary of changes in contract owners' account units follows:
<TABLE>
<CAPTION>
AIM V.I. Evergreen
Growth and AIM V.I. VA
Income International AIM V.I. Evergreen Foundation
Fund Equity Fund Value Fund VA Fund Fund
Subaccount Subaccount Subaccount Subaccount Subaccount
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Units purchased 194,908 164,865 825,683 185,748 716,537
Units redeemed and transferred 23,326 (65,236) (24,316) 14,723 73,663
----------------------------------------------------------------------------------
Units outstanding at December 31,
1998 218,234 99,629 801,367 200,471 790,200
Units purchased 3,928,964 626,685 9,239,702 783,118 6,357,190
Units redeemed and transferred 3,769,120 375,303 6,853,944 321,208 5,596,087
----------------------------------------------------------------------------------
Units outstanding at December 31,
1999 7,916,318 1,101,617 16,895,013 1,304,797 12,743,477
==================================================================================
</TABLE>
<TABLE>
<CAPTION>
Federated
Evergreen VA Evergreen VA Evergreen VA High MFS
Growth Global International Income Emerging
and Income Leaders Growth Bond Growth
Fund Fund Fund Fund II Series
Subaccount Subaccount Subaccount Subaccount Subaccount
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Units purchased 489,890 - - 539,714 397,029
Units redeemed and transferred 32,464 - - 52,439 27,141
-----------------------------------------------------------------------------------------
Units outstanding at December 31,
1998 522,354 - - 592,153 424,170
Units purchased 996,346 379,771 92,352 3,303,116 3,777,398
Units redeemed and transferred 788,557 269,023 5,745 2,410,139 1,971,765
-----------------------------------------------------------------------------------------
Units outstanding at December 31,
1999 2,307,257 648,794 98,097 6,305,408 6,173,333
=========================================================================================
</TABLE>
36
<PAGE>
PFL Retirement Builder Variable Annuity
Account - Portfolio Select Variable Annuity
Notes to Financial Statements (continued)
3. Contract Owners' Equity (continued)
<TABLE>
<CAPTION>
MFS Oppenheimer
MFS Total MFS Multiple
Research Return Utilities Oppenheimer Strategies
Series Series Series Growth Fund Fund
Subaccount Subaccount Subaccount Subaccount Subaccount
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Units purchased 491,482 397,802 - 292,656 221,734
Units redeemed and transferred (38,942) 60,726 - 33,683 6,879
-------------------------------------------------------------------------------------------
Units outstanding at December 31,
1998 452,540 458,528 - 326,339 228,613
Units purchased 3,417,737 2,630,174 1,011,094 3,027,116 903,774
Units redeemed and transferred 2,723,176 2,595,835 979,496 2,492,783 994,348
-------------------------------------------------------------------------------------------
Units outstanding at December 31,
1999 6,593,453 5,684,537 1,990,590 5,846,238 2,126,735
===========================================================================================
</TABLE>
<TABLE>
<CAPTION>
Putnam VT
Oppenheimer Global Putnam VT Putnam VT Mentor VIP
Strategic Growth Money New Value Capital
Bond Fund Fund Market Fund Fund Growth
Subaccount Subaccount Subaccount Subaccount Subaccount
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Units purchased 590,418 52,289 79,630 139,854 -
Units redeemed and transferred (35,473) 20,642 - 17,719 -
------------------------------------------------------------------------------------------
Units outstanding at December 31,
1998 554,945 72,931 79,630 157,573 -
Units purchased 2,176,241 1,476,677 3,335,351 612,926 1,282,849
Units redeemed and transferred 1,949,311 1,253,657 (71,304) 594,673 839,102
------------------------------------------------------------------------------------------
Units outstanding at December 31,
1999 4,680,497 2,803,265 3,343,677 1,365,172 2,121,951
==========================================================================================
</TABLE>
37
<PAGE>
PFL Retirement Builder Variable Annuity
Account - Portfolio Select Variable Annuity
Notes to Financial Statements (continued)
3. Contract Owners' Equity (continued)
<TABLE>
<CAPTION>
Mentor VIP VIP II
Mentor VIP High VIP High VIP II Investment
Growth Income Income Index 500 Grade Bond
Subaccount Subaccount Subaccount Subaccount Subaccount
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Units purchased - - - - -
Units redeemed and transferred - - - - -
-------------------------------------------------------------------------------------
Units outstanding at December 31,
1998 - - - - -
Units purchased 242,944 136,421 533,674 3,169,757 390,707
Units redeemed and transferred 181,806 41,119 347,184 2,701,968 683,529
-------------------------------------------------------------------------------------
Units outstanding at December 31,
1999 424,750 177,540 880,858 5,871,725 1,074,236
=====================================================================================
</TABLE>
<TABLE>
<CAPTION>
VIP III Templeton Franklin
Growth Templeton Asset Small Cap
Opportunities International Allocation Investments
Subaccount Subaccount Subaccount Subaccount
-------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Units purchased - - - -
Units redeemed and transferred - - - -
-------------------------------------------------------------------------
Units outstanding at December 31, 1998 - - - -
Units purchased 2,033,125 368,182 147,080 870,123
Units redeemed and transferred 1,868,881 451,999 182,497 -
-------------------------------------------------------------------------
Units outstanding at December 31, 1999 3,902,006 820,181 329,577 870,123
=========================================================================
</TABLE>
4. Administrative, Mortality and Expense Risk Charges
An annual charge is deducted from the unit values of the subaccounts of the
Mutual Fund Account for PFL Life's assumption of certain mortality and expense
risks incurred in connection with the contract. The charge is assessed daily
based on the net asset value of the account. For the 5% Annually Compounding
Death Benefit and the Annual Step-Up Death Benefit, this charge is equal to an
effective annual rate of 1.25% of the value of the contract owners' individual
account. For the Return of Premium Death Benefit, the corresponding charge is
equal to an effective annual rate of 1.10% of the value of the contract owners'
individual account.
38
<PAGE>
PFL Retirement Builder Variable Annuity
Account - Portfolio Select Variable Annuity
Notes to Financial Statements (continued)
4. Administrative, Mortality and Expense Risk Charges (continued)
An administrative charge of .15% annually is deducted from the client values of
the subaccounts of the Mutual Fund Account. This charge is assessed daily along
with an annual policy fee of $30 per contract. The annual policy fee is deducted
proportionately from the subaccounts' accumulated values. These deductions
represent reimbursement for the costs expected to be incurred over the life of
the contract for issuing and maintaining each contract and the Mutual Fund
Account.
5. Taxes
Operations of the Mutual Fund Account form a part of PFL Life, which is taxed as
a life insurance company under Subchapter L of the Internal Revenue Code of
1986, as amended (the "Code"). The operations of the Mutual Fund Account are
accounted for separately from other operations of PFL Life for purposes of
federal income taxation. The Mutual Fund Account is not separately taxable as a
regulated investment company under Subchapter M of the Code and is not otherwise
taxable as an entity separate from PFL Life. Under existing federal income tax
laws, the income of the Mutual Fund Account, to the extent applied to increase
reserves under the variable annuity contracts, is not taxable to PFL Life.
6. Subsequent Event
On February 1, 2000, shares of the Mentor VIP Capital Growth Portfolio, the
Mentor VIP Growth Portfolio, and the Mentor VIP High Income Portfolio of the
Mentor Variable Investment Portfolios were replaced with shares of the Evergreen
VA Capital Growth Fund, the Evergreen VA Growth Fund, and the Evergreen VA High
Income Fund of the Evergreen Variable Trust, respectively. This transfer had no
impact on the market value of investments or contract owners' equity at the date
of the transfer. In conjunction with this transfer, the Mentor VIP Capital
Growth, Mentor VIP Growth, and Mentor VIP High Income subaccounts have been
replaced by the Evergreen VA Capital Growth Fund, the Evergreen VA Growth Fund,
and the Evergreen VA High Income Fund subaccounts.
39
<PAGE>
PART C OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements
All required financial statements are included in Part B of this
Registration Statement.
(b) Exhibits:
(1) (a) Resolution of the Board of Directors of PFL Life Insurance
Company authorizing establishment of the Mutual Fund
Account. Note 1.
(2) Not Applicable.
(3) (a) Principal Distribution Agreement by and between PFL Life
Insurance Company on its own behalf and on the behalf of the
Mutual Fund Account, and AEGON USA Securities, Inc. Note 2.
(a)(1) Principal Underwriting Agreement by and between PFL Life
Insurance Company on its own behalf and on behalf of the
Mutual Fund Account, and AFSG Securities Corporation.
Note 5.
(a)(2) Termination of Principal Distribution Agreement by and
between PFL Life Insurance Company on its own behalf and
on the behalf of the Mutual Fund Account, and AEGON USA
Securities Inc. Note 6
(b) Form of Broker/Dealer Supervision and Sales Agreement by and
between AFSG Securities Corporation and the Broker/Dealer.
Note 5.
(4) (a) Form of Policy for the Retirement Income Builder Variable
Annuity. Note 2
(b) Form of Policy Endorsements for the Retirement Income
Builder Variable Annuity. Note 6.
(c) Form of Policy Endorsement for the Retirement Income Builder
Variable Annuity. (GMIB) Note 7.
(d) Form of Policy Endorsement for the Retirement Income Builder
Variable Annuity (403(b)) Note 7.
(5) (a) Form of Application for the Retirement Income Builder
Variable Annuity. Note 3
(b) Form of Application for the First Union "Flexible Premium
Individual Deferred" Variable Annuity. Note 5.
(5)(b)(1) Amended form of Application for the First Union "Flexible
Premium Individual Deferred" Variable Annuity. Note 9.
(c) Form of Application for the Retirement Income Builder
Variable Annuity. Note 5.
(5)(c)(1) Amended form of Application for the Retirement Income
Builder Variable Annuity. Note 9.
(d) Form of Application for the Multi-Manager Retirement Income
Builder "Flexible Premium Individual Deferred Variable
Annuity." Note 6.
(5)(d)(1) Amended form of Application for the Multi-Manager Retirement
Income Builder "Flexible Premium Individual Deferred
Variable Annuity." Note 9.
(6) (a) Articles of Incorporation of PFL Life Insurance Company.
Note 1.
(b) ByLaws of PFL Life Insurance Company. Note 1.
(7) Not Applicable.
(8) (a) Participation Agreement by and between PFL Life Insurance
Company and Fidelity Distributors Corporation and Addendum
thereto. Note 2
(8) (a)(1) Participation Agreement between Variable Insurance
Products Fund III, Fidelity Distributors Corporation
(Underwriter), and PFL Life Insurance Company (Depositor).
Note 3
(8) (a)(2) Addendum to Participation Agreement between Variable
Insurance Product Funds, Fidelity Distributors
Corporation, and PFL Life Insurance Company. Note 5.
(8) (a)(3) Addendums to Participation Agreements between PFL Life
Insurance Company, Fidelity Distributors and Variable
Insurance Products Funds, Variable Insurance Products
Funds II, and Variable Insurance Products Funds III. Note
8.
(8)(a)(4) Amended Schedule A to Participation Agreements between PFL
Life Insurance Company, Fidelty Distributors and Variable
Insurance Products Funds, Variable Insurance Products
Funds II, Variable Insurance Products Funds III. Note 9.
(8) (b) Participation Agreement by and among AIM Variable
Insurance Funds, Inc., PFL Life Insurance Company, and
AFSG Securities Corporation. Note 6
(8) (b)(1) Amendment No.1 to Participation Agreement by and among AIM
Variable Insurance Funds, Inc., PFL Life Insurance
Company, AFSG Securities Corporation. Note 6.
(8)(b)(2) Amendment No. 4 to Participation Agreement by and among
AIM Variable Insurance Funds, Inc., PFL Life Insurance
Company, AFSG Securities Corporation. Note 9.
(8) (c) Form of Participation Agreement by and between PFL Life
Insurance Company and Evergreen Variable Trust. Note 5
(c)(1) Addendum to Participation Agreement between PFL Life
Insurance Company and Evergreen Variable Trust. Note 8.
(8) (c)(2) Addendum No. 2 to Participation Agreement between PFL Life
Insurance Company and Evergreen Variable Trust. Note
9.
(8) (d) Amended Exhibit A and Exhibit B to Participation Agreement
by and between PFL Life Insurance Company, Federated
Insurance Series and Federated Securities Corp. Note 5
(8)(d)(1) Second Amendment Exhibit A and Exhibit B to Participation
Agreement by and between PFL Life Insurance Company,
Federated Insurance Series and Federated Securities Corp.
Note 9.
(8) (e) Participation Agreement among MFS Variable Insurance
Trust, PFL Life Insurance Company and Massachusetts
Financial Services Company. Note 4
(8) (e)(1) Addendum to Participation Agreement, dated as of November
24, 1997 by and among MFS Variable Insurance Trust,
Massachusetts Financial Services Company, and PFL Life
Insurance Company. Note 6.
(8) (e)(2) Partial Termination of Participation Agreement among MFS
Variable Insurance Trust, PFL Life Insurance Company and
Massachusetts Financial Services Company. Note 8.
(8) (f) Participation Agreement among Oppenheimer Variable Account
Funds, Oppenheimer Funds, Inc. and PFL Life Insurance
Company. Note 4
(8) (f)(1) Amendment to Participation Agreement, dated as of December
15, 1997 by and among Oppenheimer Variable Account Funds,
OppenheimerFunds, Inc., and PFL Life Insurance Company.
Note 6.
(8) (g) Participation Agreement by and between Putnam Variable
Trust, Putnam Mutual Funds Corp. and PFL Life Insurance
Company. Note 6
(8)(g)(1) Amended Schedule A to Participation Agreement by and
between Putman Variable Trust, Putman Mutual Funds Corp.
and PFL Life Insurance Company. Note 9.
(8) (h) Amendment to Participation Agreement, dated as of April
15, 1997, between Dreyfus Variable Investment Fund, the
Dreyfus Socially Responsible Growth Fund, Inc., Dreyfus
Life and Annuity Index fund, Inc., (d/b/a Dreyfus Stock
Index fund), and, PFL Life Insurance Company. Note 6.
(8) (i) Amendment No. 5 to Participation Agreement among WRL
Series Fund, Inc., Western Reserve Life Assurance Co. of
<PAGE>
Ohio, and PFL Life Insurance Company. Note 7.
(j) Participation Agreement among Templeton Variable Products
Series Fund, Franklin Templeton Distributors, Inc. and
PFL Life Insurance Company. Note 8.
(8)(j)(1) Form of Revised Participation Agreement by and among
Franklin Templeton Variable Insurance Products Trust,
Franklin Templeton Distributors, Inc. and PFL Life
Insurance Company. Note 9.
(k) Participation Agreement between Mentor Variable Investment
Portfolios and PFL Life Insurance Company. Note 9.
(8)(l) Participation Agreement among Davis Variable Account Fund,
Inc., Davis Distributors, LLC. and PFL Life Insurance
Company. Note 9
(8)(m) Participation Agreement by and between PFL Life Insurance
Company and Transamerica Variable Insurance Fund, Inc.
Note 9
(9) Opinion and Consent of Counsel. Note 2
(10)(a) Consent of Independent Auditors. Note 9
(b) Opinion and Consent of Actuary. Note 6
(11) Not applicable.
(12) Not applicable.
(13)(a) Performance Data Calculations (PFL RIB). Note 8
(13)(b) Performance Data Calculations. (PFL RIB)
(13)(c) Performance Data Calculations. (Portfolio Select) Note 8
(14) Powers of Attorney. Note 1. (Patrick S. Baird, Craig D.
Vermie, William L. Busler, Douglas C. Kolsrud, Robert J.
Kontz) Note 2. Brendy K. Clancy. Note 6 Larry N. Norman
---------------------
Note 1. Filed with one Initial filing of this Form N-4
Registration Statement (File No. 333-7509) on July 3,
1996.
Note 2. Filed with Pre-Effective Amendment No. 1 to this Form N-4
Registration Statement (File No. 333-7509) on December 6,
1996.
Note 3. Filed with Post-Effective Amendment No. 1 to this Form N-4
Registration Statement (File No. 333-7509) on April 29,
1997.
Note 4. Filed with Post-Effective Amendment No. 2 to this Form N-4
Registration Statement (File No. 333-7509) on December 23,
1997.
Note 5. Filed with Post-Effective Amendment No. 4 to this Form N-4
Registration Statement (File No. 333-7509) on April 30,
1998.
Note 6. Filed with Post-Effective Amendment No. 5 to this Form N-4
Registration Statement (File No. 333-7509) on July 16,
1998.
Note 7. Filed with Post-Effective Amendment No. 6 to this Form N-4
Registration Statement (File No. 333-7509) on January 22,
1999.
Note 8. Filed with Post-Effective Amendment No. 8 to this Form N-4
Registration Statement (File No. 333-7509) on April 29,
1999.
Note 9. Filed Herewith.
<PAGE>
Item 25. Directors and Officers of the Depositor
<TABLE>
<CAPTION>
Principal Positions
Name and and Offices with
Business Address Depositor
- ---------------- ---------
<S> <C>
William L. Busler Director, Chairman of the Board and
4333 Edgewood Road N.E. President
Cedar Rapids, Iowa 52499-0001
Patrick S. Baird Director, Senior Vice President and
4333 Edgewood Road N.E. Chief Operating Officer
Cedar Rapids, Iowa 52499-0001
Craig D. Vermie Director, Vice President, Secretary and
4333 Edgewood Road N.E. General Counsel
Cedar Rapids, Iowa 52499-0001
Douglas C. Kolsrud Director, Senior Vice President, Chief
4333 Edgewood Road N.E. Investment Officer and Corporate Actuary
Cedar Rapids, Iowa 52499-0001
Larry N. Norman Director and Executive Vice President
4333 Edgewood Road N.E.
Cedar Rapids, Iowa 52499-0001
Robert J. Kontz Vice President and
4333 Edgewood Road N.E. Corporate Controller
Cedar Rapids, Iowa 52499-0001
Brenda K. Clancy Vice President, Treasurer and Chief
4333 Edgewood Road N.E. Financial Officer
Cedar Rapids, Iowa 52499-0001
</TABLE>
<PAGE>
Item 26. Persons Controlled by or Under Common Control with the Depositor or
Registrant
<TABLE>
<CAPTION>
Jurisdiction of Percent of Voting
Name Incorporation Securities Owned Business
- ---- ------------- ---------------- --------
<S> <C> <C> <C>
AEGON N.V. Netherlands 51.16% of Vereniging Holding company
AEGON Netherlands
Membership Association
Groninger Financieringen B.V. Netherlands 100% of AEGON N.V. Holding company
AEGON Netherland N.V. Netherlands 100% of AEGON N.V. Holding company
AEGON Nevak Holding B.V. Netherlands 100% of AEGON N.V. Holding company
AEGON International N.V. Netherlands 100% of AEGON N.V. Holding company
Voting Trust Trustees: Delaware Voting Trust
K.J. Storm
Donald J. Shepard H.B.
Van Wijk Dennis Hersch
AEGON U.S. Holding Corporation Delaware 100% of Voting Trust Holding company
Short Hills Management Company New Jersey 100% of AEGON U.S. Holding company
Holding Corporation
CORPA Reinsurance Company New York 100% of AEGON U.S. Holding company
Holding Corporation
AEGON Management Company Indiana 100% of AEGON U.S. Holding 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
Transamerica Holding Company Delaware 100% AEGON USA, Inc. Holding company
AEGON Funding Corp. Delaware 100% Transamerica Issue debt securities-net
Holding Company proceeds used to make
loans to affiliates
First AUSA Life Insurance Maryland 100% AEGON USA, Inc. Insurance holding company
AUSA Life Insurance New York 82.33% First AUSA Life Insurance
Company, Inc. Insurance Company
17.67% Veterans Life
Insurance Company
Life Investors Insurance Iowa 100% First AUSA Life Ins. Co. Insurance
Company of America
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Life Investors Alliance, LLC Delaware 100% LIICA Purchase, own, and hold the
equity interest of other entities
Great American Insurance Iowa 100% LIICA Marketing
Agency, Inc.
Bankers United Life Iowa 100% Life Investors Ins. Insurance
Assurance Company Company of America
PFL Life Insurance Company Iowa 100% First AUSA Life Ins. Co. Insurance
AEGON Financial Services Minnesota 100% PFL Life Insurance Co. Marketing
Group, Inc.
AEGON Assignment Corporation Kentucky 100% AEGON Financial Administrator of structured
of Kentucky Services Group, Inc. settlements
AEGON Assignment Corporation Illinois 100% AEGON Financial Administrator of structured
Services Group, Inc. settlements
Southwest Equity Life Ins. Co. Arizona 100% of Common Voting Stock Insurance
First AUSA Life Ins. Co.
Iowa Fidelity Life Insurance Co. Arizona 100% of Common Voting Stock Insurance
First AUSA Life Ins. Co.
Western Reserve Life Assurance Ohio 100% First AUSA Life Ins. Co. Insurance
Co. of Ohio
WRL Series Fund, Inc. Maryland Various Mutual fund
WRL Investment Services, Inc. Florida 100% Western Reserve Life Provides administration for
Assurance Co. of Ohio affiliated mutual fund
WRL Investment Florida 100% Western Reserve Life Registered investment advisor
Management, Inc. Assurance Co. of Ohio
ISI Insurance Agency, Inc. California 100% Western Reserve Life Insurance agency
And Subsidiaries Assurance Co. of Ohio
ISI Insurance Agency Alabama 100% ISI Insurance Agency, Inc. Insurance Agency
of Alabama, Inc.
ISI Insurance Agency Ohio 100% ISI Insurance Agency, Inc. Insurance agency
of Ohio, Inc.
ISI Insurance Agency Massachusetts 100% ISI Insurance Agency Inc. Insurance Agency
of Massachusetts, Inc.
ISI Insurance Agency Texas 100% ISI Insurance Agency, Inc. Insurance agency
of Texas, Inc.
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
ISI Insurance Agency Hawaii 100% ISI Insurance Insurance agency
of Hawaii, Inc. Agency, Inc.
ISI Insurance Agency New Mexico 100% ISI Insurance Insurance agency
New Mexico, Inc. Agency, Inc.
AEGON Equity Group, Inc. Florida 100% Western Reserve Life Insurance Agency
Assurance Co. of Ohio
Monumental General Casualty Co. Maryland 100% First AUSA Life Ins. Co. Insurance
United Financial Services, Inc. Maryland 100% First AUSA Life Ins. Co. General agency
Bankers Financial Life Ins. Co. Arizona 100% First AUSA Life Ins. Co. Insurance
The Whitestone Corporation Maryland 100% First AUSA Life Ins. Co. Insurance agency
Cadet Holding Corp. Iowa 100% First AUSA Life Holding company
Insurance Company
Monumental General Life Puerto Rico 51% First AUSA Life Insurance
Insurance Company of Insurance Company
Puerto Rico 49% Baldrich & Associates
of Puerto Rico
AUSA Holding Company Maryland 100% AEGON USA, Inc. Holding company
Monumental General Insurance Maryland 100% AUSA Holding Co. Holding company
Group, Inc.
Trip Mate Insurance Agency, Inc. Kansas 100% Monumental General Sale/admin. of travel
Insurance Group, Inc. insurance
Monumental General Maryland 100% Monumental General Provides management srvcs.
Administrators, Inc. Insurance Group, Inc. to unaffiliated third party
administrator
Executive Management and Maryland 100% Monumental General Provides actuarial consulting
Consultant Services, Inc. Administrators, Inc. services
Monumental General Mass Maryland 100% Monumental General Marketing arm for sale of
Marketing, Inc. Insurance Group, Inc. mass marketed insurance
coverages
AUSA Financial Markets, Inc. Iowa 100% AUSA Holding Co. Marketing
Transamerica Capital, Inc. California 100% AUSA Holding Co. Broker/Dealer
Endeavor Management Company California 100% AUSA Holding Co. Investment Management
Universal Benefits Corporation Iowa 100% AUSA Holding Co. Third party administrator
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
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
ADB Corporation Delaware 100% Money Services, Inc. Special purpose limited
Liability company
ORBA Insurance Services, Inc. California 10.56% Money Services, Inc. Insurance agency
Zahorik Company, Inc. California 100% AUSA Holding Co. Broker-Dealer
ZCI, Inc. Alabama 100% Zahorik Company, Inc. Insurance agency
Zahorik Texas, Inc. Texas 100% Zahorik Company, Inc. Insurance agency
Long, Miller & Associates, L.L.C. California 33-1/3% AUSA Holding Co. 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
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.
Idex Investor Services, Inc. Florida 100% AUSA Holding Co. Shareholder services
Idex Management, Inc. Delaware 100% AUSA Holding Co. Investment advisor
IDEX Mutual Funds Massachusetts Various Mutual fund
Diversified Investment Delaware 100% AUSA Holding Co. Registered investment advisor
Advisors, Inc.
Diversified Investors Securities Delaware 100% Diversified Investment Broker-Dealer
Corp. Advisors, Inc.
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
George Beram & Company, Inc. Massachusetts 100% Diversified Investment Employee benefit and
Advisors, Inc. actuarial consulting
AEGON USA Securities, Inc. Iowa 100% AUSA Holding Co. Broker-Dealer (De-registered)
Creditor Resources, Inc. Michigan 100% AUSA Holding Co. Credit insurance
CRC Creditor Resources Canada 100% Creditor Resources, Inc. Insurance agency
Canadian Dealer Network Inc.
Weiner Agency, Inc. Maryland 100% Creditor Resources, Inc. Insurance agency
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
AEGON USA Real Estate Delaware 100% AEGON USA Realty Real estate and mortgage
Services, Inc. Advisors, Inc. holding company
QSC Holding, Inc. Delaware 100% AEGON USA Realty Real estate and financial
Advisors, Inc. software production and sales
LRA, Inc. Iowa 100% AEGON USA Realty Real estate counseling
Advisors, Inc.
Landauer Associates, Inc. Delaware 100% AEGON USA Realty Real estate counseling
Advisors, Inc.
Landauer Realty Associates, Inc. Texas 100% Landauer Associates, Inc. Real estate counseling
Realty Information Systems, Inc. Iowa 100% AEGON USA Realty Information Systems for
Advisors, Inc. real estate investment
management
USP Real Estate Investment Trust Iowa 12.89% First AUSA Life Ins. Co. Real estate investment trust
13.11% PFL Life Ins. Co.
4.86% Bankers United Life
Assurance Co.
RCC Properties Limited Iowa AEGON USA Realty Advisors, Limited Partnership
Partnership Inc. is General Partner and 5%
owner.
Commonwealth General Delaware 100% AEGON USA, Inc. Holding company
Corporation ("CGC")
AFSG Securities Corporation Pennsylvania 100% CGC Broker-Dealer
Benefit Plans, Inc. Delaware 100% CGC TPA for Peoples Security Life
Insurance Company
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Durco Agency, Inc. Virginia 100% Benefit Plans, Inc. General agent
Capital 200 Block Corporation Delaware 100% CGC Real estate holdings
Capital Real Estate Delaware 100% CGC Furniture and equipment
Development Corporation lessor
Commonwealth General. Kentucky 100% CGC Administrator of structured
Assignment Corporation settlements
Diversified Financial Products Inc. Delaware 100% CGC Provider of investment,
marketing and admin. services
to ins. cos.
Monumental Agency Group, Inc. Kentucky 100% CGC Provider of srvcs. to ins. cos.
PB Investment Advisors, Inc. Delaware 100% CGC Registered investment advisor
(de-registered)
Southlife, Inc. Tennessee 100% CGC Investment subsidiary
Commonwealth General LLC Turks & 100% CGC Special-purpose subsidiary
Caicos Islands
Ampac Insurance Agency, Inc. Pennsylvania 100% CGC Provider of management
(EIN 23-1720755) support services
Compass Rose Development Pennsylvania 100% Ampac Insurance Special-purpose subsidiary
Corporation Agency, Inc.
Financial Planning Services, Inc. Dist. Columbia 100% Ampac Insurance Special-purpose subsidiary
Agency, Inc.
Frazer Association Illinois 100% Ampac Insurance TPA license-holder
Consultants, Inc. Agency, Inc.
National Home Life Corporation Pennsylvania 100% Ampac Insurance Special-purpose subsidiary
Agency, Inc.
Valley Forge Associates, Inc. Pennsylvania 100% Ampac Insurance Furniture & equipment lessor
Agency, Inc.
Veterans Benefits Plans, Inc. Pennsylvania 100% Ampac Insurance Administrator of group
Agency, Inc. insurance programs
Veterans Insurance Services, Inc. Delaware 100% Ampac Insurance Special-purpose subsidiary
Agency, Inc.
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Academy Insurance Group, Inc. Delaware 100% CGC Holding company
Academy Life Insurance Co. Missouri 100% Academy Insurance Insurance company
Group, Inc.
Pension Life Insurance New Jersey 100% Academy Life Insurance company
Company of America Insurance Company
FED Financial, Inc. Delaware 100% Academy Insurance Special-purpose subsidiary
Group, Inc.
Ammest Development Corp. Inc. Kansas 100% Academy Insurance Special-purpose subsidiary
Group, Inc.
Ammest Insurance Agency, Inc. California 100% Academy Insurance General agent
Group, Inc.
Ammest Massachusetts Massachusetts 100% Academy Insurance Special-purpose subsidiary
Insurance Agency, Inc. Group, Inc.
Ammest Realty, Inc. Pennsylvania 100% Academy Insurance Special-purpose subsidiary
Group, Inc.
Ampac, Inc. Texas 100% Academy Insurance Managing general agent
Group, Inc.
Ampac Insurance Agency, Inc. Pennsylvania 100% Academy Insurance Special-purpose subsidiary
(EIN 23-2364438) Group, Inc.
Force Financial Group, Inc. Delaware 100% Academy Insurance Special-purpose subsidiary
Group, Inc.
Force Financial Services, Inc. Massachusetts 100% Force Fin. Group, Inc. Special-purpose subsidiary
Military Associates, Inc. Pennsylvania 100% Academy Insurance Special-purpose subsidiary
Group, Inc.
NCOAA Management Company Texas 100% Academy Insurance Special-purpose subsidiary
Group, Inc.
NCOA Motor Club, Inc. Georgia 100% Academy Insurance Automobile club
Group, Inc.
Unicom Administrative Pennsylvania 100% Academy Insurance Provider of admin. services
Services, Inc. Group, Inc.
Unicom Administrative Germany 100%Unicom Administrative Provider of admin. services
Services, GmbH Services, Inc.
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Capital General Development Delaware 100% CGC Holding company
Corporation
Monumental Life Maryland 73.23% Capital General Insurance company
Insurance Company Development Company
26.77% First AUSA Life
Insurance Company
AEGON Special Markets Maryland 100% Monumental Life Marketing company
Group, Inc. Insurance Company
Peoples Benefit Life Missouri 3.7% CGC Insurance company
Insurance Company 20.0% Capital Liberty, L.P.
76.3% Monumental Life
Insurance Company
Veterans Life Insurance Co. Illinois 100% Peoples Benefit Insurance company
Life Insurance Company
Peoples Benefit Services, Inc. Pennsylvania 100% Veterans Life Ins. Co. Special-purpose subsidiary
Coverna Direct Insurance Maryland 100% Peoples Benefit Insurance agency
Insurance Services, Inc. Life Insurance Company
Ammest Realty Corporation Texas 100% Monumental Life Special purpose subsidiary
Insurance Company
JMH Operating Company, Inc. Mississippi 100% Monumental Life Real estate holdings
Insurance Company
Capital Liberty, L.P. Delaware 99.0% Monumental Life Holding Company
Insurance Company
1.0% CGC
Transamerica Corporation Delaware 100% AEGON NV Major interest in insurance
and finance
Transamerica Pacific Insurance Hawaii 100% Transamerica Corp. Life insurance
Company, Ltd.
TREIC Enterprises, Inc. Delaware 100% Transamerica Corp. Investments
ARC Reinsurance Corporation Hawaii 100% Transamerica Corp. Property & Casualty Ins.
Transamerica Management, Inc. Delaware 100% ARC Reinsurance Corp. Asset management
Inter-America Corporation California 100% Transamerica Corp. Insurance
Broker
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Pyramid Insurance Company, Ltd. Hawaii 100% Transamerica Corp. Property & Casualty Ins.
Pacific Cable Ltd. Bmda. 100% Pyramid Ins. Co., Ltd. Sold 25% of TC Cable, Inc.
stock in 1998
Transamerica Business Tech Corp. Delaware 100% Transamerica Corp. Telecommunications and
data processing
Transamerica CBO I, Inc. Delaware 100% Transamerica Corp. Owns and manages a pool of
high-yield bonds
Transamerica Corporation (Oregon) Oregon 100% Transamerica Corp. Name holding only-Inactive
Transamerica Finance Corp. Delaware 100% Transamerica Corp. Commercial & Consumer
Lending & equip. leasing
TA Leasing Holding Co., Inc. Delaware 100% Transamerica Fin. Corp. Holding company
Trans Ocean Ltd. Delaware 100% TA Leasing Hldg Co. Inc. Holding company
Trans Ocean Container Corp. Delaware 100% Trans Ocean Ltd. Intermodal Leasing
("TOCC")
SpaceWise Inc. Delaware 100% TOCC Intermodal leasing
Trans Ocean Container
Finance Corp. Delaware 100% TOCC Intermodal leasing
Trans Ocean Leasing
Deutschland GmbH Germany 100% TOCC Intermodal leasing
Trans Ocean Leasing PTY Ltd. Austria 100% TOCC Intermodal leasing
Trans Ocean Management S.A. Switzerland 100% TOCC Intermodal leasing
Trans Ocean Regional
Corporate Holdings California 100% TOCC Holding company
Trans Ocean Tank Services Corp. Delaware 100% TOCC Intermodal leasing
Transamerica Leasing Inc. Delaware 100% TA Leasing Holding Co. Leases & Services intermodal
equipment
Transamerica Leasing Holdings Delaware 100% Transamerica Leasing Inc. Holding Company
Inc. ("TLHI")
Greybox Logistics Services Inc. Delaware 100% TLHI Intermodal Leasing
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Greybox L.L.C. Delaware 100% TLHI Intermodal freight container
interchange facilitation
service
Transamerica Trailer France 100% Greybox L.L.C. Leasing
Leasing S.N.C.
Greybox Services Limited U.K. 100% TLHI Intermodal Leasing
Intermodal Equipment, Inc. Delaware 100% TLHI Intermodal leasing
Transamerica Leasing N.V. Belg. 100% Intermodal Equipment Inc. Leasing
Transamerica Leasing SRL Italy 100% Intermodal Equipment Inc. Leasing
Transamerica Distribution Delaware 100% TLHI Provided door-to-door
Services, Inc. services for the domestic
transportation of temperature-
sensitive products
Transamerica Leasing Belg. 100% TLHI Leasing
Coordination Center
Transamerica Leasing do Braz. 100% TLHI Container Leasing
Brasil Ltda.
