<PAGE>
As filed with the Securities and Exchange Commission on December 8, 1999
Registration No. 333 - 83957
811 - 09503
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 _____
Pre-Effective Amendment No. 2
Post-Effective Amendment No. ___
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 _____
Amendment No. 2
PFL LIFE VARIABLE ANNUITY ACCOUNT C
(Exact Name of Registrant)
PFL LIFE INSURANCE COMPANY
(Name of Depositor)
4333 Edgewood Road N.E.
Cedar Rapids, IA 52499-0001
(Address of Depositor's Principal Executive Offices)
Depositor's Telephone Number: (319) 297-8468
Frank A. Camp, Esq.
PFL Life Insurance Company
4333 Edgewood Road, N.E.
Cedar Rapids, IA 52499-0001
(Name and Address of Agent for Service)
Copy to:
Frederick R. Bellamy, Esq.
Sutherland Asbill and Brennan LLP
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004-2415
<PAGE>
Title of Securities Being Registered: Flexible Premium Variable Annuity
Policies
Approximate date of proposed offering:
As soon as practicable after effectiveness of Registration Statement.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
shall determine.
<PAGE>
This Pre-Effective Amendment No.2 to Form N-4 File No. 333-83957 incorporates by
reference Part C of Pre-Effective Amendment No.1 to Form N-4 File No. 333-83957,
which was filed with the Securities and Exchange Commission on November 2, 1999.
<PAGE>
EXTRA
VARIABLE
ANNUITY
Issued Through
PFL LIFE VARIABLE
ANNUITY ACCOUNT C
By
PFL LIFE INSURANCE COMPANY
Prospectus
December 8, 1999
This prospectus and the mutual fund prospectuses give you important information
about the Extra Variable Annuity 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 Extra Variable Annuity, you can
obtain a free copy of the Statement of Additional Information (SAI) dated
December 8, 1999. Please call us at (800) 525-6205 or write us at: PFL Life
Insurance Company, Financial Markets Division, Variable Annuity Department,
4333 Edgewood Road N.E., Cedar Rapids, Iowa, 52499-0001. A registration
statement, including the SAI, has been filed with the Securities and Exchange
Commission (SEC) and is incorporated herein by reference. Information about the
variable annuity 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 variable annuity 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 flexible premium deferred variable annuity 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-two 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.
ENDEAVOR SERIES TRUST
Endeavor Asset Allocation Portfolio
Endeavor Money Market Portfolio
T. Rowe Price Equity Income Portfolio
T. Rowe Price Growth Stock Portfolio
T. Rowe Price International Stock Portfolio
Endeavor Value Equity Portfolio
Endeavor Opportunity Value Portfolio
Endeavor Enhanced Index Portfolio
Dreyfus U.S. Government Securities Portfolio
Dreyfus Small Cap Value Portfolio
Endeavor Select 50 Portfolio
Endeavor High Yield Portfolio
Endeavor Janus Growth Portfolio
WRL SERIES FUND, INC.
WRL Janus Global
WRL Alger Aggressive Growth
WRL NWQ Value Equity
WRL Goldman Sachs Growth
WRL T. Rowe Price Dividend Growth
WRL T. Rowe Price Small Cap
WRL Salomon All Cap
WRL Pilgrim Baxter Mid Cap Growth
TRANSAMERICA VARIABLE INSURANCE FUND, INC.
Transamerica VIF Growth Portfolio
The Securities and Exchange Commission has not approved or disapproved these
securities, or passed upon the adequacy of this prospectus. Any representation
to the contrary is a criminal offense.
<PAGE>
<TABLE>
<CAPTION>
Page
TABLE OF CONTENTS ----
<S> <C>
GLOSSARY OF TERMS........................................................... 3
SUMMARY..................................................................... 4
ANNUITY POLICY FEE TABLE.................................................... 8
EXAMPLES.................................................................... 11
1. THE ANNUITY POLICY...................................................... 12
2. ANNUITY PAYMENTS
(THE INCOME PHASE)...................................................... 12
Annuity Payment Options................................................. 12
3. PURCHASE................................................................ 14
Policy Issue Requirements............................................... 14
Premium Payments........................................................ 14
Initial Premium Requirements............................................ 14
Additional Premium Payments............................................. 14
Maximum Total Premium Payments.......................................... 14
Premium Enhancement..................................................... 14
Allocation of Premium Payments.......................................... 15
Policy Value............................................................ 15
4. INVESTMENT CHOICES...................................................... 15
The Separate Account.................................................... 15
The Fixed Account....................................................... 16
Transfers............................................................... 17
Family Income Protector................................................. 17
Dollar Cost Averaging Program........................................... 19
Asset Rebalancing....................................................... 20
Telephone Transactions.................................................. 20
5. EXPENSES................................................................ 20
Surrender Charge........................................................ 20
Excess Interest Adjustment.............................................. 21
Mortality and Expense Risk Fee.......................................... 21
Administrative Charges.................................................. 21
Premium Taxes........................................................... 21
Federal, State and Local Taxes.......................................... 21
Transfer Fee............................................................ 21
Family Income Protector................................................. 22
Portfolio Management Fees............................................... 22
6. TAXES................................................................... 22
Annuities in General.................................................... 22
Qualified and Nonqualified Annuities.................................... 22
Withdrawals--Nonqualified Policies...................................... 23
Withdrawals--Qualified Policies......................................... 23
Withdrawals--403(b) Policies............................................ 23
Diversification and Distribution Requirements........................... 23
Taxation of Death Benefit Proceeds...................................... 23
Annuity Payments........................................................ 24
Transfers, Assignments or Exchanges..................................... 24
Possible Tax Law Changes................................................ 24
7. ACCESS TO YOUR MONEY.................................................... 24
Surrenders.............................................................. 24
Delay of Payment and Transfers.......................................... 25
Excess Interest Adjustment.............................................. 25
Systematic Payout Option................................................ 25
Nursing Care and Terminal Condition Withdrawal Option................... 25
Unemployment Waiver..................................................... 25
8. PERFORMANCE............................................................. 26
9. DEATH BENEFIT........................................................... 26
When We Pay A Death Benefit............................................. 26
When We Do Not Pay A Death Benefit...................................... 27
Amount of Death Benefit................................................. 27
Guaranteed Minimum Death Benefit........................................ 27
Adjusted Partial Withdrawal............................................. 28
10. OTHER INFORMATION....................................................... 28
Ownership............................................................... 28
Assignment.............................................................. 28
PFL Life Insurance Company.............................................. 28
The Separate Account.................................................... 28
Mixed and Shared Funding................................................ 28
Reinstatements.......................................................... 29
Voting Rights........................................................... 29
Distributor of the Policy............................................... 29
Non-Participating....................................................... 29
Variations in Certain Provisions........................................ 29
Year 2000 Matters....................................................... 29
IMSA.................................................................... 30
Legal Proceedings....................................................... 30
Financial Statements.................................................... 30
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION................ 30
APPENDIX A
Historical Performance Data............................................. 31
</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.
Annuitant--The person entitled to receive annuity payments after the annuity
commencement date and during whose life any annuity payments involving life
contingencies will continue.
Annuity Commencement Date--The date upon which annuity payments are to
commence. This date may be any date at least thirty days after the policy date
and 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.
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 any applicable surrender charge, premium taxes, and family
income protector rider fee, and less the annual service charge.
Excess Interest Adjustment--A positive or negative adjustment to amounts
withdrawn upon partial withdrawals, full surrenders, or transfers from the
guaranteed period options, or to amounts applied to annuity payment options.
The adjustment reflects changes in the interest rates declared by PFL since the
date any payment was received by, or an amount was transferred to, the
guaranteed period option. The excess interest adjustment can either decrease or
increase the amount to be received by the owner upon full surrender or
commencement of annuity payments, depending upon whether there has been an
increase or decrease in interest rates, respectively.
Fixed Account--One or more investment choices under the policy that are part of
the general assets of PFL and are not in the separate account.
Guaranteed Period Options--The various guaranteed interest rate periods of the
fixed account which may be offered by PFL and into which premium payments may
be paid or amounts transferred.
Owner--Depending upon the state of issue, owner means either:
. the individual or entity that owns a certificate under a group contract; or
. the individual or entity that owns an individual policy.
Policy--Depending upon the state of issue, policy means either:
. the individual certificate under a group contract; or
. the individual policy.
Policy Value--On or before the annuity commencement date, the policy value is
equal to the owner's:
. premium payments (including any premium enhancement); 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 and on each policy
anniversary.
Separate Account--A separate account established and registered as a unit
investment trust under the Investment Company Act of 1940, as amended, to which
premium payments under the policies may be allocated.
Subaccount--A subdivision within the separate account, the assets of which are
invested in specified portfolios of the underlying funds.
(Note: The Statement of Additional Information 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. Words printed in italics in this prospectus
are defined in the Glossary.
1. THE VARIABLE 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: twenty-two 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-two subaccounts in the separate account that are
listed in Section 4. Each subaccount invests exclusively in shares of one of
the portfolios of the underlying funds. The policy value may depend on the
investment experience of the selected subaccounts. Therefore, you bear the
entire investment risk with respect to all policy value in any subaccount. You
could lose the amount that you invest.
The fixed account offers an interest rate that is guaranteed by PFL. We
guarantee to return your investment with interest credited for all amounts
allocated to the fixed account.
You can transfer money between any of the investment choices. We reserve the
right to impose a $10 fee for each transfer in excess of 12 transfers per
policy year.
The policy, like all deferred annuities, has two phases: the "accumulation
phase" and the "income phase." During the accumulation phase, earnings
accumulate on a tax-deferred basis and are taxed as income when you take them
out of the policy. The income phase occurs when you begin receiving regular
payments from your policy. The money you can accumulate during the accumulation
phase will largely determine the income payments you receive during the income
phase.
2. ANNUITY PAYMENTS
(THE INCOME PHASE)
The policy allows you to receive income under one of five annuity payment
options. You may choose from fixed payment options, variable payment options,
or a combination of both. If you select a variable payment option, the dollar
amount of your payments may go up or down.
3. PURCHASE
You can buy a nonqualified policy with $5,000 or more, and a qualified policy
with $2,000 or more, under most circumstances. You can add as little as $50 at
any time during the accumulation phase.
Each premium payment will receive a premium enhancement that PFL adds to your
policy value. We may change the enhancement rate at any time. Under certain
circumstances, you might forfeit (or lose) the premium enhancement.
4. INVESTMENT CHOICES
You can allocate your premium payments to one or more of the following
portfolios described in the underlying fund prospectuses:
Endeavor Asset Allocation Portfolio
Endeavor Money Market Portfolio
T. Rowe Price Equity Income Portfolio
T. Rowe Price Growth Stock Portfolio
T. Rowe Price International Stock Portfolio
Endeavor Value Equity Portfolio
Endeavor Opportunity Value Portfolio
Endeavor Enhanced Index Portfolio
Dreyfus U.S. Government Securities Portfolio
Dreyfus Small Cap Value Portfolio
Endeavor Select 50 Portfolio
Endeavor High Yield Portfolio
Endeavor Janus Growth Portfolio
WRL Janus Global
WRL Alger Aggressive Growth
WRL NWQ Value Equity
WRL Goldman Sachs Growth
WRL T. Rowe Price Dividend Growth
WRL T. Rowe Price Small Cap
WRL Salomon All Cap
WRL Pilgrim Baxter Mid Cap Growth
Transamerica VIF Growth Portfolio
4
<PAGE>
Depending upon their investment performance, you can make or lose money in any
of the subaccounts. You can also allocate your premium payments to the fixed
account.
5. EXPENSES
No deductions are made from premium payments at the time you buy the policy so
that the full amount of each premium payment is invested in one or more of your
investment choices.
We may deduct a surrender charge of up to 8% of premium payments withdrawn
within nine years after the premium is paid. To calculate surrender charges, we
consider the premium you paid to come out before any earnings.
Full surrenders, partial withdrawals, and transfers 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, distribution and
administrative expense charges at an annual rate of 1.75% from the assets in
each subaccount.
During the accumulation phase, we deduct an annual service charge of no more
than $40 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 $100,000.
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, then there is an annual fee
during the accumulation phase of 0.30% of the minimum annuitization value. If
you annuitize 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 investment
advisory fee and other expenses incurred by the underlying portfolios. Those
fees and expenses are detailed in the underlying fund prospectuses that are
attached to this prospectus.
6. TAXES
Your earnings, if any, are not taxed until you take them out. If you take money
out during the accumulation phase, earnings come out first for federal tax
purposes, and are taxed as income. If you are younger than 59 1/2 when you take
money out, you may be charged a 10% federal penalty tax. Payments during the
income phase may be considered partly a return of your original investment so
that part of each payment would not be taxable as income.
7. ACCESS TO YOUR MONEY
You can take out $500 or more anytime during the accumulation phase. After one
year, you may take out up to 10% of your cumulative premium payments free of
surrender charges or excess interest adjustments once each policy year. Amounts
withdrawn in the first year, or in excess of 10% of your cumulative premium
payments thereafter, may be subject to a surrender charge and/or excess
interest adjustment. You may also have to pay income tax and a tax penalty on
any money you take out.
8. PERFORMANCE
The value of the policy will vary up or down depending upon the investment
performance of the subaccounts you choose. We provide performance information
in Appendix A and in the Statement of Additional Information. This data is not
intended to indicate future performance.
9. DEATH BENEFIT
If you are both the owner and the annuitant and you die before the income phase
begins, then your beneficiary will receive a death benefit.
Naming different persons as owner and annuitant can affect whether the death
benefit
5
<PAGE>
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.
The guaranteed minimum death benefit is a Step-Up Death Benefit (before age
76).
No death benefit is paid if the owner dies, if the owner is not also the
annuitant.
10. 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 10 days. The amount of the refund will
generally be the policy value, less any premium enhancement. We may reduce the
refund by less than the dollar amount of the premium enhancement, if necessary,
to ensure that you would never be worse off because of the credit than if we
never gave you the credit. We will pay the refund within 7 days after we
receive written notice of cancellation and the returned policy. The policy will
then be deemed void. In some states you may have more than 10 days to return a
policy, or receive a refund of more (or less) than the policy value.
No Probate. Usually when you die the person you choose as your beneficiary will
receive the death benefit under this policy without going through probate.
State laws vary on how the amount that may be paid is treated for estate tax
purposes.
Who should purchase the Policy? This policy is designed for people seeking
long-term tax-deferred accumulation of assets, generally for retirement or
other long-term purposes; and for persons who have maximized their use of other
retirement savings methods, such as 401(k) plans and individual retirement
accounts. The tax-deferred feature is most attractive to people in high federal
and state tax brackets. You should not buy this policy if you are looking for a
short-term investment or if you cannot take the risk of losing money that you
put in.
There are various additional fees and charges associated with variable
annuities. You should consider whether the features and benefits unique to
variable annuities, such as the opportunity for lifetime income payments, a
company guaranteed death benefit and the guaranteed level of certain charges
are appropriate for your needs. Because variable annuities also provide tax-
deferral when purchased outside of qualified plans, the tax deferral features
of variable annuities are unnecessary when purchased to fund a qualified plan.
Financial Statements. Financial Statements for PFL are in the Statement of
Additional Information.
Additional Features. This policy has additional features that might interest
you. These include the following:
. You can arrange to have money automatically sent to you monthly, quarterly,
semi-annually or annually while your policy is in the accumulation phase.
This feature is referred to as the "systematic payout option." Amounts you
receive may be included in your gross income, and in certain circumstances,
may be subject to penalty taxes.
. You can arrange to have a certain amount of money automatically transferred
from the fixed account, either monthly or quarterly, into your choice of
subaccounts. This feature is called "dollar cost averaging."
. You can elect an optional rider that guarantees you a minimum annuitization
value. This feature is called the "family income protector."
. We will, upon your request, automatically transfer amounts among the
subaccounts on a regular basis to maintain a desired allocation of the
policy value among the various subaccounts. This feature is called "asset
rebalancing."
. Under certain medically related circumstances, we will allow you to
surrender or partially withdraw your policy value without a surrender charge
and excess interest adjustment. This feature is called the "nursing care and
terminal condition withdrawal option."
. Under certain unemployment circumstances, you may withdraw all or a
6
<PAGE>
portion of the policy value free of surrender charges and excess interest
adjustments. This feature is called the "unemployment waiver."
. You may make transfers and/or change the allocation of additional premium
payments by telephone.
These features are not available in all states and may not be suitable for your
particular situation.