Transamerica Leasing GmbH Germany 100% TLHI Leasing
Transamerica Leasing Limited U.K. 100% TLHI Leasing
ICS Terminals (UK) Limited U.K. 100% Transamerica. Leasing
Leasing Limited
Transamerica Leasing Pty. Ltd. Australia 100% TLHI Leasing
Transamerica Leasing (Canada) Inc. Canada 100% TLHI Leasing
Transamerica Leasing (HK) Ltd. H.K. 100% TLHI Leasing
Transamerica Leasing S. Africa 100% TLHI Intermodal leasing
(Proprietary) Limited
Transamerica Tank Container Australia 100% TLHI The Australian (domestic)
Leasing Pty. Limited leasing of tank containers
Transamerica Trailer Holdings I Inc. Delaware 100% TLHI Holding company
Transamerica Trailer Holdings II, Inc. Delaware 100% TLHI Holding company
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Transamerica Trailer Holdings III, Inc. Delaware 100% TLHI Holding company
Transamerica Trailer Leasing AB Swed. 100% TLHI Leasing
Transamerica Trailer Leasing AG Switzerland 100% TLHI Leasing
Transamerica Trailer Leasing A/S Denmark 100% TLHI Leasing
Transamerica Trailer Leasing GmbH Germany 100% TLHI Leasing
Transamerica Trailer Leasing Belgium 100% TLHI Leasing
(Belgium) N.V.
Transamerica Trailer Leasing Netherlands 100% TLHI Leasing
(Netherlands) B.V.
Transamerica Trailer Spain S.A. Spain 100% TLHI Leasing
Transamerica Transport Inc. New Jersey 100% TLHI Dormant
Transamerica Commercial Delaware 100% Transamerica Fin. Corp. Holding company for
Finance Corporation, I ("TCFCI") Commercial/consumer
finance subsidiaries
Transamerica Equipment Financial Delaware 100% TCFCI
Services Corporation
BWAC Credit Corporation Delaware 100% TCFCI
BWAC International Corporation Delaware 100% TCFCI
BWAC Twelve, Inc. Delaware 100% TCFCI Holding company for
premium finance subsidiaries
TIFCO Lending Corporation Illinois 100% BWAC Twelve, Inc. General financing & other
services in the US &
elsewhere
Transamerica Insurance Finance Maryland 100% BWAC Twelve, Inc. Provides insurance premium
Corporation ("TIFC") financing in the US with the
exception of CA and HI
Transamerica Insurance Finance Maryland 100% TIFC Provides Insurance premium
Company (Europe) financing in California
Transamerica Insurance Finance California 100% TIFC Disability ins. & holding co.
Corporation, California for various insurance
subsidiaries of Transamerica
Corporation
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Transamerica Insurance Finance ON 100% TIFC Provides ins. premium
Corporation, Canada financing in Canada
Transamerica Business Credit Delaware 100% TCFCI Provides asset based lending
Corporation ("TBCC") leasing & equip. financing
Transamerica Mezzanine Delaware 100% TBCC Holds investments in several
Financing, Inc. joint ventures/partnerships
Transamerica Business Advisory Grp. Delaware 100% TBCC
Bay Capital Corporation Delaware 100% TBCC Special purpose company for
the purchase of real estate tax
liens
Coast Funding Corporation Delaware 100% TBCC Special purpose company for
the purchase of real estate tax
liens
Transamerica Small Business Delaware 100% TBCC
Capital, Inc. ("TSBC")
Emergent Business Capital Delaware 100% TSBC
Holdings, Inc.
Gulf Capital Corporation Delaware 100% TBCC Special purpose company for
the purchase of real estate tax
liens
Direct Capital Equity Investment, Inc. Delaware 100% TBCC Small business loans
TA Air East, Corp Delaware 100% TBCC Special purpose corp. which
hold an ownership interest
or leases aircraft
TA Air I, Corp. Delaware 100% TBCC Special purpose corp. which
hold an ownership interest
or leases aircraft
TA Air II, Corp. Delaware 100% TBCC Special purpose corp. which
hold an ownership interest
or leases aircraft
TA Air III, Corp. Delaware 100% TBCC special purpose corp. which
hold an ownership interest
or leases aircraft
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
TA Air IV, Corp. Delaware 100% TBCC Special purpose corp. which
hold an ownership interest
or leases aircraft
TA Air V, Corp. Delaware 100% TBCC Special purpose corp. which
hold an ownership interest
or leases aircraft
TA Air VI, Corp. Delaware 100% TBCC Special purpose corp. which
hold an ownership interest
or leases aircraft
TA Air VII, Corp. Delaware 100% TBCC Special purpose corp. which
hold an ownership interest or
leases aircraft
TA Air VIII, Corp. Delaware 100% TBCC Special purpose corp. which
hold an ownership interest or
leases aircraft
TA Air IX, Corp. Delaware 100% TBCC Special purpose corp. which
hold an ownership interest
or leases aircraft
TA Air X, Corp. Delaware 100% TBCC Special purpose corp. which
hold an ownership interest
or leases aircraft
TA Air XI, Corp. Delaware 100% TBCC Special purpose corp. which
hold an ownership interest
or leases aircraft
TA Air XII, Corp. Delaware 100% TBCC Special purpose corp. which
hold an ownership interest
or leases aircraft
TA Air XIII, Corp. Delaware 100% TBCC Special purpose corp. which
hold an ownership interest
or leases aircraft
TA Air XIV, Corp. Delaware 100% TBCC Special purpose corp. which
hold an ownership interest
or leases aircraft
TA Air XV, Corp. Delaware 100% TBCC Special purpose corp. which
hold an ownership interest
or leases aircraft
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
TA Marine I Corp. Delaware 100% TBCC Special purpose corp. which
hold an ownership interest or
leases barges or ships
TA Marine II Corp. Delaware 100% TBCC Special purpose corp. which
hold an ownership interest or
leases barges or ships
TBC I, Inc. Delaware 100% TBCC Special purpose corp.
TBC II, Inc. Delaware 100% TBCC Special purpose corp.
TBC III, Inc. Delaware 100% TBCC Special purpose corp.
TBC IV, Inc. Delaware 100% TBCC Special purpose corp.
TBC V, Inc. Delaware 100% TBCC Special purpose corp.
TBC VI, Inc. Delaware 100% TBCC Special purpose corp.
TBC Tax I, Inc. Delaware 100% TBCC Special purpose co. for the
purchase of real estate tax lien
TBC Tax II, Inc. Delaware 100% TBCC Special purpose co. for the
purchase of real estate tax lien
TBC Tax III, Inc. Delaware 100% TBCC Special purpose co. for the
purchase of real estate tax lien
TBC Tax IV, Inc. Delaware 100% TBCC Special purpose co. for the
purchase of real estate tax lien
TBC Tax V, Inc. Delaware 100% TBCC Special purpose co. for the
purchase or real estate tax lien
TBC Tax VI, Inc. Delaware 100% TBCC Special purpose co. for the
purchase or real estate tax lien
TBC Tax VII, Inc. Delaware 100% TBCC Special purpose co. for the
purchase or real estate tax lien
TBC Tax VIII, Inc. Delaware 100% TBCC Special purpose co. for the
purchase of real estate tax lien
TBC Tax IX, Inc. Delaware 100% TBCC Special purpose co. for the
purchase of real estate tax lien
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
The Plain Company Delaware 100% TBCC Special purpose corp. which
hold an ownership interest or
leases aircraft.
Transamerica Distribution Delaware 100% TCFCI Holding corp. for inventory,
Finance Corporation ("TDFC") comm. Leasing, retail finance
comm. Recovery service and
accounts
Transamerica Accounts Holding Corp. Delaware 100% TDFC
Transamerica Commercial Delaware 100% TDFC Wholesale floor plan for
Finance Corporation ("TCFC") appliances, electronics,
computers, office equip. and
marine equipment.
Transamerica Acquisition Canada 100% TCFC Holding company
Corporation, Canada
Transamerica Distribution Finance Delaware 100% TCFC
Corporation - Overseas, Inc.
("TDFCO")
TDF Mauritius Limited Mauritius 100% TDFCO Mauritius holding company
of our Indian Joint Venture
Inventory Funding Trust Delaware 100% TCFC
Inventory Funding Company, LLC Delaware 100% Inventory Funding Trust
TCF Asset Management Corporation Colorado 100% TCFC A depository for foreclosed
real and personal property
Transamerica Joint Ventures, Inc. Delaware 100% TCFC To enter into general partner-
ships for the ownership of
comm. & finance business
Transamerica Inventory Delaware 100% TDFC Holding co. for inventory
Finance Corporation ("TIFC") finance subsidiaries
Transamerica GmbH, Inc. Delaware 100% TIFC Commercial lending in
Germany
Transamerica Fincieringsmaatschappij
B.V. Netherlands 100% Trans. GmbH, Inc. Commercial lending in
Europe
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
BWAC Seventeen, Inc. Delaware 100% TIFC Holding co. for principal
Canadian operation, Trans-
America Comm. Finance
Corp, Canada
Transamerica Commercial ON 100% BWAC Seventeen, Inc. Shell corp.- Dormant
Finance Canada, Limited
Transamerica Commercial Canada 100% BWAC Seventeen, Inc. Commercial finance
Finance Corporation, Canada
BWAC Twenty-One, Inc. Delaware 100% TIFC Holding co. for United
Kingdom operation, Trans-
America Comm. Finance
Limited
Transamerica Commercial U.K. 100% BWAC Twenty-One Inc. Commercial lending in the
Finance Limited ("TCFL") United Kingdom.
Whirlpool Financial Corporation 100% TCFL Inactive commercial finance
Polska Spzoo Company in Poland
Transamerica Commercial U.K. 100% BWAC Twenty-One Inc. Holding Company
Holdings Limited
Transamerica Commercial Finance U.K. 100% Trans. Commercial
Limited Holdings Limited
Transamerica Commercial Finance France 100% BWAC Twenty-One Inc. Carries out factoring trans-
France S.A. actions in France & abroad
Transamerica GmbH Inc. Delaware 100% BWAC Twenty-One Inc. Holding co. for Transamerica
Financieringsmaatschappij
B.V.
Transamerica Retail Financial Delaware 100% TIFC Provides retail financing
Services Corporation ("TRFSC")
Transamerica Bank, NA Delaware 100% TRFSC Bank (Credit Cards)
Transamerica Consumer Finance Delaware 100% TRFSC Consumer finance holding
Holding Company ("TCFHC") company
Transamerica Mortgage Company Delaware 100% TCFHC Consumer mortgages
Transamerica Consumer Mortgage Delaware 100% TCFHC Securitization company
Receivables Company
Metropolitan Mortgage Company Florida 100% TCFHC Consumer mortgages
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Easy Yes Mortgage, Inc. Florida 100% Metropolitan Mtg. Co. No active business/Name
holding only
Easy Yes Mortgage, Inc. Georgia 100% Metropolitan Mtg. Co. No active business/Name
holding only
First Florida Appraisal Services, Inc. Georgia 100% Metropolitan Mtg. Co. Appraisal and inspection
services
First Georgia Appraisal Services, Inc. Georgia 100% First FL App. Srvc, Inc. Appraisal services
Freedom Tax Services, Inc. Florida 100% Metropolitan Mtg. Co. Property tax information
services
J.J. & W. Advertising, Inc. Florida 100% Metropolitan Mtg. Co. Advertising and marketing
services
J.J. & W. Realty Corporation Florida 100% Metropolitan Mtg. Co. To hold problem REO
properties
Liberty Mortgage Company of Florida 100% Metropolitan Mtg. Co. No active business/Name
Ft. Myers, Inc. holding only
Metropolis Mortgage Company Florida 100% Metropolitan Mtg. Co. No active business/Name
holding only
Perfect Mortgage Company Florida 100% Metropolitan Mtg. Co. No active business/Name
holding only
Transamerica Vendor Financial Srvc. Delaware 100% TDFC Provides commercial lease
Transamerica Distribution Finance 100% TCFCI
Corporation de Mexico ("TDFCM")
TDF de Mexico Mexico 100% TDFCM
Transamerica Corporate Services 100% TDFCM
De Mexico
Transamerica Home Loan California 100% TFC Consumer mortgages
Transamerica Lending Company Delaware 100% TFC Consumer lending
Transamerica Financial Products, Inc. California 100% Transamerica Corp. Service investments
Transamerica Insurance Corporation California 100% Transamerica Corp. Provides insurance premium
of California ("TICC") financing in California
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Arbor Life Insurance Company Arizona 100% TICC Life insurance, disability
insurance
Plaza Insurance Sales Inc. California 100% TICC Casualty insurance placement
Transamerica Advisors, Inc. California 100% TICC Retail sale of investment
advisory services
Transamerica Annuity Services Corp. New Mexico 100% TICC Performs services required for
structured settlements
Transamerica Financial Resources, Inc. Delaware 100% TICC Retail sale of securities
products
Financial Resources Insurance Texas 100% Transamerica Fin. Res. Retail sale of securities
Agency of Texas products
TBK Insurance Agency of Ohio, Inc. Ohio 100% Transamerica Fin. Res. Variable insurance contract
sales in state of Ohio
Transamerica Financial Resources Alabama 100% Transamerica Fin. Res. Insurance agent & broker
Agency of Alabama, Inc.
Transamerica Financial Resources Ins. Massachusetts 100% Transamerica Fin. Res. Insurance agent & broker
Agency of Massachusetts, Inc.
Transamerica International Insurance Delaware 100% TICC Holding & administering
Services, Inc. ("TIIS") foreign operations
Home Loans and Finance Ltd. U.K. 100% TIIS Inactive
Transamerica Occidental Life California 100% TICC Licensed in all forms of life
Insurance Company ("TOLIC") insurance, accident and
sickness insurance
NEF Investment Company California 100% TOLIC Real estate development
Transamerica Life Insurance and N. Carolina 100%TOLIC Writes life and pension ins.
Annuity Company ("TLIAC") originally incorporated in CA
April 14, 1966
Transamerica Assurance Company Missouri 100% TLIAC Life and disability insurance
Gemini Investments, Inc. Delaware 100% TLIAC Investment subsidiary
Transamerica Life Insurance Company Canada 100% TOLIC Sells individual life insurance
of Canada & investment products in all
provinces and territories of
Canada
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Transamerica Life Insurance Company New York 100% TOLIC Licensed in NY to market life
of New York insurance, annuities and
health insurance
Transamerica South Park Delaware 100% TOLIC Provide market analysis of
Resources, Inc. certain undeveloped land
holdings held by TOLIC
Transamerica Variable Insurance Maryland 100% TOLIC Mutual Fund
Fund, Inc.
USA Administration Services, Inc. Kansas 100% TOLIC Third party administrator
Transamerica Products. Inc. California 100% TICC Parent co. of various
subsidiary corp. which are
formed to be co-general
partners of proprietary limited
Transamerica Securities Sales Corp. Maryland 100% Transamerica Prod. Inc. Retail sale of the variable life
ins. and variable annuity
products of the Transamerica
life companies
Transamerica Service Company Delaware 100% Transamerica Prod. Inc. Passive loss tax service for
Lloyd's U.S. names
Transamerica Intellitech, Inc. Delaware 100% TICC Real estate information and
technology services
Transamerica International Delaware 100% TICC Investments
Holdings, Inc.
Transamerica Investment Services, Inc. Delaware 100% TICC Investment adviser
Transamerica Income Shares, Inc. Maryland 100% Trans. Invest. Srvc. Inc. Transamerica investment
services
Transamerica LP Holdings Corp. Delaware 100% TICC Limited partnership
Investment (initial limited
partner of Transamerica
Delaware, L.P.)
Transamerica Real Estate Tax Service N/A 100% TICC Real estate tax reporting and
(A Division of Transamerica Corp) processing services
Transamerica Realty Services, Inc. Delaware 100% TICC Responsible for real estate
investments for Transamerica
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Bankers Mortgage Company of CA California 100% Transamerica Realty Srv. Holds bank account and owns
certain residual investments in
certain French real estate
projects which are managed
special purpose company for
the purchase of real estate tax
liens.
Pyramid Investment Corporation Delaware 100% Transamerica Realty Srv. Owns office buildings in San
Francisco and other properties
The Gilwell Company California 100% Transamerica Realty Srv. Ground lessee of 517
Washington Street,
San Francisco
Transamerica Affordable Housing, Inc. California 100% Transamerica Realty Srv. Owns general partnership
interests in low-income
housing tax credit
partnerships
Transamerica Minerals Company California 100% Transamerica Realty Srv. Owner and lessor of oil and
gas properties
Transamerica Oakmont Corporation California 100% Transamerica Realty Srv. General partner in
Transamerica/Oakmont
Retirement Associates
Transamerica Senior Properties, Inc. Delaware 100% TICC Owns congregate care and
assisted living retirement
Properties
Transamerica Senior Living, Inc. Delaware 100% Trans. Sr. Prop. Inc. Manages congregate care and
assisted living retirement
properties.
</TABLE>
<PAGE>
Item 27. Number of Contract Owners
As of December 31, 1999, there were 9,944 Owners of the Policies.
Item 28. Indemnification
The Iowa Code (Sections 490.850 et. seq.) provides for permissive
--------
indemnification in certain situations, mandatory indemnification in other
situations, and prohibits indemnification in certain situations. The Code also
specifies procedures for determining when indemnification payments can be made.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Depositor pursuant to the foregoing provisions, or otherwise, the Depositor has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Depositor of expenses incurred
or paid by a director, officer or controlling person in connection with the
securities being registered), the Depositor will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
<PAGE>
Item 29. Principal Underwriters
AFSG Securities Corporation
4333 Edgewood Road, N.E.
Cedar Rapids, IA 52499-0001
The directors and officers of
AFSG Securities Corporation
are as follows:
<TABLE>
<S> <C>
Larry N. Norman Ann Spaes
Director and President Director and Vice President
Frank A. Camp Bob Warner
Secretary Assistant Compliance Officer
Lisa Wachendorf Linda Gilmer
Director Vice President and Chief Treasurer/Controller
Compliance President
Thomas R. Moriarty 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 $21,387,197.00 and
$5,794,363.93 from the Registrant for the period ending December 31, 1999 and
from May 1, 1998 through December 31, 1998, respectively, for its services in
distributing the Policies. AEGON USA Securities, Inc., its predecessor, received
$1,872,219.13 from the Registrant from January 1, 1998 through April 30, 1998,
for its services in distributing the Policies. No other commission or
compensation was received by the principal underwriter, directly or indirectly,
from the Registrant during the fiscal year.
AFSG Securities Corporation serves as the principal underwriter for the PFL
Endeavor Variable Annuity Account, the PFL Endeavor Platinum Variable Annuity
Account, the PFL Retirement Builder Variable Annuity Account, the PFL Life
Variable Annuity Account A, the PFL Life Variable Annuity Account C, the PFL
Life Variable Annuity Account D, the PFL Wright Variable Annuity Account and the
AUSA endeavor Variable Annuity Account. These accounts are separate accounts of
PFL life Insurance Company or AUSA Life Insurance company, Inc. AFSG Securities
Corporation also serves as principal underwriter for Separate Account I,
Separate Account II, Separate Account IV and Separate Account V of peoples
Benefit Life Insurance Company, and for Separate Account B and Separate Account
C of AUSA Life Insurance Company, Inc.
Item 30. Location of Accounts and Records
The records required to be maintained by Section 31(a) of the Investment Company
Act of 1940 and Rules 31a-1 to 31a-3 promulgated thereunder, are maintained by
PFL Life Insurance Company at 4333 Edgewood Road, N.E., Cedar Rapids, Iowa
52499-0001.
<PAGE>
Item 31. Management Services.
All management Contracts are discussed in Part A or Part B.
Item 32. Undertakings
(a) Registrant undertakes that it will file a post-effective amendment to this
registration statement as frequently as necessary to ensure that the
audited financial statements in the registration statement are never more
than 16 months old for so long as Premiums under the Policy may be
accepted.
(b) Registrant undertakes that it will include either (i) a postcard or similar
written communication affixed to or included in the Prospectus that the
applicant can remove to send for a Statement of Additional Information or
(ii) a space in the Policy application that an applicant can check to
request a Statement of Additional Information.
(c) Registrant undertakes to deliver any Statement of Additional Information
and any financial statements required to be made available under this Form
promptly upon written or oral request to PFL at the address or phone number
listed in the Prospectus.
(d) PFL Life Insurance Company hereby represents that the fees and charges
deducted under the policies, in the aggregate, are reasonable in relation
to the services rendered, the expenses expected to be incurred, and the
risks assumed by PFL Life Insurance Company.
Section 403(b) Representations
- ------------------------------
PFL represents that it is relying on a no-action letter dated November 28, 1988,
to the American Council of Life Insurance (Ref. No. IP-6-88), regarding Sections
22(e), 27(c)(1), and 27(d) of the Investment Company Act of 1940, in connection
with redeemability restrictions on Section 403(b) Policies, and that paragraphs
numbered (1) through (4) of that letter will be complied with.
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant 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 26th day of April, 2000.
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 26, 2000
- --------------------------------------------
Patrick S. Baird
/s/ Craig D. Vermie Director April 26, 2000
- --------------------------------------------
Craig D. Vermie
/s/ William L. Busler Director April 26, 2000
- -------------------------------------------- (Principal Executive Officer)
William L. Busler
/s/ Larry N. Norman Director April 26, 2000
- --------------------------------------------
Larry N. Norman
/s/ Douglas C. Kolsrud Director April 26, 2000
- --------------------------------------------
Douglas C. Kolsrud
/s/ Robert J. Kontz Vice President and April 26, 2000
- -------------------------------------------- Corporate Controller
Robert J. Kontz
/s/ Brenda K. Clancy Treasurer April 26, 2000
- --------------------------------------------
Brenda K. Clancy
</TABLE>
<PAGE>
Registration No.
333 - 7509
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
EXHIBITS
TO
FORM N-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
FOR
PFL RETIREMENT BUILDER VARIABLE ANNUITY ACCOUNT
---------------
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INDEX
-------------
Exhibit No. Description of Exhibit Page No.*
- ----------- ---------------------- ---------
<S> <C> <C>
(5)(b)(1) Amended form of Application for the First Union "Flexible Premium Individual Deferred"
Variable Annuity
(5)(c)(1) Amended form of Application for the Retirement Income Builder Variable Annuity
(5)(d)(1) Amended form of Application for the Multi-Manager Retirement Income Builder "Flexible
Premium Individual Deferred Variable Annuity"
(8)(a)(4) Amended Schedule A to Participation Agreements between PFL Life Insurance Company,
Fidelity Distributors, and Variable Insurance Products Funds, Variable Insurance Products
Funds II and Variable Insurance Products Funds III.
(8)(b)(2) Amendment No. 4 to Participation Agreement by and among AIM Variable Insurance Funds,
Inc., PFL Life Insurance Company, AFSG Securities Corporation
(8)(c)(2) Addendum No. 2 to Participation Agreement between PFL Life Insurance Company and Evergreen
Variable Trust.
(8)(d)(1) Second Amended Exhibit A and Exhibit B to Participation
Agreement by and between PFL Life Insurance Company,
Federated Insurance Series and Federated Securities Corp.
(8)(g)(1) Amended Schedule A to Participation Agreement by and between Putnam Variable Trust, Putnam
Mutual Funds Corp. and PFL Life Insurance Company
(8)(j)(1) Form of Revised Participation Agreement among Franklin Templeton Variable Insurance
Products Trust, Franklin Templeton Distributors, Inc. and PFL Life Insurance Company.
(8)(k) Participation Agreement between Mentor Variable Investment Portfolios and PFL Life
Insurance Company.
(8)(l) Participation Agreement among Davis Variable Account Fund, Inc., Davis Distributors, LLC.
and PFL Life Insurance Company
(8)(m) Participation Agreement by and between PFL Life Insurance Company and Transamerica
Variable Insurance, Fund, Inc.
(10)(a) Consent of Independent Auditors.
</TABLE>
- --------
* Page numbers included only in manually executed original.
<PAGE>
EXHIBIT (5)(B)(1)
AMENDED FORM OF APPLICATION FOR THE FIRST UNION "FLEXIBLE PREMIUM
INDIVIDUAL DEFERRED" VARIABLE ANNUITY
<PAGE>
<TABLE>
<S> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
Application for variable annuity
Issued by: PFL Life Insurance Company ("PFL Life") 4333 Edgewood Road N.E., Cedar Rapids, IA 52499-0001
Mail the application and a check: PFL Life Insurance Company. Attn: Variable Annuity Dept.
- -----------------------------------------------------------------------------------------------------------------------------------
1. OWNER In the event the owner is a trust, please provide verification of trustees.
- --------------- Name: Phone No.:
If no annuitant ----------------------------------------------------------------------------------------------------------------
is specified in Address: City: State: Zip:
#2, the Owner ----------------------------------------------------------------------------------------------------------------
will be the [_] Male [_] Female SS#/TIN [_][_][_]-[_][_]-[_][_][_] Birthday [_][_]/[_][_]/[_][_][_][_]
Annuitant.
- ---------------------------------------------------------------------------------------------------------------------------------
JOINT OWNER(S) Name: Phone No.:
- --------------- ----------------------------------------------------------------------------------------------------------------
Address: City: State: Zip:
----------------------------------------------------------------------------------------------------------------
[_] Male [_] Female SS#/TIN [_][_][_]-[_][_]-[_][_][_] Birthday [_][_]/[_][_]/[_][_][_][_]
- ----------------------------------------------------------------------------------------------------------------------------------
2. ANNUITANT Name: Phone No.:
- --------------- ----------------------------------------------------------------------------------------------------------------
Complete only Address: City: State: Zip:
if different ----------------------------------------------------------------------------------------------------------------
from Owner. [_] Male [_] Female SS#/TIN [_][_][_]-[_][_]-[_][_][_] Birthday [_][_]/[_][_]/[_][_][_][_]
- ----------------------------------------------------------------------------------------------------------------------------------
3. BENEFICIARY(IES) Primary: Relationship to Annuitant: %
- ------------------ ---------------------------------------------------------------------------------------------------- ----------
Primary: Relationship to Annuitant: %
---------------------------------------------------------------------------------------------------- ----------
Contingent: Relationship to Annuitant: %
---------------------------------------------------------------------------------------------------- ----------
Contingent: Relationship to Annuitant: %
---------------------------------------------------------------------------------------------------- ----------
- ----------------------------------------------------------------------------------------------------------------------------------
4. TELEPHONE Following is authorized to make telephone transfer requests (check one only):
TRANSFERS [_] Owner(s) only, or
- ---------------- [_] Owner(s) and Owner's Registered Representative (Print Rep Name) __________________________________________
- ----------------------------------------------------------------------------------------------------------------------------------
5. ALLOCATION Please check selected funds and fixed accounts. The initial premium will be allocated as selected here.
OF PREMIUM If Dollar Cost Averaging, see section 7 on reverse side.
PAYMENTS
- ---------------- VARIABLE OPTIONS:
AIM Variable Insurance Funds, Inc. Franklin Templeton Variable Insurance Products Trust - Class 2
- ---------------- [_] Capital Appreciation Fund ______.0% [_] Franklin Small Cap Investment Fund ______.0%
Initial Premium [_] V.I. Growth and Income Fund ______.0% [_] Templeton Asset Strategy Fund ______.0%
$ [_] V.I. International Equity Fund ______.0% [_] Templeton International Securities Fund ______.0%
- ---------------- [_] V.I. Value Fund ______.0% [_] Templeton Developing Markets Securities Fund ______.0%
Make check [_] V.I. Dent Demographics Trends Fund ______.0%
payable to PFL MFS Variable Insurance Trust
Life Insurance Davis Variable Account Fund, Inc. [_] MFS Emerging Growth Series ______.0%
Company. [_] Davis Value Portfolio ______.0% [_] MFS Research Series ______.0%
Type of Annuity; [_] MFS Total Return Series ______.0%
[_] Non-qualified Evergreen Variable Trust [_] MFS Utilities Series ______.0%
Qualified Types: [_] VA Fund ______.0%
Also complete [_] Foundation Fund ______.0% Oppenheimer Variable Accounts Funds
Section 6. [_] VA Growth and Income Fund ______.0% [_] Capital Appreciation Fund/VA ______.0%
[_] IRA [_] Global Leaders Fund ______.0% [_] Main Street Growth and Income Fund/VA ______.0%
[_] Roth IRA [_] VA International Growth Fund ______.0% [_] Multiple Strategies Fund/VA ______.0%
[_] SEP/IRA [_] VA Capital Growth Fund ______.0% [_] Strategic Bond Fund/VA ______.0%
[_] 403(b) [_] VA Growth Fund ______.0%
[_] Keogh [_] VA High Income Fund ______.0% Putnam Variable Trust - Class 1B
[_] Roth [_] VT Global Growth Fund ______.0%
Conversion Federated Insurance Series [_] VT Growth and Income Fund ______.0%
[_] Other _____ [_] American Leaders Fund II ______.0% [_] VT Growth Opportunities Fund ______.0%
_______________ [_] High Income Bond Fund II ______.0% [_] VT Money Market Fund ______.0%
_______________ [_] VT New Value Fund ______.0%
Fidelity Variable Insurance Products
[_] VIP III Growth Opportunities __________________________________ ______.0%
Portfolio ______.0% __________________________________ ______.0%
[_] VIP II Index 500 Portfolio ______.0% __________________________________ ______.0%
[_] VIP II Investment Grade Bond __________________________________ ______.0%
Portfolio ______.0%
[_] VIP High Income Portfolio ______.0%
[_] VIP Growth Portfolio ______.0%
[_] VIP Equity Income Portfolio ______.0%
FIXED OPTIONS:
[_] Dollar Cost Averaging . Policy values, when allocated to any of
(Must complete section 7) ______.0% the Variable Options are not guaranteed
as to fixed dollar amount.
[_] 1 Year Guarantee Period ______.0%
[_] 3 Year Guarantee Period ______.0% . When funds are allocated to Fixed
[_] 5 Year Guarantee Period ______.0% Account Guarantee Periods, policy
[_] 7 Year Guarantee Period ______.0% values under policy may increase or
decrease in accordance with Excess
Total Variable and Fixed _____100% Interest adjustment prior to the end
of Guarantee Period.
- ----------------------------------------------------------------------------------------------------------------------------------
6. QUALIFIED PLAN IRA / SEP / ROTH IRA ROTH IRA Rollover
INFORMATION $________ Contribution for tax year ________ [_][_]/[_][_]/[_][_][_][_] Date first established
- ---------------- $________ Trustee to Trustee Transfer or date of conversion
$________ Rollover from [_] IRA [_] 403(b) [_] Pension $____________________ Portion previously taxed
[_] Other _________________________________
--------
RBKVA-APP R299 STANDARD
--------
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
7. DOLLAR COST Transfer Frequency: Transfer to (indicate investment option and percentage):
AVERAGING DCA Program Options
PROGRAM [_] 6 month program _________________________ _____.0% _________________________ _____.0%
[_] 12 month program _________________________ _____.0% _________________________ _____.0%
Authorized by Owner Number of transfers ______ _________________________ _____.0% _________________________ _____.0%
signature in Section 11. _________________________ _____.0% _________________________ _____.0%
Other Frequency Options _________________________ _____.0% _________________________ _____.0%
[_] Monthly (6 min, 24 max) _________________________ _____.0% _________________________ _____.0%
[_] Quarterly (4 min, 8 max) Total: 100%
- ------------------------------------------------------------------------------------------------------------------------------------
8. OTHER Family Income Protector Option:
Please complete. [_] NO [_] YES (Available at an additional cost, see prospectus)
- ------------------------------------------------------------------------------------------------------------------------------------
9. MINIMUM Your selection cannot be changed after the policy has been issued. If no option
DEATH BENEFIT is specified, Option A will apply.
Select one. [_] Option A- Return of Premium Death Benefit. Annual Mortality and Expense
(M&E) Risk Fee and Administrative Charge is 1.25%.
[_] Option B- 5% Annually Compounding Death Benefit. Maximum Annuitant issue age of
80: Annual M&E Risk Fee and Administrative Charge is 1.40%.
[_] Option C- Annual Step-Up Death Benefit. Maximum Annuitant issue age of 80:
Annual M&E Risk Fee and Administrative Charge is 1.40%.
- ------------------------------------------------------------------------------------------------------------------------------------
10. REPLACEMENT Will this annuity replace or change any existing annuity or life insurance? [_] No [_] Yes
INFORMATION (If Yes, complete the following)
Company: Policy No:
-------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
11. SIGNATURE(S) . Unless I have notified the Company of a community or marital property interest in this policy, the
OF AUTHORIZATION Company will rely on a good faith belief that no such interest exists and will assume no
ACCEPTANCE responsibility for inquiry.
. To the best of my knowledge and belief, my answers to the questions on this application are correct
and true, and I agree that this application becomes a part of the annuity policy when issued to me.
. I (we) am in receipt of a current prospectus for this variable annuity.
. This application is subject to acceptance by PFL Life. If this application is rejected for any
reason, PFL Life will be liable only for return of premiums paid.
[_] Check here if you want to be sent a copy of Statement of Additional Information.
I HAVE REVIEWED MY EXISTING ANNUITY COVERAGE AND FIND THIS POLICY SUITABLE FOR MY NEEDS.
Signed at City: State: Date:
-------------------------------------------------------------------------------------------------------
Owner(s): Annuitant (if not Owner):
-------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
12. AGENT Do you have any reason to believe the annuity applied for will replace or change any existing annuity
INFORMATION or life insurance? [_] No [_] Yes
I HAVE REVIEWED THE APPLICANT'S EXISTING ANNUITY COVERAGE AND FIND THIS POLICY IS SUITABLE FOR HIS/HER
NEEDS.
Registered Representative/
Licensed Agent Name (please print): Signature:
-------------------------------------------------------------------------------------------------------
Phone No.: SS#/TIN [_][_][_]-[_][_]-[_][_][_][_] [_] A [_] B [_] C
--------------------------------
PFL Life Agent #:
-------------------------------------------------------------------------------------------------------
Firm Name:
-------------------------------------------------------------------------------------------------------
Firm Address:
-------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT (5)(C)(1)
AMENDED FORM OF APPLICATION FOR THE RETIREMENT INCOME BUILDER VARIABLE ANNUITY
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Application for variable annuity
Issued by: PFL Life Insurance Company ("PFL Life") 4333 Edgewood Road N.E., Cedar Rapids, IA 52499-0001
Mail the application and a check: PFL Life Insurance Company, Attn: Variable Annuity Dept.
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
1. OWNER In the event the owner is a trust, please provide verification of trustees.
- ------------------- Name: Phone No.:
If no annuitant ---------------------------------------------------------------------------------------------------------------
is specified in Address: City: State: Zip:
#2, the Owner ---------------------------------------------------------------------------------------------------------------
will be the
Annuitant. [_] Male [_] Female SS#/TIN [_][_][_]-[_][_]-[_][_][_][_] Birthdate [_][_]/[_][_]/[_][_][_][_]
- ------------------------------------------------------------------------------------------------------------------------------------
JOINT OWNER(S) Name: Phone No.:
- ------------------- ---------------------------------------------------------------------------------------------------------------
Address: City: State: Zip:
---------------------------------------------------------------------------------------------------------------
[_] Male [_] Female SS#/TIN [_][_][_]-[_][_]-[_][_][_][_] Birthdate [_][_]/[_][_]/[_][_][_][_]
- ------------------------------------------------------------------------------------------------------------------------------------
2. ANNUITANT Name: Relationship to Owner:
- ------------------- ---------------------------------------------------------------------------------------------------------------
Complete only Address City: State: Zip:
if different ---------------------------------------------------------------------------------------------------------------
from Owner [_] Male [_] Female SS#/TIN [_][_][_]-[_][_]-[_][_][_][_] Birthdate [_][_]/[_][_]/[_][_][_][_]
- ------------------------------------------------------------------------------------------------------------------------------------
3. BENEFICIARY(IES) Primary: Relationship to Annuitant: %
- ------------------- ---------------------------------------------------------------------------------------------------------------
Primary: Relationship to Annuitant: %
---------------------------------------------------------------------------------------------------------------
Contingent: Relationship to Annuitant: %
---------------------------------------------------------------------------------------------------------------
Contingent: Relationship to Annuitant: %
---------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
4. TELEPHONE Following is authorized to make telephone transfer requests (check one only):
TRANSFERS [_] Owner(s) only, or
- ------------------- [_] Owner(s) and Owner's Registered Representative (Print Rep Name)___________________________________________
- ------------------------------------------------------------------------------------------------------------------------------------
5. ALLOCATION Please check selected funds and fixed accounts. The initial premium will be allocated as selected here.
OF PREMIUM If Dollar Cost Averaging, see section 7 on reverse side.
PAYMENTS
- ------------------- VARIABLE OPTIONS: FIXED OPTIONS:
[_] VIP Growth .0% [_] Dollar Cost Averaging .0%
- ------------------- ------ (Must complete section 7.) ------
Initial Premium [_] VIP Equity Income .0% [_] 1 Year Guarantee Period .0%
$ ------ ------
- ------------------- [_] VIP Overseas .0% [_] 3 Year Guarantee Period .0%
Make check payable ------ ------
to PFL Life [_] VIP High Income .0% [_] 5 Year Guarantee Period .0%
Insurance Company ------ ------
Type of Annuity; [_] VIP Money Market .0% [_] 7 Year Guarantee Period .0%
[_] Non-qualified ------ ------
Qualified Types: [_] VIP II Asset Manager .0% Total Variable and Fixed 100%
Also complete ------ ------
Section 6 [_] VIP II Asset Manager-Growth .0%
[_] IRA ------
[_] Roth IRA [_] VIP II Contrafund .0%
[_] SEP/IRA ------
[_] 403(b) [_] VIP II Index 500 .0%
[_] Keogh ------
[_] Roth Conversion [_] VIP II Investment Grade Bond .0%
[_] Other_________ ------
__________________ [_] VIP III Growth Opportunities .0%
__________________ ------
[_] VIP III Growth & Income .0%
------
[_] VIP III Balanced .0%
------
[_] VIP III Mid-Cap Portfolio .0%
------
_____________________________________ .0%
_____________________________________ .0%
_____________________________________ .0%
. Policy values, when allocated to any of the Variable Options are not guaranteed as to fixed dollar amount.
. When funds are allocated to Fixed Account Guarantee Periods, policy values under policy may increase or decrease in accordance
with Excess Interest Adjustment prior to the end of Guarantee Period.
- ------------------------------------------------------------------------------------------------------------------------------------
6. QUALIFIED PLAN IRA/SEP/ROTH IRA ROTH IRA Rollover
INFORMATION $_______________ Contribution for tax year________________ [_][_]/[_][_]/[_][_][_][_] Date first established
- ------------------- $_______________ Trustee to Trustee Transfer or date of conversion
$_______________ Rollover from [_] IRA [_] 403(b) [_] Pension $____________________Portion previously taxed
[_] Other __________________________________
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
7. DOLLAR COST Transfer Frequency: Transfer to (include investment option and percentage):
AVERAGING DCA Program Options ______________________________ _____ % ______________________________ _____ %
PROGRAM [_] 6 month program ______________________________ _____ % ______________________________ _____ %
- ------------------ [_] 12 month program ______________________________ _____ % ______________________________ _____ %
Authorized by Number of transfers ____ ______________________________ _____ % ______________________________ _____ %
Owner signature ______________________________ _____ % ______________________________ _____ %
in Section 11. Other Frequency Options ______________________________ _____ % ______________________________ _____ %
[_] Monthly (6 min, 24 max) Total: 100%
[_] Quarterly (4 min, 8 max)
- -----------------------------------------------------------------------------------------------------------------------------------
8. OTHER Family Income Protection Option:
- ------------------ [_] No [_] Yes (Available at an additional cost, see prospectus)
Please complete.
- -----------------------------------------------------------------------------------------------------------------------------------
9. MINIMUM Your selection cannot be changed after the policy has been issued. If no option is specified, Option A will
DEATH BENEFIT apply.
- ------------------ [_] Option A-Return of Premium Death Benefit. Annual Mortality and Expense (M&E) Risk Fee and Administrative
Select one. Charge is 1.25%.
[_] Option B-5% Annually Compounding Death Benefit. Maximum Annuitant issue age of 80: Annual M&E Risk Fee and
Administrative Charge is 1.40%.
[_] Option C-Annual Step-Up Death Benefit. Maximum Annuitant issue age of 80: Annual M&E Risk Fee and
Administrative Charge is 1.40%.
- -----------------------------------------------------------------------------------------------------------------------------------
10. REPLACEMENT Will this annuity replace or change any existing annuity or life insurance? [_] No [_] Yes (If Yes, complete
INFORMATION the following)
- ------------------ Company: Policy No.:
----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
11. SIGNATURE(S) .Unless I have notified the Company of a community or marital property interest in this policy, the Company will
OF AUTHORIZATION rely on a good faith belief that no such interest exists and will assume no responsibility for inquiry.
ACCEPTANCE .To the best of my knowledge and belief, my answers to the questions on this application are correct and true,
- ------------------ and I agree that this application becomes a part of the annuity policy when issued to me.
.I(we) am in receipt of a current prospectus for this variable annuity.
.This application is subject to acceptance by PFL Life. If this application is rejected for any reason, PFL Life
will be liable only for return of premiums paid.
[_] Check here if you want to be sent a copy of Statement of Additional Information.
I HAVE REVIEWED MY EXISTING ANNUITY COVERAGE AND FIND THIS POLICY SUITABLE FOR MY NEEDS.
Signed at City: State: Date:
----------------------------------------------------------------------------------------------------------------
Owner(s): Annuitant (if not Owner):
----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
12. AGENT Do you have any reason to believe the annuity applied for will replace or change any existing annuity or life
INFORMATION insurance? [_] No [_] Yes
- ------------------ I HAVE REVIEWED THE APPLICANT'S EXISTING ANNUITY COVERAGE AND FIND THIS POLICY IS SUITABLE FOR HIS/HER NEEDS.
Registered Representative/
Licensed Agent Name (please print): Signature:
----------------------------------------------------------------------------------------------------------------
Phone No.: SS#/TIN [_][_][_]-[_][_]-[_][_][_][_] [_] A [_] B [_]C
------------------------------------------------
PFL Life Agent #:
----------------------------------------------------------------------------------------------------------------
Firm Name:
----------------------------------------------------------------------------------------------------------------
Firm Address:
----------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT (5)(D)(1)
AMENDED FORM OF APPLICATION FOR THE MULTI-MANAGER RETIREMENT INCOME
BUILDER "FLEXIBLE PREMIUM INDIVIDUAL DEFERRED VARIABLE ANNUITY"
<PAGE>
<TABLE>
<S> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Application for variable annuity
Issued by: PFL Life Insurance Company ("PFL Life") 4333 Edgewood Road N.E., Cedar Rapids, IA 52499-0001
Mail the application and a checkL PFL Life Insurance Company. Attn: Variable Annuity Dept.
- ------------------------------------------------------------------------------------------------------------------------------------
1. OWNER In the event the owner is a trust, please provide verification of trustees.
If no annuitant is Name: Phone No.:
specified in #2 the ------------------------------------------------------------------------------------------------------------
Owner will be the Address: City: State: Zip:
Annuitant. ------------------------------------------------------------------------------------------------------------
[_] Male [_] Female SS#/TIN [_][_][_]-[_][_]-[_][_][_][_] Birthdate [_][_]/[_][_]/[_][_][_][_]
- ------------------------------------------------------------------------------------------------------------------------------------
JOINT OWNER(S) Name: Phone No.:
------------------------------------------------------------------------------------------------------------
Address: City: State: Zip:
-----------------------------------------------------------------------------------------------------------
[_] Male [_] Female SS#/TIN [_][_][_]-[_][_]-[_][_][_][_] Birthdate [_][_]/[_][_]/[_][_][_][_]
- ------------------------------------------------------------------------------------------------------------------------------------
2. ANNUITANT Name: Relationship to Qwner:
------------------------------------------------------------------------------------------------------------
Complete only if Address: City: State: Zip:
different from Owner. -----------------------------------------------------------------------------------------------------------
[_] Male [_] Female SS#/TIN [_][_][_]-[_][_]-[_][_][_][_] Birthdate [_][_]/[_][_]/[_][_][_][_]
- ------------------------------------------------------------------------------------------------------------------------------------
3. BENEFICIARY(IES) Primary: Relationship to Annuitant: %
----------------------------------------------------------------------------------------------- ----------
Primary: Relationship to Annuitant: %
----------------------------------------------------------------------------------------------- ----------
Contingent: Relationship to Annuitant: %
----------------------------------------------------------------------------------------------- ----------
Contingent: Relationship to Annuitant: %
----------------------------------------------------------------------------------------------- ----------
- ------------------------------------------------------------------------------------------------------------------------------------
4. TELEPHONE Following is authorized to make telephone transfer requests (check one only):
TRANSFERS [_] Owner(s) only, or
[_] Owner(s) and Owner's Registered Representative (Print Rep Name)_______________________________________
- ------------------------------------------------------------------------------------------------------------------------------------
5. ALLOCATION Please check selected funds and fixed accouints. The initial premium will be allocated as selected here.
OF PREMIUM If Dollar Cost Averaging, see section 7 on reverse side.
PAYMENTS VARIABLE OPTIONS:
[_] AIM V.I. Capital Appreciation ______.0%
- --------------------- [_] AIM V.I. Growth & Income ______.0%
Initial Premium [_] AIM V.I. Value ______.0%
$ [_] AIM V.I. Government Securities ______.0%
- --------------------- [_] Dreyfus Small Company Stock ______.0%
Make check payable [_] Dreyfus Stock Index ______.0%
to PFL Life Insurance [_] Dreyfus Money Market ______.0%
Company. [_] Fidelity VIP Equity-Income ______.0%
[_] Fidelity VIP Growth ______.0%
Type of Annuity; [_] Fidelity VIP High Income ______.0%
[_] Non-qualified [_] Fidelity VIP II Contrafund ______.0%
Qualified Types: [_] Fidelity VIP II Investment Grade Bond ______.0%
Also complete [_] Fidelity VIP III Growth & Income ______.0%
Section 6. [_] Fidelity VIP III Balanced ______.0%
[_] IRA [_] Fidelity VIP III Mid Cap ______.0%
[_] Roth IRA [_] MFS Emerging Growth ______.0%
[_] SEP/IRA [_] MFS Research ______.0%
[_] 403(b) [_] MFS Total Return ______.0%
[_] Keogh [_] MFS Utilities ______.0%
[_] Roth Conversion [_] Oppenheimer Capital Appreciation Fund/VA ______.0%
[_] Other ___________ [_] Oppenheimer Main Street Growth & Income Fund/VA ______.0%
_____________________ [_] Oppenheimer Global Securities/VA ______.0%
_____________________ [_] Oppenheimer Strategic Bond/VA ______.0%
[_] Oppenheimer High Income/VA ______.0%
[_] Transamerica VIF Growth Portfolio ______.0%
[_] WRL VKAM Emerging Growth ______.0%
[_] WRL Janus Growth ______.0%
[_] WRL Janus Growth ______.0%
___________________________________________________ ______.0%
___________________________________________________ ______.0%
___________________________________________________ ______.0%
FIXED OPTIONS:
[_] Dollar Cost Averaging ______.0%
(Must complete section 7.)
[_] 1 Year Guarantee Period ______.0%
[_] 3 Year Guarantee Period ______.0%
[_] 5 Year Guarantee Period ______.0%
[_] 7 Year Guarantee Period ______.0%
Total Variable and Fixed _____100%
. Policy values, when allocated to any of the Variable Options are not guaranteed as to fixed dollar amount.
. When funds are allocated to Fixed Account Guarantee Periods, policy values under policy may increase or
decrease in accordance with Excess Interest Adjustment prior to the end of Guarantee Period.
- ------------------------------------------------------------------------------------------------------------------------------------
6 QUALIFIED PLAN IRA/SEP/ROTH IRA ROTH IRA Rollover
INFORMATION $____________________Contribution for tax year_________ [_][_]/[_][_]/[_][_][_][_] Date first established
$____________________Trustee or Trustee Transfer or date of conversion
$____________________Rollover from [_] IRA [_] 403(b)
[_] Pension [_] Other ____________ $_____________________ Portion previously taxed
RBKVA-APP R299 Standard
803-0700 Std
RIB II
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
7. DOLLAR COST Transfer Frequency: Transfer to (indicate investment option and percentage):
AVERAGING DCA Program Options _______________________ _____.0% _______________________ _____.0%
PROGRAM [_] 6 month program _______________________ _____.0% _______________________ _____.0%
[_] 12 month program _______________________ _____.0% _______________________ _____.0%
Authorized by Owner Number of transfers _______ _______________________ _____.0% _______________________ _____.0%
signature in Section 11. _______________________ _____.0% _______________________ _____.0%
Other Frequency Option: _______________________ _____.0% _______________________ _____.0%
[_] Monthly (6 min, 24 max) Total: 100%
[_] Quarterly (4 min, 8 max)
- ------------------------------------------------------------------------------------------------------------------------------------
8. OTHER Family Income Protector Option:
Please complete. [_] No [_] Yes (Available at an additional cost, see prospectus)
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C>
9. MINIMUM Your selection cannot be changed after the policy has been issued. If no option is specified. Option A
DEATH BENEFIT will apply.
[_] Option A- Return of Premium Death Benefit. Annual Mortality and Expense (M&E) Risk Fee and
Select one. Administrative charge is 1.25%
[_] Option B- 5% Annually Compounding Death Benefit. Maximum Annuitant issue age of 80: Annual M&E Risk
Fee and Administrative Charge is 1.40%
[_] Option C- Annual Step-Up Death Benefit. Maximum Annuitant issue age of 80: Annual M&E Risk Fee and
Administrative Charge is 1.40%.
- ------------------------------------------------------------------------------------------------------------------------------------
10. REPLACEMENT Will this annuity replace or change any existing annuity or life insurance? [_] No [_] Yes
INFORMATION (If yes, complete the following)
Company: Policy No:
---------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
11. SIGNATURE(S) . Unless I have notified the Company of a community or martial property interest in this policy, the
OF AUTHORIZATION Company will rely on good faith belief that no such interest exists and will assume no
ACCEPTANCE responsibility for inquiry.
. To the best of my knowledge and belief, my answers to the questions on this application are correct
and true, and I agree that this application becomes a part of the annuity policy when issued to me.
. I (we) am in receipt of a current prospectus for this variable annuity.
. This application is subject to acceptance by PFL Life. If this application is rejected for any
reason, PFL Life will be liable only for return of premiums paid.
[_] Check here if you want to be sent a copy of Statement of Additional Information.
I HAVE REVIEWED MY EXISTING ANNUITY COVERAGE AND FIND THIS POLICY SUITABLE FOR MY NEEDS
Signed at City: State: Date:
-------------------------------------------------------------------------------------------------------
Owner(s): Annuitant (if not the Owner):
-------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
12. AGENT Do you have any reason to believe the annuity applied for will replace or change any existing annuity or
INFORMATION life insurance? [_] No [_] Yes
I HAVE REVIEWED THE APPLICANT'S EXISTING ANNUITY COVERAGE AND FIND THIS POLICY IS SUITABLE FOR HIS/HER
NEEDS.
Registered Representative/
Licensed Agent Name (please print): Signature:
----------------------------------------------------------------------------------------------------
Phone No.: SS#/TIN [_] [_] [_] - [_][_] - [_][_][_][_] [_] A [_] B [_] C
---------------------------------
PFL Life Agent #:
----------------------------------------------------------------------------------------------------
Firm Name:
----------------------------------------------------------------------------------------------------
Firm Address:
----------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT (8)(a)(4)
-----------------
AMENDED SCHEDULE A TO PARTICIPATION AGREEMENTS BY AND BETWEEN VARIABLE INSURANCE
PRODUCTS FUND, VARIABLE INSURANCE PRODUCTS FUND II, VARIABLE INSURANCE PRODUCTS
FUND III, 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 Variable Insurance Products Fund, 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 Individual Fidelity Variable August 24, 1979 (by an
Variable Annuity Contracts Annuity Account affiliate subsequently
acquired by the Company)
PFL Endeavor Individual and Group PFL Endeavor VA
Variable Annuity Contracts Separate Account January 19, 1990
PFL Endeavor Platinum Individual and PFL Endeavor VA
Group Variable Annuity Contracts Separate Account January 19, 1990
PFL Retirement Builder Individual PFL Retirement Builder Variable
Variable Annuity Contracts Annuity Account March 29, 1996
PFL Retirement Builder Immediate PFL Retirement Builder Variable
Variable Annuity Contracts Annuity Account March 29, 1996
Portfolio Select Individual Variable PFL Retirement Builder Variable
Annuity Contracts Annuity Account March 29, 1996
PFL Retirement Income Builder II PFL Retirement Builder Variable
Individual Variable Annuity Contracts Annuity Account March 29, 1996
Extra Individual and Group Variable PFL Life Variable February 20, 1997
Annuity Contracts Annuity Account C
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Access Individual and Group Variable PFL Life Variable February 20, 1997
Annuity Contracts Annuity Account D
Select Advantage Individual Variable PFL Life Variable February 20, 1997
Annuity Contracts Annuity Account E
Advantage V PFL Corporate Account One August 10, 1998
PFL Variable PFL Variable Life Account A July 1, 1999
Universal Life Policy
</TABLE>
In witness whereof, we have hereunto set our hand as of the dates indicated:
<TABLE>
<CAPTION>
PFL Life Insurance Company Variable Insurance Products Fund
<S> <C>
By: /s/ William L. Busler By: /s/ Robert C. Pozen
-------------------------------------------- --------------------------------------------
Title: President Title: Senior Vice President
-------------------------------------------- --------------------------------------------
Date: February 28, 2000 Date: February 19, 2000
-------------------------------------------- --------------------------------------------
Fidelity Distributors Corporation Variable Insurance Products Fund II
By: /s/ Kevin Kelly By: /s/ Robert C. Pozen
-------------------------------------------- --------------------------------------------
Title: Vice President Title: Senior Vice President
-------------------------------------------- --------------------------------------------
Date: February 19, 2000 Date: February 19, 2000
-------------------------------------------- --------------------------------------------
</TABLE>
<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 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 August 24, 1979 (by an
Individual Variable Annuity Account affiliate subsequently
Annuity Contracts acquired by the Company)
PFL Endeavor Individual and PFL Endeavor VA
Group Variable Annuity Separate Account January 19, 1990
Contracts
PFL Endeavor Platinum PFL Endeavor VA
Individual and Group Variable Separate Account January 19, 1990
Annuity Contracts
PFL Retirement Builder PFL Retirement Builder
Individual Variable Variable Annuity Account March 29, 1996
Annuity 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
PFL Retirement Income PFL Retirement Builder
Builder II Individual Variable Variable Annuity Account March 29, 1996
Annuity Contracts
Extra Individual and Group PFL Life Variable February 20, 1997
Variable Annuity Contracts Annuity Account C
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Access Individual and Group PFL Life Variable February 20, 1997
Variable Annuity Contracts Annuity Account D
Select Advantage Individual PFL Life Variable February 20, 1997
Variable Annuity Contracts Annuity Account E
Advantage V PFL Corporate Account One August 10, 1998
PFL Variable PFL Variable Life Account A July 1, 1999
Universal Life Policy
</TABLE>
In witness whereof, we have hereunto set our hand as of the dates indicated:
<TABLE>
<CAPTION>
PFL Life Insurance Company Variable Insurance Products Fund III
<S> <C>
By: /s/ William L. Busler By: /s/ Robert C. Pozen
-------------------------------------------- ------------------------------------
Title: President Title: Senior Vice President
-------------------------------------------- ------------------------------------
Date: February 28, 2000 Date: February 19, 2000
-------------------------------------------- ------------------------------------
Fidelity Distributors Corporation
By: /s/ Kevin Kelly
--------------------------------------------
Title: Vice President
--------------------------------------------
Date: February 19, 2000
--------------------------------------------
</TABLE>
<PAGE>
EXHIBIT (8)(b)(2)
-----------------
AMENDMENT NO. 4 TO PARTICIPATION AGREEMENT BY AND AMONG AIM VARIABLE INSURANCE
FUNDS, INC., PFL LIFE INSURANCE COMPANY, AFSG SECURITIES CORPORATION
<PAGE>
AMENDMENT NO. 4
---------------
PARTICIPATION AGREEMENT
-----------------------
The Participation Agreement (the "Agreement"), dated as of May 1, 1998, by and
among AIM Variable Insurance Funds, Inc., a Maryland corporation, A I M
Distributors, Inc., a Delaware corporation, PFL Life Insurance Company, an Iowa
life insurance company, and AFSG Securities Corporation, a Pennsylvania
corporation, is hereby amended as follows:
Schedule A of the Agreement is hereby deleted in its entirety and replaced with
the following:
SCHEDULE A
-----------
<TABLE>
<CAPTION>
- ------------------------------------------------ ------------------------------------- ------------------------------------------
FUNDS AVAILABLE SEPARATE ACCOUNTS POLICIES FUNDED
--------------- ----------------- ---------------
UNDER THE UTILIZING THE FUNDS BY THE
--------- ------------------- ------
POLICIES SEPARATE ACCOUNTS
-------- -----------------
- ------------------------------------------------ ------------------------------------- ------------------------------------------
<S> <C> <C>
AIM V.I. Capital Appreciation Fund PFL Retirement Builder Variable PFL Life Insurance Company Policy Form
AIM V.I. Government Securities Fund Annuity Account No. AV288-101-95-796 (including
AIM V.I. Growth Fund successors forms, addenda and
AIM V.I. Growth & Income Fund Legacy Builder Variable Life endorsements may vary by state under
AIM V.I. International Equity Fund Separate Account marketing names: "Retirement Income
AIM V.I. Value Fund Builder Variable Annuity," "Portfolio
AIM V.I. Dent Demographics Trends Fund PFL Variable Life Select Variable Annuity")
Account A
PFL Life Insurance Company Policy
Form No.'s VL20 & JL20 under the
marketing name "Legacy Builder II"
PFL Life Insurance Company Policy Form
No. WL851 136 58 699 under the marketing
name "Legacy Builder Plus"
PFL Life Insurance Company Policy Form
No. APUL0600 699 under the marketing
name "Variable Protector"
- ------------------------------------------------ ------------------------------------- ------------------------------------------
</TABLE>
All other terms and provisions of the Agreement not amended herein shall remain
in full force and effect.
Effective date: May 1, 2000
AIM VARIABLE INSURANCE FUNDS, INC.
Attest: /s/ Nancy L. Martin By: /s/ Robert H. Graham
------------------------------ ----------------------
Name: Nancy L. Martin Name: Robert H. Graham
Title: Assistant Secretary Title: President
<PAGE>
A I M DISTRIBUTORS, INC.
Attest: /s/ Nancy L. Martin By: /s/ Michael J. Cemo
------------------------------ ---------------------
Name: Nancy L. Martin Name: Michael J. Cemo
Title: Assistant Secretary Title: President
PFL LIFE INSURANCE COMPANY
Attest: /s/ Frank A. Camp By: /s/ William L. Busler
------------------------------ -----------------------
Name: Frank A. Camp Name: William L. Busler
Title: Vice President & Division Title: President
General Counsel
AFSG SECURITIES CORPORATION
Attest: /s/ Frank A. Camp By: /s/ Larry N. Norman
------------------------------ ---------------------
Name: Frank A. Camp Name: Larry N. Norman
Title: Secretary Title: President
<PAGE>
EXHIBIT (8)(c)(2)
-----------------
ADDENDUM NO. 2 TO PARTICIPATION AGREEMENT BETWEEN PFL LIFE INSURANCE COMPANY AND
EVERGREEN VARIABLE TRUST
<PAGE>
PARTICIPATION AGREEMENT ADDENDUM NO. 2
SCHEDULE A
----------
ACCOUNTS, POLICIES AND PORTFOLIOS
SUBJECT TO THE PARTICIPATION AGREEMENT
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 May 1,
1998 (as amended) between Evergreen Variable Annuity Trust and PFL Life
Insurance Company.
<TABLE>
<CAPTION>
- -------------------------------------- ---------------------------------------- --------------------------------------------------
Name of Separate Account and Date Policies Funded by Portfolios Applicable
Established by Board of Directors Separate Account to Policies
- -------------------------------------- ---------------------------------------- --------------------------------------------------
<S> <C> <C>
PFL Retirement Builder Variable PFL Life Insurance Company Evergreen VA Fund
Annuity Account Policy Form Evergreen VA Foundation Fund
March 29, 1996 No. AV288-101-95-796 Evergreen VA Growth and Income Fund
(including successor forms, addenda Evergreen VA Global Leaders Fund
and endorsements - may vary by state Evergreen VA International
under marketing names: Growth Fund
"Retirement Income Builder Variable Evergreen VA Capital Growth Fund
Annuity" Evergreen VA Growth Fund
"Portfolio Select Evergreen VA High Income Fund
Variable Annuity"
(or successor marketing names)
- -------------------------------------- ---------------------------------------- --------------------------------------------------
</TABLE>
In witness whereof, we have hereunto set our hand as of the dates indicated:
PFL Life Insurance Company Evergreen Variable Annuity Trust
By: /s/ William L. Busler By: /s/ Michael H. Koonce
--------------------------------- --------------------------
Name: William L. Busler Name: Michael H. Koonce
--------------------------------- --------------------------
Title: President Title: Secretary
--------------------------------- --------------------------
Date: March 27, 2000 Date: March 21, 2000
--------------------------------- --------------------------
<PAGE>
EXHIBIT (8)(d)(1)
-----------------
AMENDED EXHIBIT A AND EXHIBIT B
TO PARTICIPATION AGREEMENT
BY AND BETWEEN
PFL LIFE INSURANCE COMPANY,
FEDERATED INSURANCE SERIES AND
FEDERATED SECURITIES CORP.
<PAGE>
AMENDED
EXHIBIT A AND EXHIBIT B
EFFECTIVE May 1, 2000
ACCOUNT(S), POLICY(IES) AND PORTFOLIO(S)
SUBJECT TO THE PARTICIPATION AGREEMENT
Account PFL Life Variable Annuity Account A
PFL Retirement Builder Variable Annuity Account
Policies The Atlas Portfolio Builder Variable Annuity
PFL Retirement Income Builder Variable Annuity
The First Union First Choice Variable Annuity
(or successor marketing name)
Portfolios Federated Utility Fund II
Federated High Income Bond Fund II
Federated American Leaders Fund II
PFL LIFE INSURANCE COMPANY FEDERATED INSURANCE SERIES
By its authorized officer, By its authorized officer,
By: /s/ William L. Busler By: /s/ John W. McGonigle
------------------------------- ---------------------------
Name: William L. Busler Name: John W. McGonigle
------------------------- -----------------
Title: President Title: Executive Vice President
---------------------------- ---------------------------
Date: March 27, 2000 Date: March 27, 2000
----------------------------- ------------------
FEDERATED SECURITIES CORP.
By its authorized officer,
By: /s/ John B. Fisher
-----------------------------------
Name: John B. Fisher
-----------------------------------
Title: President - Institutional Sales
-----------------------------------
Date: March 27, 2000
-----------------------------------
<PAGE>
EXHIBIT (8)(g)(1)
-----------------
AMENDED SCHEDULE A TO PARTICIPATION AGREEMENT BY AND BETWEEN
PUTNAM VARIABLE TRUST, PUTNAM MUTUAL FUNDS CORP. AND PFL LIFE
INSURANCE COMPANY
<PAGE>
AMENDED
SCHEDULE A
EFFECTIVE May 1, 2000
ACCOUNTS, POLICIES AND PORTFOLIOS
SUBJECT TO THE PARTICIPATION AGREEMENT
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Name of Separate Account Policies Funded by Separate Portfolios Applicable to
and Date Established by Account Policies
Board of Directors
- -----------------------------------------------------------------------------------------------------------------------
PFL Retirement Builder Variable PFL Life Insurance Company Policy Putnam VT Global Growth Fund
Annuity Account March 29, 1996 Form Putnam VT Growth and Income Fund
No. AV288-101-95-796 Putnam VT Growth Opportunities Fund
(including successor forms, addenda Putnam VT Money Market Fund
and endorsements - may vary by state Putnam VT New Value Fund
under marketing names: "Retirement
Income Builder Variable Annuity"
"First Union First Choice Variable
Annuity"
(or successor marketing names)
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
PFL LIFE INSURANCE COMPANY PUTNAM VARIABLE TRUST
By: /s/ William L. Busler By: /s/ John R. Vereni
----------------------------------------- ------------------------
Name: William L. Busler Name: John R. Vereni
--------------------------------------- ------------------
Title: President Title: Vice President
-------------------------------------- -----------------
Date: April 7, 2000 Date: April 7, 2000
--------------------------------------- -----------------
PUTNAM MUTUAL FUNDS CORP.
By: /s/ Eric S. Levy
---------------------------------------
Name: Eric S. Levy
---------------------------------------
Title: Senior Vice President
---------------------------------------
Date: April 7, 2000
---------------------------------------
<PAGE>
EXHIBIT (8)(j)(1)
-----------------
FORM OF REVISED PARTICIPATION AGREEMENT AMONG FRANKLIN TEMPLETON
VARIABLE INSURANCE PRODUCTS TRUST, FRANKLIN TEMPLETON DISTRIBUTORS, INC.
AND PFL LIFE INSURANCE COMPANY
<PAGE>
Participation Agreement
as of [ , ] 2000
Franklin Templeton Variable Insurance Products Trust
Franklin Templeton Distributors, Inc.
[Company]
CONTENTS
Paragraph Subject Matter
- --------- --------------
1. Parties and Purpose
2. Representations and Warranties
3. Purchase and Redemption of Trust Portfolio Shares
4. Fees, Expenses, Prospectuses, Proxy Materials and Reports
5. Voting
6. Sales Material, Information and Trademarks
7. Indemnification
8. Notices
9. Termination
10. Miscellaneous
Schedules to this Agreement
A. The Company
B. Accounts of the Company
C. Available Portfolios and Classes of Shares of the Trust; Investment
Advisers
D. Contracts of the Company
E. Other Portfolios Available under the Contracts
F. [REDACTED]
G. Addresses for Notices
H. Shared Funding Order
1. Parties and Purpose
-------------------
This agreement (the "Agreement") is between Franklin Templeton Variable
Insurance Products Trust, an open-end management investment company organized as
a business trust under Massachusetts law (the "Trust"), Franklin Templeton
Distributors, Inc., a California corporation which is the principal underwriter
for the Trust (the "Underwriter," and together with the Trust, "we" or "us") and
the insurance company identified on Schedule A ("you"), on your own behalf and
on behalf of each segregated asset account maintained by you that is listed on
Schedule B, as that schedule may be amended from time to time ("Account" or
"Accounts").
The purpose of this Agreement is to entitle you, on behalf of the Accounts,
to purchase the shares, and classes of shares, of portfolios of the Trust
("Portfolios") that are identified on Schedule C, solely for the purpose of
funding benefits of your variable life insurance policies or variable annuity
contracts ("Contracts") that are identified on Schedule D. This Agreement does
not authorize any other purchases or redemptions of shares of the Trust.
<PAGE>
REDACTED
2. Representations and Warranties
------------------------------
(a) Representations and Warranties by You
You represent and warrant that:
1. You are an insurance company duly organized and in good standing
under the laws of your state of incorporation.
2. All of your directors, officers, employees, and other individuals
or entities dealing with the money and/or securities of the Trust are and shall
be at all times covered by a blanket fidelity bond or similar coverage for the
benefit of the Trust, in an amount not less than $5 million. Such bond shall
include coverage for larceny and embezzlement and shall be issued by a reputable
bonding company. You agree to make all reasonable efforts to see that this bond
or another bond containing such provisions is always in effect, and you agree to
notify us in the event that such coverage no longer applies.
3. Each Account is a duly organized, validly existing segregated
asset account under applicable insurance law and interests in each Account are
offered exclusively through the purchase of or transfer into a "variable
contract" within the meaning of such terms under Section 817 of the Internal
Revenue Code of 1986, as amended ("Code") and the regulations thereunder. You
will use your best efforts to continue to meet such definitional requirements,
and will notify us immediately upon having a reasonable basis for believing that
such requirements have ceased to be met or that they might not be met in the
future.
4. Each Account either: (i) has been registered or, prior to any
issuance or sale of the Contracts, will be registered as a unit investment trust
under the Investment Company Act of 1940 ("1940 Act"); or (ii) has not been so
registered in proper reliance upon an exemption from registration under Section
3(c) of the 1940 Act; if the Account is exempt from registration as an
investment company under Section 3(c) of the 1940 Act, you will make every
effort to maintain such exemption and will notify us immediately upon having a
reasonable basis for believing that such exemption no longer applies or might
not apply in the future.
5. The Contracts or interests in the Accounts: (i) are or, prior to
any issuance or sale will be, registered as securities under the Securities Act
of 1933, as amended (the "1933 Act"); or (ii) are not registered because they
are properly exempt from registration under Section 3(a)(2) of the 1933 Act or
will be offered exclusively in transactions that are properly exempt from
registration under Section 4(2) or Regulation D of the 1933 Act, in which case
you will make every effort to maintain such exemption and will notify us
immediately upon having a reasonable basis for believing that such exemption no
longer applies or might not apply in the future.