Inquiries
If you need more information, please contact us at:
Administrative and Service Office
Financial Markets Division
Variable Annuity Department
PFL Life Insurance Company
4333 Edgewood Road N.E.
P.O. Box 3183
Cedar Rapids, IA 52406-3183
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/)...... 8%
Surrender Fees............... 0
Annual Service Charge(/1/)..... $40
Per Policy
Transfer Fee(/1/)..... Currently No
Fee
Family Income Protector
(optional)(/3/)
Rider Fee................... 0.30%
</TABLE>
<TABLE>
<CAPTION>
Separate Account Annual Expenses (as
a percentage of
average account value)
<S> <C>
Mortality and Expense Risk
Fee.......................... 1.35%
Administrative (and
Distribution) Charge......... 0.40%
-----
TOTAL SEPARATE ACCOUNT ANNUAL
EXPENSES .................... 1.75%
</TABLE>
- ------------------------------------------------------------------------------
Portfolio Annual Expenses(/4/)
(as a percentage of average net assets and after expense reimbursements)
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Total
Total Account
Rule Portfolio and
Management Other 12b-1 Annual Portfolio
Fees Expenses Fees(/5/) Expenses Expenses
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Endeavor Asset
Allocation(/6/).......... 0.75% 0.03% 0.02% 0.80% 2.55%
Endeavor Money
Market(/6/).............. 0.50% 0.10% -- 0.60% 2.35%
T. Rowe Price Equity
Income(/6/).............. 0.80% 0.05% -- 0.85% 2.60%
T. Rowe Price Growth
Stock(/6/)............... 0.80% 0.07% -- 0.87% 2.62%
T. Rowe Price
International
Stock(/6/)(/7/).......... 0.90% 0.19% -- 1.09% 2.84%
Endeavor Value
Equity(/6/).............. 0.80% 0.04% 0.01% 0.85% 2.60%
Endeavor Opportunity
Value(/7/)............... 0.80% 0.18% 0.01% 0.99% 2.74%
Endeavor Enhanced
Index(/6/)............... 0.75% 0.35% -- 1.10% 2.85%
Dreyfus U.S. Government
Securities(/6/)(/8/)..... 0.65% 0.08% -- 0.73% 2.48%
Dreyfus Small Cap
Value(/6/)............... 0.80% 0.06% 0.07% 0.93% 2.68%
Endeavor Select
50(/6/)(/9/)............. 1.10% 0.40% -- 1.50% 3.25%
Endeavor High
Yield(/6/)(/10/)......... 0.775% 0.656% -- 1.43% 3.18%
Endeavor Janus
Growth(/6/)(/11/)........ 0.775% 0.095% -- 0.87% 2.62%
WRL Janus Global(/12/).... 0.80% 0.15% -- 0.95% 2.70%
WRL Alger Aggressive
Growth................... 0.80% 0.11% -- 0.91% 2.66%
WRL NWQ Value Equity...... 0.80% 0.09% -- 0.89% 2.64%
WRL Goldman Sachs
Growth(/12/)(/13/)....... 0.90% 0.10% -- 1.00% 2.75%
WRL T. Rowe Price Dividend
Growth(/12/)(/13/)....... 0.90% 0.10% -- 1.00% 2.75%
WRL T. Rowe Price Small
Cap(/13/)................ 0.75% 0.25% -- 1.00% 2.75%
WRL Salomon All
Cap(/12/)(/13/).......... 0.90% 0.10% -- 1.00% 2.75%
WRL Pilgrim Baxter Mid Cap
Growth(/12/)(/13/)....... 0.90% 0.10% -- 1.00% 2.75%
Transamerica VIF
Growth(/14/)............. 0.64% 0.21% -- 0.85% 2.60%
</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 applies to 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. The service charge is deducted on each policy
anniversary and at the time of surrender, if surrender occurs during a
policy year. There is no transfer 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.
(/2/) The surrender charge is decreased based on the number of years since the
premium payment was made, from 8% in the year in which the premium
payment was made, to 0% in the tenth year after the premium payment was
made. If applicable a surrender charge will only be applied to
withdrawals that exceed the amount available under certain listed
exceptions.
(/3/) The annual rider fee for the optional family income protector rider (only
deducted during the accumulation phase) is currently equal to 0.30% of
the minimum annuitization value on the previous policy anniversary; PFL
may at its discretion change the rate in the future, but the rate will
never be greater than 0.50% per year. The guaranteed payment fee is only
charged if you annuitize under the family income protector rider, and
then only after annuitization. This fee is reflected in the amount of the
variable payments. The guaranteed payment fee is currently equal to an
effective annual rate of 1.25% of the daily net asset value in the
variable investment options; PFL may at its discretion change the rate in
the future, but the rate will never be greater than 2.25% per year. Once
the family income protector rider is added to your policy, neither the
rider fee nor the guaranteed payment fee that is in effect at that time
will change during the life of that family income protector rider. They
could change if you upgrade.
(/4/) The fee table information relating to the underlying funds was provided
to PFL by the underlying funds, their investment advisors 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/) The Board of Trustees of Endeavor Series Trust has authorized an
arrangement whereby, subject to best price and execution, executing
brokers will share commissions with the Trust's affiliated broker. Under
supervision of the Trustees, the affiliated broker will use the
"recaptured commission" to promote marketing of the Trust's shares. The
staff of the Securities and Exchange Commission believes that, through
the use of these recaptured commissions, the Trust is indirectly paying
for distribution expenses and such amounts must be shown as 12b-1 fees in
the above table. The use of recaptured commissions to promote the sale of
the Trust's shares involves no additional costs to the Trust or any
owner. Endeavor Series Trust, based on advice of counsel, does not
believe that recaptured brokerage commissions should be treated as 12b-1
fees. For more information on the Trust's Brokerage Enhancement Plan, see
the Trust's prospectus accompanying this Prospectus.
(/6/) Endeavor Management Co. has agreed, until further notice, to assume
expenses of the Portfolios that exceed the following rates: Endeavor
Asset Allocation--1.25%; Endeavor Money Market--0.99%; T. Rowe Price
Equity Income--1.30%; T. Rowe Price Growth Stock--1.30%; T. Rowe Price
International Stock--1.53%; Endeavor Value Equity--1.30%; Endeavor
Opportunity Value--1.30%; Endeavor Enhanced Index--1.30%; Dreyfus U.S.
Government Securities--1.00%; Dreyfus Small Cap Value--1.30%; Endeavor
Select 50--1.50%; Endeavor High Yield--1.30%. Endeavor Management Co. has
9
<PAGE>
agreed for a period of at least one year to assume the expenses of the
Endeavor Janus Growth Portfolio that exceed 0.87%. Expenses shown for the
Endeavor Janus Growth Portfolio are estimated for 1999. Expenses shown for
the Endeavor Select 50 and Endeavor High Yield Portfolios are annualized.
(/7/) For the T. Rowe Price International Stock Portfolio, the management fees
before waivers/reimbursements were 0.90% and other expenses after credits
allowed by the custodian were 0.08%. Therefore, Total Portfolio Annual
Expenses before waivers/reimbursements and after credits allowed by the
custodian for the period ended December 31, 1998 were 0.98%.
(/8/) For the Dreyfus U.S. Government Securities Portfolio, the management fees
before waivers/reimbursements were 0.65% and other expenses after credits
allowed by the custodian were 0.07%. Therefore, Total Portfolio Annual
Expenses before waivers/reimbursements and after credits allowed by the
custodian for the period ended December 31, 1998 were 0.72%.
(/9/) For the Endeavor Select 50 Portfolio, the management fees before
waivers/reimbursements were 1.10% and other expenses after credits
allowed by the custodian were 0.39%. Therefore, Total Portfolio Annual
Expenses before waivers/reimbursement and after credits allowed by the
custodian for the period ended December 31, 1998 were 1.49% annualized.
(/10/) For the Endeavor High Yield Portfolio, the management fees before
waivers/reimbursements were 0.775% and other expenses after credits
allowed by the custodian were 0.525%. Therefore, Total Portfolio Annual
Expenses before waivers/reimbursements and after credits allowed to the
custodian for the period ended December 31, 1998 were 1.30% annualized.
(/11/) The Endeavor Janus Growth Portfolio is new, so the Total Portfolio
Annual Expenses before waivers/reimbursement for the period ending
December 31, 1999 are estimated to be 0.895%.
(/12/) As compensation for its services to the portfolios, the investment
adviser receives monthly compensation at an annual rate of a percentage
of the average daily net assets of each portfolio. The management fees
for each portfolio are: WRL Janus Global - 0.80% up to $2 billion and
0.775% over 2 billion; WRL Salomon All Cap - 0.90% up to $100 million
and 0.80% over 100 million; WRL T. Rowe Price Dividend Growth - 0.90% up
to $100 million and 0.80% over $100 million; WRL Pilgrim Baxter Mid Cap
Growth - 0.90% up to $100 million and 0.80% over $100 million; and WRL
Goldman Sachs Growth - 0.90% up to $100 million and 0.80% over $100
million.
(/13/) Because WRL Goldman Sachs Growth, WRL T. Rowe Price Dividend Growth, WRL
T. Rowe Price Small Cap, WRL Salomon All Cap and WRL Pilgrim Baxter Mid
Cap Growth commenced operations on May 3, 1999, the percentages set
forth as "Other Expenses" and "Total Portfolio Annual Expenses" are
estimates.
(/14/From)time to time, the Transamerica VIF Growth Portfolios' investment
adviser, in its own discretion, may voluntarily waive all or part of their
fees and/or voluntarily assume certain portfolio expenses. The expenses
shown in the fee table are the expenses paid for 1998. The expenses shown
in that table reflect the portfolio's adviser's waivers of fees or
reimbursement of expenses, if applicable. It is anticipated that such
waivers or reimbursements will continue for calendar year 1999. Without
such waivers or reimbursements, the annual expenses for the portfolio
would have been as follows: Management Fee -0.75%; Other Expenses - 0.21%;
and Total Portfolio Annual Expenses - 0.96%.
10
<PAGE>
EXAMPLES
You would pay the following expenses on a $1,000 investment (plus a 5% premium
enhancement), assuming a hypothetical 5% annual return on assets, assuming the
entire policy value is in the applicable subaccount and assuming the family
income protector rider has been selected:
<TABLE>
<CAPTION>
If the Policy is If the Policy is annuitized at
surrendered at the end the end of the applicable time
of the applicable time period or if the Policy is not
period. surrendered or annuitized.
-------------------------------------------------------
Subaccounts 1 3 5 10 1 3 5 10
Year Years Years Years Year Years Years Years
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Endeavor Asset
Allocation $111 $166 $215 $343 $ 31 $ 95 $ 162 $343
- -------------------------------------------------------------------------------
Endeavor Money Market $109 $160 $205 $323 $ 29 $ 89 $ 152 $323
- -------------------------------------------------------------------------------
T. Rowe Price Equity
Income $111 $168 $218 $348 $ 31 $ 97 $ 165 $348
- -------------------------------------------------------------------------------
T. Rowe Price Growth
Stock $111 $168 $219 $350 $ 31 $ 97 $ 166 $350
- -------------------------------------------------------------------------------
T. Rowe Price
International Stock $114 $175 $230 $371 $ 34 $104 $ 177 $371
- -------------------------------------------------------------------------------
Endeavor Value Equity $111 $168 $218 $348 $ 31 $ 97 $ 165 $348
- -------------------------------------------------------------------------------
Endeavor Opportunity
Value $113 $172 $225 $361 $ 33 $101 $ 172 $361
- -------------------------------------------------------------------------------
Endeavor Enhanced Index $114 $175 $231 $372 $ 34 $104 $ 178 $372
- -------------------------------------------------------------------------------
Dreyfus U.S. Government
Securities $110 $164 $212 $336 $ 30 $ 93 $ 159 $336
- -------------------------------------------------------------------------------
Dreyfus Small Cap Value $112 $170 $222 $356 $ 32 $ 99 $ 169 $356
- -------------------------------------------------------------------------------
Endeavor Select 50 $118 $188 $251 $409 $ 38 $116 $ 197 $409
- -------------------------------------------------------------------------------
Endeavor High Yield $117 $186 $247 $403 $ 37 $114 $ 194 $403
- -------------------------------------------------------------------------------
Endeavor Janus Growth $111 $168 $219 $350 $ 31 $ 97 $ 166 $350
- -------------------------------------------------------------------------------
WRL Janus Global $112 $171 $223 $357 $ 32 $100 $ 170 $357
- -------------------------------------------------------------------------------
WRL Alger Aggressive
Growth $112 $170 $221 $354 $ 32 $ 99 $ 168 $354
- -------------------------------------------------------------------------------
WRL NWQ Value Equity $109 $160 $205 $320 $ 29 $ 89 $ 151 $320
- -------------------------------------------------------------------------------
WRL Goldman Sachs Growth $113 $172 $226 $362 $ 33 $101 $ 172 $362
- -------------------------------------------------------------------------------
WRL T. Rowe Price
Dividend Growth $112 $168 $217 $344 $ 32 $ 97 $ 164 $344
- -------------------------------------------------------------------------------
WRL T. Rowe Price Small
Cap $110 $164 $211 $332 $ 30 $ 93 $ 158 $332
- -------------------------------------------------------------------------------
WRL Salomon All Cap $113 $172 $226 $362 $ 33 $101 $ 172 $362
- -------------------------------------------------------------------------------
WRL Pilgrim Baxter Mid
Cap Growth $111 $167 $216 $340 $ 31 $ 95 $ 162 $340
- -------------------------------------------------------------------------------
Transamerica VIF Growth $110 $164 $211 $332 $ 30 $ 93 $ 158 $332
- -------------------------------------------------------------------------------
</TABLE>
The above tables should assist you in understanding the costs and expenses that
you will bear, directly or indirectly. These include the 1998 expenses of the
underlying portfolios, except for Endeavor Janus Growth, WRL Goldman Sachs
Growth, WRL T. Rowe Price Dividend Growth, WRL T. Rowe Price Small Cap, WRL
Salomon All Cap, and WRL Pilgrim Baxter Mid Cap Growth (whose expenses listed
above are estimates for the first full year of operations). In addition to the
expenses listed above, premium taxes may be applicable.
These 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 the examples, the $40 annual service charge is reflected as a charge of
0.1000% based on an anticipated average policy value of $40,000.
These examples also reflect the annual fee of 0.30% for the family income
protector rider. Expenses would be lower if you do not elect that rider.
Financial Information. The subaccounts had not commenced operations as of
December 31, 1998, therefore there is no condensed financial information to
report as of the date of this prospectus.
11
<PAGE>
1.THE ANNUITY POLICY
This prospectus describes the Extra Variable Annuity policy offered by PFL Life
Insurance Company.
An annuity is a contract between you, the owner, and an insurance company (in
this case PFL), where the insurance company promises to pay you an income in
the form of annuity payments. These payments begin on a designated date,
referred to as the annuity commencement date. Until the annuity commencement
date, your annuity is in the accumulation phase and the earnings are tax
deferred. Tax deferral means you generally are not taxed on your annuity until
you take money out of your annuity. After the annuity commencement date, your
annuity switches to the income phase.
The Extra Variable Annuity consists of either:
. a group annuity contract that we, PFL Life Insurance Company, issue to the
contract holder and an individual certificate that we issue to you; or
. an individual policy that we issue to you.
This prospectus describes your individual certificate or policy (both are
referred to in this prospectus as the policy). 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. Your individual investment and
your rights are determined primarily by your own policy.
It is a "flexible premium" annuity 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 separate account, 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 separate account also depends upon the investment
performance of your investment choices for the income phase.
The policy also contains a fixed account. The fixed account offers interest at
rates that are guaranteed by PFL not to decrease during the selected guaranteed
period. There may be different interest rates for each different guaranteed
period that you select.
2.ANNUITY PAYMENTS
(THE INCOME PHASE)
You choose the annuity commencement date. You can change this date by giving us
30 days written notice before the current annuity commencement date. The new
annuity commencement date must be at least 30 days after we receive notice of
the change. The latest annuity commencement date cannot be after the policy
month following the month in which the annuitant attains age 95.
Election of Annuity Payment Option. Before the annuity commencement date, if
the annuitant is alive, you may choose an annuity payment option or change your
election. If the annuitant dies before the annuity commencement date, the
beneficiary may elect to receive the death benefit in a lump sum or under one
of the annuity payment options.
Unless you specify otherwise, the annuitant will receive the annuity payments.
After the annuitant's death, the beneficiary will receive any remaining
guaranteed payments.
Annuity Payment Options
The policy provides five annuity payment options that are described below. You
may chose any combination of annuity payment options. We will use your adjusted
policy value to provide these annuity payments. The adjusted policy value is
the policy value increased or decreased by any applicable excess interest
adjustment. If the adjusted policy value on the annuity commencement date is
less than $2,000, PFL reserves the right to pay it in one lump sum in lieu of
applying it under an annuity payment option. You can receive annuity payments
monthly, quarterly, semi-annually, or annually.
12
<PAGE>
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). 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 to which you and PFL agree. 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 make 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 payee and a joint
payee of your selection. Payments will be made as long as either person
is living.
Variable Payments
. Payments are made as long as either the payee or the joint payee is
living.
Other annuity payment options may be arranged by agreement with PFL. Certain
annuity payment options may not be available in all states.
13
<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 annuity payment;
THEN:
. we may make only one annuity payment.
IF:
. you choose Income for a Specified Period, Life Income with 10 years Certain,
Life Income with Guaranteed Return of Policy Proceeds, or Income of a
Specified Amount; and
. the person receiving payments dies prior to the end of the guaranteed
period;
THEN:
. the remaining guaranteed payments will be continued to that person's
beneficiary, or their 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 payee is responsible to keep PFL informed of
the payee's current address of record.
3.PURCHASE
Policy Issue Requirements
PFL will issue a policy IF:
. PFL receives all information needed to issue the policy;
. PFL receives a minimum initial premium payment; and
. You (annuitant and any joint owner) are age 84 or younger.
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 nonqualified policies must be at least $5,000,
and at least $2,000 for qualified policies. 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 let us keep it
and credit it as soon as possible.
The date on which we credit your initial premium payment to your policy is the
policy date. The policy date is used to determine policy years, policy months
and policy anniversaries.
Additional Premium Payments
You are not required to make any additional premium payments. However, you can
make additional premium payments as often as you like during the lifetime of
the annuitant and during the accumulation phase. Additional premium payments
must be at least $50. We will credit additional premium payments to your policy
as of the business day we receive your premium and required information.