6. The Contracts: (i) will be sold by broker-dealers, or their
registered representatives, who are registered with the Securities and Exchange
Commission ("SEC") under the Securities and Exchange Act of 1934, as amended
(the "1934 Act") and who are members in good standing of the National
Association of Securities Dealers, Inc. (the "NASD"); (ii) will be issued and
sold in compliance in all material respects with all applicable federal and
2
<PAGE>
REDACTED
state laws; and (iii) will be sold in compliance in all material respects with
state insurance suitability requirements and NASD suitability guidelines.
7. The Contracts currently are and will be treated as annuity
contracts or life insurance contracts under applicable provisions of the Code
and you will use your best efforts to maintain such treatment; you will notify
us immediately upon having a reasonable basis for believing that any of the
Contracts have ceased to be so treated or that they might not be so treated in
the future.
8. The fees and charges deducted under each Contract, in the
aggregate, are reasonable in relation to the services rendered, the expenses
expected to be incurred, and the risks assumed by you.
9. You will use shares of the Trust only for the purpose of funding
benefits of the Contracts through the Accounts.
10. Contracts will not be sold outside of the United States.
11. With respect to any Accounts which are exempt from registration
under the 1940 Act in reliance on 3(c)(1) or Section 3(c)(7) thereof:
a. the principal underwriter for each such Account and any
subaccounts thereof is a registered broker-dealer with the
SEC under the 1934 Act;
b. the shares of the Portfolios of the Trust are and will
continue to be the only investment securities held by the
corresponding subaccounts; and
c. with regard to each Portfolio, you, on behalf of the
corresponding subaccount; will:
(i) vote such shares held by it in the same proportion as
the vote of all other holders of such shares; and
(ii) refrain from substituting shares of another security
for such shares unless the SEC has approved such
substitution in the manner provided in Section 26 of
the 1940 Act.
(b) Representations and Warranties by the Trust
The Trust represents and warrants that:
1. It is duly organized and in good standing under the laws of the
State of Massachusetts.
2. All of its directors, officers, employees and others dealing with
the money and/or securities of a Portfolio are and shall be at all times covered
by a blanket fidelity bond or
3
<PAGE>
REDACTED
similar coverage for the benefit of the Trust in an amount not less that the
minimum coverage required by Rule 17g-1 or other regulations under the 1940 Act.
Such bond shall include coverage for larceny and embezzlement and be issued by a
reputable bonding company.
3. It is registered as an open-end management investment company
under the 1940 Act.
4. Each class of shares of the Portfolios of the Trust is registered
under the 1933 Act.
5. It will amend its registration statement under the 1933 Act and
the 1940 Act from time to time as required in order to effect the continuous
offering of its shares.
6. It will comply, in all material respects, with the 1933 and 1940
Acts and the rules and regulations thereunder.
7. [REDACTED]
8. The investments of each Portfolio will comply with the
diversification requirements for variable annuity, endowment or life insurance
contracts set forth in Section 817(h) of the Code, and the rules and regulations
thereunder, including without limitation Treasury Regulation 1.817-5. Upon
having a reasonable basis for believing any Portfolio has ceased to comply and
will not be able to comply within the grace period afforded by Regulation 1.817-
5, the Trust will notify you immediately and will take all reasonable steps to
adequately diversify the Portfolio to achieve compliance.
9. [REDACTED]
(c) Representations and Warranties by the Underwriter
The Underwriter represents and warrants that:
1. It is registered as a broker dealer with the SEC under the 1934
Act, and is a member in good standing of the NASD.
2. Each investment adviser listed on Schedule C (each, an "Adviser")
is duly registered as an investment adviser under the Investment Advisers Act of
1940, as amended, and any applicable state securities law.
(d) Warranty and Agreement by Both You and Us
We received an order from the SEC dated November 16, 1993 (file no. 812-
8546), which was amended by a notice and an order we received on September 17,
1999 and October 13, 1999, respectively (file no. 812-11698) (collectively, the
"Shared Funding Order," attached to this Agreement as Schedule H). The Shared
Funding Order grants exemptions from certain provisions of the 1940 Act and the
regulations thereunder to the extent necessary to permit shares of the Trust to
be sold to and held by variable annuity and variable life insurance separate
accounts of both affiliated and unaffiliated life insurance companies and
qualified pension and retirement plans outside the separate account context.
You and we both warrant and agree that both you and we will comply with the
4
<PAGE>
REDACTED
"Applicants' Conditions" prescribed in the Shared Funding Order as though such
conditions were set forth verbatim in this Agreement, including, without
limitation, the provisions regarding potential conflicts of interest between the
separate accounts which invest in the Trust and regarding contract owner voting
privileges.
3. Purchase and Redemption of Trust Portfolio Shares
-------------------------------------------------
(a) We will make shares of the Portfolios available to the Accounts for
the benefit of the Contracts. The shares will be available for purchase at the
net asset value per share next computed after we (or our agent) receive a
purchase order, as established in accordance with the provisions of the then
current prospectus of the Trust. Notwithstanding the foregoing, the Trust's
Board of Trustees ("Trustees") may refuse to sell shares of any Portfolio to any
person, or may suspend or terminate the offering of shares of any Portfolio if
such action is required by law or by regulatory authorities having jurisdiction
or if, in the sole discretion of the Trustees, they deem such action to be in
the best interests of the shareholders of such Portfolio. Without limiting the
foregoing, the Trustees have determined that there is a significant risk that
the Trust and its shareholders may be adversely affected by investors whose
purchase and redemption activity follows a market timing pattern, and have
authorized the Trust, the Underwriter and the Trust's transfer agent to adopt
procedures and take other action (including, without limitation, rejecting
specific purchase orders) as they deem necessary to reduce, discourage or
eliminate market timing activity. You agree to cooperate with us to assist us in
implementing the Trust's restrictions on purchase and redemption activity that
follows a market timing pattern.
(b) We agree that shares of the Trust will be sold only to life insurance
companies which have entered into fund participation agreements with the Trust
("Participating Insurance Companies") and their separate accounts or to
qualified pension and retirement plans in accordance with the terms of the
Shared Funding Order. No shares of any Portfolio will be sold to the general
public.
(c) [REDACTED]
(d) [REDACTED]
(e) [REDACTED]
(f) [REDACTED]
(g) We will redeem any full or fractional shares of any Portfolio, when
requested by you on behalf of an Account, at the net asset value next computed
after receipt by us (or our agent) of the request for redemption, as established
in accordance with the provisions of the then current prospectus of the Trust.
We shall make payment for such shares in the manner we establish from time to
time, but in no event shall payment be delayed for a greater period than is
permitted by the 1940 Act. Payments for the purchase or redemption of shares by
you may be netted against one another on any Business Day for the purpose of
determining the amount of any wire transfer on that Business Day.
(h) Issuance and transfer of the Portfolio shares will be by book entry
only. Stock certificates will not be issued to you or the Accounts. Portfolio
shares purchased from the Trust will be recorded in the appropriate title for
each Account or the appropriate subaccount of each Account.
(i) We shall furnish, on or before the ex-dividend date, notice to you of
any income dividends or capital gain distributions payable on the shares of any
Portfolio. You hereby elect to receive all such income dividends and capital
gain distributions as are payable on shares of a Portfolio in additional shares
of that Portfolio, and you reserve the right to change this election in the
future. We will notify you of the number of shares so issued as payment of such
dividends and distributions.
5
<PAGE>
REDACTED
4. Fees, Expenses, Prospectuses, Proxy Materials and Reports
---------------------------------------------------------
(a) [REDACTED]
(b) We shall prepare and be responsible for filing with the SEC, and any
state regulators requiring such filing, all shareholder reports, notices, proxy
materials (or similar materials such as voting instruction solicitation
materials), prospectuses and statements of additional information of the Trust.
We shall bear the costs of preparation and filing of the documents listed in the
preceding sentence, registration and qualification of the Trust's shares of the
Portfolios.
(c) We shall use reasonable efforts to provide you, on a timely basis,
with such information about the Trust, the Portfolios and each Adviser, in such
form as you may reasonably require, as you shall reasonably request in
connection with the preparation of disclosure documents and annual and semi-
annual reports pertaining to the Contracts.
(d) [REDACTED]
(e) [REDACTED]
(f) You assume sole responsibility for ensuring that the Trust's
prospectuses, shareholder reports and communications, and proxy materials are
delivered to Contract owners in accordance with applicable federal and state
securities laws.
5. Voting
------
(a) All Participating Insurance Companies shall have the obligations and
responsibilities regarding pass-through voting and conflicts of interest
corresponding to those contained in the Shared Funding Order.
(b) If and to the extent required by law, you shall: (i) solicit voting
instructions from Contract owners; (ii) vote the Trust shares in accordance with
the instructions received from Contract owners; and (iii) vote Trust shares for
which no instructions have been received in the same proportion as Trust shares
of such Portfolio for which instructions have been received; so long as and to
the extent that the SEC continues to interpret the 1940 Act to require pass-
through voting privileges for variable contract owners. You reserve the right
to vote Trust shares held in any Account in your own right, to the extent
permitted by law.
(c) So long as, and to the extent that, the SEC interprets the 1940 Act to
require pass-through voting privileges for Contract owners, you shall provide
pass-through voting privileges to Contract owners whose Contract values are
invested, through the Accounts, in shares of one or more Portfolios of the
Trust. We shall require all Participating Insurance Companies to calculate
voting privileges in the same manner and you shall be responsible for assuring
that the Accounts calculate voting privileges in the manner established by us.
With respect to each Account, you will vote shares of each Portfolio of the
Trust held by an Account and for which no timely voting instructions from
Contract owners are received in the same proportion as those shares held by that
Account for which voting instructions are received. You and your agents will in
no way recommend or oppose or interfere with the solicitation of proxies for
Portfolio shares held to fund the Contracts without our prior written consent,
which consent may be withheld in our sole discretion.
6. Sales Material, Information and Trademarks
------------------------------------------
(a) [REDACTED]
(b) [REDACTED]
(c) You and your agents shall not give any information or make any
representations or statements on behalf of the Trust or concerning the Trust,
the Underwriter or an Adviser, other than information or representations
6
<PAGE>
REDACTED
contained in and accurately derived from the registration statement or
prospectus for the Trust shares (as such registration statement and prospectus
may be amended or supplemented from time to time), annual and semi-annual
reports of the Trust, Trust-sponsored proxy statements, or in Sales literature
or other Promotional material approved by the Trust or its designee, except as
required by legal process or regulatory authorities or with the written
permission of the Trust or its designee.
(d) [REDACTED]
(e) Except as provided in Section 6(b), you shall not use any designation
comprised in whole or part of the names or marks "Franklin" or "Templeton" or
any logo or other trademark relating to the Trust or the Underwriter without
prior written consent, and upon termination of this Agreement for any reason,
you shall cease all use of any such name or mark as soon as reasonably
practicable.
7. Indemnification
---------------
(a) Indemnification By You
1. You agree to indemnify and hold harmless the Underwriter, the
Trust and each of its Trustees, officers, employees and agents and each person,
if any, who controls the Trust within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" and individually the "Indemnified
Party" for purposes of this Section 7) against any and all losses, claims,
damages, liabilities (including amounts paid in settlement with your written
consent, which consent shall not be unreasonably withheld) or expenses
(including the reasonable costs of investigating or defending any alleged loss,
claim, damage, liability or expense and reasonable legal counsel fees incurred
in connection therewith) (collectively, "Losses"), to which the Indemnified
Parties may become subject under any statute or regulation, or at common law or
otherwise, insofar as such Losses are related to the sale or acquisition of
shares of the Trust or the Contracts and
a. arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in a disclosure
document for the Contracts or in the Contracts themselves or in sales
literature generated or approved by you on behalf of the Contracts or
Accounts (or any amendment or supplement to any of the foregoing)
(collectively, "Company Documents" for the purposes of this Section 7), or
arise out of or are based upon the omission or the alleged omission to
state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, provided that this indemnity
shall not apply as to any Indemnified Party if such statement or omission
or such alleged statement or omission was made in reliance upon and was
accurately derived from written information furnished to you by or on
behalf of the Trust for use in Company Documents or otherwise for use in
connection with the sale of the Contracts or Trust shares; or
b. arise out of or result from statements or representations
(other than statements or representations contained in and accurately
derived from Trust Documents as defined below in Section 7(b)) or wrongful
conduct of you or persons under your control, with respect to the sale or
acquisition of the Contracts or Trust shares; or
c. arise out of or result from any untrue statement or alleged
untrue statement of a material fact contained in Trust Documents as defined
below in Section 7(b) or the omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein not misleading if such statement or omission was made in
reliance upon and accurately derived from written information furnished to
the Trust by or on behalf of you; or
d. arise out of or result from any failure by you to provide
the services or furnish the materials required under the terms of this
Agreement;
7
<PAGE>
REDACTED
e. arise out of or result from any material breach of any
representation and/or warranty made by you in this Agreement or arise out
of or result from any other material breach of this Agreement by you; or
f. arise out of or result from a Contract failing to be
considered a life insurance policy or an annuity Contract, whichever is
appropriate, under applicable provisions of the Code thereby depriving the
Trust of its compliance with Section 817(h) of the Code.
2. You shall not be liable under this indemnification provision with
respect to any Losses to which an Indemnified Party would otherwise be subject
by reason of such Indemnified Party's willful misfeasance, bad faith, or gross
negligence in the performance of such Indemnified Party's duties or by reason of
such Indemnified Party's reckless disregard of obligations and duties under this
Agreement or to the Trust or Underwriter, whichever is applicable. You shall
also not be liable under this indemnification provision with respect to any
claim made against an Indemnified Party unless such Indemnified Party shall have
notified you in writing within a reasonable time after the summons or other
first legal process giving information of the nature of the claim shall have
been served upon such Indemnified Party (or after such Indemnified Party shall
have received notice of such service on any designated agent), but failure to
notify you of any such claim shall not relieve you from any liability which it
may have to the Indemnified Party against whom such action is brought otherwise
than on account of this indemnification provision. In case any such action is
brought against the Indemnified Parties, you shall be entitled to participate,
at your own expense, in the defense of such action. Unless the Indemnified
Party releases you from any further obligations under this Section 7(a), you
also shall be entitled to assume the defense thereof, with counsel satisfactory
to the party named in the action. After notice from you to such party of the
your election to assume the defense thereof, the Indemnified Party shall bear
the fees and expenses of any additional counsel retained by it, and you will not
be liable to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with the defense
thereof other than reasonable costs of investigation.
3. The Indemnified Parties will promptly notify you of the
commencement of any litigation or proceedings against them in connection with
the issuance or sale of the Trust shares or the Contracts or the operation of
the Trust.
(b) Indemnification By The Underwriter
1. The Underwriter agrees to indemnify and hold harmless you, and
each of your directors and officers and each person, if any, who controls you
within the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified
Parties" and individually an "Indemnified Party" for purposes of this Section
7(b)) against any and all losses, claims, damages, liabilities (including
amounts paid in settlement with the written consent of the Underwriter, which
consent shall not be unreasonably withheld) or expenses (including the
reasonable costs of investigating or defending any alleged loss, claim, damage,
liability or expense and reasonable legal counsel fees incurred in connection
therewith) (collectively, "Losses") to which the Indemnified Parties may become
subject under any statute, at common law or otherwise, insofar as such Losses
are related to the sale or acquisition of the shares of the Trust or the
Contracts and:
a. arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in the
Registration Statement, prospectus or sales literature of the Trust (or any
amendment or supplement to any of the foregoing) (collectively, the "Trust
Documents") or arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, provided that this
agreement to indemnify shall not apply as to any Indemnified Party if such
statement or omission of such alleged statement or omission was made in
reliance upon and in conformity with information furnished to us by or on
behalf of you for use in the Registration Statement or prospectus for the
Trust or in sales literature (or any amendment or supplement) or otherwise
for use in connection with the sale of the Contracts or Trust shares; or
8
<PAGE>
REDACTED
b. arise out of or as a result of statements or
representations (other than statements or representations contained in the
disclosure documents or sales literature for the Contracts not supplied by
the Underwriter or persons under its control) or wrongful conduct of the
Trust, Adviser or Underwriter or persons under their control, with respect
to the sale or distribution of the Contracts or Trust shares; or
c. arise out of any untrue statement or alleged untrue
statement of a material fact contained in a disclosure document or sales
literature covering the Contracts, or any amendment thereof or supplement
thereto, or the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statement or
statements therein not misleading, if such statement or omission was made
in reliance upon information furnished to you by or on behalf of the Trust;
or
d. arise as a result of any failure by us to provide the
services and furnish the materials under the terms of this Agreement
(including a failure, whether unintentional or in good faith or otherwise,
to comply with the qualification representation specified above in Section
2(b)(7) and the diversification requirements specified above in Section
2(b)(8); or
e. arise out of or result from any material breach of any
representation and/or warranty made by the Underwriter in this Agreement or
arise out of or result from any other material breach of this Agreement by
the Underwriter; as limited by and in accordance with the provisions of
Sections 7(b)(2) and 7(b)(3) hereof.
2. The Underwriter shall not be liable under this indemnification
provision with respect to any Losses to which an Indemnified Party would
otherwise be subject by reason of such Indemnified Party's willful misfeasance,
bad faith, or gross negligence in the performance of such Indemnified Party's
duties or by reason of such Indemnified Party's reckless disregard of
obligations and duties under this Agreement or to you or the Accounts, whichever
is applicable.
3. The Underwriter shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Underwriter in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Underwriter of
any such claim shall not relieve the Underwriter from any liability which it may
have to the Indemnified Party against whom such action is brought otherwise than
on account of this indemnification provision. In case any such action is
brought against the Indemnified Parties, the Underwriter will be entitled to
participate, at its own expense, in the defense thereof. Unless the Indemnified
Party releases the Underwriter from any further obligations under this Section
7(b), the Underwriter also shall be entitled to assume the defense thereof, with
counsel satisfactory to the party named in the action. After notice from the
Underwriter to such party of the Underwriter's election to assume the defense
thereof, the Indemnified Party shall bear the expenses of any additional counsel
retained by it, and the Underwriter will not be liable to such party under this
Agreement for any legal or other expenses subsequently incurred by such party
independently in connection with the defense thereof other than reasonable costs
of investigation.
4. You agree promptly to notify the Underwriter of the commencement
of any litigation or proceedings against you or the Indemnified Parties in
connection with the issuance or sale of the Contracts or the operation of each
Account.
9
<PAGE>
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(c) Indemnification By The Trust
1. The Trust agrees to indemnify and hold harmless you, and each of
your directors and officers and each person, if any, who controls you within the
meaning of Section 15 of the 1933 Act (collectively, the "Indemnified Parties"
for purposes of this Section 7(c)) against any and all losses, claims, damages,
liabilities (including amounts paid in settlement with the written consent of
the Trust, which consent shall not be unreasonably withheld) or litigation
(including legal and other expenses) to which the Indemnified Parties may become
subject under any statute, at common law or otherwise, insofar as such losses,
claims, damages, liabilities or expenses (or actions in respect thereof) or
settlements result from the gross negligence, bad faith or willful misconduct of
the Board or any member thereof, are related to the operations of the Trust, and
arise out of or result from any material breach of any representation and/or
warranty made by the Trust in this Agreement or arise out of or result from any
other material breach of this Agreement by the Trust; as limited by and in
accordance with the provisions of Sections 7(c)(2) and 7(c)(3) hereof. It is
understood and expressly stipulated that neither the holders of shares of the
Trust nor any Trustee, officer, agent or employee of the Trust shall be
personally liable hereunder, nor shall any resort be had to other private
property for the satisfaction of any claim or obligation hereunder, but the
Trust only shall be liable.
2. The Trust shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
incurred or assessed against any Indemnified Party as such may arise from such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this Agreement or to
you, the Trust, the Underwriter or each Account, whichever is applicable.
3. The Trust shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Trust in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claims shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Trust of any
such claim shall not relieve the Trust from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Trust will be entitled to participate, at
its own expense, in the defense thereof. Unless the Indemnified Party releases
the Trust from any further obligations under this Section 7(c), the Trust also
shall be entitled to assume the defense thereof, with counsel satisfactory to
the party named in the action. After notice from the Trust to such party of the
Trust's election to assume the defense thereof, the Indemnified Party shall bear
the fees and expenses of any additional counsel retained by it, and the Trust
will not be liable to such party under this Agreement for any legal or other
expenses subsequently incurred by such party independently in connection with
the defense thereof other than reasonable costs of investigation.
4. You agree promptly to notify the Trust of the commencement of any
litigation or proceedings against you or the Indemnified Parties in connection
with this Agreement, the issuance or sale of the Contracts, with respect to the
operation of the Account, or the sale or acquisition of shares of the Trust.
8. Notices
-------
Any notice shall be sufficiently given when sent by registered or certified mail
to the other party at the address of such party set forth in Schedule G below or
at such other address as such party may from time to time specify in writing to
the other party.
9. Termination
-----------
(a) [REDACTED]
10
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REDACTED
(b) This Agreement may be terminated immediately by us upon written notice
to you if:
1. you notify the Trust or the Underwriter that the exemption from
registration under Section 3(c) of the 1940 Act no longer applies, or might
not apply in the future, to the unregistered Accounts, or that the
exemption from registration under Section 4(2) or Regulation D promulgated
under the 1933 Act no longer applies or might not apply in the future, to
interests under the unregistered Contracts; or
2. either one or both of the Trust or the Underwriter respectively,
shall determine, in their sole judgment exercised in good faith, that you
have suffered a material adverse change in your business, operations,
financial condition or prospects since the date of this Agreement or are
the subject of material adverse publicity; or
3. you give us the written notice specified above in Section 3(c)
and at the same time you give us such notice there was no notice of
termination outstanding under any other provision of this Agreement;
provided, however, that any termination under this Section 9(b)(3) shall be
effective forty-five (45) days after the notice specified in Section 3(c)
was given; or
4. [REDACTED]
(c) If this Agreement is terminated for any reason, except as required by
the Shared Funding Order or pursuant to Section 9(b)(1), above, we shall, at
your option, continue to make available additional shares of any Portfolio and
redeem shares of any Portfolio pursuant to all of the terms and conditions of
this Agreement for all Contracts in effect on the effective date of termination
of this Agreement. If this Agreement is terminated as required by the Shared
Funding Order, its provisions shall govern.
(d) The provisions of Sections 2 (Representations and Warranties) and 7
(Indemnification) shall survive the termination of this Agreement. All other
applicable provisions of this Agreement shall survive the termination of this
Agreement, as long as shares of the Trust are held on behalf of Contract owners
in accordance with Section 9(c), except that we shall have no further obligation
to sell Trust shares with respect to Contracts issued after termination.
(e) You shall not redeem Trust shares attributable to the Contracts (as
opposed to Trust shares attributable to your assets held in the Account) except:
(i) as necessary to implement Contract owner initiated or approved transactions;
(ii) as required by state and/or federal laws or regulations or judicial or
other legal precedent of general application (hereinafter referred to as a
"Legally Required Redemption"); or (iii) as permitted by an order of the SEC
pursuant to Section 26(b) of the 1940 Act. Upon request, you shall promptly
furnish to us the opinion of your counsel (which counsel shall be reasonably
satisfactory to us) to the effect that any redemption pursuant to clause (ii)
above is a Legally Required Redemption. Furthermore, except in cases where
permitted under the terms of the Contracts, you shall not prevent Contract
owners from allocating payments to a Portfolio that was otherwise available
under the Contracts without first giving us ninety (90) days notice of your
intention to do so.
10. Miscellaneous
-------------
(a) The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions of this
Agreement or otherwise affect their construction or effect.
(b) This Agreement may be executed simultaneously in two or more
counterparts, all of which taken together shall constitute one and the same
instrument.
(c) If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Agreement shall
not be affected thereby.
11
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REDACTED
(d) This Agreement shall be construed and its provisions interpreted under
and in accordance with the laws of the State of California. It shall also be
subject to the provisions of the federal securities laws and the rules and
regulations thereunder, to any orders of the SEC on behalf of the Trust granting
it exemptive relief, and to the conditions of such orders. We shall promptly
forward copies of any such orders to you.
(e) The parties to this Agreement acknowledge and agree that all
liabilities of the Trust arising, directly or indirectly, under this Agreement,
of any and every nature whatsoever, shall be satisfied solely out of the assets
of the Trust and that no Trustee, officer, agent or holder of shares of
beneficial interest of the Trust shall be personally liable for any such
liabilities.
(f) Each party to this Agreement shall cooperate with each other party and
all appropriate governmental authorities (including without limitation the SEC,
the NASD, and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
(g) Each party to this Agreement shall treat as confidential all
information reasonably identified as confidential in writing by any other party
to this Agreement, and, except as permitted by this Agreement or as required by
legal process or regulatory authorities, shall not disclose, disseminate, or use
such names and addresses and other confidential information until such time as
they may come into the public domain, without the express written consent of the
affected party. Without limiting the foregoing, no party to this Agreement
shall disclose any information that such party has been advised is proprietary,
except such information that such party is required to disclose by any
appropriate governmental authority (including, without limitation, the SEC, the
NASD, and state securities and insurance regulators).
(h) The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity, which the parties to this Agreement are entitled to under
state and federal laws.
(i) The parties to this Agreement acknowledge and agree that this
Agreement shall not be exclusive in any respect, except as provided above in
Section 3(c).
(j) Neither this Agreement nor any rights or obligations created by it may
be assigned by any party without the prior written approval of the other
parties.
(k) No provisions of this Agreement may be amended or modified in any
manner except by a written agreement properly authorized and executed by both
parties.
12
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REDACTED
IN WITNESS WHEREOF, each of the parties have caused their duly authorized
officers to execute this Agreement.
The Company:
------------------------------------------------
By:
----------------------------------------------
Name:
--------------------------------------------
Title:
-------------------------------------------
The Trust: Franklin Templeton Variable Insurance Products Trust
----------------------------------------------------
By:
----------------------------------------------
Name: Karen L. Skidmore
Title: Assistant Vice President, Assistant Secretary
The Underwriter: Franklin Templeton Distributors, Inc.
-------------------------------------
By:
----------------------------------------------
Name: [ ]
Title: [ ]
13
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REDACTED
Schedule A
The Company
[name]
[address]
[state of incorporation]
[name]
[address]
[state of incorporation]
14
<PAGE>
REDACTED
Schedule B
Accounts of the Company
1. Name: [name]
Date Established: [date]
SEC Registration Number: 811-
----
2. Name: [name]
Date Established: [date]
SEC Registration Number: 811-
----
15
<PAGE>
REDACTED
Schedule C
Available Portfolios and Classes of Shares of the Trust; Investment Advisers
Franklin Templeton Variable Insurance Products Trust Investment Adviser
- ---------------------------------------------------- ------------------
16
<PAGE>
REDACTED
Schedule D
Contracts of the Company
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Contract 1 Contract 2 Contract 3
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Contract/Product
Name
- -----------------------------------------------------------------------------------------------------
Registered (Y/N)
- -----------------------------------------------------------------------------------------------------
SEC Registration
Number
- -----------------------------------------------------------------------------------------------------
Representative
Form Numbers
- -----------------------------------------------------------------------------------------------------
Separate Account
Name/Date
Established
- -----------------------------------------------------------------------------------------------------
SEC Registration
Number
- -----------------------------------------------------------------------------------------------------
Portfolios and
Classes -Adviser
- -----------------------------------------------------------------------------------------------------
</TABLE>
17
<PAGE>
REDACTED
Schedule D cont.
Contracts of the Company
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Contract 4 Contract 5 Contract 6
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Contract/Product
Name
- -----------------------------------------------------------------------------------------------------
Registered (Y/N)
- -----------------------------------------------------------------------------------------------------
SEC Registration
Number
- -----------------------------------------------------------------------------------------------------
Representative
Form Numbers
- -----------------------------------------------------------------------------------------------------
Separate Account
Name/Date
Established
- -----------------------------------------------------------------------------------------------------
SEC Registration
Number
- -----------------------------------------------------------------------------------------------------
Portfolios and
Classes -Adviser
- -----------------------------------------------------------------------------------------------------
</TABLE>
18
<PAGE>
REDACTED
Schedule E
Other Portfolios Available under the Contracts
[names of other portfolios]
19
<PAGE>
REDACTED
Schedule F
20
<PAGE>
REDACTED
Schedule G
Addresses for Notices
To the Company: [ ] Insurance Company
[address]
[address]
Attention: [name, title]
To the Trust: Franklin Templeton Variable Insurance Products Trust
777 Mariners Island Boulevard
San Mateo, California 94404
Attention: Karen L. Skidmore
[title]
To the Underwriter: Franklin Templeton Distributors, Inc.
777 Mariners Island Boulevard
San Mateo, California 94404
Attention: [name, title]
21
<PAGE>
REDACTED
Schedule H
Shared Funding Order
22
<PAGE>
EXHIBIT (8)(k)
PARTICIPATION AGREEMENT BETWEEN MENTOR VARIABLE INVESTMENT
PORTFOLIOS AND PFL LIFE INSURANCE COMPANY
<PAGE>
PARTICIPATION AGREEMENT
between
MENTOR VARIABLE INVESTMENT PORTFOLIOS,
and
PFL LIFE INSURANCE COMPANY
THIS AGREEMENT, made and entered into as of the 28th day of April, 1999, by and
between PFL LIFE INSURANCE COMPANY, (hereinafter the "Company"), an Iowa
corporation, on its own behalf and on behalf of each segregated asset account of
the Company set forth on Schedule A hereto as may be amended from time to time
(each such account hereinafter referred to as the "Account"), and MENTOR
VARIABLE INVESTMENT PORTFOLIOS , a business trust organized under the laws of
the Commonwealth of Massachusetts (hereinafter the "Trust")
WHEREAS, the Trust engages in business as an open-end management
investment company and is available to act as the investment vehicle for
separate accounts established for variable life insurance policies and variable
annuity contracts (collectively, the "Variable Insurance Products") to be issued
by PFL Life Insurance Company; and
WHEREAS, the beneficial interest in the Trust is divided into several
series of shares, each representing the interest in a particular managed
portfolio of securities and other assets, any one or more of which may be made
available under this Agreement, as may be amended from time to time by mutual
agreement of the parties hereto (each such series hereinafter referred to as a
"Portfolio"); and
WHEREAS, the Trust is registered as an open-end management investment
company under the Investment Company Act of 1940 (the "1940 Act") and its shares
are registered under the Securities Act of 1933, as amended (the "1933 Act");
and
WHEREAS, MENTOR INVESTMENT ADVISERS, LLC (the "Adviser") is duly
registered as an investment adviser under the federal Investment Advisers Act of
1940 (the "Advisers Act") and any applicable state securities law; and
WHEREAS, the Trust expects to obtain an order from the Securities and
Exchange Commission granting participating insurance companies and their
separate accounts exemptions from the provisions of section 9(a), 13(a), 15(a),
and 15(b) of the 1940 Act and rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder,
to the extent necessary to permit shares of the Trust to be sold to and held by
variable annuity and variable life insurance separate accounts of both
affiliated and nonaffiliated life insurance companies and certain qualified
pension and retirement plans (the "Shared Exemptive Order"); and
WHEREAS, the Company has registered or will register certain variable
life insurance and variable annuity contracts under the 1933 Act; and
WHEREAS, each Account is a duly organized, validly existing segregated
asset account, established by resolution of the Board of Directors of the
Company, on the date shown for such Account on Schedule A hereto, to set aside
and invest assets attributable to the aforesaid variable annuity contracts; and
WHEREAS, the Company has registered or will register each Account as a
unit investment trust under the 1940 Act; and
WHEREAS, the underwriter of the Trust's shares, MENTOR DISTRIBUTORS,
LLC, (the "Underwriter") is registered as a broker dealer with the Securities
and Exchange Commission ("SEC") under the Securities Exchange Act of 1934, as
amended, (hereinafter the "1934 Act"), and is a member in good standing of the
National Association of Securities Dealers, Inc. (hereinafter "NASD"); and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios on behalf
of each Account to fund certain of the aforesaid variable life and variable
annuity contracts and the Trust is authorized to sell such shares to unit
investment trusts such as each Account at net asset value;
<PAGE>
NOW, THEREFORE, in consideration of their mutual promises, the Company,
and the Trust agree as follows:
ARTICLE I. Sale of Trust Shares
1.1. The Trust agrees to cause the Underwriter to sell to the Company
those shares of the Trust which each Account orders, executing such orders on a
daily basis at the net asset value next computed after receipt by the Trust or
its designee of the order for the shares of the Trust. For purposes of this
Section 1.1, the Company shall be the designee of the Trust for receipt of such
orders from each Account and receipt by such designee shall constitute receipt
by the Trust; provided that the Trust receives notice of such order by 9:00 a.m.
central time on the next following Business Day. "Business Day" shall mean any
day on which the New York Stock Exchange is open for trading and on which the
Trust calculates its net asset value pursuant to the rules of the Securities and
Exchange Commission.
1.2. The Trust agrees to make its shares of the Portfolios listed on
Schedule A available for purchase at the applicable net asset value per share by
the Company and its Accounts on those days on which the Trust calculates such
net asset value pursuant to rules of the Securities and Exchange Commission and
the Trust shall use reasonable efforts to calculate such net asset value on each
day which the New York Stock Exchange is open for trading. Notwithstanding the
foregoing, the Board of Trustees of the Trust (hereinafter the "Board") may
refuse to sell shares of any Portfolio to any person, or suspend or terminate
the offering of shares of any Portfolio if such action is required by law or by
regulatory authorities having jurisdiction or is, in the sole discretion of the
Board acting in good faith and in light of their fiduciary duties under federal
and any applicable state laws, in the best interests of the shareholders of such
Portfolio.
1.3. The Trust agrees that shares of the Trust will be sold only to the
Company and its separate accounts or (subject to the other terms of this
Agreement and the Shared Trust Exemptive Order) to other life insurance
companies that offer variable annuity and/or variable life insurance contracts
to the public and which have entered into an agreement with the Trust. No shares
of any Portfolio will be sold to the general public.
1.4. The Trust agrees to redeem for cash, on the Company's request, any
full or fractional shares of the Trust held by the Company, executing such
requests on a daily basis at the net asset value next computed after receipt by
the Trust or its designee of the request for redemption. For purposes of this
Section 1.4, the Company shall be the designee of the Trust for receipt of
requests for redemption from each Account and receipt by such designee shall
constitute receipt by the Trust; provided that the Trust receives notice of such
request for redemption by 9:00 am Central Time on the next following Business
Day. The Trust may suspend redemptions of, or delay payments for, such shares as
and to the extent consistent with applicable law.