Maximum Total Premium Payments
We allow premium payments up to a total of $1,000,000 without prior approval.
Premium Enhancement
An amount equal to 5% of the initial premium payment will be added to the
policy value (4% if you, or any joint owner, are 70 years old or older). The
amount of the premium enhancement is not considered a premium payment. The
premium enhancement percentage may vary from premium to premium on subsequent
premium payments, but will never
14
<PAGE>
be less than 0.25% nor more than 7%. A confirmation will be sent advising the
owner of the amount of premium enhancement applicable to each subsequent
premium payment. No premium enhancement will apply if the policy is canceled
pursuant to the Right to Cancel provision.
Generally, an annuity with a premium enhancement may have higher expenses than
a similar annuity without a premium enhancement. Accordingly, you should always
consider the expenses along with the features and enhancements to be sure any
annuity meets your financial needs and goals.
Allocation of Premium Payments
When you purchase a policy, we will allocate your premium payment (plus the
premium enhancement) to the investment choices you select. Your allocation must
be in whole percentages and must total 100%. We will allocate additional
premium payments the same way, unless you request a different allocation.
If you allocate premium payments to the dollar cost averaging fixed account,
you must give us directions regarding the subaccount(s) to which transfers are
to be made or we cannot accept your premium payment.
You may change allocations for future additional premium payments by sending us
written instructions or by telephone, subject to the limitations described
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.
4. INVESTMENT CHOICES
The Separate Account
There are currently twenty-two variable subaccounts available under the
policies.
The subaccounts invest in shares of the various underlying fund portfolios. The
companies that provide investment advice and administrative services for the
underlying portfolios offered through this policy are listed below. The
following mutual fund investment choices are currently offered through this
policy:
ENDEAVOR SERIES TRUST
Subadvised by Morgan Stanley
Asset Management Inc.
Endeavor Asset Allocation Portfolio
Endeavor Money Market Portfolio
Subadvised by T. Rowe Price Associates, Inc.
T. Rowe Price Equity Income Portfolio
T. Rowe Price Growth Stock Portfolio
Subadvised by Rowe Price-Fleming International, Inc.
T. Rowe Price International Stock Portfolio
Subadvised by OpCap Advisors
Endeavor Value Equity Portfolio
Endeavor Opportunity Value Portfolio
Subadvised by J.P. Morgan Investment Management Inc.
Endeavor Enhanced Index Portfolio
Subadvised by The Dreyfus Corporation
Dreyfus U.S. Government Securities Portfolio
Dreyfus Small Cap Value Portfolio
Subadvised by Montgomery Asset Management, LLC
Endeavor Select 50 Portfolio
Subadvised by Massachusetts Financial Services Company
Endeavor High Yield Portfolio
Subadvised by Janus Capital Corporation
Endeavor Janus Growth Portfolio
WRL SERIES FUND, INC.
Subadvised by Janus Capital Corporation
WRL Janus Global
Subadvised by Fred Alger Management, Inc.
WRL Alger Aggressive Growth
Subadvised by NWQ Investment Management Company, Inc.
WRL NWQ Value Equity
Subadvised by Goldman Sachs Asset Management, Inc.
15
<PAGE>
WRL Goldman Sachs Growth
Subadvised by T. Rowe Price Associates, Inc.
WRL T. Rowe Price Dividend Growth
WRL T. Rowe Price Small Cap
Subadvised by Salomon Brothers Asset Management, Inc.
WRL Salomon All Cap
Subadvised by Pilgrim Baxter & Associates, Ltd.
WRL Pilgrim Baxter Mid Cap Growth
TRANSAMERICA VARIABLE INSURANCE FUND, INC.
Subadvised by Transamerica Investment Services, Inc.
Transamerica VIF Growth Portfolio
The general public may not purchase shares of these underlying 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 funds to be the same as those of the 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 funds, which are attached to this prospectus. You should read the
prospectuses for the underlying funds 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 based on the amount of assets that PFL or the separate account
invests in the funds.
We do not guarantee that any of the subaccounts will always be available for
premium payments, allocations, or transfers. See the Statement of Additional
Information for more information concerning the possible addition, deletion, or
substitution of investments. Please note that the underlying funds may refuse
to make the underlying portfolios available (and thereby render the subaccounts
unavailable) for market-timing or excessive transactions.
The Fixed Account
Premium payments allocated and amounts transferred to the fixed account become
part of the general account of PFL. Interests in the general account have not
been registered under the Securities Act of 1933 (the "1933 Act"), nor is the
general account registered as an investment company under the Investment
Company Act of 1940 (the "1940 Act"). Accordingly, neither the general account
nor any interests therein are generally subject to the provisions of the 1933
or 1940 Acts. PFL has been advised that the staff of the SEC has not reviewed
the disclosures in this prospectus which relate to the fixed account.
We guarantee that the interest credited to the fixed account will not be less
than 3% per year. At the end of a guaranteed period 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 the other
general assets of PFL. The amount of money you are able to accumulate in the
fixed account during the accumulation phase depends upon the total interest
credited. The amount of annuity payments you receive during the income phase
from the fixed portion of your policy will remain level for the entire income
phase.
16
<PAGE>
Transfers
During the accumulation phase, you may make transfers from any subaccount as
often as you wish within certain limitations.
Transfers from a guaranteed period option of the fixed account are limited to
the following:
. At the end of a guaranteed period, you must notify us within 30 days prior
to the end of the guaranteed period that you wish to transfer the amount in
that guaranteed period option to another investment choice.
. Transfers of amounts equal to interest credited. This may affect your
overall interest-crediting rate, because transfers are deemed to come from
the oldest premium payment first.
. Other than at the end of a guaranteed period, transfers of amounts from the
guaranteed period option in excess of amounts equal to interest credited,
are subject to an excess interest adjustment. If it is a negative
adjustment, the maximum amount you can transfer is 25% of the amount in that
guaranteed period option, less any previous transfers during the current
policy year. If it is a positive adjustment, we do not limit the amount that
you can transfer.
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), except
for transfers of guaranteed period option amounts equal to interest credited,
for which there is a minimum transfer amount of $50. If less than $500 remains,
then we reserve the right to either deny the transfer or include that amount in
the transfer.
During the income phase of your policy, you may transfer values out of any
subaccount up to four times per year. However, you cannot transfer values out
of the fixed account in this phase. The minimum amount that can be transferred
during this phase is the lesser of $10 of monthly income, or the entire monthly
income of the annuity units in the subaccount from which the transfer is being
made.
Transfers may be made by telephone, subject to the limitations described below
under "Telephone Transactions."
Currently, there is no charge for transfers. However, the number of transfers
permitted may be limited in the future and charges per transfer may apply in
the future. 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).
Family Income Protector
The optional "family income protector" rider 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
a minimum amount you will have to apply to a family income protector annuity
payment option and which guarantees a minimum level 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 (described above)
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 (not including any premium enhancement
accumulated at the annual growth rate written on page one of the rider);
minus
. an adjustment for any withdrawals made after the date the rider is issued;
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%
17
<PAGE>
per year, and once the rider is added to your policy, the annual growth rate
will not vary during the life of that rider. Withdrawals may reduce the minimum
annuitization value on a basis greater than dollar-for-dollar. See the
Statement of Additional Information for more information.
The minimum annuitization value may only be used to annuitize using the family
income protector payment options and may not be used with any of the other
annuity payment options listed in Section 2 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 to calculate the family income
protector payment and does not establish or guarantee a policy value or
guarantee performance of any investment option.
In addition to the annual growth rate, other benefits and fees under the rider
(the rider fee, the fee waiver threshold, guaranteed payment fee, and the
waiting period before the family income protector can be exercised, as well as
the annual growth rate) are also guaranteed not to change after the rider is
added. However, all of these benefit specifications may change if you elect to
upgrade the minimum annuitization value.
Minimum Annuitization Value Upgrade. You can upgrade your minimum annuitization
value to the policy value within 30 days after any policy anniversary before
your 85th birthday (earlier if required by state law). For your convenience, we
will put the last date to upgrade on page one of the rider.
If you upgrade, the current rider will terminate and a new one will be issued
with its own specified guaranteed benefits and fees. Please note that the
benefits and fees under the new rider may differ from your benefits and fees
prior to upgrading.
Conditions of Exercise of the 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.
Under the family income protector, each annuity payment will be the greater of
the stabilized payment or the payment calculated without regard to the
stabilized payments. During the first policy year after annuitizing using the
family income protector, each stabilized payment will equal the initial
payment. On each policy anniversary thereafter, the stabilized payment will
increase or decrease depending on the performance of the investment options you
18
<PAGE>
selected, and then be held constant at that amount for that policy year. The
stabilized payment on each policy anniversary will equal the greater of the
initial payment or the payment supportable by the annuity units in the selected
investment options. See the Statement of Additional Information for additional
information concerning stabilized payments.
Family Income Protector Rider Fee. A rider fee, currently 0.30% of the minimum
annuitization value on the previous policy anniversary, is charged annually
prior to annuitization. We will also charge this fee if you take a complete
withdrawal. PFL may change the rider fee percentage in the future, but it will
never be greater than 0.50%. The rider fee is deducted from each variable
investment option in proportion to the amount of policy value in each
subaccount.
The rider fee on any given policy anniversary will be waived if the policy
value exceeds the fee waiver threshold. The fee waiver threshold currently is
two times the minimum annuitization value. PFL may, at its discretion, change
the fee waiver threshold in the future, but it will never be greater than two
and one-half times the minimum annuitization value.
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. PFL may change the
guaranteed payment fee in the future, but it will never be greater than 2.25%.
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).
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 adjusted 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. These costs should be balanced against the benefits of a
minimum payout level.
Dollar Cost Averaging Program
During the accumulation phase, you may instruct us to automatically transfer
money from the dollar cost averaging fixed account option, the Endeavor Money
Market Subaccount, or the Dreyfus U.S. Government Securities Subaccount, into
any other subaccounts. You may specify the dollar amount to be transferred
either monthly or quarterly; however each transfer must be at least $500. A
minimum of 6 monthly or 4 quarterly transfers are required and a maximum of 24
monthly or 8 quarterly transfers are allowed. Transfers must begin within 30
days. We will make the transfers on the 28th day of the applicable month. There
is no charge for this program.
Dollar cost averaging buys more accumulation units when prices are low and
fewer accumulation units when prices are high. It does not guarantee profits or
assure that you will not experience a loss. 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
19
<PAGE>
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. Asset rebalancing ignores amounts in the fixed account. You can
choose to rebalance monthly, quarterly, semi-annually, or annually.
Telephone Transactions
You may make transfers and change the allocation of additional premium payments
by telephone IF:
. you select the "Telephone Transfer/Reallocation Authorization" box in the
policy enrollment form or enrollment information; or
. you later make this request in writing.
You will be required to provide certain information for identification purposes
when requesting a transaction by telephone. We may also require written
confirmation of your request. We will not be liable for following telephone
requests that we believe are genuine.
Telephone requests must be received while the New York Stock Exchange is open
to assure same-day pricing of the transaction. We may discontinue this option
at any time.
5.EXPENSES
There are charges and expenses associated with your policy that reduce the
return on your investment in the policy.
Surrender Charge
During the accumulation phase, you can withdraw part or all of the cash value.
Cash value is the policy value increased or decreased by any excess interest
adjustment and decreased by any applicable surrender charge, premium taxes, and
family income protector rider fees, and less the annual service charge. We may
apply a surrender charge to compensate us for expenses relating to sales,
including commissions to registered representatives and other promotional
expenses. After the first year, you can withdraw up to 10% of your cumulative
premium payments once each policy year free of surrender charges. This amount
is referred to as the free percentage and is determined at the time of the
withdrawal. If you withdraw money in excess of 10% of your cumulative premium
payments, 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 nine years following each premium
payment:
<TABLE>
<CAPTION>
Number of Years Surrender Charge
Since Premium (as a percentage of
Payment Date premium withdrawn)
- ------------------------------------------------------------------------------
<S> <C>
0-1 8%
1-2 8%
2-3 8%
3-4 7%
4-5 6%
5-6 5%
6-7 4%
7-8 3%
8-9 2%
9 or more 0%
</TABLE>
For example, assume your premium payments total $100,000 at the beginning of
policy year 2 and you withdraw $30,000. Since that amount is more than your
free percentage, you would pay a surrender charge of $1,600 on the $20,000
remaining after the free percentage (8% of ($30,000--$10,000)).
You receive the full amount of a requested partial withdrawal because we deduct
any applicable excess interest adjustment and surrender charge from your
remaining policy value. You receive your cash value upon full surrender.
20
<PAGE>
For surrender charge purposes, the oldest premium is considered to be withdrawn
first.
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
"Excess Interest Adjustment" in Section 7 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. The mortality and expense risk fee is at an annual
rate of 1.35% 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 any profit for any
proper purpose, including distribution expenses.
Administrative Charges
We deduct an administrative charge to cover the costs of administering the
annuity (including certain distribution-related expenses). This daily charge is
equal to an annual rate of 0.40% of the daily net asset value of the separate
account.
In addition, an annual service charge of $40 (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 is at least $100,000 or if the
sum of your premiums, less all partial withdrawals, is at least $100,000.
Premium Taxes
Some states assess premium taxes on the premium payments you make. We currently
do not deduct for these taxes at the time you make a premium payment. However,
we will deduct the total amount of premium taxes, if any, from the policy value
when:
. you elect to begin receiving annuity payments;
. you surrender the policy; or
. you die and a death benefit is paid (you must also be the annuitant for the
death benefit to be paid).
Generally, premium taxes range from 0% to 3.50%, depending on the state.
Federal, State and Local Taxes
We may in the future deduct charges from the policy for any taxes we incur
because of the policy. However, no deductions are being made at the present
time.
Transfer Fee
You are allowed to make 12 free transfers per year before the annuity
commencement date. If you make more than 12 transfers per year, 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. (See Section 4, "INVESTMENT CHOICES--Family Income
Protector.")
Portfolio Management Fees
The value of the assets in each subaccount will reflect the fees and expenses
paid by the
21
<PAGE>
underlying fund. A description of these expenses is found in the prospectuses
for the underlying funds.
6.TAXES
NOTE: PFL has prepared the following information on federal income taxes as a
general discussion of the subject. It is not intended as tax advice to any
individual. You should consult your own tax adviser about your own
circumstances. PFL has included an additional discussion regarding taxes in
the Statement of Additional Information.
Annuities in General
Deferred annuities 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 annuity--qualified or nonqualified (discussed below).
You will not be taxed on increases in the value of your annuity 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 annuity, 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 annuity.
Qualified annuities 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 policy. A Roth IRA
also allows individuals to make contributions to the policy, 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 policy 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 policy 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 policy.
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 annuity.
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 premium enhancement will be considered earnings.
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;
22
<PAGE>
. paid after the taxpayer dies;
. paid if the taxpayer becomes totally disabled (as that term is defined in
the Internal Revenue Code);
. paid in a series of substantially equal payments made annually (or more
frequently) under a lifetime annuity;
. paid under an immediate annuity; or
. which come from premium payments made prior to August 14, 1982.
All deferred non-qualified annuities that are issued by PFL Life (or its
affiliates) to the same owner during any calendar year are treated as one
annuity for purposes of determining the amount includable in the owner's income
when a taxable distributions occurs.
Withdrawals--Qualified Policies
The above information describing the taxation of nonqualified annuities does
not apply to qualified annuities. There are special rules that govern with
respect to qualified annuities. 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 policy.
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 policy.
We have provided more information in the Statement of Additional Information.
You should consult your legal counsel or tax adviser if you are considering
purchasing a policy for use with any retirement plan.
Withdrawals -- 403(b) Policies
The Internal Revenue Code limits the withdrawal of premium payments from
certain 403(b) annuities. Withdrawals can generally only be made when a owner:
. reaches age 59 1/2leaves;his/her.job;
. dies;
. becomes disabled (as that term is defined in the Internal Revenue Code); or
in the case of hardship. However, in the case of hardship, the owner can
only withdraw the premium payments and not any earnings.
Diversification and Distribution Requirements
The Internal Revenue Code provides that the underlying investments for a
variable annuity must satisfy certain diversification requirements in order to
be treated as an annuity. The annuity must also meet certain distribution
requirements at the death of an owner in order to be treated as an annuity.
These diversification and distribution requirements are discussed in the
Statement of Additional Information. PFL may modify the policy to attempt to
maintain favorable tax treatment.
Taxation of Death Benefit Proceeds
Amounts may be distributed from the policy because of the death of an owner or
the annuitant. Generally, such amounts are includable in the income of the
recipient:
. if distributed in a lump sum, these amounts are taxed in the same manner as
a full surrender; or
. if distributed under an annuity payment option, these amounts are taxed in
the same manner as annuity payments.
For these purposes, the "investment in the contract" is not affected by the
owner's or annuitant's death. That is, the "investment in the contract" remains
generally the total premium payments, less amounts received, which were not
includable in gross income. (The same tax treatment applies to any amounts
distributed after an owner's death.) The premium enhancement that we add to
your policy value is not included in the investment in the contract.
Annuity Payments
Although the tax consequences may vary depending on the annuity payment option
you select, in general, for nonqualified and certain qualified annuities, only
a portion of the annuity payments you receive will be includable in your gross
income.
23
<PAGE>
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
A transfer of ownership or assignment of a policy, the designation of an
annuitant or other beneficiary who is not also the owner, the selection of
certain annuity commencement dates, or a change of 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 in uncertain, there is always
the possibility that the tax treatment of the policy could change by
legislation or otherwise. You should consult a tax adviser with respect to
legal developments and their effect on the policy.