1.5. The Company agrees that purchases and redemptions of Portfolio
shares offered by the then current prospectus of the Trust shall be made in
accordance with the provisions of such prospectus. The Company agrees that all
net amounts available under the variable annuity contracts with the form
number(s) which are listed on Schedule A attached hereto and incorporated herein
by this reference, as such Schedule A may be amended from time to time hereafter
by mutual written agreement of all the parties hereto, (the "Contracts") shall
be invested in the Trust, in such other Trusts advised by the Adviser as may be
mutually agreed to in writing by the parties hereto, or in the Company's general
account, provided that such amounts may also be invested in an investment
company other than the Trust if (a) such other investment company, or series
thereof, has investment objectives or policies that are substantially different
from the investment objectives and policies of all the Portfolios of the Trust;
or (b) the Company gives the Trust 45 days written notice of its intention to
make such other investment company available as a funding vehicle for the
Contracts; or (c) such other investment company was available as a funding
vehicle for the Contracts prior to the date of this Agreement and the Company so
informs the Trust prior to their signing this Agreement (a list of such funds
appearing on Schedule B to this Agreement); or (d) the Trust consents to the use
of such other investment company.
1.6. The Company shall pay for Trust shares on the next Business
Day after an order to purchase Trust shares is made in accordance with the
provisions of Section 1.1 hereof. Payment shall be in federal funds
2
<PAGE>
transmitted by wire. For purpose of Section 2.10 and 2.11, upon receipt by the
Trust of the federal funds so wired, such funds shall cease to be the
responsibility of the Company and shall become the responsibility of the Trust.
1.7. Issuance and transfer of the Trust's shares will be by book entry
only. Stock certificates will not be issued to the Company or any Account.
Shares ordered from the Trust will be recorded in an appropriate title for each
Account or the appropriate subaccount of each Account.
1.8. The Trust shall furnish same day notice (by wire or telephone,
followed by written confirmation) to the Company of any income, dividends or
capital gain distributions payable on the Trust's shares. The Company hereby
elects to receive all such income dividends and capital gain distributions as
are payable on the Portfolio shares in additional shares of that Portfolio. The
Company reserves the right to revoke this election and to receive all such
income dividends and capital gain distributions in cash. The Trust shall notify
the Company of the number of shares so issued as payment of such dividends and
distributions.
1.9. The Trust shall make the net asset value per share for each
Portfolio available to the Company on a daily basis as soon as reasonably
practical after the net asset value per share is calculated (normally by 5:30
p.m. central time) and shall use its best efforts to make such net asset value
per share available by 5:00 p.m. central time.
ARTICLE II. Representations and Warranties
2.1. The Company represents and warrants that the Contracts are or will
be registered under the 1933 Act; that the Contracts will be issued and sold in
compliance in all material respects with all applicable Federal and State laws
and that the sale of the Contracts shall comply in all material respects with
state insurance suitability requirements. The Company further represents and
warrants that it is an insurance company duly organized and in good standing
under applicable law and that it has legally and validly established each
Account prior to any issuance or sale thereof as a segregated asset account
under Section 508A.1 of the Iowa Insurance Code and has registered or, prior to
any issuance or sale of the Contracts, will register each Account as a unit
investment trust in accordance with the provisions of the 1940 Act to serve as a
segregated investment account for the Contracts.
2.2. The Trust represents and warrants that Trust shares sold pursuant
to this Agreement shall be registered under the 1933 Act, duly authorized for
issuance and sold in compliance with all applicable federal and state securities
laws and that the Trust is and shall remain registered under the 1940 Act. The
Trust shall amend the Registration Statement for its shares under the 1933 Act
and the 1940 Act from time to time as required in order to effect the continuous
offering of its shares. The Trust shall register and qualify the shares for sale
in accordance with the laws of the various states only if and to the extent
deemed advisable by the Trust.
2.3. The Trust represents that it intends to qualify as a Regulated
Investment Company under Subchapter M of the Internal Revenue Code of 1986, as
amended, (the "Code") and that it will make all reasonable efforts to maintain
such qualification (under Subchapter M or any successor or similar provision)
and that it will notify the Company immediately upon having a reasonable basis
for believing that it has ceased to so qualify or that it might not so qualify
in the future.
2.4. The Company represents that the Contracts are currently treated as
endowment or annuity insurance contracts, under applicable provisions of the
Code and that it will make every effort to maintain such treatment and that it
will notify the Trust immediately upon having a reasonable basis for believing
that the Contracts have ceased to be so treated or that they might not be so
treated in the future.
2.5. The Trust currently does not intend to make any payments to
finance distribution expenses pursuant to Rule 12b-1 under the 1940 Act or
otherwise, although it may make such payments in the future. To the extent that
it decides to finance distribution expenses pursuant to Rule 12b-1, the Trust
undertakes to comply with the applicable provisions of Rule 12b-1.
2.6. The Trust represents that it is duly organized and validly
existing under the laws of Commonwealth of Massachusetts and that it does and
will comply in all material respects with the 1940 Act.
2.7. The Trust represents and warrants that all of its directors,
officers, employees, investment advisers, and other individuals/entities dealing
with the money and/or securities of the Trust are and shall continue to be at
all times covered by a blanket fidelity bond or similar coverage for the benefit
of the Trust in an amount not less than
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the minimal coverage as required currently by Rule 17g-(1) of the 1940 Act or
related provisions as may be promulgated from time to time. The aforesaid Bond
shall include coverage for larceny and embezzlement and shall be issued by a
reputable bonding company.
2.8. The Company represents and warrants that all of its directors,
officers, employees, investment advisers, and other individuals/entities dealing
with the money and/or securities of the Trust are covered by a blanket fidelity
bond or similar coverage for the benefit of the Trust, and that said bond is
issued by a reputable bonding company, includes coverage for larceny and
embezzlement, and is in an amount not less than $5 million. The Company agrees
to make all reasonable efforts to see that this bond or another bond containing
these provisions is always in effect, and agrees to notify the Trust in the
event that such coverage no longer applies.
ARTICLE III. Prospectuses and Proxy Statements; Voting
3.1. The Trust shall provide the Company with as many printed copies of
the Trust's current prospectus and Statement of Additional Information as the
Company may reasonably request. If requested by the Company in lieu thereof, the
Trust shall provide camera-ready film containing the Trust's prospectus and
Statement of Additional Information, and such other assistance as is reasonably
necessary in order for the Company once each year (or more frequently if the
prospectus and/or Statement of Additional Information for the Trust is amended
during the year) to have the prospectus for the Contracts and the Trust's
prospectus printed together in one document, and to have the Statement of
Additional Information for the Trust and the Statement of Additional Information
for the Contracts printed together in one document. Alternatively, the Company
may print the Trust's prospectus and/or its Statement of Additional Information
in combination with other fund companies' prospectuses and statements of
additional information. The Trust shall provide such material within a
reasonable time to allow for printing and delivery, and in no event less that
five business days prior to the regulatory required delivery date to
policyholders. Except as provided in the following three sentences, all expenses
of printing and distributing Trust prospectuses and Statements of Additional
Information shall be the expense of the Company. For prospectuses and Statements
of Additional Information provided by the Company to its existing owners of
Contracts in order to update disclosure annually as required by the 1933 Act
and/or the 1940 Act, the cost of printing shall be borne by the Trust. If the
Company chooses to receive camera-ready film in lieu of receiving printed copies
of the Trust's prospectus, the Trust will reimburse the Company in an amount
equal to the product of A and B where A is the number of such prospectuses
distributed to owners of the Contracts, and B is the Trust's per unit cost of
typesetting and printing the Trust's prospectus. The same procedures shall be
followed with respect to the Trust's Statement of Additional Information.
The Company agrees to provide the Trust or its designee with such
information as may be reasonably requested by the Trust to assure that the
Trust's expenses do not include the cost of printing any prospectuses or
Statements of Additional Information other than those actually distributed to
existing owners of the Contracts.
3.2. The Trust's prospectus shall state that the Statement of
Additional Information for the Trust is available from the Trust or the Company
(or in the Trust's discretion, the Prospectus shall state that such Statement is
available from the Trust).
3.3. The Trust, at its expense, shall provide the Company with copies
of its proxy statements, reports to shareholders, and other communications
(except for prospectuses and Statements of Additional Information, which are
covered in Section 3.1) to shareholders in such quantity as the Company shall
reasonably require for distributing to Contract owners.
3.4. If and to the extent required by law the Company shall:
(i) solicit voting instructions from Contract owners;
(ii) vote the Trust shares in accordance with instructions received
from Contract owners; and
(iii) vote Trust shares for which no instructions have been received
in a particular separate account in the same proportion as
Trust shares of such portfolio for which instructions have
been received in that separate account, so long as and to the
extent that the Securities and Exchange Commission continues
to interpret the 1940 Act to require pass-through voting
privileges for variable contract
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owners. The Company and its agents will in no way recommend
or oppose or interfere with the solicitation of proxies for
the Trust shares held by policy owners without the prior
written consent of the Trust. The Trust shall require all
participating insurance companies to calculate voting
percentages in the same manner and the Company shall be
responsible for assuring the Accounts calculate voting
privileges in the manner established by the Trust. The Company
reserves the right to vote Trust shares held in any segregated
asset account in its own right, to the extent permitted by
law. The Company shall be responsible for assuring that each
of its separate accounts participating in the Trust calculates
voting privileges in the same manner.
3.5. The Trust will comply with all provisions of the 1940 Act
requiring voting by shareholders, and in particular the Trust will either
provide for annual meetings or comply with Section 16(c) of the 1940 Act
(although the Trust is not one of the trusts described in Section 16(c) of that
Act) as well as with Sections 16(a) and, if and when applicable, 16(b). Further,
the Trust will act in accordance with the Securities and Exchange Commission's
interpretation of the requirements of Section 16(a) with respect to periodic
elections of trustees and with whatever rules the Commission may promulgate with
respect thereto.
3.6. The Company shall notify the Trust of any applicable state
insurance laws that restrict the Portfolios' investments or otherwise affect the
operation of the Trust and shall notify the Trust of any changes in such laws.
ARTICLE IV. Sales Material and Information
4.1. The Company shall furnish or shall cause to be furnished, to the
Trust or its designee a copy of each prospectus or statement of additional
information in which the Trust or the Adviser is named at least fifteen Business
Days prior to the filing of such document with the Securities and Exchange
Commission. The Company shall furnish, or shall cause to be furnished, to the
Trust or its designee, each piece of sales literature or other promotional
material in which the Trust or the Adviser or the Underwriter is named, at least
ten Business Days prior to its use. No such material shall be used if the Trust
or its designee reasonably objects to such use within ten Business Days after
receipt of such material.
4.2. The Company shall not give any information or make any
representations or statements on behalf of the Trust or concerning the Trust in
connection with the sale of the Contracts other than the information or
representations contained in the registration statement or prospectus for the
Trust shares, as such registration statement and prospectus may be amended or
supplemented from time to time, or in reports or proxy statements for the Trust,
or in sales literature or other promotional material approved by the Trust or
its designee, except with the permission of the Trust or its designee.
4.3. The Trust, or its designee shall furnish, or shall cause to be
furnished, to the Company or its designee, each piece of sales literature or
other promotional material in which the Company and/or its separate account(s),
is named at least ten Business Days prior to its use. No such material shall be
used if the Company or its designee reasonably objects to such use within ten
Business Days after receipt of such material.
4.4. The Trust shall not, and the Trust shall cause the Adviser and the
Underwriter to not give any information or make any representations on behalf of
the Company or concerning the Company, each Account, or the Contracts other than
the information or representations contained in a registration statement or
prospectus for the Contracts, as such registration statement and prospectus may
be amended or supplemented from time to time, or in published reports for each
Account which are in the public domain or approved by the Company for
distribution to Contract owners, or in sales literature or other promotional
material approved by the Company or its designee, except with the permission of
the Company.
4.5. The Trust will provide to the Company at least one complete copy
of all registration statements, prospectuses, Statements of Additional
Information, reports, proxy statements, sales literature and other promotional
materials, applications for exemptions, requests for no-action letters, and all
amendments to any of the above, that relate to the Trust or its shares,
contemporaneously with the filing of such document with the Securities and
Exchange Commission or other regulatory authorities.
4.6. The Company will provide to the Trust at least one complete copy
of all registration statements, prospectuses, Statements of Additional
Information, reports, solicitations for voting instructions, sales literature
and other promotional materials, applications for exemptions, requests for no
action letters, and all amendments to
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any of the above, that relate to the Contracts or each Account,
contemporaneously with the filing of such document with the SEC or other
regulatory authorities.
4.7. For purposes of this Article IV, the phrase "sales literature or
other promotional material" includes, but is not limited to, any of the
following that refer to the Trust or any affiliate of the Trust: advertisements
(such as material published, or designed for use in, a newspaper, magazine, or
other periodical, radio, television, telephone or tape recording, videotape
display, signs or billboards, motion pictures, or other public media), sales
literature (i.e., any written communication distributed or made generally
available to customers or the public, including brochures, circulars, research
reports, market letters, form letters, seminar texts, reprints or excerpts of
any other advertisement, sales literature, or published article), educational or
training materials or other communications distributed or made generally
available to some or all agents or employees, and registration statements,
prospectuses, Statements of Additional Information, shareholder reports, and
proxy materials.
ARTICLE V. Fees and Expenses
5.1. The Trust shall pay no fee or other compensation to the Company
under this agreement, except that if the Trust or any Portfolio adopts and
implements a plan pursuant to Rule 12b-1 to finance distribution expenses, then
the Underwriter may make payments to the Company for the Contracts if and in
amounts agreed to by the Underwriter in writing and such payments will be made
out of existing fees otherwise payable to the Underwriter, past profits of the
Underwriter or other resources available to the Underwriter. No such payments
shall be made directly by the Trust.
5.2. All expenses incident to performance by the Trust under this
Agreement shall be paid by the Trust. The Trust shall see to it that all its
shares are registered and authorized for issuance in accordance with applicable
federal law and, if and to the extent deemed advisable by the Trust, in
accordance with applicable state laws prior to their sale. The Trust shall bear
the expenses for the cost of registration and qualification of the Trust's
shares, preparation and filing of the Trust's prospectus and registration
statement, proxy materials and reports, setting the prospectus in type, setting
in type and printing the proxy materials and reports to shareholders (including
the costs of printing a prospectus that constitutes an annual report), the
preparation of all statements and notices required by any federal or state law,
and all taxes on the issuance or transfer of the Trust's shares.
5.3. The Company shall bear the expenses of distributing the Trust's
prospectus, proxy materials and reports to owners of Contracts issued by the
Company.
ARTICLE VI. Diversification
6.1. The Trust represents that it intends at all times to invest money
from the Contracts in such a manner as to ensure that the Contracts will be
treated as variable contracts under the Code and the regulations issued
thereunder. Without limiting the scope of the foregoing, the Trust represents
that it intends at all times to comply with Section 817(h) of the Code and
Treasury Regulation 1.817-5, relating to the diversification requirements for
variable annuity, endowment, or life insurance contracts and any amendments or
other modifications to such Section or Regulations. In the event of a failure by
the Trust to maintain adequate diversification , it will take all reasonable
steps (a) to notify Company of such failure and (b) to adequately diversify the
Trust so as to achieve compliance within the grace period afforded by Regulation
1.817-5.
ARTICLE VII. Potential Conflicts
7.1. The Trust, if it determines to offer its shares to any other
insurance company, separate account or to a qualified plan shall furnish the
Company with a copy of its application for an order of the Securities and
Exchange Commission under Section 6(c) of the 1940 Act for mixed and shared
funding relief, and the notice of such application and order when issued by the
SEC. In the event of any inconsistency between the terms of any such application
or order and the terms of this Agreement (including without limitation this
Article VII) the parties shall act in accordance with the terms of such
application and order and the provisions of this Agreement shall be deemed to be
amended to that extent. The Company agrees to comply with the conditions on
which such
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order is issued, including reporting any potential or existing conflicts
promptly to the Board of Directors of the Trust ("Board"), and in particular
whenever contract owner voting instructions are disregarded, to the extent such
conditions are not materially different from the conditions of the mixed and
shared funding relief that the Company has agreed to be bound by in similar
participation agreements with other fund providers, and recognizes that it shall
be responsible for assisting the Board in carrying out is responsibilities in
connection with such order. The Company agrees to carry out such
responsibilities with a view to the interests of existing contract owners.
7.2 The Board will monitor the Trust for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
separate accounts investing in the Trust. An irreconcilable material conflict
may arise for a variety of reasons, including: (a) an action by any state
insurance regulatory authority; (b) a change in applicable federal or state
insurance, tax, or securities laws or regulations, or a public ruling, private
letter ruling, no-action or interpretative letter, or any similar action by
insurance, tax, or securities regulatory authorities; (c) an administrative or
judicial decision in any relevant proceeding; (d) the manner in which the
investments of any Portfolio are being managed; (e) a difference in voting
instructions given by variable annuity contract and variable life insurance
contract owners; or (f) a decision by an insurer to disregard the voting
instructions of contract owners. The Trust shall promptly inform the Company if
the Board determines that an irreconcilable material conflict exists and the
implications thereof.
7.3. The Company will report any potential or existing conflicts of
which it is aware to the Board. The Company will assist the Board in carrying
out its responsibilities by providing the Board with all information reasonably
necessary for the Board to consider any issues raised. This includes, but is not
limited to, an obligation by the Company to inform the Board whenever contract
owner voting instructions are disregarded.
7.4. If it is determined by a majority of the Board, or a majority of
its disinterested trustees, that a material irreconcilable conflict exists, the
Company shall, at its expense and to the extent reasonably practicable (as
determined by a majority of the disinterested trustees), take whatever steps are
necessary to remedy or eliminate the irreconcilable material conflict, up to and
including: (1), withdrawing the assets allocable to some or all of the separate
accounts from the Trust or any Portfolio and reinvesting such assets in a
different investment medium, including (but not limited to) another Portfolio of
the Trust, or submitting the question whether such segregation should be
implemented to a vote of all affected Contract owners and, as appropriate,
segregating the assets of any appropriate group (i.e., annuity contract owners,
life insurance contract owners, or variable contract owners of the Company) that
votes in favor of such segregation, or offering to the affected contract owners
the option of making such a change; and (2), establishing a new registered
management investment company or managed separate account.
7.5. If a material irreconcilable conflict arises because of a decision
by the Company to disregard contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
may be required, at the Trust's election, to withdraw the affected Account's
investment in the Trust and terminate this Agreement with respect to such
Account; provided, however that such withdrawal and termination shall be limited
to the extent required by the foregoing material irreconcilable conflict as
determined by a majority of the disinterested members of the Board. Any such
withdrawal and termination must take place within six (6) months after the Trust
gives written notice that this provision is being implemented, and until the end
of that six month period Trust shall, subject to the other provisions of this
Agreement, continue to accept and implement orders by the Company for the
purchase (and redemption) of shares of the Trust.
7.6. If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to the Company conflicts with
the majority of other state regulators, then the Company will withdraw the
affected Account's investment in the Trust and terminate this Agreement with
respect to such Account within six months after the Board informs the Company in
writing that it has determined that such decision has created an irreconcilable
material conflict; provided, however, that such withdrawal and termination shall
be limited to the extent required by the foregoing material irreconcilable
conflict as determined by a majority of the disinterested members of the Board.
Until the end of the foregoing six month period, the Trust shall, subject to the
other provisions of this Agreement, continue to accept and implement orders by
the Company for the purchase (and redemption) of shares of the Trust.
7.7. For purposes of Sections 7.4 through 7.7 of this Agreement, a
majority of the disinterested members of the Board shall determine whether any
proposed action adequately remedies any irreconcilable material conflict,
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but in no event will the Trust be required to establish a new funding medium for
the Contracts. The Company shall not be required by Section 7.4 to establish a
new funding medium for the Contracts if an offer to do so has been declined by
vote of a majority of Contract owners materially adversely affected by the
irreconcilable material conflict. In the event that the Board determines that
any proposed action does not adequately remedy any irreconcilable material
conflict, then the Company will withdraw the Account's investment in the Trust
and terminate this Agreement within six (6) months after the Board informs the
Company in writing of the foregoing determination, provided, however, that such
withdrawal and termination shall be limited to the extent required by any such
material irreconcilable conflict as determined by a majority of the
disinterested members of the Board.
ARTICLE VIII. Indemnification
8.1. Indemnification By The Company
8.1(a). The Company agrees to indemnify and hold harmless the Trust and
each trustee of the Board and officers and each person, if any, who controls the
Trust within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.1) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Company) or litigation (including legal and other
expenses) to which the Indemnified Parties may become subject under any statute,
at common law or otherwise, insofar as such losses, claims, damages, liabilities
or expenses (or actions in respect thereof) or settlements are related to the
sale or acquisition of the Trust's shares or the Contracts and:
(i) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in the Registration
Statement or prospectus for the Contracts or contained in the Contracts or sales
literature for the Contracts (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, provided that this
agreement to indemnify shall not apply as to any Indemnified Party if such
statement or omission or such alleged statement or omission was made in reliance
upon and in conformity with information furnished in writing to the Company by
or on behalf of the Trust for use in the Registration Statement or prospectus
for the Contracts or in the Contracts or sales literature (or any amendment or
supplement) or otherwise for use in connection with the sale of the Contracts or
Trust shares; or
(ii) arise out of or as a result of statements or
representations (other than statements or representations contained in the
Registration Statement, prospectus or sales literature of the Trust not supplied
by the Company, or persons under its control) or wrongful conduct of the Company
or persons under common control with the Company, with respect to the sale or
distribution of the Contracts or Trust Shares; or
(iii) arise out of or as a result of any untrue statement or
alleged untrue statement of a material fact contained in a Registration
Statement, prospectus, or sales literature of the Trust or any amendment thereof
or supplement thereto or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading if such a statement or omission was made in reliance upon
information furnished to the Trust by or on behalf of the Company; or
(iv) arise as a result of any failure by the Company to
provide the services and furnish the materials under the terms of this
Agreement; or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this Agreement or arise
out of or result from any other material breach of this Agreement by the
Company, as limited by and in accordance with the provisions of Sections 8.1(b)
and 8.1(c) hereof.
8.1(b). The Company shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
incurred or assessed against an Indemnified Party as such may arise from such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations or duties under this Agreement or to
the Trust, whichever is applicable.
8.1(c). The Company shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Company in
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writing within a reasonable time after the summons or other first legal process
giving information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Company of any
such claim shall not relieve the Company from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Company shall be entitled to participate,
at its own expense, in the defense of such action. The Company also shall be
entitled to assume the defense thereof, with counsel satisfactory to the party
named in the action. After notice from the Company to such party of the
Company's election to assume the defense thereof, the Indemnified Party shall
bear the fees and expenses of any additional counsel retained by it, and the
Company will not be liable to such party under this Agreement for any legal or
other expenses subsequently incurred by such party independently in connection
with the defense thereof other than reasonable costs of investigation.
8.1(d). The Indemnified Parties will promptly notify the Company of the
commencement of any litigation or proceedings against them in connection with
the issuance or sale of the Trust Shares or the Contracts or the operation of
the Trust.
8.2 Indemnification By the Trust
8.2(a). The Trust agrees to indemnify and hold harmless the Company,
and each of its directors and officers and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.2) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Trust) or litigation (including legal and other
expenses) to which the Indemnified Parties may become subject under any statute,
at common law or otherwise, insofar as such losses, claims, damages, liabilities
or expenses (or actions in respect thereof) or settlements result from the gross
negligence, bad faith or willful misconduct of the Board or any member thereof,
are related to the operations of the Trust and:
(i) arise as a result of any failure by the Trust to provide
the services and furnish the materials under the terms of this Agreement;or
(ii) arise out of or result from any material breach of any
representation and/or warranty made by the Trust in this Agreement or arise out
of or result from any other material breach of this Agreement by the Trust;
as limited by and in accordance with the provisions of Sections 8.2(b) and
8.2(c) hereof.
8.2(b). The Trust shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
incurred or assessed against an Indemnified Party as such may arise from any
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this Agreement or to
the Company, the Trust, or each Account, whichever is applicable.
8.2(c). The Trust shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Trust in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Trust of any
such claim shall not relieve the Trust from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Trust will be entitled to participate, at
its own expense, in the defense thereof. The Trust also shall be entitled to
assume the defense thereof, with counsel satisfactory to the party named in the
action. After notice from the Trust to such party of the Trust's election to
assume the defense thereof, the Indemnified Party shall bear the fees and
expenses of any additional counsel retained by it, and the Trust will not be
liable to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with the defense
thereof other than reasonable costs of investigation.
8.2(d). The Company agrees promptly to notify the Trust of the
commencement of any litigation or proceedings against it or any of its
respective officers or directors in connection with this Agreement, the issuance
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or sale of the Contracts, with respect to the operation of either Account, or
the sale or acquisition of shares of the Trust.
ARTICLE IX. Applicable Law
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of Delaware.
9.2. This Agreement shall be subject to the provisions of the 1933,
1934 and 1940 acts, and the rules and regulations and rulings thereunder,
including such exemptions from those statutes, rules and regulations as the
Securities and Exchange Commission may grant and the terms hereof shall be
interpreted and construed in accordance therewith.
ARTICLE X. Termination
10.1. This Agreement shall continue in full force and effect until the
first to occur of:
(a) termination by any party for any reason by ninety (90)
days advance written notice delivered to the other parties; or
(b) termination by the Company by written notice to the Trust
with respect to any Portfolio based upon the Company's determination that shares
of such Portfolio are not reasonably available to meet the requirements of the
Contracts; or
(c) termination by the Company by written notice to the Trust
with respect to any Portfolio in the event any of the Portfolio's shares are not
registered, issued or sold in accordance with applicable state and/or federal
law or such law precludes the use of such shares as the underlying investment
media of the Contracts issued or to be issued by the Company; or
(d) termination by the Company by written notice to the Trust
with respect to any Portfolio in the event that such Portfolio ceases to qualify
as a Regulated Investment Company under Subchapter M of the Code or under any
successor or similar provision, or if the Company reasonably believes that the
Trust may fail to so qualify; or
(e) termination by the Company by written notice to the Trust
with respect to any Portfolio in the event that such Portfolio fails to meet the
diversification requirements specified in Article VI hereof; or
(f) termination by the Trust by written notice to the Company,
if (1) the Trust shall determine, in its sole judgment reasonably exercised in
good faith, that the Company has suffered a material adverse change in its
business or financial condition or is the subject of material adverse publicity
and such material adverse change or material adverse publicity will have a
material adverse impact upon the business and operations of the Trust , (2) the
Trust shall notify the Company in writing of such determination and its intent
to terminate this Agreement, and (3) after considering the actions taken by the
Company and any other changes in circumstances since the giving of such notice,
such determination of the Trust shall continue to apply on the sixtieth (60th)
day following the giving of such notice, which sixtieth day shall be the
effective date of termination; or
(g) termination by the Company by written notice to the Trust,
if (1) the Company shall determine, in its sole judgment reasonably exercised in
good faith, that the Trust has suffered a material adverse change in its
business or financial condition or is the subject of material adverse publicity
and such material adverse change or material adverse publicity will have a
material adverse impact upon the business and operations of the Company, (2) the
Company shall notify the Trust in writing of such determination and its intent
to terminate the Agreement, and (3) after considering the actions taken by the
Trust and any other changes in circumstances since the giving of such notice,
such determination shall continue to apply on the sixtieth (60th) day following
the giving of such notice, which sixtieth day shall be the effective date of
termination; or
(h) termination by the Trust by written notice to the Company,
if the Company gives the Trust the written notice specified in Section 1.5(b)
hereof and at the time such notice was given there was no notice of
10
<PAGE>
termination outstanding under any other provision of this Agreement; provided,
however any termination under this Section 10.1(h) shall be effective forty five
(45) days after the notice specified in Section 1.5(b) was given.
10.2. Effect of Termination. Notwithstanding any termination of this
Agreement, the Trust shall at the option of the Company, continue to make
available additional shares of the Trust pursuant to the terms and conditions of
this Agreement, for all Contracts in effect on the effective date of termination
of this Agreement (hereinafter referred to as "Existing Contracts"), provided
the Company continues to comply with its remaining obligations under this
Agreement with respect to the Existing Contracts as if it had not been
terminated. Specifically, without limitation and subject to the proviso in the
preceding sentence, the owners of the Existing Contracts shall be permitted to
reallocate investments in the Trust, redeem investments in the Trust and/or
invest in the Trust upon the making of additional purchase payments under the
Existing Contracts. The parties agree that this Section 10.2 shall not apply to
any terminations under Article VII and the effect of such Article VII
terminations shall be governed by Article VII of this Agreement.
10.3 The Company shall not redeem Trust shares attributable to the
Contracts (as opposed to Trust shares attributable to the Company's assets held
in the Account) except (i) as necessary to implement Contract Owner initiated or
approved transactions, or (ii) as required by state and/or federal laws or
regulations or judicial or other legal precedent of general application
(hereinafter referred to as a "Legally Required Redemption") or (iii) as
permitted by an order of the SEC pursuant to Section 26(b) of the 1940 Act. Upon
request, the Company will promptly furnish to the Trust the opinion of counsel
for the Company (which counsel shall be reasonably satisfactory to the Trust) to
the effect that any redemption pursuant to clause (ii) above is a Legally
Required Redemption. Furthermore, except in cases where permitted under the
terms of the Contracts, the Company shall not prevent Contract Owners from
allocating payments to a Portfolio that was otherwise available under the
Contracts without first giving the Trust 90 days notice of its intention to do
so.
ARTICLE XI. Notices
Any notice shall be sufficiently given when sent by registered or
certified mail or by overnight courier to the other party at the address of such
party set forth below or at such other address as such party may from time to
time specify in writing to the other party, which notice shall be effective upon
delivery.
If to the Trust:
Mentor Variable Investment Portfolios
901 East Byrd Street
Richmond, VA 23219
Attention: President
If to the Company:
PFL Life Insurance Company
4333 Edgewood Road, N E
Cedar Rapids, Iowa 52499-0001
Attention: Financial Markets Division, Legal Department
ARTICLE XII. Miscellaneous
12.1 All parties to this Agreement acknowledge and agree that all
liabilities of the Trust arising, directly or indirectly under this Agreement,
of any and every nature whatsoever, shall be satisfied solely out of the assets
of the Trust and that no Trustee, officer, agent, or holder of shares of
beneficial interest of the Trust shall be personally liable for any such
liabilities.
12.2 Subject to the requirements of legal process and regulatory
authority, each party hereto shall treat as confidential the names and addresses
of the owners of the Contracts and all information reasonably identified as
confidential in writing by any other party hereto and, except as permitted by
this Agreement, shall not disclose, disseminate or utilize such names and
addresses and other confidential information until such time as it may come into
the public domain without the express written consent of the affected party.
11
<PAGE>
12.3 The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
12.4 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
12.5 If any provision of this Agreement shall be held or made invalid
by a court decision, statute, rule or otherwise, the remainder of the Agreement
shall not be affected thereby.
12.6 Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
Notwithstanding the generality of the foregoing, each party hereto further
agrees to furnish any Insurance Commissioner with proper jurisdiction in the
matter with any information or reports in connection with services provided
under this Agreement which such Commissioner may request in order to ascertain
whether the insurance operations of the Company are being conducted in a manner
consistent with applicable law or regulations.
12.7 The rights, remedies and obligations contained in this Agreement
are cumulative and are in addition to any and all rights, remedies and
obligations, at law or in equity, which the parties hereto are entitled to under
state and federal laws.
12.8. This Agreement or any of the rights and obligations hereunder may
not be assigned by any party without the prior written consent of all parties
hereto. The Company shall promptly notify the Trust and the Underwriter of any
change in control of the Company.
12.9. The Company shall furnish, or shall cause to be furnished, to the
Trust or its designee copies of the following reports:
(a) the Company's annual statement (prepared under statutory
accounting principles) and annual report (prepared under generally accepted
accounting principles ("GAAP"), if any), as soon as practical and in any event
within 90 days after the end of each fiscal year;
(b) the Company's quarterly statements (statutory) (and GAAP,
if any), as soon as practical and in any event within 45 days after the end of
each quarterly period:
(c) any financial statement, proxy statement, notice or report
of the Company sent to stockholders and/or policyholders, as soon as practical
after the delivery thereof to stockholders;
(d) any registration statement (without exhibits) and
financial reports of the Company filed with the Securities and Exchange
Commission or any state insurance regulator, as soon as practical after the
filing thereof;
(e) any other report submitted to the Company by independent
accountants in connection with any annual, interim or special audit made by them
of the books of the Company, as soon as practical after the receipt thereof.
12
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and on its behalf by its duly authorized
representative and its seal to be hereunder affixed hereto as of the date
specified below.
Company:
SEAL PFL LIFE INSURANCE COMPANY
By its authorized officer,
By: /s/Ronald L. Ziegler
---------------------------
---------------------------
Title: Vice President and Actuary
---------------------------
Date: May 3, 1999
---------------------------
Trust:
SEAL MENTOR VARIABLE INVESTMENT PORTFOLIOS
By its authorized officer,
By: /s/ Paul F. Costello
---------------------------
Paul F Costello
Title: President
Date: May 3, 1999
---------------------------
13
<PAGE>
SCHEDULE A
SEPARATE ACCOUNTS AND ASSOCIATED CONTRACTS
<TABLE>
<S> <C> <C>
Name of Separate Account and Date Policy Form Numbers of Contracts Portfolios Applicable to Policies
Established by Board of Directors Funded
Mentor VIP Capital Growth Portfolio
PFL Retirement Builder Variable PFL Life Insurance Company Policy
Annuity Account Form No. AV288-101-95-796 (including Mentor VIP Growth Portfolio
successor forms, addenda and
March 29, 1996 endorsements which may vary by Mentor VIP High Income Portfolio
states and under marketing names
"Retirement Income Builder Variable
Annuity" and Portfolio Select
Variable Annuity" and successor
marketing names
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
Schedule B
=========================================== =================================================== ========================
1998 1999 Changes
- ------------------------------------------- --------------------------------------------------- ------------------------
<S> <C> <C>
AIM Variable Insurance AIM Variable Insurance
Funds, Inc. Funds, Inc.