7.ACCESS TO YOUR MONEY
Surrenders
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);
. by taking systematic payouts; or
. by taking annuity payments.
If you want to make a complete withdrawal, you will receive the value of your
policy plus or minus any excess interest adjustment, minus:
. surrender charges;
. premium taxes;
. the 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.
Remember that any withdrawal you take will reduce the policy value, and might
reduce the amount of the death benefit. See Section 9, Death Benefit, for more
details.
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.
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.
24
<PAGE>
Delay of Payment and Transfers
Payment of any amount due from the separate account for a withdrawal, a death
benefit, or the death of the owner of a nonqualified policy, will generally
occur within seven business days from the date all required information is
received by PFL. PFL may be permitted to defer such payments from the separate
account if:
. the New York Stock Exchange is closed other than for usual weekends or
holidays or trading on the Exchange is otherwise restricted;
. an emergency exists as defined by the SEC or the SEC requires that trading
be restricted; or
. the SEC permits a delay for the protection of owners.
In addition, transfers of amounts from the subaccounts may be deferred under
these circumstances.
Pursuant to the requirements of certain state laws, we reserve the right to
defer payment of the cash value from the fixed account for up to six months.
Excess Interest Adjustment
Money that you withdraw from a guaranteed period option of the fixed account
before the end of its guaranteed period (the number of years you specified the
money would remain in 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.
There will be no excess interest adjustment on any of the following:
. lump sum withdrawals of the free percentage available;
. nursing care and terminal condition withdrawals;
. unemployment withdrawals; withdrawals.to satisfy any minimum distribution
requirements; and
. systematic payout option payments, which do not exceed 10% of your
cumulative premium payments divided by the number of payouts made per year.
Certain conditions must be satisfied. See the Statement of Additional
Information for more details.
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 cumulative premium
payments free of surrender charges. Payments can be made monthly, quarterly,
semi-annually, or annually. There is no charge for this benefit.
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 select 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
25
<PAGE>
. employed full time on the policy date; and
. unemployed for at least 60 days in a row at the time of the withdrawal; and
. must have a minimum cash value at the time of withdrawal of $5,000.
This benefit is also available to the annuitant or annuitant's spouse if the
owner is not a natural person.
You can select this benefit at any time (during the accumulation phase) and
there is no charge for this benefit.
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. See the
policy for details.
8.PERFORMANCE
PFL periodically advertises performance of the various subaccounts. 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. These figures will also reflect the premium enhancement.
Third, for periods starting prior to the date the annuities 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 A contains performance information that you may find useful. It is
divided into various parts, depending upon the type of performance information
shown. Future performance will vary and future results will not be the same as
the results shown.
9.DEATH BENEFIT
We will pay a death benefit to your beneficiary, under certain circumstances,
if the annuitant dies before the annuity commencement date 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.
Distribution requirements apply to the policy value upon the death of any
owner. These requirements are detailed in the Statement of Additional
Information.
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 an 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.
26
<PAGE>
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.
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 must surrender the policy for the policy value increased or
decreased by an excess interest adjustment within five years of your death.
Note carefully. If the owner does not name a contingent owner, the owner's
estate will become the new owner. If no probate estate is opened (because, for
example, the owner has precluded the opening of a probate estate by means of a
trust or other instrument), and PFL has not received written notice of the
trust as a successor owner signed prior to the owner's death, then that trust
may not exercise ownership rights to the policy. It may be necessary to open a
probate estate in order to exercise ownership rights to the policy if no
contingent owner is named in a written notice received by PFL.
Amount of Death Benefit
Death benefit provisions may differ from state to state. The death benefit may
be paid as a lump sum or as annuity payments. The death benefit will be the
greatest of:
. policy value on the date we receive the required information; or
. cash value on the date we receive the required information; or
. guaranteed minimum death benefit (discussed below).
Guaranteed Minimum Death Benefit
The guaranteed minimum death benefit is the Step-Up Death Benefit--the largest
policy value on the policy date or on any policy anniversary before you reach
age 76; plus any premium payments you have made since then; minus any adjusted
partial withdrawals (discussed below) we have paid to you since then.
The Step-Up Death Benefit is not available if the owner or annuitant is 75 or
older on the policy date. In those instances, the guaranteed minimum death
benefit will be a return of premium--total premium payments, less any adjusted
partial withdrawals as of the date of death. This will not include any premium
enhancement.
IF:
. 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.
27
<PAGE>
Adjusted Partial Withdrawal
When you request a partial withdrawal, your guaranteed minimum death benefit
will be reduced by an amount called the adjusted partial withdrawal. Under
certain circumstances, the adjusted partial withdrawal may be more than the
amount of your withdrawal request. It is also possible that if a death benefit
is paid after you have made a partial withdrawal, then the total amount paid
could be less than the total premium payments. We have included a detailed
explanation of this adjustment in the Statement of Additional Information.
10.OTHER INFORMATION
Ownership
You, as owner of the policy, exercise all rights under the policy. You can
change the owner at any time by notifying us in writing. An ownership change
may be a taxable event.
Assignment
You can also assign the policy any time during your lifetime. PFL will not be
bound by the assignment until we receive written notice of the assignment. We
will not be liable forany 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 annuity.
PFL Life Insurance Company
PFL Life Insurance Company was incorporated under the laws of the State of Iowa
on April 19, 1961 as NN Investors Life Insurance Company, Inc. It is engaged in
the sale of life and health insurance and annuity policies. PFL is a wholly
owned indirect subsidiary of AEGON USA, Inc. which conducts most of its
operations through subsidiary companies engaged in the insurance business or in
providing non-insurance financial services. All of the stock of AEGON USA,
Inc., is indirectly owned by AEGON N.V. of the Netherlands, the securities of
which are publicly traded. AEGON N.V., a holding company, conducts its business
through subsidiary companies engaged primarily in the insurance business. PFL
is licensed in the District of Columbia, Guam, and in all states except New
York.
All obligations arising under the policy, including the promise to make annuity
payments, are general corporate obligations of PFL.
The Separate Account
PFL established a separate account, called the PFL Life Variable Annuity
Account C, under the laws of the State of Iowa on February 20, 1997. The
separate account receives and currently invests the premium payments that are
allocated to it for investment in shares of the underlying mutual fund
portfolios.
The separate account is registered with the SEC as a unit investment trust
under the Investment Company Act of 1940. However, the SEC does not supervise
the management, the investment practices, or the policies of the separate
account or PFL. 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
policy 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 the policy.
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. In
addition, the SEC maintains a web site (http://www.sec.gov) that contains other
information regarding the separate account.
Mixed and Shared Funding
Before making a decision concerning the allocation of premium payments to a
particular subaccount, please read the prospectuses for the underlying funds.
The underlying funds are not limited to selling their shares to this
28
<PAGE>
separate account and can accept investments from any separate account or
qualified retirement plan. Since the portfolios of the underlying funds are
available to registered separate accounts offering variable annuity products of
PFL, as well as variable annuity and variable life products of other insurance
companies, 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 separate accounts of another participating insurance
company. In the event of a material conflict, the affected insurance companies,
including PFL, agree to take any necessary steps to resolve the matter. This
includes removing their separate accounts from the underlying funds. See the
underlying funds' prospectuses for more details.
Reinstatements
You may surrender your policy and transfer your money directly to another life
insurance company (sometimes referred to as a 1035 Exchange or a trustee-to-
trustee transfer). You may also ask us to reinstate your policy after such a
transfer by returning the same total dollar amount of funds to the applicable
investment choices. The dollar amount will be used to purchase new accumulation
units at the then current price. Because of changes in market value, your new
accumulation units may be worth more or less than the units you previously
owned. We recommend that you consult a tax professional to explain the possible
tax consequences of exchanges and/or reinstatements.
Voting Rights
PFL will vote all shares of the underlying funds in accordance with
instructions we receive from you and other owners that have voting interests in
the portfolios. We will send you and other owners written requests for
instructions on how to vote those shares. When we receive those instructions,
we will vote all of the shares in proportion to those instructions. If,
however, we determine that we are permitted to vote the shares in our own
right, we may do so.
Each person having a voting interest will receive proxy material, reports, and
other materials relating to the appropriate portfolio.
Distributor of the Policy
AFSG Securities Corporation is the principal underwriter of the policy. Like
PFL, it is an indirect wholly owned subsidiary of AEGON USA, Inc. It is located
at 4333 Edgewood Road N.E., Cedar Rapids, IA 52499-0001. AFSG Securities
Corporation is registered as a broker/dealer under the Securities Exchange Act
of 1934. It is a member of the National Association of Securities Dealers, Inc.
Commissions of up to 5.5% of premium payments or 4.5% of premium payments plus
an annual continuing fee based on policy values will be paid to broker/dealers
who sell the policy 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 financial institutions for their services in connection with
the sale and servicing of the policy.
Non-Participating
The policy does not participate or share in the profits or surplus earnings of
PFL. No dividends are payable on the policy.
Variations in Certain Provisions
Certain provisions of the policy 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.
Year 2000 Matters
We have in place a Year 2000 Project Plan (the "Plan") to review and analyze
existing hardware and software systems, as well as voice and data
communications systems, to determine if they are Year 2000 compliant. As of the
date of this prospectus, all of our mission-critical systems are Year 2000
compliant and ready. The Year 2000 Project Plan is continuing as scheduled, as
we continue with the validation of our mission-critical and non-mission-
critical systems, including revalidation testing in 1999. In addition, PFL has
undertaken aggressive
29
<PAGE>
initiatives to test all systems that interface with any third parties and other
business partners. All of these steps are aimed at allowing current operations
to remain unaffected by the Year 2000 date change.
As of the date of this prospectus, we have identified and made available what
we believe are the appropriate resources of hardware, people, and dollars,
including the engagement of outside third parties, to ensure that the Plan will
be completed.
Our actions under The Year 2000 Project Plan are intended to significantly
reduce PFL's risk of a material business interruption based on the Year 2000
issues. Resolving the Year 2000 computer problem is complex and multifaceted.
We cannot know conclusively whether a response plan is successful until the
Year 2000 arrives (or an earlier date if the systems or equipment address Year
2000 data prior to the Year 2000). In spite of its efforts or results, PFL's
ability to function unaffected to and through the Year 2000 may be adversely
affected by actions, or failure to act, of third parties beyond our knowledge
or control.
This statement is a Year 2000 Readiness Disclosure pursuant to Section 3(9) of
the Year 2000 Information and Readiness Disclosure Act, 15 U.S.C. (S) 1 (1998).
See the prospectuses for the underlying funds for information on their
preparation for Year 2000.
IMSA
PFL is a member of the Insurance Marketplace Standards Association (IMSA). IMSA
members subscribe to a set of ethical standards involving the sales and service
of individually sold life insurance and annuities. As a member, we may use the
IMSA logo and language in advertisements.
Legal Proceedings
There are no legal proceedings to which the separate account is a party or to
which the assets of the account are subject. PFL, like other life insurance
companies, is involved in lawsuits. In some class action and other lawsuits
involving other insurers, substantial damages have been sought and/or material
settlement payments have been made. Although the outcome of any litigation
cannot be predicted with certainty, PFL believes that at the present time there
are no pending or threatened lawsuits that are reasonably likely to have a
material adverse impact on the separate account or PFL.
Financial Statements
The financial statements of PFL are included in the Statement of Additional
Information.
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 -Hypothetical Illustration
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>
30
<PAGE>
APPENDIX A
HISTORICAL PERFORMANCE DATA
Standardized Performance Data
PFL may advertise historical yields and total returns for the subaccounts of
the separate account. In addition, PFL may advertise the effective yield of the
subaccount investing in the Endeavor Money Market Portfolio (the "Endeavor
Money Market Subaccount"). These figures are calculated according to
standardized methods prescribed by the SEC. They are based on historical
earnings and are not intended to indicate future performance.
Endeavor Money Market Subaccount. The yield of the Endeavor 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 (other than the Endeavor Money
Market Subaccount) for a policy refers to the annualized income generated by an
investment under a policy in the subaccount over a specified thirty-day period.
The yield is calculated by assuming that the income generated by the investment
during that thirty-day period is generated each thirty-day period over a 12-
month period and is shown as a percentage of the investment.
The total return of a subaccount 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 one, five, and ten
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
redemption value will, of course, reflect the premium enhancement.
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.
To the extent that any or all of a premium tax or rider charge is applicable to
a particular policy, the yield and/or total return of that policy will be
reduced. For additional information regarding yields and total returns
calculated using the standard formats briefly summarized above, please refer to
the Statement of Additional Information, a copy of which may be obtained from
the administrative and service office upon request.
Non-Standardized Performance Data
In addition to the standard data discussed above, similar performance data for
other periods may also be shown.
PFL may also advertise or disclose average annual total return or other
performance data in non-standard formats for a subaccount of the separate
account. The non-standard performance data may assume that no surrender charge
is applicable, and may also make other assumptions such as the amount invested
in a subaccount, differences in time periods to be shown, or the effect of
partial withdrawals or annuity payments.
31
<PAGE>
All non-standard performance data will be advertised only if the standard
performance data is also disclosed. For additional information regarding the
calculation of other performance data, please refer to the Statement of
Additional Information.
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 policy. This data is not intended to
indicate future performance.
For instance, as shown in Table 1 and Table 2 below, 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 and distribution charge and surrender charges. Table 1
assumes a complete surrender of the policy at the end of the period, and
therefore the surrender charge is deducted. Table 1 total return figures do
reflect a 5% premium enhancement. If they did not, the returns would be lower.
Table 2 total return figures do not reflect a 5% premium enhancement. Table 2
assumes that the policy is not surrendered, and therefore the surrender charge
is not deducted. Also, Table 1 and Table 2 do not reflect the rider charge for
the optional family income protector.
The following information is also based on the method of calculation described
in the Statement of Additional Information. The adjusted historical average
annual total returns for periods ended December 31, 1998, were as follows:
TABLE 1
Adjusted Historical Average Annual Total Returns (/1/)
- --------------------------------------------------------------------------------
(Total Separate Account Annual Expenses: 1.75%)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
10 Year Corresponding
or Portfolio
Portfolio 1 Year 5 Year Inception Inception Date
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Endeavor Asset Allocation........ 15.16% 12.94% 12.98% April 8, 1991
T. Rowe Price Equity Income...... 5.17% N/A 20.20% January 3, 1995
T. Rowe Price Growth Stock....... 25.86% N/A 27.46% January 3, 1995
T. Rowe Price International
Stock(/2/)...................... 12.08% 5.78% 5.75% April 8, 1991
Endeavor Value Equity............ 3.87% 17.12% 15.52% May 27, 1993
Endeavor Opportunity Value....... 1.39% N/A 8.16% November 18, 1996
Endeavor Enhanced Index.......... 28.69% N/A 31.59% May 1, 1997
Dreyfus U.S. Government
Securities...................... 3.69% N/A 5.45% May 4, 1994
Dreyfus Small Cap Value(/3/)..... (6.27%) 10.16% 10.92% May 4, 1993
Endeavor Select 50............... N/A N/A 2.16% February 2, 1998
Endeavor High Yield.............. N/A N/A (7.39%) June 2, 1998
Endeavor Janus Growth(/4/)....... 63.17% 23.97% 21.10%+ October 2, 1986
WRL Janus Global................. 27.26% 18.18% 20.63% December 3, 1992
WRL Alger Aggressive Growth...... 46.71% N/A 22.22% March 1, 1994
WRL NWQ Value Equity............. (8.98%) 12.94% 12.98% May 1, 1996
WRL Goldman Sachs Growth......... N/A N/A N/A May 3, 1999
WRL T. Rowe Price Dividend
Growth.......................... N/A N/A N/A May 3, 1999
WRL T. Rowe Price Small Cap...... N/A N/A N/A May 3, 1999
WRL Salomon All Cap.............. N/A N/A N/A May 3, 1999
WRL Pilgrim Baxter Mid Cap
Growth.......................... N/A N/A N/A May 3, 1999
Transamerica VIF Growth.......... 41.08% 40.64% 28.17%+ February 26, 1969
</TABLE>
- --------------------------------------------------------------------------------
+Ten Year Date
- --------------------------------------------------------------------------------
32
<PAGE>
- --------------------------------------------------------------------------------
TABLE 2
Adjusted Historical Average Annual Total Returns(/1/)
- --------------------------------------------------------------------------------
(Assuming No Surrender Charge or 5% Premium Enhancement)
(Total Separate Account Annual Expenses: 1.75%)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Corresponding
10 Year or Portfolio
Portfolio 1 Year 5 Year Inception Inception Date
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Endeavor Asset Allocation 16.36% 12.34% 12.40% April 8, 1991
T. Rowe Price Equity Income 6.93% N/A 19.51% January 3, 1995
T. Rowe Price Growth Stock 26.48% N/A 26.52% January 3, 1995
T. Rowe Price International
Stock(/2/) 13.46% 5.43% 5.31% April 8, 1991
Endeavor Value Equity 5.70% 16.39% 14.87% May 27, 1993
Endeavor Opportunity Value 3.36% N/A 8.62% November 18, 1996
Endeavor Enhanced Index 29.15% N/A 31.00% May 1, 1997
Dreyfus U.S. Government
Securities 5.53% N/A 5.25% May 4, 1994
Dreyfus Small Cap Value(/3/) (3.89%) 9.64% 10.40% May 4, 1993
Endeavor Select 50 N/A N/A 4.92% February 2, 1998
Endeavor High Yield N/A N/A (4.09%) June 2, 1998
Endeavor Janus Growth(/4/) 61.72% 23.06% 20.51%+ October 2, 1986
WRL Janus Global 27.80% 17.42% 19.84% December 3, 1992
WRL Alger Aggressive Growth 46.18% N/A 21.41% March 1, 1994
WRL NWQ Value Equity (6.44%) N/A 9.89% May 1, 1996
WRL Goldman Sachs Growth N/A N/A N/A May 3, 1999
WRL T. Rowe Price Dividend
Growth N/A N/A N/A May 3, 1999
WRL T. Rowe Price Small Cap N/A N/A N/A May 3, 1999
WRL Salomon All Cap N/A N/A N/A May 3, 1999
WRL Pilgrim Baxter Mid Cap
Growth N/A N/A N/A May 3, 1999
Transamerica VIF Growth 40.85% 39.39% 27.55%+ February 26, 1969
</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.
(/2/) This portfolio began operations on April 8, 1991, as the Global Growth
Portfolio. However, effective January 1, 1995, Rowe Price-Fleming
International, Inc. became the new adviser to the Global Growth
Portfolio. The Portfolio's name changed to the T. Rowe Price
International Stock Portfolio and the Portfolio's shareholders
approved a change in investment objective from investments in small
capitalization companies on a global basis to investments in a broad
range of companies on an international basis (that is, non-U.S.
companies).
(/3/) Effective September 16, 1996, The Dreyfus Corporation became the
adviser to the Dreyfus Small Cap Value Portfolio, formerly known as
Quest for Value Small Cap Portfolio. The portfolio was previously
advised by OpCap Advisors.
(/4/) Effective April 30, 1999, shares of the WRL Janus Growth Portfolio
were removed and replaced with shares of the Endeavor Janus Growth
Portfolio. The Endeavor Janus Growth Portfolio has the same investment
objectives, the same investment advisor (Janus Capital Corporation),
and the same advisory fees as the WRL Janus Growth Portfolio.
Performance prior to May 1, 1999 reflects performance of the annuity
subaccount while it was invested in the WRL Growth Portfolio.
The figures for the "five year" and "from inception" periods in the above
tables reflect waiver of advisory fees and reimbursement of other expenses for
all portfolios except the T. Rowe Price Equity Income Portfolio and the T. Rowe
Price Growth Stock Portfolio. In the absence of such waivers, the average
annual total return figures above from the five year and from inception periods
would have been lower.
33
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
EXTRA VARIABLE ANNUITY
Issued through
PFL LIFE VARIABLE ANNUITY ACCOUNT C
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 Extra Variable Annuity offered by PFL Life Insurance
Company. You may obtain a copy of the prospectus dated December 8, 1999 by
calling 1-800-525-6205, or by writing to the Administrative and Service Office,
Financial Markets Division--Variable Annuity Dept., 4333 Edgewood Road, N.E.,
Cedar Rapids, Iowa 52499-0001. Terms used in the current prospectus for the
variable annuity are incorporated in this Statement of Additional Information.
This Statement of Additional Information is not a prospectus and should be read
only in conjunction with the prospectuses for the variable annuity, the
Endeavor Series Trust, WRL Series Fund, Inc. and Transamerica Variable
Insurance Fund, Inc.
Dated: December 8, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
GLOSSARY OF TERMS.......................................................... 3
THE POLICY--GENERAL PROVISIONS............................................. 6
Owner.................................................................... 6
Entire Contract.......................................................... 6
Misstatement of Age or Sex............................................... 7
Addition, Deletion or Substitution of Investments........................ 7
Excess Interest Adjustment............................................... 7
Reallocation of Policy Values After the Annuity Commencement Date........ 12
Annuity Payment Options.................................................. 12
Death Benefit............................................................ 13
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--HYPOTHETICAL ILLUSTRATION......................... 25
HISTORICAL PERFORMANCE DATA................................................ 26
Money Market Yields...................................................... 26
Other Subaccount Yields.................................................. 27
Total Returns............................................................ 28
Other Performance Data................................................... 29
Adjusted Historical Performance Data--The Separate Account............... 29
PUBLISHED RATINGS.......................................................... 29
STATE REGULATION OF PFL.................................................... 30
ADMINISTRATION............................................................. 30
RECORDS AND REPORTS........................................................ 30
DISTRIBUTION OF THE POLICIES............................................... 30
VOTING RIGHTS.............................................................. 30
OTHER PRODUCTS............................................................. 31
CUSTODY OF ASSETS.......................................................... 31
LEGAL MATTERS.............................................................. 31
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.
Administrative and Service Office--Financial Markets Division--Variable Annuity
Dept., PFL Life Insurance Company, 4333 Edgewood Road, N.E., Cedar Rapids, Iowa
52499-0001.
Annuitant--The person entitled to receive annuity payments after the annuity
commencement date and during whose life any annuity payments involving life
contingencies will continue.
Annuity Commencement Date--The date upon which annuity payments are to
commence. This date may be any date at least thirty days after the policy date
and 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.
Annuity Payment Option--A method of receiving a stream of annuity payments
selected by the owner.
Annuity Unit--An accounting unit of measure used in the calculation of the
amount of the second and each subsequent variable annuity payment.
Beneficiary--The person who has the right to the death benefit set forth in the
policy.
Business Day--A day when the New York Stock Exchange is open for business.
Cash Value--The policy value increased or decreased by an excess interest
adjustment, less the applicable surrender charge, premium taxes, and family
income protector rider fee, if any, and less the annual service charge.
Code--The Internal Revenue Code of 1986, as amended.
Due Proof of Death--A certified copy of a death certificate, a certified copy
of a decree of a court of competent jurisdiction as to the finding of death, a
written statement by the attending physician, or any other proof satisfactory
to PFL will constitute due proof of death.
Enrollment form--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.
Excess Interest Adjustment--A positive or negative adjustment to amounts
withdrawn upon partial withdrawals, full surrenders or transfers, from the
guaranteed period options, or to amounts applied to annuity payment options.
The adjustment reflects changes in the interest rates declared by PFL since the
date any payment was received by, or an amount was transferred to, the
guaranteed period option. The excess interest adjustment can either decrease or
increase the amount to be received by the owner upon full surrender or
commencement of annuity payments, depending upon whether there has been an
increase or decrease in interest rates, respectively.
Fixed Account--One or more investment choices under the policy that are part of
the general assets of PFL and which are not in the separate account.
-3-
<PAGE>
Guaranteed Period Options--The various guaranteed interest rate periods of the
fixed account which may be offered by PFL and into which premiums may be paid
or amounts may be transferred.
Investment Choices--Any of the guaranteed period options of the fixed account,
the dollar cost averaging fixed account option, and any of the subaccounts.
Nonqualified Policy--A policy other than a qualified policy.
Owner--Depending upon the state of issue, owner means either:
.the individual or entity that owns a certificate under a group contract; or
.the individual or entity that owns an individual policy.
Participant--A person who makes premium payments or for whom premium payments
are made under the group contract.
Policy--Depending upon the state of issue, policy means either:
.the individual certificate under a group contract; or
.the individual policy.
Policy Value--On or before the annuity commencement date, the policy value is
equal to the owner's:
.premium payments (including any premium enhancement); minus
.partial withdrawals (including 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 and on each policy
anniversary.
Premium Payment--An amount paid to PFL by the owner or on the owner's behalf as
consideration for the benefits provided by the policy.
Qualified Policy--A policy issued in connection with retirement plans that
qualify for special federal income tax treatment under the Code.
Separate Account--A separate account established and registered as a unit
investment trust under the Investment Company Act of 1940, as amended, to which
premium payments under the policy may be allocated.
Service Charge--An annual 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 $40, but will not exceed
2% of the policy value.
Subaccount--A subdivision within the separate account, the assets of which are
invested in specified portfolios 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--A percentage of each premium payment in an amount from 8% to
0% depending upon the length of time from the date of each premium payment. The
surrender charge is assessed
-4-
<PAGE>
on surrenders of, or partial withdrawals from, the policy. A surrender charge
may also be referred to as a "contingent deferred sales charge."
Valuation Period--The period of time from one determination of accumulation
unit values and annuity unit values to the next subsequent determination of
values. Such determination shall be made on each business day.
Variable Annuity Payments--Payments 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 or Written Request--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 Extra Variable Annuity, which
may be of interest to a prospective purchaser. Words printed in italics in this
Statement of Additional Information are defined in the Glossary of Terms,
beginning on page 3.
THE POLICY--GENERAL PROVISIONS
Owner
The policy shall belong to the owner upon issuance of the policy after
completion of an enrollment form 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 your 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 enrollment form, information provided in
lieu thereof, 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 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 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 cash value generally must be distributed to the
successor owner within five years of the owner's death, or payments must be
made for a period certain or for the successor owner's lifetime so long as any
period certain does not exceed that successor owner's life expectancy, if the
first payment begins within one year of your death.
Entire Contract
The policy, any endorsements thereon, the enrollment form, or information
provided in lieu thereof constitute the entire contract between PFL and the
owner. All statements in the enrollment form 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 enrollment form or information
provided in lieu thereof.
-6-
<PAGE>
Misstatement of Age or Sex
If the age or sex of the annuitant or owner 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 or owner 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 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 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 Investment Company Act of
1940, (the "1940 Act"), as amended, substitutions of shares attributable to
your interest in a subaccount will not be made without prior notice to you 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 annuities, or from effecting
an exchange between series or classes of variable annuities 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 you and
request a reallocation of the amounts invested in the eliminated subaccount. If
no such reallocation is provided by you, PFL will reinvest the amounts in the
subaccount that invests in the Endeavor Money Market Portfolio (or in a similar
portfolio of money market instruments), in another subaccount, or in the fixed
account, if appropriate.
In the event of any such substitution or change, PFL may, by appropriate
endorsement, make such changes in the policy 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 policy, 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 transfer the assets of the separate account associated with the policy to
another account or accounts.
Excess Interest Adjustment
Money that you withdraw from (or transfer out of) 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 policy value.
However, if interest rates have fallen
-7-
<PAGE>
since the date of the initial guarantee, the excess interest adjustment will
result in a higher policy value.
Excess interest adjustments will not reduce the adjusted policy value for a
guaranteed period option below the premium payments and transfers to that
guaranteed period option, less any prior partial withdrawals and transfers from
the guaranteed period option, plus interest at the policy's minimum guaranteed
effective annual interest rate of 3%. This is referred to as the EIA floor.
The formula that 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 in effect for the policy
C= Current Guaranteed Interest Rate then being offered on new premiums for the
next longer option period than "M". If this policy or such an option 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 option period, rounded up to the
next higher whole number of months.
*= multiplication
/\= exponentiation
-8-
<PAGE>
The following examples assume no premium enhancement.
Example 1 (Surrender, rates increase by 3%):
<TABLE>
<S> <C>
- -----------------------------------------------------------------------------------------
Single Premium: $50,000
- -----------------------------------------------------------------------------------------
Guarantee Period: 5 Years
- -----------------------------------------------------------------------------------------
Guarantee Rate: 5.50% per annum
- -----------------------------------------------------------------------------------------
Surrender: Middle of Policy Year 3
- -----------------------------------------------------------------------------------------
Policy Value at middle of Policy Year 3 = 50,000* (1.055)/\ 2.5 = 57,161.18
- -----------------------------------------------------------------------------------------
Penalty Free Amount at middle of Policy = 50,000* .10 = 5,000.00
Year 3 Amount Subject to EIA = 57,161.18-5,000.00 = 52,161.18
- -----------------------------------------------------------------------------------------
EIA Floor = 50,000* (1.03)/\ 2.5 = 53,834.80
- -----------------------------------------------------------------------------------------
Excess Interest Adjustment
G = .055
C = .085
M = 30
- -----------------------------------------------------------------------------------------
Excess Interest Adjustment = S* (G-C)* (M/12)
- -----------------------------------------------------------------------------------------
= 52,161.18* (.055-.085)* (30/12)
= -3,912.09, but excess interest
adjustment cannot cause the adjusted policy
value to fall below the EIA floor, so the
adjustment is limited to 53,834.80-
57,161.18
= -3,326.38
- -----------------------------------------------------------------------------------------
Adjusted Policy Value ("ACV") = PV + EIA = 57,161.18 + (-3,326.38)
- -----------------------------------------------------------------------------------------
= 53,834.80
- -----------------------------------------------------------------------------------------
Surrender Charges = (50,000-5,000) * .08
- -----------------------------------------------------------------------------------------
= 3,600
- -----------------------------------------------------------------------------------------
Cash Value at middle of Policy
- -----------------------------------------------------------------------------------------
Year 3 = 53,834.80-3,600
- -----------------------------------------------------------------------------------------
= 50,234.80
- -----------------------------------------------------------------------------------------
</TABLE>
-9-
<PAGE>
Example 2 (Surrender, rates decrease by 1%):
<TABLE>
<S> <C>
- ---------------------------------------------------------------------------------
Single Premium: $50,000
- ---------------------------------------------------------------------------------
Guarantee Period: 5 Years
- ---------------------------------------------------------------------------------
Guarantee Rate: 5.50% per annum
- ---------------------------------------------------------------------------------
Surrender: Middle of Policy Year 3
- ---------------------------------------------------------------------------------
Policy Value at middle of Policy Year 3 = 50,000* (1.055)/\ 2.5 = 57,161.18
- ---------------------------------------------------------------------------------
Penalty Free Amount at middle of Policy
Year 3 = 50,000* .10 = 5,000
- ---------------------------------------------------------------------------------
Amount Subject to EIA = 57,161.18-5,000 = 52,161.18
- ---------------------------------------------------------------------------------
EIA Floor = 50,000* (1.03)/\ 2.5 = 53,834.80
- ---------------------------------------------------------------------------------
Excess Interest Adjustment
G = .055
C = .045
M = 30
- ---------------------------------------------------------------------------------
Excess Interest Adjustment = S* (G-C)* (M/12)
- ---------------------------------------------------------------------------------
= 52,161.18 * (.055-.045)* (30/12)
- ---------------------------------------------------------------------------------
= 1,304.03
- ---------------------------------------------------------------------------------
Adjusted Policy Value = 57,161.18 + 1,304.03 = 58,465.21
- ---------------------------------------------------------------------------------
Surrender Charges = (50,000-5,000) * .08 = 3,600
- ---------------------------------------------------------------------------------
Cash Value at middle of Policy Year 3 = 58,447.31-3,600 = 54,847.31
- ---------------------------------------------------------------------------------
</TABLE>
On a partial withdrawal, PFL will pay the owner the full amount of withdrawal
requested (as long as the policy value is sufficient). Amounts withdrawn will
reduce the policy value by an amount equal to:
R - E + SC
R=the requested partial withdrawal;
E=the excess interest adjustment; and
SC=the surrender charges on (EPW - E); where
EPW=the excess partial withdrawal amount.
-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 Withdrawal: $20,000; Middle of Policy Year 3
- -----------------------------------------------------------------------------------
Policy Value at middle of Policy Year 3 = 50,000* (1.055)/\ 2.5 = 57,161.18
- -----------------------------------------------------------------------------------
Penalty Free Amount at middle of Policy = 50,000* .10 = 5,000
Year 3
- -----------------------------------------------------------------------------------
Excess Interest/Surrender Charge (SC)
Adjustment
S = 20,000-5,000 = 15,000
G = .055
C = .065
M = 30
E = 15,000* (.055-.065)* (30/12) = -375
EPW = 20,000-5,000 = 15,000
SC = .08* (15,000-(-375) = 1,230
- -----------------------------------------------------------------------------------
Remaining Policy Value at middle of
Policy Year 3 = 57,161.18-(R-E + SC)
- -----------------------------------------------------------------------------------
= 57,161.18-(20,000-(-375) + 1,230)
- -----------------------------------------------------------------------------------
= 35,556.18
- -----------------------------------------------------------------------------------
</TABLE>
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 Withdrawal: $20,000; Middle of Policy Year 3
- -----------------------------------------------------------------------------------
Policy Value at middle of Policy Year 3 = 50,000* (1.055)/\ 2.5 = 57,161.18
- -----------------------------------------------------------------------------------
Penalty Free Amount at middle of Policy
Year 3 = 50,000* .10 = 5,000
- -----------------------------------------------------------------------------------
Excess Interest/Surrender Charge Adjustment
S = 20,000-5,000 = 15,000
G = .055
C = .045
M = 30
E = 15,000* (.055-.045)* (30/12) = 375
EPW = 20,000-5,000 = 15,000
SC = .08* (15,000-375) = 1,170
- -----------------------------------------------------------------------------------
Remaining Policy Value at middle of
Policy Year 3 = 57,161.18-(R--E + SC)
- -----------------------------------------------------------------------------------
= 57,161.18-(20,000-375 + 1,170)
- -----------------------------------------------------------------------------------
= 36,366.18
- -----------------------------------------------------------------------------------
</TABLE>
-11-
<PAGE>
Reallocation of Policy Values After the Annuity Commencement Date
After the annuity commencement date, you may reallocate the value of a
designated number of annuity units of a subaccount then credited to a policy
into an equal value of annuity units of one or more other subaccounts or the
fixed account. The reallocation shall be based on the relative value of the
annuity units of the account(s) or subaccount(s) at the end of the business day
on the next payment date. The minimum amount which may be reallocated is the
lesser of (1) $10 of monthly income or (2) the entire monthly income of the
annuity units in the account or subaccount from which the transfer is being
made. If the monthly income of the annuity units remaining in an account or
subaccount after a reallocation is less than $10, PFL reserves the right to
include the value of those annuity units as part of the transfer. The request
must be in writing to PFL's administrative and service office. There is no
charge assessed in connection with such reallocation. PFL reserves the right to
limit the number of times a reallocation of annuity units may be made in any
given policy year.