AIM V.I. Growth and Income Fund AIM V.I. Growth and Income Fund
AIM V.I. International Equity Fund AIM V.I. International Equity Fund
AIM V.I. Value Fund AIM V.I. Value Fund
- ------------------------------------------- --------------------------------------------------- ------------------------
Evergreen Variable Trust Evergreen Variable Trust
Evergreen VA Fund Evergreen VA Fund
Evergreen Foundation Fund Evergreen Foundation Fund
Evergreen Global Leaders Fund New Fund
Evergreen VA Growth and Income Fund Evergreen VA Growth and Income Fund
Evergreen VA International Growth Fund New Fund
- ------------------------------------------- --------------------------------------------------- ------------------------
Federated Insurance Series Federated Insurance Series
Federated High Income Bond Fund II Federated High Income Bond Fund II
- ------------------------------------------- --------------------------------------------------- ------------------------
Variable Insurance Products
Fund (VIP)
VIP High Income Portfolio - Service Class New Portfolio
- ------------------------------------------- --------------------------------------------------- ------------------------
Variable Insurance Products
Fund II (VIP II)
VIP II Index 500 Portfolio - Initial Class New Portfolio
VIP II Investment Grade Bond Portfolio - Initial New Portfolio
Class
- ------------------------------------------- --------------------------------------------------- ------------------------
Variable Insurance Products
Fund III (VIP III)
VIP III Growth Opportunities Portfolio - Service New Portfolio
Class
- ------------------------------------------- --------------------------------------------------- ------------------------
Mentor Variable
Investment Portfolios
Mentor VIP Capital Growth Portfolio New Portfolio
Mentor VIP Growth Portfolio New Portfolio
Mentor VIP High Income Portfolio New Portfolio by
Supplement--May 1999
- ------------------------------------------- --------------------------------------------------- ------------------------
MFS Variable Insurance Trust MFS Variable Insurance Trust
MFS Emerging Growth Series MFS Emerging Growth Series
MFS Research Series MFS Research Series
MFS Total Return Series MFS Total Return Series
MFS Utilities Series New Series
Oppenheimer Variable Oppenheimer Variable
Account Funds Account Funds
Oppenheimer Growth Fund Oppenheimer Capital Appreciation Fund/VA Name Change
Oppenheimer Multiple Strategies Fund Oppenheimer Multiple Strategies Fund/VA Name Change
Oppenheimer Strategic Bond Fund Oppenheimer Strategic Bond Fund/VA Name Change
- ------------------------------------------- --------------------------------------------------- ------------------------
Putnam Variable Trust Putnam Variable Trust
Putnam VT Global Growth Fund Putnam VT Global Growth Fund - Class IB Shares
Putnam VT Money Market Fund Putnam VT Money Market Fund - Class IB Shares
Putnam VT New Value Fund Putnam VT New Value Fund - Class IB Shares
- ------------------------------------------- --------------------------------------------------- ------------------------
Templeton Variable
Products Series Fund
Templeton Asset Allocation Fund - Class 2 New Fund
Templeton International Fund - Class 2 New Fund
Franklin Small Cap Investments Fund - Class 2 New Fund
=========================================== =================================================== ========================
</TABLE>
15
<PAGE>
EXHIBIT (8)(l)
--------------
PARTICIPATION AGREEMENT AMONG DAVIS VARIABLE ACCOUNT FUND,
INC., DAVIS DISTRIBUTORS, LLC. AND PFL LIFE INSURANCE COMPANY
<PAGE>
PARTICIPATION AGREEMENT
Among
DAVIS VARIABLE ACCOUNT FUND, INC.
DAVIS DISTRIBUTORS, LLC.
and
PFL LIFE INSURANCE COMPANY
THIS AGREEMENT, made and entered into this 28 day of February, 2000, by
-- --------
and among PFL Life Insurance Company (hereinafter the "Insurance Company"), an
--------------------------
Iowa corporation, on its own behalf and on behalf of each segregated asset
account of the Insurance Company set forth on Schedule A hereto as may be
amended from time to time (each such account hereinafter referred to as the
"Account"), DAVIS VARIABLE ACCOUNT FUND, INC., a Maryland Corporation (the
"Company") and Davis Distributors, LLC., a Delaware Limited Liability Company
("Davis Distributors").
WHEREAS, the Company engages in business as an open-end management
investment company and is available to act as the investment vehicle for
variable annuity and life insurance contracts to be offered by separate accounts
of insurance companies which have entered into participation agreements
substantially similar to this Agreement ("Participating Insurance Companies")
and for qualified retirement and pension plans ("Qualified Plans"); and
WHEREAS, the beneficial interest in the Company is divided into several
series of shares, each designated a "Fund" and representing the interest in a
particular managed portfolio of securities and other assets; and
WHEREAS, the Company has obtained, or warrants and agrees that prior to
any issuance or sale of shares it will obtain an order from the Securities and
Exchange Commission (the "SEC"), granting Participating Insurance Companies and
their separate accounts exemptions from the provisions of Sections 9(a), 13(a),
15(a), and 15(b) of the Investment Company Act of 1940, as amended, (the "1940
Act") and Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, to the extent
necessary to permit shares of the Company to be sold to and held by Qualified
Plans and by variable annuity and variable life insurance separate accounts of
Participating Insurance Companies that may or may not be affiliated with one
another (the "Mixed and Shared Funding Exemptive Order"); and
1
<PAGE>
WHEREAS, the Company has registered, or warrants and agrees that prior
to any issuance or sale of its shares it will register as an open-end management
investment company under the 1940 Act and the offering of its shares has been
registered, or warrants and agrees that prior to any issuance or sale its shares
will be registered under the Securities Act of 1933, as amended (hereinafter the
"1933 Act"); and
WHEREAS, Davis Distributors is duly registered as a broker-dealer under
the Securities Exchange Act of 1934, as amended, (the "1934 Act"), and is a
member in good standing of the National Association of Securities Dealers, Inc.
(the "NASD"); and
WHEREAS, Davis Distributors is a wholly owned subsidiary of Davis
Selected Advisers, L.P. which is duly registered as an investment adviser under
the Investment Advisers Act of 1940, as amended, and any applicable state
securities law; and
WHEREAS, the Insurance Company has registered under the 1933 Act, or
will register under the 1933 Act, certain variable annuity or variable life
insurance contracts identified on Schedule B to this Agreement, as amended from
time to time hereafter by mutual written agreement of all the parties hereto
(the "Contracts"); and
WHEREAS, each Account is a duly organized, validly existing segregated
asset account, established by resolution of the board of directors of the
Insurance Company on the date shown for that Account on Schedule A hereto, to
set aside and invest assets attributable to the Contracts; and
WHEREAS, the Insurance Company has registered or will register each
Account as a unit investment trust under the 1940 Act; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Insurance Company intends to purchase shares in the Funds
listed on Schedule C to this Agreement as amended from time to time, at net
asset value on behalf of each Account to fund the Contracts;
NOW, THEREFORE, in consideration of their mutual promises, the
Insurance Company, the Company and Davis Distributors agree as follows:
ARTICLE I. Sale of Company Shares
1.1. Davis Distributors agrees to sell to the Insurance Company those
shares of the Company which each Account orders, executing such orders on a
daily basis at the net asset value next computed after receipt by the Company or
its designee of the order for the shares of the Company. For purposes of this
Section 1.1, the Insurance Company, or its designee, shall be the designee of
the Company for receipt of such orders from the Accounts and receipt by such
designee shall constitute receipt by the Company; provided that the Company
receives notice of such order by 10:00 a.m., Eastern Time, on the next following
Business Day. In this Agreement, "Business
2
<PAGE>
Day" shall mean any day on which the New York Stock Exchange is open for trading
and on which the Company calculates its net asset value pursuant to the rules of
the SEC.
1.2. The Company agrees to make its shares available for purchase at
the applicable net asset value per share by the Insurance Company and its
Accounts on those days on which the Company calculates its Funds' net asset
values pursuant to rules of the SEC and the Company shall use reasonable efforts
to calculate its Funds' net asset values on each day on which the New York Stock
Exchange is open for trading. Notwithstanding the foregoing, the directors of
the Company may refuse to sell shares of any Fund to any person, or suspend or
terminate the offering of shares of any Fund if such action is required by law
or by regulatory authorities having jurisdiction or is, in the sole discretion
of the directors of the Company acting in good faith and in light of their
fiduciary duties under federal and any applicable state laws, necessary in the
best interests of the shareholders of that Fund.
1.3. The Company agrees that shares of the Company will be sold only to
Accounts of Participating Insurance Companies and to Qualified Plans. No shares
of any Fund will be sold to the general public.
1.4. The Company will not sell its shares to any insurance company or
separate account unless an agreement containing provisions substantially the
same as Sections 2.4, 3.4, 3.5, and Article VII of this Agreement is in effect
to govern such sales.
1.5. The Company agrees to redeem, on the Insurance Company's request,
any full or fractional shares of the Company held by the Account, executing such
requests on a daily basis at the net asset value next computed after receipt by
the Company or its designee of the request for redemption. However, if one or
more Funds has determined to settle redemption transactions for all of its
shareholders on a delayed basis (more than one business day, but in no event
more than three Business Days, after the date on which the redemption order is
received, unless otherwise permitted by an order of the SEC under Section 22(e)
of the 1940 Act), the Company shall be permitted to delay sending redemption
proceeds to the Insurance Company by the same number of days that the Company is
delaying sending redemption proceeds to the other shareholders of the Fund. For
purposes of this Section 1.5, the Insurance Company shall be the designee of the
Company for receipt of requests for redemption from each Account and receipt by
that designee shall constitute receipt by the Company; provided that the Company
receives notice of the request for redemption by 9:00 a.m., Eastern Time, on the
next following Business Day.
1.6. The Insurance Company agrees to purchase and redeem the shares of
each Fund listed on Schedule C to this Agreement, as amended from time to time,
and offered by the then-current prospectus of the Company in accordance with the
provisions of that prospectus.
1.7. Each purchase, redemption and exchange order placed by the
Insurance Company shall be placed separately for each Fund and shall not be
netted with respect to any Fund. However, with respect to payment of the
purchase price by the Insurance Company and of redemption proceeds by
3
<PAGE>
the Company, the Insurance Company and the Company shall net purchase and
redemption orders with respect to each Fund and shall transmit one net payment
for all of the Funds. Payment shall be in federal funds transmitted by wire. In
the event of net purchase, the Insurance Company shall pay for the Funds' shares
by 3:00 p.m. Eastern time on the next Business Day after an order to purchase
shares is made in accordance with the provisions of Section 1.1 hereof. For the
purpose of Sections 2.9 and 2.10, upon receipt by the Company of the wired
federal funds, such funds shall cease to be the responsibility of the Insurance
Company and shall become the responsibility of the Company. In the event of net
redemption, the Company shall pay the redemption proceeds by 3:30 p.m. Eastern
time on the next Business Day after an order to redeem the shares is made in
accordance with the provisions of Section 1.5 hereof. However, payment may be
postponed under unusual circumstances, such as when normal trading is not taking
place on the New York Stock Exchange, an emergency as defined by the SEC exists,
or as permitted by the SEC.
1.8. Issuance and transfer of the Company's shares will be by book
entry only. Stock certificates will not be issued to the Insurance Company or
any Account. Shares ordered from the Company will be recorded in an appropriate
title for each Account or the appropriate subaccount of each Account.
1.9. The Company shall furnish same day notice (by wire or telephone,
followed by written confirmation) to the Insurance Company of any income,
dividends or capital gain distributions payable on the Funds' shares. The
Insurance Company hereby elects to receive all income dividends and capital gain
distributions payable on a Fund's shares in additional shares of that Fund. The
Insurance Company reserves the right to revoke this election and to receive all
such income dividends and capital gain distributions in cash. The Company shall
notify the Insurance Company of the number of shares issued as payment of
dividends and distributions.
1.10. The Company shall make the net asset value per share for each
Fund available to the Insurance Company on a daily basis as soon as reasonably
practical after the net asset value per share is calculated and shall use its
best efforts to make those per-share net asset values available by 7:00 p.m.,
Eastern Time. In the event that the Company is unable to meet the 7:00 p.m.
Eastern time stated herein, it shall provide additional time for the Insurance
Company to place orders for the purchase and redemption of shares. Such
additional time shall be equal to the additional time which the Company takes to
make the net asset value available to the Insurance Company. In accordance with
Section 8.3(a)(iii) hereof, if the Company provides materially incorrect share
net asset value information, the Company may make an adjustment to the number of
shares purchased or redeemed for the Account to reflect the correct net asset
value per share. Any material error in the calculation or reporting of net asset
value per share, dividend or capital gains information shall be reported to the
Insurance Company promptly upon discovery.
4
<PAGE>
ARTICLE II. Representations, Warranties and Agreements
2.1. The Insurance Company represents, warrants and agrees that the
offerings of the Contracts are, or will be, registered under the 1933 Act; that
the Contracts will be issued and sold in compliance in all material respects
with all applicable federal and state laws and that the sale of the Contracts
shall comply in all material respects with applicable state insurance
suitability requirements. The Insurance Company further represents that it is an
insurance company duly organized and in good standing under applicable law and
that it has legally and validly established the Account prior to any issuance or
sale thereof as a segregated asset account under Delaware insurance law and has
registered, or warrants and agrees that prior to any issuance or sale of the
Contracts it will register, the Account as a unit investment trust in accordance
with the provisions of the 1940 Act to serve as a segregated investment account
for the Contracts.
2.2. The Company warrants and agrees that Company shares sold pursuant
to this Agreement shall be registered under the 1933 Act, duly authorized for
issuance and sale in compliance with the laws of the State of Maryland and all
applicable federal securities laws and that the Company is and shall remain
registered under the 1940 Act. The Company warrants and agrees that it shall
amend the registration statement for its shares under the 1933 Act and the 1940
Act from time to time as required in order to effect the continuous offering of
its shares. The Company shall register and qualify the shares for sale in
accordance with the laws of the various states only if and to the extent deemed
advisable by the Company or Davis Distributors.
2.3. The Company represents that each Fund is currently, or will elect
at the earliest opportunity to be, qualified as a Regulated Investment Company
under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"), and warrants and agrees that it will make every effort to maintain each
Fund's qualification (under Subchapter M or any successor or similar provision)
and that it will notify the Insurance Company immediately upon having a
reasonable basis for believing that any Fund has ceased to so qualify or might
not so qualify in the future.
2.4. The Insurance Company represents that the Contracts are currently
treated as annuity or life insurance contracts under applicable provisions of
the Code and warrants and agrees that it will make every effort to maintain such
treatment and that it will notify the Company and Davis Distributors immediately
upon having a reasonable basis for believing that the Contracts have ceased to
be so treated or that they might not be so treated in the future.
2.5. The Company may elect to make payments to finance distribution
expenses pursuant to Rule 12b-1 under the 1940 Act. To the extent that it
decides to finance distribution expenses pursuant to Rule 12b-1, the Company
undertakes to have a board of directors, a majority of whom are not interested
persons of the Company, formulate and approve any plan under Rule 12b-1 to
finance distribution expenses.
5
<PAGE>
2.6. The Company makes no representation or warranty as to whether any
aspect of its operations (including, but not limited to, fees and expenses and
investment policies) complies or will comply with the insurance laws or
regulations of the various states.
2.7. The Company represents that it is lawfully organized and validly
existing under the laws of the State of Maryland and represents, warrants and
agrees that it does and will comply in all material respects with the 1940 Act
and the laws of the State of Maryland.
2.8. Davis Distributors represents that it is and warrants that it
shall remain duly registered as a broker-dealer under all applicable federal and
state securities laws and agrees that it shall perform its obligations for the
Company in compliance in all material respects with the laws of the State of New
Mexico and any applicable state and federal securities laws.
2.9. The Company and Davis Distributors represent and warrant that all
of their officers, employees, investment advisers, investment sub-advisers, and
other individuals or entities described in Rule 17g-1 under the 1940 Act dealing
with the money and/or securities of the Company are, and shall continue to be at
all times, covered by a blanket fidelity bond or similar coverage for the
benefit of the Company in an amount not less than the minimum coverage required
currently by Rule 17g-1 under the 1940 Act or related provisions as may be
promulgated from time to time. That fidelity bond shall include coverage for
larceny and embezzlement and shall be issued by a reputable bonding company.
2.10. The Insurance Company represents and warrants that all of its
officers, employees, investment advisers, and other individuals or entities
dealing with the money and/or securities of the Company are and shall continue
to be at all times covered by a blanket fidelity bond or similar coverage for
the benefit of the Company, in an amount not less than $1 million. The aforesaid
bond shall include coverage for larceny and embezzlement and shall be issued by
a reputable bonding company.
2.11. Each party represents that it will use its best efforts to ensure
that the systems that would materially affect the performance of this Agreement
will be fully tested and year 2000 compliant prior to December 31, 1999 and they
will function without material disruption of such party's ability to perform
this Agreement in the year 2000 and beyond.
6
<PAGE>
ARTICLE III. Disclosure Documents and Voting
3.1. Davis Distributors shall provide the Insurance Company (at the
Insurance Company's expense) with as many copies of the current
prospectus for each Fund listed on Schedule C herein as the
Insurance Company may reasonably request for distribution to
prospective purchasers of contracts. Davis Distributors shall
also provide the Insurance Company (free of charge) with as many
copies of the current prospectus for each Fund listed on Schedule
C herein as the Insurance Company may reasonably request for
distribution to existing Contract owners whose Contracts are
funded by shares of such Fund(s). If requested by the Insurance
Company in lieu thereof, the Company shall provide such
documentation (including a final copy of the new prospectus as
set in type at the Company's expense) and other assistance as is
reasonably necessary in order for the Insurance Company once each
year (or more frequently if the prospectus for the Company is
amended) to have the prospectus for the Contracts and the
Company's prospectus printed together in one document. All such
documents shall be provided to the Insurance Company within time
reasonably required to allow for printing and delivery to
Contract owners, but no later than five business days prior to
the date the documents are required under the then-current
regulations to be sent to Contract owners. Except as provided in
the following three sentences, all expenses of printing and
distributing Company prospectuses and Statements of Additional
Information shall be the expense of the Insurance Company. For
prospectuses and Statements of Additional Information provided by
the Insurance Company to its existing owners of Contracts in
order to update disclosure annually as required by the 1933 Act
and/or the 1940 Act, the cost of printing shall be borne by the
Company. If the Insurance Company chooses to receive camera-ready
film in lieu of receiving printed copies of the Company's
prospectus, the Company will reimburse the Insurance Company in
an amount equal to the product of A and B where A is the number
of such prospectuses distributed to owners of the Contracts, and
B is the Company's per unit cost of typesetting and printing the
Company's prospectus. The same procedures shall be followed with
respect to the Company's Statement of Additional Information.
3.2. The Company's prospectus shall state that the Statement of
Additional Information for the Company (the "SAI") is available from the
Company, and Davis Distributors (or the Company), at its expense, shall print
and provide the SAI free of charge to the Insurance Company and to any owner of
a Contract or prospective owner who requests the SAI.
3.3. The Company, at its expense, shall provide the Insurance Company
with copies of its proxy material, reports to shareholders and other
communications to shareholders in such quantity as the Insurance Company shall
reasonably require for distributing to Contract owners.
3.4. If and to the extent required by law, the Insurance Company shall:
7
<PAGE>
(i) solicit voting instructions from Contract owners;
(ii) vote the Company shares of each Fund in accordance with
instructions received from Contract owners; and
(iii) vote Company shares for which no instructions have been
received in the same proportion as Company shares of that
Fund for which instructions have been received;
so long as and to the extent that the SEC continues to interpret the 1940 Act to
require pass-through voting privileges for variable contract owners. The
Insurance Company reserves the right to vote Company shares held in any
segregated asset account in its own right, to the extent permitted by law.
Participating Insurance Companies shall be responsible for assuring that each of
their separate accounts participating in the Company calculates voting
privileges in a manner consistent with the standards set forth on Schedule D
attached hereto and incorporated herein by this reference, which standards will
also be provided to the other Participating Insurance Companies. The Insurance
Company shall fulfill its obligation under, and abide by the terms and
conditions of, the Mixed and Shared Funding Exemptive Order.
3.5. The Company will comply with all provisions of the 1940 Act
requiring voting by shareholders, and in particular the Company will either
provide for annual meetings (except insofar as the SEC may interpret Section 16
of the 1940 Act not to require such meetings) or, as the Company currently
intends, comply with Section 16(c) of the 1940 Act as well as with Sections
16(a) and, if and when applicable, 16(b). Further, the Company will act in
accordance with the SEC's interpretation of the requirements of Section 16(a)
with respect to periodic elections of directors and with whatever rules the SEC
may promulgate with respect thereto.
ARTICLE IV. Sales Material and Information
4.1. The Insurance Company shall furnish, or shall cause to be
furnished, to the Company or its designee, each piece of sales literature or
other promotional material in which the Company, Davis Selected Advisers, L.P.,
or Davis Distributors is named, at least five Business Days prior to its use. No
such material shall be used if the Company or its designee reasonably objects to
such use within five Business Days after receipt of such material.
4.2. The Insurance Company shall not give any information or make any
representations or statements on behalf of the Company or concerning the Company
in connection with the sale of the Contracts other than the information or
representations contained in the Company's registration statement, prospectus or
SAI, as that registration statement, prospectus or SAI may be amended or
supplemented from time to time, or in reports or proxy statements for the
Company, or in sales literature or other promotional material approved by the
Company or its designee or by Davis Distributors, except with the permission of
the Company or Davis Distributors.
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4.3. The Company, Davis Distributors, or its designee shall furnish, or
shall cause to be furnished, to the Insurance Company or its designee, each
piece of sales literature or other promotional material in which the Insurance
Company or the Account is named at least five Business Days prior to its use. No
such material shall be used if the Insurance Company or its designee reasonably
objects to such use within five Business Days after receipt of that material.
4.4. The Company and Davis Distributors shall not give any information
or make any representations on behalf of the Insurance Company or concerning the
Insurance Company, any Account, or the Contracts other than the information or
representations contained in a registration statement, prospectus or statement
of additional information for the Contracts, as that registration statement,
prospectus or statement of additional information may be amended or supplemented
from time to time, or in published reports for any Account which are in the
public domain or approved by the Insurance Company for distribution to Contract
owners, or in sales literature or other promotional material approved by the
Insurance Company or its designee, except with the permission of the Insurance
Company.
4.5. The Company will provide to the Insurance Company at least one
complete copy of each registration statement, prospectus, statement of
additional information, report, proxy statement, piece of sales literature or
other promotional material, application for exemption, request for no-action
letter, and any amendment to any of the above, that relate to the Company or its
shares, contemporaneously with the filing of the document with the SEC, the
NASD, or other regulatory authorities.
4.6. The Insurance Company will provide to the Company at least one
complete copy of each registration statement, prospectus, statement of
additional information, report, solicitation for voting instructions, piece of
sales literature and other promotional material, application for exemption,
request for no-action letter, and any amendment to any of the above, that
relates to the Contracts or the Account, contemporaneously with the filing of
the document with the SEC, the NASD, or other regulatory authorities.
4.7. For purposes of this Article IV, the phrase "sales literature or
other promotional material" includes, but is not limited to, advertisements,
newspaper, magazine, or other periodical, radio, television, telephone or tape
recording, videotape display, signs or billboards, motion pictures, or other
public media, sales literature (i.e., any written communication distributed or
made generally available to customers or the public, including brochures,
circulars, research reports, market letters, form letters, shareholder
newsletters, seminar texts, reprints or excerpts of any other advertisement,
sales literature, or published article), educational or training materials or
other communications distributed or made generally available to some or all
agents or employees, and registration statements, prospectuses, statements of
additional information, shareholder reports, and proxy materials.
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4.8. At the request of any party to this Agreement, each other party
will make available to the other party's independent auditors and/or
representative of the appropriate regulatory agencies, all records, data and
access to operating procedures that may be reasonably requested.
ARTICLE V. Fees and Expenses
5.1. The Company and Davis Distributors shall pay no fee or other
compensation to the Insurance Company under this agreement, except as set forth
in Section 5.4.
5.2. All expenses incident to performance by the Company under this
Agreement shall be paid by the Company. The Company shall see to it that any
offering of its shares is registered and that all of its shares are authorized
for issuance in accordance with applicable federal law and, if and to the extent
deemed advisable by the Company or Davis Distributors, in accordance with
applicable state laws prior to their sale. The Company shall bear the cost of
registration and qualification of the Company's shares, preparation and filing
of the Company's prospectus and registration statement, proxy materials and
reports, setting the prospectus in type, setting in type and printing the proxy
materials and reports to shareholders, the preparation of all statements and
notices required by any federal or state law, and all taxes on the issuance or
transfer of the Company's shares.
5.3. The Insurance Company shall bear the expenses of printing and
distributing to Contract owners the Contract prospectuses and of distributing to
Contract owners the Company's prospectus, proxy materials and reports.
5.4. The Insurance Company bears the responsibility and correlative
expense for administrative and support services for Contract owners. Davis
Distributors recognizes the Insurance Company, on behalf of each Account, as the
sole shareholder of shares of the Company issued under this Agreement. From time
to time, Davis Distributors may pay amounts from its past profits to the
Insurance Company for providing certain administrative services for the Company
or for providing other services that relate to the Company. In consideration of
the savings resulting from such arrangement, and to compensate the Insurance
Company for its costs, Davis Distributors agrees to pay to the Insurance Company
an amount equal to 25 basis points (0.25%) per annum of the average aggregate
amount invested by the Insurance Company in the Company under this Agreement.
Such payments will be made monthly, and only when the average aggregate amount
invested exceeds $1,000,000. The parties agree that such payments are for
administrative services and investor support services, and do not constitute
payment for investment advisory, distribution or other services. Payment of such
amounts by Davis Distributors shall not increase the fees paid by the Company or
its shareholders.
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ARTICLE VI. Diversification
6.1. The Company will comply with Section 817(h) of the Code and
Treasury Regulation 1.817-5 relating to the diversification requirements for
variable annuity, endowment, modified endowment or life insurance contracts and
any amendments or other modifications to that Section or Regulation at all times
necessary to satisfy those requirements.
ARTICLE VII. Potential Conflicts
7.1. The directors of the Company will monitor each Fund for the
existence of any material irreconcilable conflict between the interests of the
variable Contract owners of all separate accounts investing in the Company and
the participants of all Qualified Plans investing in the Company. An
irreconcilable material conflict may arise for a variety of reasons, including:
(a) an action by any state insurance regulatory authority; (b) a change in
applicable federal or state insurance, tax, or securities laws or regulations,
or a public ruling, private letter ruling, no-action or interpretive letter, or
any similar action by insurance, tax, or securities regulatory authorities; (c)
an administrative or judicial decision in any relevant proceeding; (d) the
manner in which the investments of any Fund are being managed; (e) a difference
in voting instructions given by variable annuity contract and variable life
insurance contract owners; or (f) a decision by a Participating Insurance
Company to disregard the voting instructions of variable contract owners. The
directors of the Company shall promptly inform the Insurance Company if they
determine that an irreconcilable material conflict exists and the implications
thereof. The directors of the Company shall have sole authority to determine
whether an irreconcilable material conflict exists and their determination shall
be binding upon the Insurance Company.
7.2. The Insurance Company and Davis Distributors each will report
promptly any potential or existing conflicts of which it is aware to the
directors of the Company. The Insurance Company and Davis Distributors each will
assist the directors of the Company in carrying out their responsibilities under
the Mixed and Shared Funding Exemptive Order, by providing the directors of the
Company with all information reasonably necessary for them to consider any
issues raised. This includes, but is not limited to, an obligation by the
Insurance Company to inform the directors of the Company whenever Contract owner
voting instructions are to be disregarded. These responsibilities shall be
carried out by the Insurance Company with a view only to the interests of the
Contract owners and by Davis Distributors with a view only to the interests of
Contract owners and Qualified Plan participants.
7.3. If it is determined by a majority of the directors of the Company,
or a majority of the directors who are not interested persons of the Company,
any of its Funds, or Davis Distributors (the "Independent Directors"), that a
material irreconcilable conflict exists, the Insurance Company and/or other
Participating Insurance Companies or Qualified Plans that have executed
participation agreements shall, at their expense and to the extent reasonably
practicable (as determined by a majority of the Independent Directors), take
whatever steps are necessary to remedy or eliminate
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the irreconcilable material conflict, up to and including: (1) withdrawing the
assets attributable to some or all of the separate accounts from the Company or
any Fund and reinvesting those assets in a different investment medium,
including (but not limited to) another Fund of the Company, or submitting the
question whether such segregation should be implemented to a vote of all
affected variable contract owners and, as appropriate, segregating the assets of
any appropriate group (e.g., annuity contract owners, life insurance contract
owners, or variable contract owners of one or more Participating Insurance
Companies) that votes in favor of such segregation, or offering to the affected
variable contract owners the option of making such a change; and (2)
establishing a new registered management investment company or managed separate
account and obtaining any necessary approvals or orders of the SEC in connection
therewith.
7.4. If a material irreconcilable conflict arises because of a decision
by the Insurance Company to disregard Contract owner voting instructions and
that decision represents a minority position or would preclude a majority vote,
the Insurance Company may be required, at the Company's election, to withdraw
the affected Account's investment in the Company and terminate this Agreement
with respect to that Account; provided, however, that such withdrawal and
termination shall be limited to the extent required by the foregoing material
irreconcilable conflict as determined by a majority of the Independent
Directors. Any such withdrawal and termination must take place within six (6)
months after the Company gives written notice that this provision is being
implemented, and, until the end of that six month period, the Company shall
continue to accept and implement orders by the Insurance Company for the
purchase (and redemption) of shares of the Company.
7.5. If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to the Insurance Company
conflicts with the majority of other state regulators, then the Insurance
Company will withdraw the affected Account's investment in the Company and
terminate this Agreement with respect to that Account within six months after
the directors of the Company inform the Insurance Company in writing that they
have determined that the state insurance regulator's decision has created an
irreconcilable material conflict; provided, however, that such withdrawal and
termination shall be limited to the extent required by the foregoing material
irreconcilable conflict as determined by a majority of the Independent
Directors. Until the end of the foregoing six month period, the Company shall
continue to accept and implement orders by the Insurance Company for the
purchase (and redemption) of shares of the Company.
7.6. For purposes of Sections 7.3 through 7.6 of this Agreement, a
majority of the Independent Directors shall determine whether any proposed
action adequately remedies any irreconcilable material conflict, but in no event
will the Company be required to establish a new funding medium for the
Contracts. The Insurance Company shall not be required by Section 7.3 to
establish a new funding medium for the Contracts if an offer to do so has been
declined by vote of a majority of Contract owners materially adversely affected
by the irreconcilable material conflict. In the event that the directors of the
Company determine that any proposed action does not adequately remedy any
irreconcilable material conflict, then the Insurance Company will withdraw the
12
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Account's investment in the Company and terminate this Agreement within six (6)
months after the directors of the Company inform the Insurance Company in
writing of the foregoing determination, provided, however, that the withdrawal
and termination shall be limited to the extent required by the material
irreconcilable conflict, as determined by a majority of the Independent
Directors.
7.7. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended,
or Rule 6e-3 is adopted, to provide exemptive relief from any provision of the
1940 Act or the rules promulgated thereunder with respect to mixed or shared
funding (as defined in the Mixed and Shared Funding Exemptive Order) on terms
and conditions materially different from those contained in the Mixed and Shared
Funding Exemptive Order, then (a) the Company and/or the Participating Insurance
Companies, as appropriate, shall take such steps as may be necessary to comply
with Rules 6e-2 and 6e-3(T), as amended, and Rule 6e-3, as adopted, to the
extent those rules are applicable; and (b) Sections 3.4, 3.5, 7.1, 7.2, 7.3,
7.4, and 7.5 of this Agreement shall continue in effect only to the extent that
terms and conditions substantially identical to those Sections are contained in
the Rule(s) as so amended or adopted.
ARTICLE VIII. Indemnification
8.1. Indemnification By The Insurance Company
8.1(a). The Insurance Company agrees to indemnify and hold harmless the
Company and each director, officer, employee or agent of the Company, and each
person, if any, who controls the Company within the meaning of Section 15 of the
1933 Act (collectively, the "Indemnified Parties" for purposes of this Section
8.1) against any and all losses, claims, damages, liabilities (including amounts
paid in settlement with the written consent of the Insurance Company) or
litigation (including legal and other expenses), to which the Indemnified
Parties may become subject under any statute, regulation, at common law or
otherwise, insofar as such losses, claims, damages, liabilities or expenses (or
actions in respect thereof) or settlements are related to the sale, acquisition,
or redemption of the Company's shares or the Contracts and:
(i) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in
the registration statement, prospectus or statement of
additional information for the Contracts or contained in the
Contracts or sales literature for the Contracts (or any
amendment or supplement to any of the foregoing), or arise out
of or are based upon the omission or the alleged omission to
state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading,
provided that this agreement to indemnify shall not apply as
to any Indemnified Party if such statement or omission or such
alleged statement or omission was made in reliance upon and in
conformity with information furnished in writing to the
Insurance Company by
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or on behalf of the Company for use in the registration
statement, prospectus or statement of additional information
for the Contracts or in the Contracts or sales literature (or
any amendment or supplement to any of the foregoing) or
otherwise for use in connection with the sale of the Contracts
or shares of the Company;
(ii) arise out of or as a result of statements or
representations (other than statements or representations
contained in the registration statement, prospectus, statement
of additional information or sales literature of the Company
not supplied by the Insurance Company, or persons under its
control) or wrongful conduct of the Insurance Company or
persons under its control, with respect to the sale or
distribution of the Contracts or Company Shares;
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a registration
statement, prospectus, statement of additional information or
sales literature of the Company or any amendment thereof or
supplement thereto or the omission or alleged omission to
state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading if
such a statement or omission was made in reliance upon
information furnished in writing to the Company by or on
behalf of the Insurance Company;
(iv) arise as a result of any failure by the Insurance Company
to provide the services and furnish the materials under the
terms of this Agreement; or
(v) arise out of or result from any material breach of any
representation, warranty or agreement made by the Insurance
Company in this Agreement or arise out of or result from any
other material breach of this Agreement by the Insurance
Company,
as limited by and in accordance with the provisions of Sections 8.1(b) and
8.1(c) hereof.
8.1(b). The Insurance Company shall not be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation incurred or assessed against an Indemnified Party that
may arise from that Indemnified Party's willful misfeasance, bad faith, or gross
negligence in the performance of that Indemnified Party's duties or by reason of
that Indemnified Party's reckless disregard of obligations or duties under this
Agreement or to the Company, whichever is applicable.
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8.1(c). The Insurance Company shall not be liable under this
indemnification provision with respect to any claim made against an Indemnified
Party unless that Indemnified Party shall have notified the Insurance Company in
writing within a reasonable time after the summons or other first legal process
giving information of the nature of the claim shall have been served upon that
Indemnified Party (or after the Indemnified Party shall have received notice of
such service on any designated agent). Notwithstanding the foregoing, the
failure of any Indemnified Party to give notice as provided herein shall not
relieve the Insurance Company of its obligations hereunder except to the extent
that the Insurance Company has been prejudiced by such failure to give notice.