After the annuity commencement date, no transfers may be made from the fixed
account to the separate account.
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 improved to the year
2000 with projection Scale G. ("The 1983 Table a" mortality rates are adjusted
based on improvements in mortality since 1983 to more appropriately reflect
increased longevity. This is accomplished using a set of improvement factors
referred to as projection scale G.) The dollar amount of additional variable
annuity payments will vary based on the investment performance of the
subaccount(s) of the separate account selected by the annuitant or beneficiary.
Determination of the First Variable Payment. The amount of the first variable
- -------------------------------------------
payment depends upon the sex (if consideration of sex is allowed under state
law) and adjusted age of the annuitant. The adjusted age is the annuitant's
actual age nearest birthday, on the annuity commencement date, adjusted as
follows:
-12-
<PAGE>
<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 Actual Age minus 5
</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 and are credited to the
policy. The number of annuity units to be credited in respect of a particular
subaccount is determined by dividing that portion of the first variable annuity
payment attributable to that subaccount by the annuity unit value of that
subaccount on the annuity commencement date. The number of annuity units of
each particular subaccount credited to the policy then remains fixed, assuming
no transfers to or from that subaccount occur. The dollar value of variable
annuity units in the chosen subaccount will increase or decrease reflecting the
investment experience of the chosen subaccount. The dollar amount of each
variable annuity payment after the first may increase, decrease or remain
constant. This amount 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 as of the
first business day of each month.
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 equal to (1) multiplied by (2), where:
(1) is the Gross Partial Withdrawals, where gross partial withdrawal =
requested withdrawal--excess interest adjustment + surrender charges on
(excess partial withdrawal--excess interest adjustment); and
(2) is the adjustment factor = current death benefit prior to the
withdrawal divided by the current policy value prior to the
withdrawal.
-13-
<PAGE>
The following examples describe the effect of a withdrawal on the Guaranteed
Minimum Death Benefit and policy value.
- ------------------------------------------------------------------------------
Example 1
(Assumed Facts)
<TABLE>
- ------------------------------------------------------------------------------
<C> <S>
$75,000 current Guaranteed Minimum Death Benefit (GMDB) before withdrawal
- ------------------------------------------------------------------------------
$50,000 current policy value before withdrawal
- ------------------------------------------------------------------------------
$75,000 current death benefit (larger of policy value and GMDB)
- ------------------------------------------------------------------------------
6% current surrender charge percentage
- ------------------------------------------------------------------------------
$15,000 requested withdrawal
- ------------------------------------------------------------------------------
$40,000 Cumulative Premium Payments
- ------------------------------------------------------------------------------
$ 4,000 surrender charge-free amount (assumes 10% of premium penalty free
withdrawal is available)
- ------------------------------------------------------------------------------
(Results)
- ------------------------------------------------------------------------------
$11,000 excess partial withdrawal - EPW (amount subject to surrender charge)
- ------------------------------------------------------------------------------
$ 100 excess interest adjustment (assumes interest rates have decreased
since initial guarantee)
- ------------------------------------------------------------------------------
$ 654 surrender charge on (EPW less EIA) = 0.06 * (11,000-100)
- ------------------------------------------------------------------------------
$11,554 reduction in policy value due to excess partial withdrawal = 11,000-
100 + 654
- ------------------------------------------------------------------------------
$23,331 adjusted partial withdrawal = (4,000 + 11,554) * (75,000/50,000)
- ------------------------------------------------------------------------------
$51,669 New GMDB (after withdrawal) = 75,000-23,331
- ------------------------------------------------------------------------------
$34,446 New policy value (after withdrawal) = 50,000-15,554
- ------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Summary:
- --------
<S> <C>
Reduction in guaranteed minimum death benefit = $23,331
Reduction in policy value = $15,554
</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)
<TABLE>
- -------------------------------------------------------------------------------
<C> <S>
$50,000 current Guaranteed Minimum Death Benefit (GMDB) before withdrawal
- -------------------------------------------------------------------------------
$75,000 current policy value before withdrawal
- -------------------------------------------------------------------------------
$75,000 current death benefit (larger of policy value and GMDB)
- -------------------------------------------------------------------------------
6% current surrender charge percentage
- -------------------------------------------------------------------------------
$15,000 requested withdrawal
- -------------------------------------------------------------------------------
$60,000 Cumulative Premium Payments
- -------------------------------------------------------------------------------
$ 6,000 surrender charge-free amount (assumes 10% of premium penalty free
withdrawal is available)
- -------------------------------------------------------------------------------
(Results)
- -------------------------------------------------------------------------------
$ 9,000 excess partial withdrawal - EPW (amount subject to surrender charge)
- -------------------------------------------------------------------------------
$ -- 100 excess interest adjustment
(assumes interest rates have increased since initial guarantee)
- -------------------------------------------------------------------------------
$ 546 surrender charge on (EPW less EIA) = 0.06 * [(9000-(-100)]
- -------------------------------------------------------------------------------
$ 9,646 reduction in policy value due to EPW = 9000-(-100) + 456 = 9000 +
100 + 546
- -------------------------------------------------------------------------------
$15,646 adjusted partial withdrawal = (6,000 + 9,646) * (75,000/75,000)
- -------------------------------------------------------------------------------
$34,354 New GMDB (after withdrawal) = 50,000-15,646
- -------------------------------------------------------------------------------
$59,354 New policy value (after withdrawal) = 75,000-15,646
- -------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Summary:
- --------
<S> <C>
Reduction in guaranteed minimum death benefit = $15,646
Reduction in policy value = $15,646
</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 that is the
owner died prior to the commencement of annuity payments. Upon receipt of this
proof and an election of a method of settlement and return of the policy, the
death benefit generally will be paid within seven days, or as soon thereafter
as PFL has sufficient information about the beneficiary to make the payment.
The beneficiary may receive the amount payable in a lump sum cash benefit, or,
subject to any limitation under any state or federal law, rule, or regulation,
under one of the annuity payment options described above, unless a settlement
agreement is effective at the death of the owner preventing such election.
If the annuitant was the owner, and the beneficiary was not the annuitant's
spouse, the death benefit must (1) be distributed within five years of the date
of the deceased owner's death, or (2) payments under an annuity payment option
must begin no later than one year after the deceased owner's death and must be
made for the beneficiary's lifetime or for a period certain (so long as any
certain period does not exceed the beneficiary's life expectancy). Death
proceeds which are not paid to or for the benefit of a natural person, must be
distributed within five years of the date of the deceased owner's death. If the
sole beneficiary is the deceased owner's surviving spouse, such spouse may
elect to continue the policy as the new annuitant and owner instead of
receiving the death benefit.
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
-15-
<PAGE>
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 enrollment form 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" for a detailed description of these rules. Other rules
may apply to qualified policies.
Assignment
During the lifetime of the annuitant you may assign any rights or benefits
provided by the policy. An assignment will not be binding on PFL until a copy
has been filed at its administrative and service office. Your rights and
benefits and those of the 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.
-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 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 Code, 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.
Distribution Requirements. The Code 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 used to purchase 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
"designated beneficiary" as defined in section 72(s) of the Code. However, if
upon such owner's death prior to the annuity commencement date, such owner's
surviving spouse becomes the sole new owner, then the policy may be continued
with the surviving spouse as the new owner. Under the policy, the beneficiary
is the designated beneficiary of an owner/annuitant and the successor owner is
the designated beneficiary of an owner who is not the annuitant. If any owner
is not a natural person, then for purposes of these distribution requirements,
the primary annuitant shall
-17-
<PAGE>
be treated as a owner and any death or change of such primary annuitant shall
be treated as the death of an owner. The nonqualified policies contain
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 policy
satisfy all such Code requirements. The provisions contained in the policy will
be reviewed and modified if necessary to assure that they comply with the Code
requirements when clarified by regulation or otherwise.
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. The separate account,
through the underlying funds, intends to comply with the diversification
requirements of the Treasury. PFL has entered into agreements regarding
participation in the underlying funds which requires the 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 contract owner's gross income. Several years ago, the IRS
stated in published rulings that a variable annuity owner will be considered
the owner of the separate account assets if the owner possesses incidents of
ownership in those assets, such as the ability to exercise investment control
over the assets. More recently, the Treasury Department announced in connection
with the issuance of regulations concerning investment diversification, that
those regulations "do not provide guidance concerning the circumstances in
which investor control of the investments of a segregated asset account may
cause the investor (i.e., you), 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 the 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 owners were not owners of separate account assets. For example,
you have 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 you being
treated as the owner of the assets of the separate account. In addition, PFL
does not know what standards will be set forth, if any, in the regulations or
rulings that the Treasury Department has stated it expects to issue. PFL
therefore reserves the right to modify the policy as necessary to attempt to
prevent you from being considered the owner of a pro rata share of the assets
of the separate account.
Withholding. The portion of any distribution under a policy that is includable
- -----------
in gross income will be subject to federal income tax withholding unless the
recipient of such distribution elects not to have federal income tax withheld.
Election forms will be provided at the time distributions are requested or
made. For certain qualified policies, certain distributions are subject to
mandatory withholding. The withholding rate varies according to the type of
distribution and the owner's tax status. For qualified policies, "eligible
rollover distributions" from section 401(a) plans and section 403(b) tax-
sheltered annuities are subject to a mandatory federal income tax withholding
of 20%. An eligible rollover distribution is the taxable portion of any
distribution from such a plan, except certain distributions such as
distributions required by the Code or distributions in a specified annuity
form. The 20% withholding does not apply, however, if the owner chooses a
"direct rollover" from the plan to another tax-qualified plan or IRA.
-18-
<PAGE>
Qualified Policies. The qualified policy is designed for use with several types
- ------------------
of tax-qualified retirement plans. The tax rules applicable to participants and
beneficiaries in tax-qualified retirement plans vary according to the type of
plan and the terms and conditions of the plan. Special favorable tax treatment
may be available for certain types of contributions and distributions. Adverse
tax consequences may result from contributions in excess of specified limits;
distributions prior to age 59 1/2 (subject to certain exceptions);
distributions that do not conform to specified commencement and minimum
distribution rules; and in other specified circumstances. Some retirement plans
are subject to distribution and other requirements that are not incorporated
into our 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 a policy 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 may
not exceed $2,000, except in the case of a rollover amount or contribution
under Section 402(c), 403(a)(4), 403(b)(8) or 408(d)(3) of the Code; (iv)
annuity payments or 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; and (vi) certain payments of death benefits
must be made in the event the annuitant dies prior to the distribution of the
policy value. Policies intended to qualify as a traditional individual
retirement annuities under Section 408(b) of the Code contain such provisions.
Amounts in the IRA (other than nondeductible contributions) are taxed when
distributed from the IRA. Distributions prior to age 59 1/2 (unless certain
exceptions apply) are subject to a 10% penalty tax.
Section 408 of the Code also indicates that no part of the funds for a
traditional individual retirement account or annuity should be invested in a
life insurance contract, but the regulations thereunder allow such funds to be
invested in an annuity contract that provides a death benefit that equals the
greater of the premiums paid or the cash value for the contract. The policy
provides an enhanced death benefit that could exceed the amount of such a
permissible death benefit, but it is unclear to what extent such an enhanced
death benefit could disqualify the policy under Section 408 of the Code. The
Internal Revenue Service has not reviewed the policy for qualification as an
IRA, and has not addressed in a ruling of general applicability whether an
enhanced death benefit provision, such as the provision in the policy, comports
with IRA qualification requirements.
Roth Individual Retirement Annuities (Roth IRA). The Roth IRA, under Section
- ----------------------------------------------
408A of the Code, contains many of the same provisions as a traditional IRA.
However, there are some differences. First, the contributions are not
deductible and must be made in cash or as a rollover or transfer from another
Roth IRA or other IRA. A rollover from or conversion of an IRA to a Roth IRA
may be subject
-19-
<PAGE>
to tax and other special rules may apply. You should consult a tax adviser
before combining any converted amounts with any other Roth IRA contributions,
including any other conversion amounts from other tax years. The Roth IRA is
available to individuals with earned income and whose adjusted gross income is
under $110,000 for single filers, $160,000 for married filing jointly, and
$10,000 for married filing separately. The amount per individual that may be
contributed to all IRAs (Roth and traditional) is $2,000. Secondly, the
distributions are taxed differently. The Roth IRA offers tax-free distributions
when made from assets which have been held in the account for 5 tax years and
are made after attaining age 59 1/2, to pay for qualified first time homebuyer
expenses (lifetime maximum of $10,000) or due to death or disability. All other
distributions are subject to income tax when made from earnings and may be
subject to a premature withdrawal penalty tax unless an exception applies.
Unlike the traditional IRA, there are no minimum required distributions during
the owner's lifetime; however, required distributions at death are the same.
Section 403(b) Plans. Under Section 403(b) of the Code, payments made by public
- --------------------
school systems and certain tax exempt organizations to purchase policies for
their employees are excludable from the gross income of the employee, subject
to certain limitations. However, such payments may be subject to FICA (Social
Security) taxes. The policies include 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 policies 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 policies include 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 policies 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 normally used, 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 Section 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-government 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.
-20-
<PAGE>
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 policy 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
this paragraph, Section 72(u) of the Code does not apply to (i) a policy the
nominal owner of which is not a natural person but the beneficial owner of
which is a natural person, (ii) a policy acquired by the estate of a decedent
by reason of such decedent's death, (iii) a qualified policy (other than one
qualified under Section 457) or (iv) a single-payment annuity the annuity
commencement date for which is no later than one year from the date of the
single premium payment; instead, 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 that 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 fund 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, 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
enrollment form is received, whichever is later. The value of an accumulation
unit was arbitrarily established at $1 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 trading.
-21-
<PAGE>
For the separate account, 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. You bear 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 during the valuation period from the investment
operations of the subaccount;
(b) is the net asset value per share of the shares held in the subaccount
determined as of the end of the immediately preceding valuation period.
(c) is the charge for mortality and expense risk during the valuation
period, equal on an annual basis to 1.35% of the daily net asset value of
the subaccount, plus the 0.40% administrative and distribution charge.
-22-
<PAGE>
Illustration of Separate Account Accumulation Unit Value Calculations
Formula and Illustration for Determining the Net Investment Factor
Net Investment Factor = (A + B - C) - E
----------
D
<TABLE>
<C> <S>
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 the mortality and expense risk fee and the
administrative charge, which totals 1.75% on an annual basis. On a
daily basis, E equals .000047529.
</TABLE>
Then, the net investment factor = (11.57 + 0 - 0) -.000047529 = Z = 1.014864752.
--------------
(11.40)
Formula and Illustration for Determining Accumulation Unit Value
Accumulation Unit Value = A * B
<TABLE>
<C> <S>
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
For the separate account, 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. For the separate account, 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 on the immediately preceding
business day;
(b) is the net investment factor for the valuation period; and
(c) is the investment result adjustment factor for the valuation period.
-23-
<PAGE>
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 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>
Where: A = annuity unit value for the immediately preceding valuation period.
Assume........................................... = $X
B = Net investment 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>
Where: A = The adjusted policy value as of the annuity commencement date.
Assume.............................................= $X
B = The Annuity purchase rate per $1,000 of adjusted policy value 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
-24-
<PAGE>
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>
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
FAMILY INCOME PROTECTOR -- HYPOTHETICAL ILLUSTRATION
The amounts shown below are hypothetical guaranteed minimum monthly payment
amounts under the "family income protector" for a $100,000 premium when annuity
payments do not begin until the rider anniversary indicated in the left-hand
column. These figures assume 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 Life 10 = Life Annuity with 10 Years
Certain 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
-25-
<PAGE>
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.
The amount of the first payment provided by the family income protector will be
determined by multiplying each $1,000 of minimum annuitization value by the
applicable annuity factor shown on Schedule I of the family income protector
rider. The applicable annuity factor depends upon the annuitant's (and joint
annuitant's, if any) sex (or without regard to gender if required by law), age,
and the family income protector payment option selected and is based on a
guaranteed interest rate of 3% and the "1983 Table a" mortality table improved
to the year 2000 with projection Scale G. Subsequent payments will be
calculated as described in the family income protector rider using a 5% assumed
investment return. Subsequent payments may fluctuate annually in accordance
with the investment performance of the annuity subaccounts. However, subsequent
payments are guaranteed to never be less than the initial payment.
The stabilized payment on each subsequent policy anniversary after
annuitization using the family income protector will equal the greater of the
initial payment or the payment supportable by the annuity units in the selected
subaccounts. The supportable payment is equal to the number of variable annuity
units in the selected subaccounts multiplied by the variable annuity unit
values in those subaccounts on the date the payment is made. The variable
annuity unit values used to calculate the supportable payment will assume a 5%
assumed investment return. If the supportable payment at any payment date
during a policy year is greater than the stabilized payment for that policy
year, the excess will be used to purchase additional annuity units. Conversely,
if the supportable payment at any payment date during a policy year is less
than the stabilized payment for that policy year, there will be a reduction in
the number of annuity units credited to the policy to fund the deficiency. In
the case of a reduction, you will not participate as fully in the future
investment performance of the subaccounts you selected since fewer annuity
units are credited to your policy. Purchases and reductions will be allocated
to each subaccount on a proportionate basis.