In addition, any failure by the Indemnified Party to notify the Insurance
Company of any such claim shall not relieve the Insurance Company from any
liability which it may have to the Indemnified Party against whom the action is
brought otherwise than on account of this indemnification provision. In case any
such action is brought against the Indemnified Parties, the Insurance Company
shall be entitled to participate, at its own expense, in the defense of the
action. The Insurance Company also shall be entitled to assume the defense
thereof, with counsel satisfactory to the party named in the action; provided,
--------
however, that if the Indemnified Party shall have reasonably concluded that
- -------
there may be defenses available to it which are different from or additional to
those available to the Insurance Company, the Insurance Company shall not have
the right to assume said defense, but shall pay the costs and expenses thereof
(except that in no event shall the Insurance Company be liable for the fees and
expenses of more than one counsel for Indemnified Parties in connection with any
one action or separate but similar or related actions in the same jurisdiction
arising out of the same general allegations or circumstances). After notice from
the Insurance Company to the Indemnified Party of the Insurance Company's
election to assume the defense thereof, and in the absence of such a reasonable
conclusion that there may be different or additional defenses available to the
Indemnified Party, the Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it, and the Insurance Company will not be liable
to that party under this Agreement for any legal or other expenses subsequently
incurred by the party independently in connection with the defense thereof other
than reasonable costs of investigation.
8.1(d). The Indemnified Parties will promptly notify the Insurance
Company of the commencement of any litigation or proceedings against them in
connection with the issuance or sale of the Company's shares or the Contracts or
the operation of the Company.
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<PAGE>
8.2. Indemnification by Davis Distributors
8.2(a). Davis Distributors agrees to indemnify and hold harmless the
Insurance Company and each of its directors, officers, employees or agents, and
each person, if any, who controls the Insurance Company within the meaning of
Section 15 of the 1933 Act (collectively, the "Indemnified Parties" for purposes
of this Section 8.2) against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of Davis
Distributors) or litigation (including legal and other expenses) to which the
Indemnified Parties may become subject under any statute, at common law or
otherwise, insofar as such losses, claims, damages, liabilities or expenses (or
actions in respect thereof) or settlements are related to the sale, acquisition
or redemption of the Company's shares or the Contracts and:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the
registration statement, prospectus, statement of additional
information or sales literature of the Company (or any
amendment or supplement to any of the foregoing), or arise out
of or are based upon the omission or the alleged omission to
state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading,
provided that this agreement to indemnify shall not apply as
to any Indemnified Party if the statement or omission or
alleged statement or omission was made in reliance upon and in
conformity with information furnished in writing to Davis
Distributors or the Company by or on behalf of the Insurance
Company for use in the registration statement, prospectus, or
statement of additional information for the Company or in
sales literature (or any amendment or supplement to any of the
foregoing) or otherwise for use in connection with the sale of
the Contracts or Company shares;
(ii) arise out of or as a result of statements or
representations (other than statements or representations
contained in the registration statement, prospectus, statement
of additional information or sales literature for the
Contracts not supplied by Davis Distributors or persons under
its control) or wrongful conduct of the Company, Davis
Distributors or persons under their control, with respect to
the sale or distribution of the Contracts or shares of the
Company;
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a registration
statement, prospectus, statement of additional information or
sales literature covering the Contracts, or any amendment
thereof or supplement thereto, or the omission or alleged
omission to state therein a material fact required
16
<PAGE>
to be stated therein or necessary to make the statement or
statements therein not misleading, if such statement or
omission was made in reliance upon information furnished in
writing to the Insurance Company by or on behalf of the
Company;
(iv) arise as a result of any failure by the Company to
provide the services and furnish the materials under the terms
of this Agreement (including a failure, whether unintentional
or in good faith or otherwise, to comply with the
diversification requirements specified in Article VI of this
Agreement); or
(v) arise out of or result from any material breach of any
representation, warranty or agreement made by Davis
Distributors in this Agreement or arise out of or result from
any other material breach of this Agreement by Davis
Distributors;
as limited by and in accordance with the provisions of Sections 8.2(b) and
8.2(c) hereof.
8.2(b) Davis Distributors shall not be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation incurred or assessed against an Indemnified Party that
may arise from the Indemnified Party's willful misfeasance, bad faith, or gross
negligence in the performance of the Indemnified Party's duties or by reason of
the Indemnified Party's reckless disregard of obligations and duties under this
Agreement or to the Insurance Company or the Account, whichever is applicable.
8.2(c) Davis Distributors shall not be liable under this
indemnification provision with respect to any claim made against an Indemnified
Party unless the Indemnified Party shall have notified Davis Distributors in
writing within a reasonable time after the summons or other first legal process
giving information of the nature of the claim shall have been served upon the
Indemnified Party (or after the Indemnified Party shall have received notice of
such service on any designated agent). Notwithstanding the foregoing, the
failure of any Indemnified Party to give notice as provided herein shall not
relieve Davis Distributors of its obligations hereunder except to the extent
that Davis Distributors has been prejudiced by such failure to give notice. In
addition, any failure by the Indemnified Party to notify Davis Distributors of
any such claim shall not relieve Davis Distributors from any liability which it
may have to the Indemnified Party against whom such action is brought otherwise
than on account of this indemnification provision. In case any such action is
brought against the Indemnified Parties, Davis Distributors will be entitled to
participate, at its own expense, in the defense thereof. Davis Distributors also
shall be entitled to assume the defense thereof, with counsel satisfactory to
the party named in the action; provided, however, that if the Indemnified Party
-------- -------
shall have reasonably concluded that there may be defenses available to it which
are different from or additional to those available to Davis Distributors, Davis
Distributors shall not have the right to assume said defense, but shall pay the
costs and expenses thereof (except that in no event shall Davis Distributors be
liable for the fees and expenses of more than one
17
<PAGE>
counsel for Indemnified Parties in connection with any one action or separate
but similar or related actions in the same jurisdiction arising out of the same
general allegations or circumstances). After notice from Davis Distributors to
the Indemnified Party of Davis Distributors' election to assume the defense
thereof, and in the absence of such a reasonable conclusion that there may be
different or additional defenses available to the Indemnified Party, the
Indemnified Party shall bear the fees and expenses of any additional counsel
retained by it, and Davis Distributors will not be liable to that party under
this Agreement for any legal or other expenses subsequently incurred by that
party independently in connection with the defense thereof other than reasonable
costs of investigation.
8.2(d) The Insurance Company agrees to notify Davis Distributors
promptly of the commencement of any litigation or proceedings against it or any
of its officers or directors in connection with the issuance or sale of the
Contracts or the operation of the Account.
8.3 Indemnification By the Company
8.3(a). The Company agrees to indemnify and hold harmless the Insurance
Company, and each of its directors, officers, employees and agents, and each
person, if any, who controls the Insurance Company within the meaning of Section
15 of the 1933 Act (collectively, the "Indemnified Parties" for purposes of this
Section 8.3) against any and all losses, claims, damages, liabilities (including
legal and other expenses) to which the Indemnified Parties may become subject
under any statute, at common law or otherwise, insofar as those losses, claims,
damages, liabilities or expenses (or actions in respect thereof) or settlements
result from the gross negligence, bad faith or willful misconduct of any
director(s) of the Company, are related to the operations of the Company or:
(i) arise as a result of any failure by the Company to provide
the services and furnish the materials under the terms of this
Agreement (including a failure to comply with the
diversification requirements specified in Article VI of this
Agreement);
(ii) arise out of or result from any material breach of any
representation, warranty or agreement made by the Company in
this Agreement or arise out of or result from any other
material breach of this Agreement by the Company; or
(iii) arise out of or result from the materially incorrect or
untimely calculation or reporting of the daily net asset value
per share or dividend or capital gain distribution rate for
any Fund. With respect to net asset value information, the
Company will make a determination , in accordance with SEC
guidelines, as to whether an error has occurred. Any
correction of pricing errors shall be accomplished using the
least costly corrective action, as agreed to by the Company in
writing. In no event shall the Company be required
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to reimburse for pricing errors caused by conditions beyond
the control of the Company or its agent, including, but not
limited to, Acts of God, fires, electrical or phone outages.
as limited by, and in accordance with the provisions of, Sections 8.3(b) and
8.3(c) hereof.
8.3(b). The Company shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
incurred or assessed against an Indemnified Party that may arise from the
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of the Indemnified Party's duties or by reason of the Indemnified
Party's reckless disregard of obligations and duties under this Agreement or to
the Insurance Company, the Company, Davis Distributors or the Account, whichever
is applicable.
8.3(c). The Company shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless the
Indemnified Party shall have notified the Company in writing within a reasonable
time after the summons or other first legal process giving information of the
nature of the claim shall have been served upon the Indemnified Party (or after
the Indemnified Party shall have received notice of such service on any
designated agent). Notwithstanding the foregoing, the failure of any Indemnified
Party to give notice as provided herein shall not relieve the Company of its
obligations hereunder except to the extent that the Company has been prejudiced
by such failure to give notice. In addition, any failure by the Indemnified
Party to notify the Company of any such claim shall not relieve the Company from
any liability which it may have to the Indemnified Party against whom such
action is brought otherwise than on account of this indemnification provision.
In case any such action is brought against the Indemnified Parties, the Company
will be entitled to participate, at its own expense, in the defense thereof. The
Company also shall be entitled to assume the defense thereof, with counsel
satisfactory to the party named in the action; provided, however, that if the
-------- -------
Indemnified Party shall have reasonably concluded that there may be defenses
available to it which are different from or additional to those available to the
Company, the Company shall not have the right to assume said defense, but shall
pay the costs and expenses thereof (except that in no event shall the Company be
liable for the fees and expenses of more than one counsel for Indemnified
Parties in connection with any one action or separate but similar or related
actions in the same jurisdiction arising out of the same general allegations or
circumstances). After notice from the Company to the Indemnified Party of the
Company's election to assume the defense thereof, and in the absence of such a
reasonable conclusion that there may be different or additional defenses
available to the Indemnified Party, the Indemnified Party shall bear the fees
and expenses of any additional counsel retained by it, and the Company will not
be liable to that party under this Agreement for any legal or other expenses
subsequently incurred by that party independently in connection with the defense
thereof other than reasonable costs of investigation.
8.3(d). The Insurance Company and Davis Distributors agree
promptly to notify the Company of the commencement of any litigation or
proceedings against it or any of its respective
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<PAGE>
officers or directors in connection with this Agreement, the issuance or sale of
the Contracts, the operation of the Account, or the sale or acquisition of
shares of the Company.
ARTICLE IX. Applicable Law
9.1. This Agreement shall be construed and provisions hereof
interpreted under and in accordance with the laws of the State of Maryland.
9.2. This Agreement shall be subject to the provisions of the 1933,
1934, and 1940 Acts, and the rules and regulations and rulings thereunder,
including any exemptions from those statutes, rules and regulations the SEC may
grant (including, but not limited to, the Mixed and Shared Funding Exemptive
Order) and the terms hereof shall be interpreted and construed in accordance
therewith.
ARTICLE X. Termination
10.1. This Agreement shall terminate:
(a) at the option of any party upon six months advance written notice
to the other parties; or
(b) at the option of the Insurance Company to the extent that shares of
Funds are not reasonably available to meet the requirements of the
Contracts as determined by the Insurance Company, provided, however,
that such a termination shall apply only to the Fund(s) not reasonably
available. Prompt written notice of the election to terminate for such
cause shall be furnished by the Insurance Company to the Company and
Davis Distributors; or
(c) at the option of the Company or Davis Distributors, in the event
that formal administrative proceedings are instituted against the
Insurance Company by the NASD, the SEC, an insurance commissioner or
any other regulatory body regarding the Insurance Company's duties
under this Agreement or related to the sale of the Contracts, the
operation of any Account, or the purchase of the Company's shares,
provided, however, that the Company determines in its sole judgment
exercised in good faith, that any such administrative proceedings will
have a material adverse effect upon the ability of the Insurance
Company to perform its obligations under this Agreement; or
(d) at the option of the Insurance Company in the event that formal
administrative proceedings are instituted against the Company or Davis
Distributors by the NASD, the SEC, or any state securities or insurance
department or any other regulatory body, provided, however, that the
Insurance Company determines in its sole judgment exercised in good
faith, that any such administrative proceedings will have a material
adverse effect upon the
20
<PAGE>
ability of the Company or Davis Distributors to perform its obligations
under this Agreement; or
(e) with respect to any Account, upon requisite vote of the Contract
owners having an interest in that Account (or any subaccount) to
substitute the shares of another investment company for the
corresponding Fund shares in accordance with the terms of the Contracts
for which those Fund shares had been selected to serve as the
underlying investment media. The Insurance Company will give at least
30 days' prior written notice to the Company of the date of any
proposed vote to replace the Company's shares; or
(f) at the option of the Insurance Company, in the event any of the
Company's shares are not registered, issued or sold in accordance with
applicable state and/or federal law or exemptions therefrom, or such
law precludes the use of those shares as the underlying investment
media of the Contracts issued or to be issued by the Insurance Company;
or
(g) at the option of the Insurance Company, if the Company ceases to
qualify as a regulated investment company under Subchapter M of the
Code or under any successor or similar provision, or if the Insurance
Company reasonably believes that the Company may fail to so qualify; or
(h) at the option of the Insurance Company, if the Company
fails to meet the diversification requirements specified in Article VI
hereof; or
(i) at the option of either the Company or Davis Distributors, if (1)
the Company or Davis Distributors, respectively, shall determine, in
their sole judgment reasonably exercised in good faith, that the
Insurance Company has suffered a material adverse change in its
business or financial condition or is the subject of material adverse
publicity and that material adverse change or material adverse
publicity will have a material adverse impact upon the business and
operations of either the Company or Davis Distributors, (2) the Company
or Davis Distributors shall notify the Insurance Company in writing of
that determination and its intent to terminate this Agreement, and (3)
after considering the actions taken by the Insurance Company and any
other changes in circumstances since the giving of such a notice, the
determination of the Company or Davis Distributors shall continue to
apply on the sixtieth (60th) day following the giving of that notice,
which sixtieth day shall be the effective date of termination; or
(j) at the option of the Insurance Company, if (1) the Insurance
Company shall determine, in its sole judgment reasonably exercised in
good faith, that either the Company or Davis Distributors has suffered
a material adverse change in its business or financial condition or is
the subject of material adverse publicity and that material adverse
change or material adverse publicity will have a material adverse
impact upon the business and operations of the Insurance Company, (2)
the Insurance Company shall notify the Company and Davis Distributors
in writing of the determination and its intent to terminate the
Agreement, and
21
<PAGE>
(3) after considering the actions taken by the Company and/or Davis
Distributors and any other changes in circumstances since the giving of
such a notice, the determination shall continue to apply on the
sixtieth (60th) day following the giving of the notice, which sixtieth
day shall be the effective date of termination.
10.2. It is understood and agreed that the right of any party hereto to
terminate this Agreement pursuant to Section 10.1(a) may be exercised for any
reason or for no reason.
10.3. No termination of this Agreement shall be effective unless and
until the party terminating this Agreement gives prior written notice to all
other parties to this Agreement of its intent to terminate, which notice shall
set forth the basis for the termination. Furthermore,
(a) In the event that any termination is based upon the provisions of
Article VII, or the provision of Section 10.1(a), 10.1(i) or 10.1(j) of
this Agreement, the prior written notice shall be given in advance of
the effective date of termination as required by those provisions; and
(b) in the event that any termination is based upon the provisions of
Section 10.1(c) or 10.1(d) of this Agreement, the prior written notice
shall be given at least ninety (90) days before the effective date of
termination; provided that any party may terminate this Agreement
immediately with respect to any Fund if such party reasonably
determines that continuing to perform under this Agreement would
violate any state or federal law.
10.4. Notwithstanding any termination of this Agreement, subject to
Section 1.2 of this Agreement and for so long as the Company continues to exist,
the Company and Davis Distributors shall at the option of the Insurance Company,
continue to make available additional shares of the Company pursuant to the
terms and conditions of this Agreement, for all Contracts in effect on the
effective date of termination of this Agreement ("Existing Contracts").
Specifically, without limitation, the owners of the Existing Contracts shall be
permitted to reallocate investments from any other investment option to any
Fund, redeem investments in the Company and/or invest in the Company upon the
making of additional purchase payments under the Existing Contracts. The parties
agree that this Section 10.4 shall not apply to any terminations under Article
VII and the effect of Article VII terminations shall be governed by Article VII
of this Agreement.
10.5. The Insurance Company shall not redeem Company shares
attributable to the Contracts (as opposed to Company shares attributable to the
Insurance Company's assets held in the Account) except (i) as necessary to
implement Contract-owner-initiated transactions, or (ii) as required by state
and/or federal laws or regulations or judicial or other legal precedent of
general application (a "Legally Required Redemption"). Upon request, the
Insurance Company will promptly furnish to the Company and Davis Distributors
the opinion of counsel for the Insurance Company (which counsel shall be
reasonably satisfactory to the Company and Davis Distributors) to the effect
that any redemption pursuant to clause (ii) above is a Legally Required
Redemption.
22
<PAGE>
ARTICLE XI. Notices
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of that other party set forth
below or at such other address as the other party may from time to time specify
in writing.
If to the Company:
2949 East Elvira Road, Suite 101
Tucson, Arizona 85706
Attention: Thomas Tays, Vice President
If to the Insurance Company:
4333 Edgewood Road N.E.
Cedar Rapids, IA 52499-0001
Attention: Financial Markets Division
Frank A. Camp, Vice President & Division General; Counsel
If to Davis Distributors:
2949 East Elvira Road, Suite 101
Tucson, Arizona 85706
Attention: Thomas Tays, Vice President
ARTICLE XII. Miscellaneous
12.1. Subject to the requirements of legal process and regulatory
authority, each party hereto shall treat as confidential the names and addresses
of the owners of the Contracts and all information reasonably identified as
confidential in writing by any other party hereto and, except as permitted by
this Agreement, shall not disclose, disseminate or utilize such names and
addresses and other confidential information without the express written consent
of the affected party unless and until that information may come into the public
domain.
12.2. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
12.3. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
23
<PAGE>
12.4. If any provision of this Agreement shall be held or made invalid
by a court decision, statute, rule or otherwise, the remainder of the Agreement
shall not be affected thereby.
12.5. Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD and state insurance regulators) and shall permit those authorities
reasonable access to its books and records in connection with any lawful
investigation or inquiry relating to this Agreement or the transactions
contemplated hereby.
12.6. The rights, remedies and obligations contained in this Agreement
are cumulative and are in addition to any and all rights, remedies and
obligations, at law or in equity, which the parties hereto are entitled to under
state and federal laws.
12.7. This Agreement shall be binding upon and inure to the benefit of
the parties and their respective successors and assigns; provided, that no party
may assign this Agreement without the prior written consent of the others.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and on its behalf by its duly authorized
representative as of the date specified below.
PFL Life Insurance Company
("Insurance Company")
By its authorized officer,
By: /s/ Larry N. Norman
-------------------------------------
Title: Executive Vice President
----------------------------------
Date: February 29, 2000
-----------------------------------
DAVIS VARIABLE ACCOUNT FUND
("Company")
By its authorized officer,
By: /s/ Kenneth C. Eich
-------------------------------------
Title: Vice President
Date: February 28, 2000
-----------------------------------
24
<PAGE>
DAVIS DISTRIBUTORS, LLC
("Davis Distributors")
By its authorized officer,
By: /s/ Kenneth C. Eich
-------------------------------------
Title: President
Date: February 28, 2000
-----------------------------------
25
<PAGE>
Schedule A
Accounts
Name of Account Date of Resolution of Insurance Company's
Board which Established the Account
PFL Retirement Builder March 29, 1996
Variable Annuity Account
26
<PAGE>
Schedule B
Contracts
PFL Life Insurance Company Policy Form No. AV288-101-95-796 (Including successor
forms, addenda and endorsements--may vary by state) This form may be sold under
marketing names "Retirement Income Builder Variable Annuity,"
"First Union Portfolio Select Variable Annuity," or successor/additional
marketing names from time to time.
27
<PAGE>
Schedule C
to
Participation Agreement
Name of Fund
- ------------
Davis Value Portfolio
28
<PAGE>
Schedule D
Proxy Voting Procedure
The following is a list of procedures and corresponding
responsibilities for the handling of proxies relating to the Company by Davis
Distributors, the Company and the Insurance Company. The defined terms herein
shall have the meanings assigned in the Participation Agreement except that the
term "Insurance Company" shall also include the department or third party
assigned by the Insurance Company to perform the steps delineated below.
1. The number of proxy proposals is given to the Insurance Company by
Davis Distributors as early as possible before the date set by the
Company for the shareholder meeting to facilitate the establishment of
tabulation procedures. At this time Davis Distributors will inform the
Insurance Company of the Record, Mailing and Meeting dates. This will
be done verbally, with confirmation following promptly in writing,
approximately two months before meeting.
2. Promptly after the Record Date, the Insurance Company will perform a
"tape run", or other activity, which will generate the names, addresses
and number of units which are attributed to each
contract-owner/policyholder (the "Customer") as of the Record Date.
Allowance should be made for account adjustments made after this date
that could affect the status of the Customers' accounts of the Record
Date.
Note: The number of proxy statements is determined by the activities
described in Step #2. The Insurance Company will use its best efforts to call in
the number of Customers to Davis Distributors, as soon as possible, but no later
than one week after the Record Date.
3. The text and format for the Voting Instruction Cards ("Cards" or
"Card") is provided to the Insurance Company by the Company. The
Insurance Company, at its expense, shall produce and personalize the
Voting Instruction cards. Davis Distributors must approve the Card
before it is printed. Allow approximately 2-4 business days for
printing information on the Cards. Information commonly found on the
Cards includes:
a. name (legal name as found on account registration)
b. address
c. Fund or account number
d. coding to state number of units
e. individual Card number for use in tracking and
verification of votes (already on Cards as printed by the
Company).
(This and related steps may occur later in the chronological process
due to possible uncertainties relating to the proposals.)
4. During this time, Davis Distributors will develop, produce, and the
Company will pay for the Notice of Proxy and the Proxy Statement (one
document). Printed and folded notices and statements will be sent to
Insurance Company for insertion into envelopes (envelopes
29
<PAGE>
and return envelopes are provided and paid for by the Insurance
Company). Contents of envelope sent to customers by Insurance Company
will include:
a. Voting Instruction Card(s)
b. One proxy notice and statement (one document)
c. Return envelope (postage pre-paid by Insurance
Company) addressed to the Insurance Company or its
tabulation agent
d. "Urge buckslip" - optional, but recommended. (This is
a small, single sheet of paper that requests Contract
owners to vote as quickly as possible and that their
vote is important. One copy will be supplied by the
Company.)
e. Cover letter - optional, supplied by Insurance
Company and reviewed and approved in advance by Davis
Distributors.
5. The above contents should be received by the Insurance Company
approximately 3-5 business days before mail date, and in no event later
than 3 business days before mail date. Individual in charge at
Insurance Company reviews and approves the contents of the mailing
package to ensure correctness and completeness. Copy of this approval
sent to Davis Distributors.
6. Package mailed by the Insurance Company.
* The Company must allow at least a 15-day solicitation time
----
to the Insurance Company as the shareowner. (A 5-week period
is recommended.) Solicitation time is calculated as calendar
days from (but not including) the meeting, counting backwards.
---
7. Collection and tabulation of Cards begins. Tabulation usually takes
place in another department or another vendor depending on process
used. An often-used procedure is to sort cards on arrival by proposal
into vote categories of all yes, no, or mixed replies, and to begin
data entry.
Note: Postmarks are not generally needed. A need for postmark
information would be due to an insurance company's internal procedure.
8. If Cards are mutilated, or for any reason are illegible or are not
signed properly, they are sent back to the Customer with an explanatory
letter, a new Card and return envelope. The mutilated or illegible Card
is disregarded and considered to be not received for purposes of vote
--- --------
tabulation. Such mutilated or illegible Cards are "hand verified,"
i.e., examined as to why they did not complete the system. Any
questions on those Cards are usually remedied individually.
9. There are various control procedures used to ensure proper tabulation
of votes and accuracy of that tabulation. The most prevalent is to sort
the Cards as they first arrive into categories depending upon their
vote; an estimate of how the vote is progressing may then be
30
<PAGE>
calculated. If the initial estimates and the actual vote do not
coincide, then an internal audit of that vote should occur. This may
entail a recount.
10. The actual tabulation of votes is done in units and then converted to
shares. (It is very important that the Company receives the tabulations
stated in terms of a percentage and the number of shares.) Davis
------
Distributors must review and approve tabulation format.
11. Final tabulation in shares is verbally given by the Insurance Company
to Davis Distributors on the day of the meeting not later than 1:00
p.m. Eastern time. Davis Distributors may request an earlier deadline
if required to calculate the vote in time for the meeting.
12. A Certificate of Mailing and Authorization to Vote Shares will be
required from the Insurance Company as well as an original copy of the
final vote. Davis Distributors will provide a standard form for each
Certification.
13. The Insurance Company will be required to box and archive the Cards
received from the Customers. In the event that any vote is challenged
or if otherwise necessary for legal, regulatory, or accounting
purposes, Davis Distributors will be permitted reasonable access to
such Cards.
14. All approvals and "signing-off" may be done orally, but must always be
followed up in writing. For this purpose, signatures transmitted by
facsimile will be acceptable.
31
<PAGE>
EXHIBIT (8)(m)
PARTICIPATION AGREEMENT AMONG
TRANSAMERICA VARIABLE INSURANCE FUND, INC.
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY
AND PFL LIFE INSURANCE COMPANY
<PAGE>
PARTICIPATION AGREEMENT
Among
TRANSAMERICA VARIABLE INSURANCE FUND, INC.
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY
and
PFL LIFE INSURANCE COMPANY
THIS AGREEMENT, effective of this 1st day of November 1999 by and among
PFL LIFE INSURANCE COMPANY (hereinafter "Insurance Company"), an Iowa life
insurance company, on its own behalf and on behalf of its SEPARATE ACCOUNT(S)
(the "Account"); TRANSAMERICA VARIABLE INSURANCE FUND, INC., a corporation
organized under the laws of Maryland (hereinafter the "Fund"); and TRANSAMERICA
OCCIDENTAL LIFE INSURANCE COMPANY, (hereinafter the "Adviser"), a California
corporation.
WHEREAS, the Fund engages in business as an open-end management
investment company and is available to act as the investment vehicle for
separate accounts established for variable life insurance policies and/or
variable annuity contracts (collectively, the "Variable Insurance Products") to
be offered by insurance companies which have entered into participation
agreements similar to this Agreement (hereinafter "Participating Insurance
Companies"), as well as qualified pension and retirement plans; and
WHEREAS, the beneficial interests in the Fund are divided into several
series of shares, each designated a "Portfolio" and representing interests in a
particular managed portfolio of securities and other assets; and
WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and shares of the Portfolios are registered under the
Securities Act of 1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, the Adviser is duly registered as an investment adviser under
the Investment Advisers Act of 1940 as amended, and
WHEREAS, Insurance Company has registered the Account as a unit
investment trust under the 1940 Act, and certain variable annuity contracts
supported wholly or partially by the Account (the "Contracts") under the 1933
Act, and said Account(s) are listed on Schedule A hereto, as it may be amended
from time to time by mutual written agreement; and
WHEREAS, the Account is a duly organized, validly existing segregated
asset account, established by resolution of the Board of Directors of Insurance
Company to set aside and invest assets attributable to the Contracts; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, Insurance Company intends to purchase shares in the Portfolios
listed in Schedule B hereto, as it may be amended from time to time by mutual
written agreement (the "Designated Portfolios"), on behalf of the Account to
fund the aforesaid Contracts, and the Fund intends to sell such shares to the
Account at net asset value;
<PAGE>
NOW, THEREFORE, in consideration of their mutual promises, Insurance
Company, the Fund and the Adviser agree as follows:
ARTICLE I. Sale of Fund Shares
-------------------
1.1. The Fund agrees to sell to Insurance Company those shares of the
Designated Portfolios which Insurance Company orders, executing such orders on a
daily basis at the net asset value next computed after receipt by the Fund, or
its designee, of the order for the shares of the Designated Portfolios. For
purposes of this Section 1.1, Insurance Company shall be the agent of the Fund
for receipt of such orders and receipt by Insurance Company shall constitute
receipt by the Fund; provided that the Fund receives notice of such order by
9:30 a.m. New York time on the next following Business Day. "Business Day" shall
mean any day on which the New York Stock Exchange is open for trading and on
which the Fund calculates its net asset value.
1.2. The Fund agrees to make shares of the Designated Portfolios
available for purchase at the applicable net asset value per share by Insurance
Company on those days on which the Fund calculates its net asset value, and the
Fund shall use reasonable efforts to calculate such net asset value on each day
which the New York Stock Exchange is open for trading. Notwithstanding the
foregoing, the Board of Directors of the Fund (hereinafter the "Board") may
refuse to sell shares of any Portfolio to any person, or suspend or terminate
the offering of shares of any Portfolio if such action is required by law or by
regulatory authorities having jurisdiction or if , in the sole discretion of the
Board acting in good faith and in light of their fiduciary duties under federal
and any applicable state laws, necessary in the best interests of the
shareholders of such Portfolio.
1.3 The Fund agrees that shares of the Designated Portfolios will be
sold only to Participating Insurance Companies and their separate accounts and
to qualified pension and retirement plans. No shares of any Designated Portfolio
will be sold to the general public.
1.4. The Fund agrees to redeem for cash, on Insurance Companies
request, any full or fractional shares of the Fund held by Insurance Companies,
executing such requests on a daily basis at the net asset value next computed
after receipt by the Fund or its designee of the request for redemption, except
that the Fund reserves the right to suspend the right of redemption or postpone
the date of payment or satisfaction upon redemption consistent with Section
22(e) of the 1940 Act. For purposes of this Section 1.5, Insurance Companies
shall be the agent of the Fund for receipt of requests for redemption and
receipt by Insurance Company shall constitute receipt by the Fund; provided that
the Fund receives notice of such request for redemption by 9:30 a.m. New York
time on the next following Business Day.
1.5. The Parties hereto acknowledge that the arrangement contemplated
by this Agreement is not exclusive; the Fund's shares may be sold to other
insurance companies and to qualified pension and retirement plans and the cash
value of the Contracts may be invested in other investment companies.
1.6. Insurance Company shall pay for Fund shares by 12:00 noon New York
Time the next Business Day after an order to purchase Fund shares is made in
accordance with the provisions of Section 1.1 hereof. Payment shall be in
federal funds transmitted by wire and/or by a credit for any shares redeemed the
same day as the purchase. Upon receipt by the Fund of the
-2-
<PAGE>
federal funds so wired, such funds shall cease to be the responsibility of
Insurance Company and shall become the responsibility of the Fund.
1.7. The Fund shall pay and transmit the proceeds of redemptions of
Fund shares by 3:00 p.m. New York time the next Business Day after a redemption
order is received, subject to Section 1.5 hereof. Payment shall be in federal
funds transmitted by wire and/or a credit for any shares purchased the same day
as the redemption.
1.8. Issuance and transfer of the Fund's shares will be by book entry
only. Stock certificates will not be issued to Insurance Company or the Account.
Shares ordered from the Fund will be recorded in an appropriate title for the
Account or the appropriate sub-account of the Account.
1.9. The Fund shall furnish same day notice (by wire or telephone,
followed by written confirmation) to Insurance Company of any income, dividends,
or capital gain distributions payable on the Designated Portfolios' shares.
Insurance Company hereby elects to receive all such income dividends and capital
gain distributions in additional shares of that Portfolio. Insurance Company
reserves the right to revoke this election and to receive all such income
dividends and capital gain distributions in cash. The Fund shall notify
Insurance Company by the end of the next following Business Day of the number of
shares so issued as payment of such dividends and distributions.
1.10. The Fund shall make the net asset value per share for each
Designated Portfolio available to Insurance Company on a daily basis as soon as
reasonably practical after the net asset value per share is calculated and shall
use its best efforts to make such net asset value per share available by 6:30
p.m. New York time. If the Fund provides incorrect per share net asset value
information, Insurance Company shall be entitled to an adjustment to the number
of shares purchased or redeemed to reflect the correct net asset value per
share. Any material error in the calculation or reporting of net asset value per
share, dividend or capital gains information shall be reported immediately upon
discovery to Insurance Company. Any error of a lesser amount shall be corrected
in the next Business Day's net asset value per share.
In the event adjustments are required to correct any error in the
computation of a Designated Portfolio's net asset value per share, or dividend
or capital gain distribution, the Fund shall notify Insurance Company as soon as
possible after discovering the need for such adjustments. Notification can be
made orally, but must be confirmed in writing. If an adjustment is necessary to
correct an error which caused Contract owners to receive less than the amount to
which they are entitled, the Fund shall make all necessary adjustments to the
number of shares owned by the Account and distribute to the Account the amount
of the underpayment. In no event shall Insurance Company be liable to the Fund
for any such adjustments or overpayment amounts.
ARTICLE II. Representations and Warranties
------------------------------
2.1. Insurance Company represents and warrants that the Contracts are
or will be registered under the 1933 Act; that the Contracts will be issued and
sold in compliance in all material respects with all applicable federal and
state laws. Insurance Company further represents and warrants that it is an
insurance company duly organized and in good standing under applicable law and
that it has legally and validly established the Account as a segregated asset
-3-
<PAGE>
account under insurance law and has registered the Account as a unit investment
trust in accordance with the provisions of the 1940 Act to serve as a segregated
investment account for the Contracts.
2.2. The Fund and Adviser represent and warrants that Designated
Portfolio shares sold pursuant to this Agreement shall be registered under the
1933 Act, duly authorized for issuance and sold in compliance with all
applicable federal and state securities laws including without limitation the
1933 Act, the 1934 Act, and the 1940 Act and that the Fund is and shall remain
registered under the 1940 Act. The Fund shall amend the Registration Statement
for its shares under the 1933 Act and the 1940 Act from time to time as required
in order to effect the continuous offering of its shares. The Fund shall
register and qualify the shares for sale in accordance with the laws of the
various states if and to the extent required by applicable law.
2.3. The Fund reserves the right to adopt a plan pursuant to Rule 12b-1
under the 1940 Act or impose an asset-based or other charge to finance
distribution expenses as permitted by applicable law and regulation. To the
extent that the Fund decides to finance distribution expenses pursuant to Rule
12b-1, the Fund undertakes to have a Board, a majority of whom are not
interested persons of the Fund, formulate and approve any plan pursuant to Rule
12b-1 under the 1940 Act to finance distribution expenses.
2.4. The Fund and Adviser represent and warrant that the Fund is
lawfully organized and validly existing under the laws of the State of Maryland
and that it does and shall comply in all material respects with the 1940 Act.
2.5 The Adviser represents and warrants that it is and shall remain
duly registered under all applicable federal and state securities laws and that
it shall perform its obligations for the fund in compliance with all applicable
state and federal securities laws.