PFL bears the risk that it will need to make payments if all annuity units have
been used in an attempt to maintain the stabilized payment at the initial
payment level. In such an event, PFL will make all future payments equal to the
initial payment. Once all the annuity units have been used, the amount of your
payment will not increase or decrease and will not depend upon the performance
of any subaccounts. To compensate PFL for this risk, a guaranteed payment fee
will be deducted.
HISTORICAL PERFORMANCE DATA
Money Market Yields
PFL may from time to time disclose the current annualized yield of the Endeavor
Money Market Subaccount, which invests in the Endeavor Money Market Portfolio,
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 Endeavor Money Market
Portfolio or on its 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 of the Endeavor
Money Market Subaccount 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
-26-
<PAGE>
(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
Endeavor Money Market Subaccount will be lower than the yield for the Endeavor
Money Market Portfolio. The yield calculations do not reflect the effect of any
premium taxes that may be applicable to a particular policy.
PFL may also disclose the effective yield of the Endeavor 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.
The yield on amounts held in the Endeavor 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 Endeavor Money Market Subaccount's actual yield is affected by
changes in interest rates on money market securities, average portfolio
maturity of the Endeavor Money Market Portfolio, the types and quality of
portfolio securities held by the Endeavor Money Market Portfolio and its
operating expenses. For the seven days ended December 31, 1998, the effective
yield of the Endeavor Money Market Subaccount was 3.083%. For the seven days
ended December 31, 1998, the yield of the Endeavor Money Market Subaccount was
3.236%.
Other Subaccount Yields
PFL may from time to time advertise or disclose the current annualized yield of
one or more of the subaccounts (except the Endeavor Money Market Subaccount)
for 30-day periods. The annualized
-27-
<PAGE>
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, (iii) compounding
that yield for a 6-month period, and (iv) multiplying that result by 2.
Expenses attributable to the subaccount include (i) the administrative charges;
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 will be lower than the yield for its corresponding
portfolio. The yield calculations do not reflect the effect of any premium
taxes that may be applicable to a particular policy.
The yield on amounts held in the subaccounts 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 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 separate
account'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:
-28-
<PAGE>
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.
CTR = (ERV / P)-1
Where:
CTR= The cumulative total return net of subaccount recurring charges for
the period.
ERV= The ending redeemable value of the hypothetical investment at the end
of the period.
P= A hypothetical initial payment of $1,000.
All non-standard performance data will only be advertised if the standard
performance data for the same period, as well as for the required period, is
also disclosed.
Adjusted Historical Performance Data--The Separate Account
From time to time, sales literature or advertisements may quote average annual
total returns for periods prior to the date a particular subaccount 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. The ratings 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
-29-
<PAGE>
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
(i.e., debt/commercial paper).
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 policy. These services include
issuance of the policy, maintenance of records concerning the policy, 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, as amended,
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 discontinue the offering of the
policies.
AFSG Securities Corporation, an affiliate of PFL, is the principal underwriter
of the policies and may enter into agreements with broker-dealers for the
distribution of the policies. Distribution of the policies had not begun as of
the date of this prospectus.
VOTING RIGHTS
To the extent required by law, PFL will vote the underlying funds' shares held
by the separate 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 the underlying funds do not
-30-
<PAGE>
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 fund 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 annuities available that may also be funded through
the separate account. These variable annuities may have different features,
such as different investment options or charges.
CUSTODY OF ASSETS
The assets of each of the subaccounts are held by PFL. The assets of each of
the subaccounts 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.
-31-
<PAGE>
INDEPENDENT AUDITORS
The statutory-basis financial statements and schedules of PFL as of December
31, 1998 and 1997, and for each of the three years in the period ended December
31, 1998, included in this Statement of Additional Information have been
audited by Ernst & Young LLP, Independent Auditors, 801 Grand Avenue, Suite
3400, 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 Statement of Additional Information. Not all of the
information set forth in the Registration Statement, amendments and exhibits
thereto has been included in the prospectus or this Statement of Additional
Information. Statements contained in the Prospectus and this Statement of
Additional Information concerning the content of the policies and other legal
instruments are intended to be summaries. For a complete statement of the terms
of these documents, reference should be made to the instruments filed with the
Securities and Exchange Commission.
FINANCIAL STATEMENTS
The values of your interest in the separate account will be affected solely by
the investment results of the selected subaccount(s). The statutory-basis
financial statements of PFL, which are included in this Statement of Additional
Information, should be considered only as bearing on 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, 1998, 1997 and 1996
with Report of Independent Auditors
<PAGE>
PFL LIFE INSURANCE COMPANY
FINANCIAL STATEMENTS--STATUTORY BASIS
Years ended December 31, 1998, 1997 and 1996
Contents
<TABLE>
<S> <C>
Report of Independent Auditors.............................................. 1
Audited Financial Statements
Balance Sheets--Statutory Basis........................................... 2
Statements of Operations--Statutory Basis................................. 3
Statements of Changes in Capital and Surplus--Statutory Basis............. 4
Statements of Cash Flows--Statutory Basis................................. 5
Notes to Financial Statements--Statutory Basis............................ 6
Statutory-Basis Financial Statement Schedules
Summary of Investments--Other Than Investments in Related Parties......... 24
Supplementary Insurance Information....................................... 25
Reinsurance............................................................... 26
</TABLE>
<PAGE>
[LETTERHEAD OF ERNST & YOUNG LLP APPEARS HERE]
Report of Independent Auditors
The Board of Directors
PFL Life Insurance Company
We have audited the accompanying statutory-basis balance sheets of PFL Life
Insurance Company as of December 31, 1998 and 1997, and the related statutory-
basis statements of operations, changes in capital and surplus, and cash flows
for each of the three years in the period ended December 31, 1998. Our audits
also included the accompanying statutory-basis financial statement schedules
required by Article 7 of Regulation S-X. These financial statements and
schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
As described in Note 1 to the financial statements, the Company presents its
financial statements in conformity with accounting practices prescribed or
permitted by the Insurance Division, Department of Commerce, of the State of
Iowa, which practices differ from generally accepted accounting principles.
The variances between such practices and generally accepted accounting
principles also are described in Note 1. The effects on the financial
statements of these variances are not reasonably determinable but are presumed
to be material.
In our opinion, because of the effects of the matters described in the
preceding paragraph, the financial statements referred to above do not present
fairly, in conformity with generally accepted accounting principles, the
financial position of PFL Life Insurance Company at December 31, 1998 and
1997, or the results of its operations or its cash flows for each of the three
years in the period ended December 31, 1998.
However, in our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of PFL Life Insurance
Company at December 31, 1998 and 1997, and the results of its operations and
its cash flows for each of the three years in the period ended December 31,
1998 in conformity with accounting practices prescribed or permitted by the
Insurance Division, Department of Commerce, of the State of Iowa. Also, in our
opinion, the related financial statement schedules, when considered in
relation to the basic statutory-basis financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
/s/ Ernst & Young LLP
Des Moines, Iowa
February 19, 1999
1
<PAGE>
PFL LIFE INSURANCE COMPANY
BALANCE SHEETS--STATUTORY BASIS
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
December 31
---------------------
1998 1997
---------- ----------
ADMITTED ASSETS
---------------
<S> <C> <C>
Cash and invested assets:
Cash and short-term investments............................ $ 83,289 $ 23,939
Bonds...................................................... 4,822,442 4,913,144
Stocks:
Preferred................................................ 14,754 2,750
Common (cost: 1998--$34,731; 1997--$33,058).............. 49,448 42,345
Affiliated entities (cost: 1998--$8,060; 1997--$10,798).. 5,613 8,031
Mortgage loans on real estate.............................. 1,012,433 935,207
Real estate, at cost less accumulated depreciation ($9,500
in 1998; $8,655 in 1997):
Home office properties................................... 8,056 8,283
Properties acquired in satisfaction of debt.............. 11,778 11,814
Investment properties.................................... 44,325 36,416
Policy loans............................................... 60,058 57,136
Other invested assets...................................... 76,482 29,864
---------- ----------
Total cash and invested assets......................... 6,188,678 6,068,929
Premiums deferred and uncollected........................... 15,318 16,101
Accrued investment income................................... 65,308 69,662
Receivable from affiliate................................... 643 --
Federal income taxes recoverable............................ 639 --
Transfers from separate accounts............................ 70,866 60,193
Other assets................................................ 29,511 37,624
Separate account assets..................................... 3,348,611 2,517,365
---------- ----------
Total admitted assets.................................. $9,719,574 $8,769,874
========== ==========
<CAPTION>
LIABILITIES AND CAPITAL AND SURPLUS
-----------------------------------
<S> <C> <C>
Liabilities:
Aggregate reserves for policies and contracts:
Life..................................................... $1,357,175 $ 884,018
Annuity.................................................. 3,925,293 4,204,125
Accident and health...................................... 205,736 169,328
Policy and contract claim reserves:
Life..................................................... 9,101 8,635
Accident and health...................................... 48,906 57,713
Other policyholders' funds................................. 162,266 143,831
Remittances and items not allocated........................ 19,690 153,745
Asset valuation reserve.................................... 91,588 69,825
Interest maintenance reserve............................... 50,575 30,287
Federal income taxes payable............................... -- 1,889
Short-term notes payable to affiliates..................... 9,421 16,400
Other liabilities.......................................... 76,766 75,070
Payable for securities..................................... 57,645 --
Payable to affiliates...................................... -- 13,240
Separate account liabilities............................... 3,342,884 2,512,406
---------- ----------
Total liabilities...................................... 9,357,046 8,340,512
Commitments and contingencies
Capital and surplus:
Common stock, $10 par value, 500 shares authorized, 266
issued and outstanding.................................... 2,660 2,660
Paid-in surplus............................................ 154,282 154,282
Unassigned surplus......................................... 205,586 272,420
---------- ----------
Total capital and surplus.............................. 362,528 429,362
---------- ----------
Total liabilities and capital and surplus.............. $9,719,574 $8,769,874
========== ==========
</TABLE>
See accompanying notes.
2
<PAGE>
PFL LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS--STATUTORY BASIS
(Dollars in thousands)
<TABLE>
<CAPTION>
Year Ended December 31
----------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Premiums and other considerations, net
of reinsurance:
Life.................................. $ 516,111 $ 202,435 $ 204,872
Annuity............................... 667,920 657,695 725,966
Accident and health................... 178,593 207,982 227,862
Net investment income................... 446,984 446,424 428,337
Amortization of interest maintenance re-
serve.................................. 8,656 3,645 2,434
Commissions and expense allowances on
reinsurance ceded...................... 32,781 49,859 73,931
---------- ---------- ----------
1,851,045 1,568,040 1,663,402
Benefits and expenses:
Benefits paid or provided for:
Life and accident and health bene-
fits................................. 135,184 146,583 147,024
Surrender benefits.................... 732,796 658,071 512,810
Other benefits........................ 152,209 126,495 101,288
Increase (decrease) in aggregate
reserves for policies and contracts:
Life.................................. 473,158 149,575 140,126
Annuity............................... (278,665) (203,139) 188,002
Accident and health................... 36,407 30,059 26,790
Other................................. 17,550 16,998 19,969
---------- ---------- ----------
1,268,639 924,642 1,136,009
Insurance expenses:
Commissions............................. 136,569 157,300 177,466
General insurance expenses.............. 48,018 57,571 57,282
Taxes, licenses and fees................ 19,166 8,715 13,889
Net transfers to separate accounts...... 265,702 297,480 171,785
Other expenses.......................... 1,016 119 526
---------- ---------- ----------
470,471 521,185 420,948
---------- ---------- ----------
1,739,110 1,445,827 1,556,957
---------- ---------- ----------
Gain from operations before federal income
tax expense and net realized capital
gains (losses) on investments............ 111,935 122,213 106,445
Federal income tax expense................ 49,835 43,381 41,177
---------- ---------- ----------
Gain from operations before net realized
capital gains (losses) on investments.... 62,100 78,832 65,268
Net realized capital gains (losses) on
investments (net of related federal
income taxes and amounts transferred to
interest maintenance reserve)............ 3,398 7,159 (3,503)
---------- ---------- ----------
Net income................................ $ 65,498 $ 85,991 $ 61,765
========== ========== ==========
</TABLE>
See accompanying notes.
3
<PAGE>
PFL LIFE INSURANCE COMPANY
STATEMENTS OF CHANGES IN CAPITAL AND SURPLUS--STATUTORY BASIS
(Dollars in thousands)
<TABLE>
<CAPTION>
Total
Capital
Common Paid-in Unassigned and
Stock Surplus Surplus Surplus
------ -------- ---------- ---------
<S> <C> <C> <C> <C>
Balance at January 1, 1996............... $2,660 $154,129 $ 220,739 $ 377,528
Net income............................. -- -- 61,765 61,765
Change in net unrealized capital
gains................................. -- -- 2,351 2,351
Change in non-admitted assets.......... -- -- (148) (148)
Change in asset valuation reserve...... -- -- (10,930) (10,930)
Dividend to stockholder................ -- -- (20,000) (20,000)
Prior period adjustment................ -- -- 5,025 5,025
Surplus effect of sales of divisions... -- -- (384) (384)
Surplus effect of ceding commissions
associated with the sale of a
division.............................. -- -- 29 29
Amendment of reinsurance agreement..... -- -- 421 421
Change in liability for reinsurance in
unauthorized companies................ -- -- 2,690 2,690
------ -------- --------- ---------
Balance at December 31, 1996............. 2,660 154,129 261,558 418,347
Capital contribution................... -- 153 -- 153
Net income............................. -- -- 85,991 85,991
Change in net unrealized capital
gains................................. -- -- 3,592 3,592
Change in non-admitted assets.......... -- -- (481) (481)
Change in asset valuation reserve...... -- -- (14,974) (14,974)
Dividend to stockholder................ -- -- (62,000) (62,000)
Surplus effect of sale of a division... -- -- (161) (161)
Surplus effect of ceding commissions
associated with the sale of a
division.............................. -- -- 5 5
Amendment of reinsurance agreement..... -- -- 389 389
Surplus effect of reinsurance
agreement............................. -- -- 402 402
Change in liability for reinsurance in
unauthorized companies................ -- -- (1,901) (1,901)
------ -------- --------- ---------
Balance at December 31, 1997............. 2,660 154,282 272,420 429,362
Net income............................. -- -- 65,498 65,498
Change in net unrealized capital
gains................................. -- -- 4,504 4,504
Change in non-admitted assets.......... -- -- (260) (260)
Change in asset valuation reserve...... -- -- (21,763) (21,763)
Dividend to stockholder................ -- -- (120,000) (120,000)
Increase in liability for reinsurance
in unauthorized companies............. -- -- 2,036 2,036
Tax benefit on stock options
exercised............................. -- -- 2,476 2,476
Change in surplus in separate
accounts.............................. -- -- 675 675
------ -------- --------- ---------
Balance at December 31, 1998............. $2,660 $154,282 $ 205,586 $ 362,528
====== ======== ========= =========
</TABLE>
See accompanying notes.
4
<PAGE>
PFL LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS--STATUTORY BASIS
(Dollars in thousands)
<TABLE>
<CAPTION>
Year Ended December 31
-------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Operating Activities
Premiums and other considerations, net
of reinsurance......................... $ 1,396,428 $ 1,119,936 $ 1,240,748
Net investment income................... 469,246 452,091 431,456
Life and accident and health claims..... (138,249) (154,383) (147,556)
Surrender benefits and other fund
withdrawals............................ (732,796) (658,071) (512,810)
Other benefits to policyholders......... (152,167) (126,462) (101,254)
Commissions, other expenses and other
taxes.................................. (197,135) (225,042) (248,321)
Net transfers to separate accounts...... (276,375) (319,146) (210,312)
Federal income taxes.................... (72,176) (47,909) (35,551)
Cash paid in conjunction with an
amendment of a reinsurance agreement... -- (4,826) (5,812)
Cash received in connection with a
reinsurance agreement.................. -- 1,477 --
Other, net.............................. (93,095) 89,693 (41,677)
Net cash provided by operating
activities............................. 203,681 127,358 368,911
Investing Activities
Proceeds from investments sold, matured
or repaid:
Bonds and preferred stocks............ 3,347,174 3,284,095 2,112,831
Common stocks......................... 34,564 34,004 27,214
Mortgage loans on real estate......... 192,210 138,162 74,351
Real estate........................... 5,624 6,897 18,077
Cash received from ceding commissions
associated with the sale of a
division............................. -- 8 45
Other................................. 7,210 57,683 22,568
----------- ----------- -----------
3,586,782 3,520,849 2,255,086
Cost of investments acquired:
Bonds and preferred stocks............ (3,251,822) (3,411,442) (2,270,105)
Common stocks......................... (36,379) (37,339) (29,799)
Mortgage loans on real estate......... (257,039) (159,577) (324,381)
Real estate........................... (11,458) (2,013) (222)
Policy loans.......................... (2,922) (2,922) (1,539)
Cash paid in association with the sale
of a division........................ -- (591) (662)
Other................................. (44,514) (15,674) (6,404)
----------- ----------- -----------
(3,604,134) (3,629,558) (2,633,112)
----------- ----------- -----------
Net cash used in investing activities... (17,352) (108,709) (378,026)
Financing Activities
Issuance (repayment) of short-term
intercompany notes payable............. $ (6,979) $ 16,400 $ --
Capital contribution.................... -- 153 --
Dividends to stockholder................ (120,000) (62,000) (20,000)
----------- ----------- -----------
Net cash used in financing activities... (126,979) (45,447) (20,000)
----------- ----------- -----------
Increase (decrease) in cash and short-
term investments....................... 59,350 (26,798) (29,115)
Cash and short-term investments at
beginning of year...................... 23,939 50,737 79,852
----------- ----------- -----------
Cash and short-term investments at end
of year................................ $ 83,289 $ 23,939 $ 50,737
=========== =========== ===========
</TABLE>
See accompanying notes.