2.6. The Fund and Adviser each represent and warrant that all of its
directors, officers, employees, investment advisers, and other individuals or
entities dealing with the money and/or securities of the Fund are, and shall
continue to be at all times, covered by a blanket fidelity bond or similar
coverage for the benefit of the Fund in an amount not less than the minimal
coverage required by Section 17g-(1) of the 1940 Act or related provisions as
may be promulgated from time to time. The aforesaid bond shall include coverage
for larceny and embezzlement and shall be issued by a reputable bonding company.
2.7. The Fund will provide Insurance Company with as much advance
notice as is reasonably practicable of any material change affecting the
Designated Portfolios (including, but not limited to, any material change in its
registration statement or prospectus affecting the Designated Portfolios and any
proxy solicitation affecting the Designated Portfolios) and consult with
Insurance Company in order to implement any such change in an orderly manner,
recognizing the expenses of changes and attempting to minimize such expenses by
implementing them in conjunction with regular annual updates of the prospectuses
for the Contracts.
2.8. Insurance Company represents and warrants, that, if the Fund
complies with Sections 2.9 and 2.10 of this Agreement, the Contracts are
currently treated as annuity contracts under applicable provisions of the
Internal Revenue Code of 1986, as amended, and that it shall make every effort
necessary to maintain such treatment and that it will notify the Underwriter
immediately upon having a reasonable basis for believing that the Contracts have
ceased to be so treated or that they might not be so treated in the future.
-4-
<PAGE>
2.9. The Fund and the Adviser represent and warrant that: (a) each
Designated Portfolio currently has elected to qualify as a regulated investment
company under Subchapter M of the Internal Revenue Code ("Code"); (b) the Fund
and Adviser shall make every effort necessary that each Portfolio shall maintain
such qualification (under Subchapter M or any successor or similar provision);
(c) the fund or the Adviser will notify Insurance Company immediately upon
having a reasonable basis for believing that a Portfolio has ceased to so
qualify or that it might not so qualify in the future; and (d) the Fund and the
Adviser will seek to minimize any damages and to rectify any Portfolio's failure
to so qualify promptly. The Fund and the Adviser acknowledge that any failure by
a Portfolio to qualify as a regulated investment company will eliminate the
ability of the Account to avail itself of the "look through" provisions of
Section 817(h) of the Code and that, as a result, the Contracts will almost
certainly fail to qualify as life insurance contracts under Section 817(h) of
the Code.
2.10. The Fund and the Adviser further represent and warrant that the
assets of each Designated Portfolio will at all times be invested in such a
manner to assure that the Contracts will be treated as life insurance contracts
under the Code and the regulations issued thereunder. Without limiting the scope
of the foregoing, the Fund and the Adviser represent that the each Designated
Portfolio will at all times comply with Section 817(h) of the Code and Treasury
Regulation 1.817.5, as amended from time to time, relating to the
diversification requirements for variable annuity, endowment, or life insurance
contracts and any amendments or other modifications to such Section or
Regulation. In the event of a breach of this Section 2.10, the Fund and the
Adviser warrant that they will take all reasonable steps: (a) to immediately
notify the Insurance Company of such breach; and (b) to adequately diversify the
Fund's assets so as to achieve compliance within the grace period afforded by
Regulation 1.817-5.
2.11. The Fund and Underwriter acknowledge that full compliance with
the requirements referred to in Sections 2.9 and 2.10 hereof is absolutely
essential because any failure to meet those requirements would result in the
Contracts not being treated as annuity contracts for federal income tax
purposes, which would have adverse tax consequences for Contract owners and
could also adversely affect the Insurance Company corporate tax liability.
ARTICLE III. Prospectuses, Reports, Proxy Statements and Voting
--------------------------------------------------
3.1. The Fund or Adviser, at their expense, shall provide Insurance
Company or its designee with current a prospectus, Statement of Additional
Information, and supplements thereto, and annual and semi-annual reports for the
Designated Portfolios in final "camera ready" copy form or on a diskette or such
other form as is required by a financial printer. The Fund and Adviser agrees
that the prospectuses, and supplements thereto, and the annual and semi-annual
reports for the Designated Portfolios will describe only the Designated
Portfolios and will not describe other Portfolios of the Fund. The Statement of
Additional Information may include information on other Portfolios of the Fund.
It is anticipated that the prospectuses and annual
-5-
<PAGE>
and semi-annual reports for the Contracts (if applicable), for the Designated
Portfolio(s) and for other portfolios available under the Contracts will be
printed together in one booklet. The Fund or Adviser shall pay a portion of the
printing expenses for prospectus and fund reports booklets distributed to
current Contract Owners. Such portion shall be the percentage, which is the
number of pages of the Fund prospectus or report as compared to the total number
of pages of the booklet. The Fund shall not pay any expenses for printing or
distribution of prospectuses or fund reports to prospective Contract Owners.
3.2. It is understood and agreed that, except with respect to
information regarding Insurance Company provided in writing by Insurance
Company, Insurance Company shall not be responsible for the content of the
prospectus, SAI or annual and semi-annual reports for the Designated Portfolios.
It is also understood and agreed that, except with respect to information
regarding the Fund and provided in writing by the Fund, the Fund shall not be
responsible for the content of the prospectus or SAI for the Contracts.
3.3. The Fund or Adviser at their expense shall provide Insurance
Company with as many copies of its Fund proxy material as Insurance Company
shall reasonably require for distributing to Contract owners.
3.4. If and to the extent required by law, Insurance Company shall, at
its expense:
(i) solicit voting instructions from Contract owners;
(ii) vote the Designated Portfolio shares in accordance with
instructions received from Contract owners: and
(iii) vote Designated Portfolio shares for which no instructions
have been received in the same proportion as Designated
Portfolio shares for which instructions have been received
from Contract owners in the same Account.
So long as and to the extent that the SEC continues to interpret
the 1940 Act to require pass-through voting privileges for variable contract
owners. Insurance Company reserves the right to vote Fund shares held in any
segregated asset account in its own right, to the extent permitted by law.
ARTICLE IV. Sales Material and Information
------------------------------
4.1. Insurance Company shall furnish, or shall cause to be furnished,
to the Fund, or its designee, each prospectus, Statement of Additional
Information and each piece of sales literature and other promotional material
that Insurance Company develops or uses and in which the Fund (or a Portfolio
thereof), its investment adviser or one of its sub-advisers is named in
connection with the Contracts, at least 10 (ten) Business Days prior to its use.
No such material shall be used if the Fund, or its designee, objects to such use
within 10 (ten) Business Days after receipt of such material.
4.2. Insurance Company shall not give any information or make any
representations or statements on behalf of the Fund or concerning the Fund in
connection with the sale of the Contracts inconsistent with the information or
representations contained in the registration statement or prospectus for the
Fund shares, as such registration statement and prospectus may be amended or
supplemented from time to time, or in reports or proxy statements for the Fund,
or in sales literature or other promotional material approved by the Fund or its
designee, except with the
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<PAGE>
permission of the Fund.
4.3. The Fund shall furnish, or shall cause to be furnished, to
Insurance Company, each piece of sales literature and other promotional material
developed by the Fund or its designee in which Insurance Company and/or the
Account is named at least 10 (ten) Business Days prior to its use. No such
material shall be used if Insurance Company objects to such use within 10 (ten)
Business Days after receipt of such material. Notwithstanding the fact that
Insurance Company or its designee may not initially object to a piece of sales
literature or other promotional material, Insurance Company reserves the right
to object at a later date to the continued use of any such sales literature or
promotional material in which Insurance Company is named, and no such material
shall be used thereafter if Insurance Company or its designee so objects.
4.4. The Fund and Adviser shall not give any information or make any
representations on behalf of Insurance Company or concerning Insurance Company,
the Account, or the Contracts other than the information or representations
contained in a registration statement or prospectus for the Contracts, as such
registration statement and prospectus may be amended or supplemented from time
to time, or in reports for the Account, or in sales literature or other
promotional material approved by Insurance Company or its designee, except with
the permission of Insurance Company.
4.5. For purposes of this Article IV, the phrase "sales literature and
other promotional material" includes, but is not limited to, advertisements
(material published, or designed for use in, a newspaper, magazine, or other
periodical, radio, television, telephone or tape recording, videotape display,
signs or billboards, motion pictures, telephone directories (other than routine
listings), electronic or other public media), sales literature (i.e., any
written or electronic communication distributed or made generally available to
customers or the public, including brochures, circulars, research reports,
market letters, performance reports or summaries, form letters, telemarketing
scripts, seminar texts, reprints or excerpts of any other advertisement, sales
literature, or published article), educational or training materials or other
communications distributed or made generally available to some or all agents or
employees, and registration statements, prospectuses, Statements of Additional
Information, supplements thereto, shareholder reports, and proxy materials.
4.6. At the request of any party to this Agreement, each other party
will make available to the other party's independent auditors and/or
representative of the appropriate regulatory agencies, all records, data and
access to operating procedures that may be reasonably requested in connection
with compliance and regulatory requirements related to this Agreement or any
party's obligations under this Agreement.
ARTICLE V. Fees and Expenses
-----------------
5.1. The Fund shall pay no fee or other compensation to Insurance
Company under this Agreement, except that if the Fund or any Designated
Portfolio adopts and implements a plan pursuant to Rule 12b-1 of the 1940 Act to
finance distribution and shareholder servicing expenses, then the Fund's
underwriter may make payments to Insurance Company or to the
-7-
<PAGE>
distributor of the Contracts if and in amounts agreed to by the Fund's
underwriter in writing and such payments will be made out of existing fees
otherwise payable to the Fund's underwriter, past profits of the underwriter or
other resources available to the underwriter. No such payments shall be made
directly by the Fund. Nothing herein shall prevent the parties hereto from
otherwise agreeing to perform, and arrange for appropriate compensation for,
other services relating to the Fund and/or the Account. Insurance Company shall
pay no fee or other compensation to the Fund under this Agreement, although the
parties hereto will bear certain expenses.
5.2. All expenses incident to performance by the Fund or the Adviser
under this Agreement shall be paid by the Fund or Adviser. The Fund shall see to
it that all shares of the Designated Portfolios are registered and authorized
for issuance in accordance with applicable federal law and, if and to the extent
required, in accordance with applicable state laws prior to their sale. The Fund
shall bear the expenses for the cost of registration and qualification of the
Fund's shares, preparation and filing of the Fund's prospectus and registration
statement, supplements thereto and its proxy materials and reports. The Fund or
Adviser will bear the expenses of fulfilling their obligations under (S). 3.1.
5.3. Insurance Company shall bear the expenses of routine annual
distribution of the Fund's prospectus to owners of Contracts issued by Insurance
Company and of distributing the Fund's proxy materials and reports to such
Contract owners; Insurance Company shall bear all expenses associated with the
registration, qualification, and filing of the Contracts under applicable
federal securities and state insurance laws; the cost of preparing, printing,
and distributing the Contract prospectus and SAI; and the cost of preparing,
printing and distributing annual individual account statement to Contract owners
as required by state insurance laws.
5.4. The Fund acknowledges that a principal feature of the Contracts is
the Contract owner's ability to choose from a number of unaffiliated mutual
funds (and portfolios or series thereof), including the Designated Portfolios
("Unaffiliated Funds"), and to transfer the Contract's cash value between funds
and portfolios. The Fund and Underwriter agree to cooperate with Insurance
Company in facilitating the operation of the Account and the Contracts as
intended, including but not limited to cooperation in facilitating transfers
between Unaffiliated Funds.
ARTICLE VI. Potential Conflicts and Compliance With
Shared Funding Exemptive Order
--------------------------------------
6.1 In the event that Fund determines that it is appropriate for the
Fund to seek an order from the SEC granting insurance companies and their
separate accounts exemptions which purchase Fund shares from the provisions of
Sections 9(a), 13(a) and 15(b) of the 1940 Act, and Rules 6e-2(b)(15) and
6e-3(T)(b)(15) thereunder, to the extent necessary to permit shares of the Fund
to be sold to and held by variable annuity and variable life insurance separate
accounts of both affiliated and unaffiliated life insurance companies and
certain qualified pension and retirement plans (the "Shared Funding Exemptive"),
this article shall apply.
6.2. The Board will monitor the Fund for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
separate accounts investing in the Fund. An irreconcilable material conflict may
arise for a variety of reasons, including: (a) an
-8-
<PAGE>
action by any state insurance regulatory authority; (b) a change in applicable
federal or state insurance, tax, or securities laws or regulations, or a public
ruling, private letter ruling, no-action or interpretative letter, or any
similar action by insurance, tax, or securities regulatory authorities; (c) an
administrative or judicial decision in any relevant proceeding; (d) the manner
in which the investments of any Portfolio are being managed; (e) a difference in
voting instructions given by variable annuity contract and variable life
insurance contract owners; or (f) a decision by a participating insurance
company to disregard the voting instructions of contract owners. The Board shall
promptly inform Insurance Company if it determines that an irreconcilable
material conflict exists and the implications thereof.
6.3. Insurance Company will report any potential or existing conflicts
of which it is aware to the Board. Insurance Company will assist the Board in
carrying out its responsibilities under the Shared Funding Exemptive Order, by
providing the Board with all information reasonably necessary for the Board to
consider any issues raised. This includes, but is not limited to, an obligation
by Insurance Company to inform the Board whenever contract owner voting
instructions are disregarded. Such responsibilities shall be carried out by
Insurance Company with a view only to the interests of its Contract Owners.
6.4. If it is determined by a majority of the Board, or a majority of
its directors who are not interested persons of the Fund, its adviser or any
sub-adviser to any of the Portfolios (the "Independent Directors"), that a
material irreconcilable conflict exists, Insurance Company and other
participating insurance companies shall, at their expense and to the extent
reasonably practicable (as determined by a majority of the Independent
Directors), take whatever steps are necessary to remedy or eliminate the
irreconcilable material conflict, up to and including: (1) withdrawing the
assets allocable to some or all of the separate accounts from the Fund or any
Portfolio and reinvesting such assets in a different investment medium,
including (but not limited to) another Portfolio of the Fund, or submitting the
question whether such segregation should be implemented to a vote of all
affected contract owners and, as appropriate, segregating the assets of any
appropriate group (i.e., annuity contract owners, life insurance contract
---
owners, or variable contract owners of one or more participating insurance
companies) that votes in favor of such segregation, or offering to the affected
contract owners the option of making such a change; and (2) establishing a new
registered management investment company or managed separate account. Insurance
Company shall not be required by this Section 6.4 to establish a new funding
medium for the Contracts if an offer to do so has been declined by vote of a
majority of Contract owners materially adversely affected by the irreconcilable
material conflict.
6.5. If a material irreconcilable conflict arises because of a decision
by Insurance Company to disregard contract owner voting instructions and that
decision represents a minority position or would preclude a majority vote,
Insurance Company may be required, at the Fund's election, to withdraw the
Account's investment in the Fund and terminate this Agreement; provided, however
that such withdrawal and termination shall be limited to the extent required by
the foregoing material irreconcilable conflict as determined by a majority of
the Independent Directors. Any such withdrawal and termination must take place
within six (6) months after the Fund gives written notice that this provision is
being implemented, and until the end of that six month period the Fund shall
continue to accept and implement orders by Insurance Company for the purchase
(and redemption) of shares of the Fund.
6.6. If a material irreconcilable conflict arises because a particular
state insurance
-9-
<PAGE>
regulator's decision applicable to Insurance Company conflicts with the majority
of other state regulators, then Insurance Company will withdraw the Account's
investment in the Fund and terminate this Agreement within six months after the
Board informs Insurance Company in writing that it has determined that such
decision has created an irreconcilable material conflict; provided, however,
that such withdrawal and termination shall be limited to the extent required by
the foregoing material irreconcilable conflict as determined by a majority of
the disinterested members of the Board. Until the end of the foregoing six month
period, the Underwriter and the Fund shall continue to accept and implement
orders by Insurance Company for the purchase (and redemption) of shares of the
Fund.
6.7. For purposes of Sections 6.4 through 6.6 of this Agreement, a
majority of the Independent Directors shall determine whether any proposed
action adequately remedies any irreconcilable material conflict, but in no event
will the Fund be required to establish a new funding medium for the Contracts.
6.8. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended,
or Rule 6e-3 is adopted, to provide exemptive relief from any provision of the
Act or the rules promulgated thereunder with respect to mixed or shared funding
(as defined in the Shared Funding Exemptive Order) on terms and conditions
materially different from those contained in the Shared Funding Exemptive Order,
then (a) the Fund and/or the Participating Insurance Companies, as appropriate,
shall take such steps as may be necessary to comply with Rules 6e-2 and 6e-3(T),
as amended, and Rule 6e-3, as adopted, to the extent such rules are applicable:
and (b) Sections 6.2, 6.3, 6.4, 6.5 and 6.6 of this Agreement shall continue in
effect only to the extent that terms and conditions substantially identical to
such Sections are contained in such Rule(s) as so amended or adopted.
ARTICLE VII. Indemnification
---------------
7.1. Indemnification By Insurance Company
------------------------------------
8.1(a). Insurance Company agrees to indemnify and hold
harmless the Fund and the Adviser and their officers, directors, employees, and
agents and each person who controls the Fund within meaning of ss. 15 of the
1933 Act. (collectively, the "Indemnified Parties" for purposes of this Section
7.1) against any and all losses, claims, damages, liabilities (including amounts
paid in settlement with the written consent of Insurance Company) or litigation
(including legal and other expenses), to which the Indemnified Parties may
become subject under any statute or regulation, at common law or otherwise,
insofar as such losses, claims, damages, liabilities or expenses (or actions in
respect thereof) or settlements are related to the sale or acquisition of the
Fund's shares or the Contracts and:
(i) arise out of or are based upon any untrue statements or alleged
untrue statements of any material fact contained in the
registration statement or prospectus or SAI for the Contracts or
contained in the Contracts (or any amendment or supplement to any
of the foregoing), or arise out of or are based upon the omission
or the alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein
not misleading, provided that this Agreement to indemnify shall
--------
not apply
-10-
<PAGE>
as to any Indemnified Party if such statement or omission or such
alleged statement or omission was made in reliance upon and in
conformity with information furnished in writing to Insurance
Company by or on behalf of the Underwriter or Fund for use in the
registration statement or prospectus for the Contracts or in the
Contracts or sales literature (or any amendment or supplement) or
otherwise for use in connection with the sale of the Contracts or
Fund shares; or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the
registration statement, prospectus or sales literature of the
Fund not supplied by Insurance Company or persons under its
control) or wrongful conduct of Insurance Company or persons
under its control, with respect to the sale or distribution of
the Contracts or Fund Shares; or
(iii) arise out of any untrue statement or alleged untrue statement of
a material fact contained in a registration statement,
prospectus, or sales literature of the Fund or any amendment
thereof or supplement thereto or the omission or alleged omission
to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading if such a
statement or omission was made in reliance upon information
furnished in writing to the Fund by or on behalf of Insurance
Company; or
(iv) arise as a result of any failure by Insurance Company to provide
the services and furnish the materials under the terms of this
Agreement; or
(v) arise out of or result from any material breach of any
representation and/or warranty made by Insurance Company in this
Agreement or arise out of or result from any other material
breach of this Agreement by Insurance Company, as limited by and
in accordance with the provisions of Sections 7.1(b) and 7.1(c)
hereof.
7.1(b). Insurance Company shall not be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation to which an Indemnified Party would otherwise be
subject if caused by such Indemnified Party's willful misfeasance, bad faith, or
negligence in the performance of such Indemnified Party's duties or by reason of
such Indemnified Party's reckless disregard of obligations or duties under this
Agreement.
7.1(c). Insurance Company shall not be liable under this
indemnification provision with respect to any claim made against an Indemnified
Party unless such Indemnified Party shall have notified Insurance Company in
writing within a reasonable time after the summons or other first legal process
giving information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify Insurance Company
of any such claim shall not relieve Insurance Company from any liability which
it may have to the Indemnified Party against whom such action is brought
otherwise than on account of this indemnification provision. In case any such
action is brought against the Indemnified Parties, Insurance Company shall be
entitled to participate, at its own expense, in the defense of such action.
Insurance Company also shall be entitled to assume the defense thereof, with
counsel
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<PAGE>
satisfactory to the party named in the action. After notice from Insurance
Company to such party of Insurance Company's election to assume the defense
thereof, the Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it, and Insurance Company will not be liable to
such party under this Agreement for any legal or other expenses subsequently
incurred by such party independently in connection with the defense thereof
other than reasonable costs of investigation.
7.1(d). The Indemnified Parties will promptly notify Insurance
Company of the commencement of any litigation or proceedings against them in
connection with the issuance or sale of the Fund shares or the Contracts or the
operation of the Fund.
7.2. Indemnification by the Adviser
------------------------------
7.2(a). The Adviser agrees to indemnify and hold harmless Insurance
Company and each of its directors, officers, employees, agents and each person,
if any, who controls Insurance Company within the meaning of Section 15 of the
1933 Act (collectively, the "Indemnified Parties" for purposes of this Section
7.2) against any and all losses, claims, damages, liabilities (including amounts
paid in settlement with the written consent of the Adviser) or litigation
(including legal and other expenses) to which the Indemnified Parties may become
subject under any statute or regulation, at common law or otherwise, insofar as
such losses, claims, damages, liabilities or expenses (or actions in respect
thereof) or settlements are related to the sale or acquisition of the Fund's
shares or the Contracts and:
(i) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the
registration statement or prospectus or SAI or sales literature
of the Fund (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading, provided that this Agreement to indemnify shall not
--------
apply as to any Indemnified Party if such statement or omission
or such alleged statement or omission was made in reliance upon
and in conformity with information furnished in writing to the
Adviser or Fund by or on behalf of Insurance Company for use in
the registration statement or prospectus for the Fund or in sales
literature (or any amendment or supplement) or otherwise for use
in connection with the sale of the Contracts or Fund shares; or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the
registration statement, prospectus or sales literature for the
Contracts not supplied by the Adviser or persons under its
control) or wrongful conduct of the Fund or Adviser or persons
under their control, with respect to the sale or distribution of
the Contracts or Fund shares; or
(iii) arise out of any untrue statement or alleged untrue statement of
a material fact contained in a registration statement, prospectus
or sales literature covering the Contracts, or any amendment
thereof or supplement thereto, or the omission or alleged
omission to state therein a material fact required to be stated
therein or necessary to make the statement or statements therein
not misleading, if such statement or omission was made in
reliance upon information furnished in
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<PAGE>
writing to Insurance Company by or on behalf of the Adviser or
Fund; or
(iv) arise as a result of any failure by the Fund or Adviser to
provide the services and furnish the materials under the terms of
this Agreement (including a failure, whether unintentional or in
good faith or otherwise, to comply with the diversification and
other qualification requirements specified ss. 2.9 and 2.10 in of
this Agreement); or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Fund or Adviser in
this Agreement or arise out of or result from any other material
breach of this Agreement by the Fund or Adviser; as limited by
and in accordance with the provisions of Sections 7.2(b) and
7.2(c) hereof.
7.2(b). The Adviser shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
to which an Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful misfeasance, bad faith, or negligence in the
performance or such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this Agreement.
7.2(c). The Adviser shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Adviser in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Adviser of any
such claim shall not relieve the Adviser from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Adviser will be entitled to participate, at
its own expense, in the defense thereof. The Adviser also shall be entitled to
assume the defense thereof, with counsel satisfactory to the party named in the
action. After notice from the Adviser to such party of the Adviser's election to
assume the defense thereof, the Indemnified Party shall bear the fees and
expenses of any additional counsel retained by it, and the Adviser will not be
liable to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with the defense
thereof other than reasonable costs of investigation.
7.2(d). Insurance Company agrees promptly to notify the Adviser of
the commencement of any litigation or proceedings against it or any of its
officers or directors in connection with the issuance or sale of the Contracts
or the operation of the Account.
ARTICLE VIII. Applicable Law
--------------
8.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of California,
without regard to that state's principles of conflicts of law, except that any
terms shall be defined and interpreted in accordance with, and the Agreement
subject to, the federal securities laws.
8.2. This Agreement shall be subject to the provisions of the 1933, 1934
and 1940 Acts,
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<PAGE>
and the rules and regulations and rulings thereunder, including such exemptions
from those statutes, rules and regulations as the Securities and Exchange
Commission may grant (including, but not limited to, the Shared Funding
Exemptive Order) and the terms hereof shall be interpreted and construed in
accordance therewith.
ARTICLE IX. Termination
-----------
9.1. This Agreement shall terminate:
(a) at the option of any party, with or without cause, with
respect to some or all Portfolios, upon one (1) year advance
written notice delivered to the other parties; provided,
however, that such notice shall not be given earlier than one
year following the date of this Agreement; or
(b) at the option of Insurance Company by written notice to
the other parties with respect to any Portfolio based upon
Insurance Company's determination that shares of such
Portfolio are not reasonably available to meet the
requirements of the Contracts; or
(c) at the option of Insurance Company by written notice to
the other parties with respect to any Portfolio in the event
any of the Portfolio's shares are not registered, issued or
sold in accordance with applicable state and/ or federal law
or such law precludes the use of such shares as the
underlying investment media of the Contracts issued or to be
issued by Insurance Company; or
(d) at the option of the Fund in the event that formal
administrative proceedings are instituted against Insurance
Company by the National Association of Securities Dealers,
Inc. ("NASD"), the Securities and Exchange Commission, the
Insurance Commissioner or like official of any state or any
other regulatory body regarding Insurance Company's duties
under this Agreement or related to the sale of the
Contracts, the operation of any Account, or the purchase of
the Fund shares, provided, however, that the Fund determines
in its sole judgment exercised in good faith, that any such
administrative proceedings will have a material adverse
effect upon the ability of Insurance Company to perform its
obligations under this Agreement; or
(e) at the option of Insurance Company in the event that
formal administrative proceedings are instituted against the
Fund or Adviser by the NASD, the Securities and Exchange
Commission, or any state securities or insurance department
or any other regulatory body, provided, however, that
Insurance Company determines in its sole judgment exercised
in good faith, that any such administrative proceedings will
have a material adverse effect upon the ability of the Fund
or Adviser to perform its obligations under this Agreement;
or
(f) at the option of Insurance Company by written notice to
the Fund and the Adviser with respect to any Portfolio if
Insurance Company reasonably believes that the Portfolio may
fail to meet the Section 817(h) diversification requirements
or Subchapter M qualifications specified in Section 2.9 and
2.10 of this Agreement; or
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<PAGE>
(g) at the option of either the Fund or the Adviser, if (i)
the Fund or Adviser, respectively, shall determine, in their
sole judgement reasonably exercised in good faith, that
Insurance Company has suffered a material adverse change in
its business or financial condition or is the subject of
material adverse publicity and that material adverse change
or publicity will have a material adverse impact on
Insurance Company's ability to perform its obligations under
this Agreement, (ii) the Fund or Adviser notifies Insurance
Company of that determination and its intent to terminate
this Agreement, and (iii) after considering the actions
---
taken by Insurance Company and any other changes in
circumstances since the giving of such a notice, the
determination of the Fund or Adviser shall continue on the
sixtieth (60th) day following the giving of that notice,
which sixtieth day shall be the effective date of
termination; or
(h) at the option of Insurance Company, if (i) Insurance
Company shall determine, in its sole judgement reasonably
exercised in good faith, that either the Fund or the Adviser
have suffered a material adverse change in their business or
financial condition or is the subject of material adverse
publicity and that material adverse change or publicity will
have a material adverse impact on the Fund's or Adviser's
ability to perform its obligations under this Agreement,
(ii) Insurance Company notifies the Fund or Adviser, as
appropriate, of that determination and its intent to
terminate this Agreement, and (iii) after considering the
---
actions taken by the Fund or Adviser and any other changes
in circumstances since the giving of such a notice, the
determination of Insurance Company shall continue on the
sixtieth (60th) day following the giving of that notice,
which sixtieth day shall be the effective date of
termination; or
(i) at the option of any party to this Agreement, upon
another party's material breach of any provision of this
Agreement; or
(j) upon assignment of this Agreement, unless made with the
written consent of the parties hereto, except that the
Adviser may assign this Agreement, or any of its rights or
obligations hereunder, to any affiliate of, or company under
common control with, the Adviser (but in such event the
Adviser shall continue to be liable for any indemnification
due to Insurance Company and the assignee shall also be
liable), if such assignee is duly licensed and registered to
perform the obligations of the Adviser under this Agreement;
or
(k) at the option of Insurance Company or the Fund by
written notice to the other party upon a determination by
the Fund's Board that a material irreconcilable conflict
exists among the interests of (i) all contract owners of all
separate accounts investing in the Fund or (ii) the
interests of the Participating Insurance Companies; or
(l) at the option of Insurance Company by written notice to
the Fund or the Adviser upon the sale, acquisition or change
of control of the Adviser.
9.2. Notice Requirement. No termination of this Agreement shall be
------------------
effective unless and until the party terminating this Agreement gives prior
written notice to all other parties of its intent to terminate, which notice
shall set forth the basis for the termination.
9.3. Effect of Termination. Notwithstanding any termination of this
---------------------
Agreement, the
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<PAGE>
Fund and the Adviser shall, at the option of Insurance Company, continue to make
available additional shares of the Fund for all Contracts in effect on the
effective date of termination of this Agreement (hereinafter referred to as
"Existing Contracts") pursuant to the terms and conditions of this Agreement.
Specifically, without limitation, the owners of the Existing Contracts shall be
permitted to reallocate investments in the Fund, redeem investments in the Fund
and/or invest in the Fund upon the making of additional purchase payments under
the Existing Contracts. The parties agree that this Section 9.3 shall not apply
to any terminations under Article VI and the effect of such Article VI
terminations shall be governed by Article VI of this Agreement.
9.4. Surviving Provisions. Notwithstanding any termination of this
--------------------
Agreement, each party's obligations under Article VIII to indemnify other
parties shall survive and not be affected by any termination of this Agreement.
In addition, with respect to Existing Contracts, all provisions of this
Agreement shall also survive and not be affected by any termination of this
Agreement.
ARTICLE X. Notices
-------
Any notice shall be sufficiently given when sent by registered or
certified mail or by overnight mail sent through a nationally-recognized
delivery service to the other party at the address of such party set forth below
or at such other address as such party may from time to time specify in writing
to the other party.
If to Insurance Company:
PFL Life Insurance Company
4333 Edgewood Road N.E.
Cedar Rapids, Iowa 52406
Attention: General Counsel, Financial Markets Division
If to the Fund:
Transamerica Variable Insurance Fund, Inc.
1150 South Olive Street
Los Angeles, CA 90015
Attention: Secretary
If to the Adviser:
Transamerica Occidental Life Insurance Company
1150 South Olive Street
Los Angeles, CA 90015
Attention: General Counsel
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<PAGE>
ARTICLE XI. Miscellaneous
-------------
10.1. Subject to the requirements of legal process and regulatory
authority, each party hereto shall treat as confidential the names and addresses
of the owners of the Contracts and all information reasonably identified as
confidential in writing by any other party hereto and, except as permitted by
this Agreement, shall not disclose, disseminate or utilize such names and
addresses and other confidential information without the express written consent
of the affected party until such time as such information may come into the
public domain. Without limiting the foregoing, no party hereto shall disclose
any information that another party reasonably considers to be proprietary.
10.2. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
10.3. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
10.4. If any provision of this Agreement shall be held or made invalid
by a court decision, statute, rule or otherwise, the remainder of the Agreement
shall not be affected thereby.
10.5. Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the
Securities and Exchange Commission, the NASD and state insurance regulators) and
shall permit such authorities reasonable access to its books and records in
connection with any investigation or inquiry relating to this Agreement or the
transactions contemplated hereby.
10.6. The rights, remedies and obligations contained in this Agreement
are cumulative and are in addition to any and all rights, remedies and
obligations, at law or in equity, which the parties hereto are entitled to under
state and federal laws.
10.7. This Agreement or any of the rights and obligations hereunder
may not be assigned by any party without the prior written consent of all
parties hereto.
10.8. The Schedules attached hereto, as modified from time to time, are
incorporated herein by reference and are part of this Agreement.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and on its behalf by its duly authorized
representative and its seal to be hereunder affixed hereto as of the date
specified below.
PFL LIFE INSURANCE COMPANY:
By its authorized officer
By: /s/ William L. Busler
-------------------------------
Title: President
-------------------------------
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<PAGE>
TRANSAMERICA VARIABLE INSURANCE FUND, INC.:
By its authorized officer,
By: /s/ Regina M. Fink
-------------------------------
Title: Secretary
-------------------------------
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY:
By its authorized officer,
By: /s/ David Goldstein
-------------------------------
Title: Vice President &
-------------------------------
Deputy General Counsel
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<PAGE>
Effective May 1, 2000
AMENDED SCHEDULE A
------------------
Extra Variable Annuity
Endeavor Variable Annuity
Endeavor ML Variable Annuity
Endeavor Platinum Variable Annuity
AUSA Endeavor Variable Annuity
Access Variable Annuity
Retirement Income Builder II Variable Annuity
Legacy Builder Plus
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<PAGE>
SCHEDULE B
----------
Designated Portfolios
- ---------------------
Growth Portfolio of Transamerica Variable Insurance Fund, Inc.
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<PAGE>
NOTICE
------
With regard to
November 1, 1999
Participation Agreement between
Transamerica Variable Insurance Fund
Transamerica Occidental Life Insurance Company
and
PFL Life Insurance Company
Effective January 1, 2000, and pursuant to (SS) 8.1 and (SS) 9.1(j) of this
Agreement, Transamerica Investment Management, LLC, replaced Transamerica
Occidental Life Insurance Company as Adviser.
/s/Regina M. Fink
- -----------------------------------------------------------------------
Regina M. Fink
Assistant General Counsel, Transamerica Occidental Life Insurance Company
Counsel to Transamerica Investment Management, LLC
Secretary, Transamerica Variable Insurance Fund, Inc.
<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 Statements of Additional Information and to the use of our reports
(1) dated February 18, 2000 with respect to the statutory-basis financial
statements and schedules of PFL Life Insurance Company, (2) dated
January 28, 2000 with respect to the financial statements of certain subaccounts
of PFL Retirement Builder Variable Annuity Account, which are available for
investment by contract owners of the Retirement Income Builder Variable Annuity,
(3) dated January 28, 2000 with respect to the financial statements of the
subaccounts of PFL Retirement Builder Variable Annuity Account, which are
available for investment by contract owners of the Retirement Income Builder II
Variable Annuity, and (4) dated January 28, 2000 with respect to the financial
statements of certain subaccounts of PFL Retirement Builder Variable Annuity
Account, which are available for investment by contract owners of Portfolio
Select Variable Annuity, included in Post-Effective Amendment No. 9 to the
Registration Statement (Form N-4 No. 333-7509) and related Prospectuses of
Retirement Income Builder Variable Annuity, Retirement Income Builder II
Variable Annuity and Portfolio Select Variable Annuity.
/s/ Ernst & Young
Des Moines, Iowa
April 24, 2000