5
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS
(Dollars in thousands)
December 31, 1998
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
PFL Life Insurance Company ("the Company") is a stock life insurance company
and is a wholly-owned subsidiary of First AUSA Life Insurance Company ("First
AUSA"), which, in turn, is a wholly-owned subsidiary of AEGON USA, Inc.
("AEGON"). AEGON is an indirect wholly-owned subsidiary of AEGON N.V., a
holding company organized under the laws of The Netherlands.
In connection with the sale of certain affiliated business units, the
Company has assumed various blocks of business from these former affiliates
through mergers. In addition, the Company has canceled or entered into several
coinsurance and reinsurance agreements with affiliates and non-affiliates. The
following is a description of those transactions:
. During 1996, the Company sold its North Richland Hills, Texas health
administrative operations known as The Insurance Center. The transaction
resulted in the transfer of substantially all employees and office
facilities to United Insurance Companies, Inc. ("UICI"). All inforce
business will continue to be shared by UICI and the Company and its
affiliates through the existing coinsurance agreements. After a short
transition period, all new business produced by United Group Association,
an independent insurance agency, will be written by the insurance
subsidiaries of UICI and will not be shared with the Company and its
affiliates through coinsurance arrangements. As a result of the sale,
during 1996 the Company transferred $123 in assets, substantially all of
which was cash, and $70 of liabilities. The difference between the assets
and liabilities of $(53) plus a tax credit of $19 was charged directly to
unassigned surplus. During 1997, the Company transferred $591 in assets,
substantially all of which was cash and $343 of liabilities. The difference
between the assets and liabilities of $(248) net of a tax credit of $87 was
charged directly to unassigned surplus.
. On January 1, 1994, the Company entered into an agreement with a non-
affiliate reinsurer to annually increase reinsurance ceded (primarily group
health business) by 2 1/2% through 1997. As a result, during 1996, the
Company transferred $5,991 in assets, including $5,812 of cash and short-
term investments and liabilities of $6,146. The difference between the
assets and liabilities of $155, plus a tax credit of $266 was credited
directly to unassigned surplus. During 1997, the Company transferred $5,045
in assets, including $4,826 of cash and short-term investments, and
liabilities of $5,164. The difference between the assets and liabilities of
$119 plus a tax credit of $270 was credited directly to unassigned surplus.
. During 1993, the Company sold the Oakbrook Division (primarily group health
business). The initial transfer of risk occurred through an indemnity
reinsurance agreement. The policies will then be assumed by the reinsurer
by novation as state regulatory and policyholder approvals are received.
During 1996, the Company paid $539 in association with this sale; the
payment, net of a tax credit of $189, was charged directly to unassigned
surplus. In addition, the Company received from the third party
administrator a ceding commission of one percent of the premiums collected
between January 1, 1994 and December 31, 1996. As a result of the sale, in
1996, the Company received $45 for ceding commissions; the commissions net
of the related tax effect of $(16) were charged directly to unassigned
surplus. Also, during 1996, the Company paid $539 in association with this
sale; this payment, net of a tax credit of $189, was charged directly to
unassigned surplus. In 1997,
6
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS--(Continued)
the Company received $8 for ceding commissions; the commissions net of the
related tax effect of $3 were credited directly to unassigned surplus.
. During 1997, the Company entered into a reinsurance agreement with a non-
affiliate. As a result of the agreement, the Company received $1,480 of
assets, including $1,477 of cash and short-term securities, and $861 of
liabilities. The difference between the assets and liabilities of $619, net
of a tax effect of $217 was credited directly to unassigned surplus.
Nature of Business
The Company sells individual non-participating whole life, endowment and
term contracts, as well as a broad line of single fixed and flexible premium
annuity products. In addition, the Company offers group life, universal life,
and individual and specialty health coverages. The Company is licensed in 49
states and the District of Columbia. Sales of the Company's products are
primarily through the Company's agents and financial institutions.
Basis of Presentation
The preparation of financial statements of insurance companies requires
management to make estimates and assumptions that affect amounts reported in
the financial statements and accompanying notes. Actual results could differ
from those estimates.
Significant estimates and assumptions are utilized in the calculation of
aggregate policy reserves, policy and contract claim reserves, guaranty fund
assessment accruals and valuation allowances on investments. It is reasonably
possible that actual experience could differ from the estimates and
assumptions utilized which could have a material impact on the financial
statements.
The accompanying financial statements have been prepared on the basis of
accounting practices prescribed or permitted by the Insurance Division,
Department of Commerce, of the State of Iowa ("Insurance Department"), which
practices differ in some respects from generally accepted accounting
principles. The more significant of these differences are as follows: (a)
bonds are generally reported at amortized cost rather than segregating the
portfolio into held-to-maturity (reported at amortized cost), available-for-
sale (reported at fair value), and trading (reported at fair value)
classifications; (b) acquisition costs of acquiring new business are charged
to current operations as incurred rather than deferred and amortized over the
life of the policies; (c) policy reserves on traditional life products are
based on statutory mortality rates and interest which may differ from reserves
based on reasonable assumptions of expected mortality, interest, and
withdrawals which include a provision for possible unfavorable deviation from
such assumptions; (d) policy reserves on certain investment products use
discounting methodologies based on statutory interest rates rather than full
account values; (e) reinsurance amounts are netted against the corresponding
asset or liability rather than shown as gross amounts on the balance sheet;
(f) deferred income taxes are not provided for the difference between the
financial statement and income tax bases of assets and liabilities; (g) net
realized gains or losses attributed to changes in the level of interest rates
in the market are deferred and amortized over the remaining life of the bond
or mortgage loan, rather than recognized as gains or losses in the statement
of operations when the sale is completed; (h) potential declines in the
estimated realizable value of investments are provided for through the
establishment of a formula-determined statutory investment reserve (reported
as a liability), changes to which are charged directly to surplus, rather than
through recognition in the statement of operations for declines in value, when
such declines are judged to be other than temporary; (i) certain assets
designated as "non-admitted assets" have been charged to surplus rather than
being reported as assets; (j) revenues for universal life and investment
products
7
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS--(Continued)
consist of premiums received rather than policy charges for the cost of
insurance, policy administration charges, amortization of policy initiation
fees and surrender charges assessed; (k) pension expense is recorded as
amounts are paid; (l) adjustments to federal income taxes of prior years are
charged or credited directly to unassigned surplus, rather than reported as a
component of expense in the statement of operations; (m) gains or losses on
dispositions of business are charged or credited directly to unassigned
surplus rather than being reported in the statement of operations; and (n) a
liability is established for "unauthorized reinsurers" and changes in this
liability are charged or credited directly to unassigned surplus. The effects
of these variances have not been determined by the Company but are presumed to
be material.
In 1998, the National Association of Insurance Commissioners ("NAIC")
adopted codified statutory accounting principles ("Codification").
Codification will likely change, to some extent, prescribed statutory
accounting practices and may result in changes to the accounting practices
that the Company uses to prepare its statutory-basis financial statements.
Codification will require adoption by the various states before it becomes the
prescribed statutory basis of accounting for insurance companies domesticated
within those states. Accordingly, before Codification becomes effective for
the Company, the State of Iowa must adopt Codification as the prescribed basis
of accounting on which domestic insurers must report their statutory-basis
results to the Insurance Department. At this time, it is unclear whether the
State of Iowa will adopt Codification. However, based on current guidance,
management believes that the impact of Codification will not be material to
the Company's statutory-basis financial statements.
Cash and Cash Equivalents
For purposes of the statements of cash flows, the Company considers all
highly liquid investments with remaining maturity of one year or less when
purchased to be cash equivalents.
Investments
Investments in bonds (except those to which the Securities Valuation Office
of the NAIC has ascribed a value), mortgage loans on real estate and short-
term investments are reported at cost adjusted for amortization of premiums
and accrual of discounts. Amortization is computed using methods which result
in a level yield over the expected life of the investment. The Company reviews
its prepayment assumptions on mortgage and other asset-backed securities at
regular intervals and adjusts amortization rates retrospectively when such
assumptions are changed due to experience and/or expected future patterns.
Investments in preferred stocks in good standing are reported at cost.
Investments in preferred stocks not in good standing are reported at the lower
of cost or market. Common stocks of unaffiliated and affiliated companies,
which includes shares of mutual funds and real estate investment trusts, are
carried at market value. Real estate is reported at cost less allowances for
depreciation. Depreciation is computed principally by the straight-line
method. Policy loans are reported at unpaid principal. Other invested assets
consist principally of investments in various joint ventures and are recorded
at equity in underlying net assets. Other "admitted assets" are valued,
principally at cost, as required or permitted by Iowa Insurance Laws.
Net realized capital gains and losses are determined on the basis of
specific identification and are recorded net of related federal income taxes.
The Asset Valuation Reserve ("AVR") is established by the Company to provide
for potential losses in the event of default by issuers of certain invested
assets. These amounts are determined using a formula prescribed by the NAIC
and are reported as a liability. The formula for the AVR provides for a
corresponding adjustment for realized gains and losses. Under
8
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS--(Continued)
a formula prescribed by the NAIC, the Company defers, in the Interest
Maintenance Reserve ("IMR"), the portion of realized gains and losses on sales
of fixed income investments, principally bonds and mortgage loans,
attributable to changes in the general level of interest rates and amortizes
those deferrals over the remaining period to maturity of the security.
Interest income is recognized on an accrual basis. The Company does not
accrue income on bonds in default, mortgage loans on real estate in default
and/or foreclosure or which are delinquent more than twelve months, or on real
estate where rent is in arrears for more than three months. Further, income is
not accrued when collection is uncertain. At December 31, 1998, 1997 and 1996,
the Company excluded investment income due and accrued of $102, $177 and
$1,541, respectively, with respect to such practices.
The Company uses interest rate swaps and caps as part of its overall
interest rate risk management strategy for certain life insurance and annuity
products. The Company entered into several interest rate swap contracts to
modify the interest rate characteristics of the underlying liabilities. The
net interest effect of such swap transactions is reported as an adjustment of
interest income from the hedged items as incurred.
The Company has entered into an interest rate cap agreement to hedge the
exposure of changing interest rates. The cash flows from the interest rate cap
will help offset losses that might occur from changes in interest rates. The
cost of such agreement is included in interest expense ratably during the life
of the agreement. Income received as a result of the cap agreement will be
recognized in investment income as earned. Unamortized cost of the agreements
is included in other invested assets.
Aggregate Policy Reserves
Life, annuity and accident and health benefit reserves are developed by
actuarial methods and are determined based on published tables based on
statutorily specified interest rates and valuation methods that will provide,
in the aggregate, reserves that are greater than or equal to the minimum
required by law.
The aggregate policy reserves for life insurance policies are based
principally upon the 1941, 1958 and 1980 Commissioners' Standard Ordinary
Mortality and American Experience Mortality Tables. The reserves are
calculated using interest rates ranging from 2.00 to 6.00 percent and are
computed principally on the Net Level Premium Valuation and the Commissioners'
Reserve Valuation Methods. Reserves for universal life policies are based on
account balances adjusted for the Commissioners' Reserve Valuation Method.
Deferred annuity reserves are calculated according to the Commissioners'
Annuity Reserve Valuation Method including excess interest reserves to cover
situations where the future interest guarantees plus the decrease in surrender
charges are in excess of the maximum valuation rates of interest. Reserves for
immediate annuities and supplementary contracts with life contingencies are
equal to the present value of future payments assuming interest rates ranging
from 2.50 to 11.25 percent and mortality rates, where appropriate, from a
variety of tables.
Accident and health policy reserves are equal to the greater of the gross
unearned premiums or any required midterminal reserves plus net unearned
premiums and the present value of amounts not yet due on both reported and
unreported claims.
9
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS--(Continued)
Policy and Contract Claim Reserves
Claim reserves represent the estimated accrued liability for claims reported
to the Company and claims incurred but not yet reported through the statement
date. These reserves are estimated using either individual case-basis
valuations or statistical analysis techniques. These estimates are subject to
the effects of trends in claim severity and frequency. The estimates are
continually reviewed and adjusted as necessary as experience develops or new
information becomes available.
Separate Accounts
Assets held in trust for purchases of variable annuity contracts and the
Company's corresponding obligation to the contract owners are shown separately
in the balance sheets. The assets in the separate accounts are valued at
market. Income and gains and losses with respect to the assets in the separate
accounts accrue to the benefit of the policyholders and, accordingly, the
operations of the separate accounts are not included in the accompanying
financial statements. The separate accounts do not have any minimum guarantees
and the investment risks associated with market value changes are borne
entirely by the policyholders. The Company received variable contract premiums
of $345,319, $281,095 and $227,864 in 1998, 1997 and 1996, respectively. All
variable account contracts are subject to discretionary withdrawal by the
policyholder at the market value of the underlying assets less the current
surrender charge.
Stock Option Plan
AEGON N.V. sponsors a stock option plan for eligible employees of the
Company. Under this plan, certain employees have indicated a preference to
immediately sell shares received as a result of their exercise of the stock
options; in these situations, AEGON N.V. has settled such options in cash
rather than issuing stock to these employees. These cash settlements are paid
by the Company, and AEGON N.V. subsequently reimburses the Company for such
payments. Under statutory accounting principles, the Company does not record
any expense related to this plan, as the expense is recognized by AEGON N.V.
However, the Company is allowed to record a deduction in the consolidated tax
return filed by the Company and certain affiliates. The tax benefit of this
deduction has been credited directly to surplus.
Reclassifications
Certain reclassifications have been made to the 1997 and 1996 financial
statements to conform to the 1998 presentation.
2. FAIR VALUES OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standard ("SFAS") No. 107, Disclosures
about Fair Value of Financial Instruments, requires disclosure of fair value
information about financial instruments, whether or not recognized in the
statutory-basis balance sheet, for which it is practicable to estimate that
value. SFAS No. 119, Disclosures about Derivative Financial Instruments and
Fair Value of Financial Instruments, requires additional disclosure about
derivatives. In cases where quoted market prices are not available, fair
values are based on estimates using present value or other valuation
techniques. Those techniques are significantly affected by the assumptions
used, including the discount rate and estimates of future cash flows. In that
regard, the derived fair value estimates cannot be substantiated by
comparisons to independent markets and, in many cases, could not be realized
in immediate settlement of the instrument. SFAS No. 107 and No. 119 exclude
certain financial instruments and all nonfinancial instruments from their
disclosure requirements and allow companies to forego the
10
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS--(Continued)
disclosures when those estimates can only be made at excessive cost.
Accordingly, the aggregate fair value amounts presented do not represent the
underlying value of the Company.
The following methods and assumptions were used by the Company in estimating
its fair value disclosures for financial instruments:
Cash and short-term investments: The carrying amounts reported in the
balance sheet for these instruments approximate their fair values.
Investment securities: Fair values for fixed maturity securities
(including redeemable preferred stocks) are based on quoted market prices,
where available. For fixed maturity securities not actively traded, fair
values are estimated using values obtained from independent pricing
services or, in the case of private placements, are estimated by
discounting expected future cash flows using a current market rate
applicable to the yield, credit quality, and maturity of the investments.
The fair values for equity securities, including affiliated mutual funds
and real estate investment trusts, are based on quoted market prices.
Mortgage loans and policy loans: The fair values for mortgage loans are
estimated utilizing discounted cash flow analyses, using interest rates
reflective of current market conditions and the risk characteristics of the
loans. The fair value of policy loans is assumed to equal their carrying
value.
Investment contracts: Fair values for the Company's liabilities under
investment-type insurance contracts are estimated using discounted cash
flow calculations, based on interest rates currently being offered for
similar contracts with maturities consistent with those remaining for the
contracts being valued.
Interest rate cap and interest rate swaps: Estimated fair value of the
interest rate cap is based upon the latest quoted market price. Estimated
fair value of interest rate swaps are based upon the pricing differential
for similar swap agreements.
Fair values for the Company's insurance contracts other than investment
contracts are not required to be disclosed. However, the fair values of
liabilities under all insurance contracts are taken into consideration in the
Company's overall management of interest rate risk, which minimizes exposure
to changing interest rates through the matching of investment maturities with
amounts due under insurance contracts.
11
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS--(Continued)
The following sets forth a comparison of the fair values and carrying values
of the Company's financial instruments subject to the provisions of SFAS No.
107 and No. 119:
<TABLE>
<CAPTION>
December 31
-------------------------------------------
1998 1997
--------------------- ---------------------
Carrying Carrying
Value Fair Value Value Fair Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Admitted Assets
Cash and short-term investments.... $ 83,289 $ 83,289 $ 23,939 $ 23,939
Bonds.............................. 4,822,442 4,900,516 4,913,144 5,046,527
Preferred stocks................... 14,754 14,738 2,750 8,029
Common stocks...................... 49,448 49,448 42,345 42,345
Affiliated common stock............ 5,613 5,613 8,031 8,031
Mortgage loans on real estate...... 1,012,433 1,089,315 935,207 983,720
Policy loans....................... 60,058 60,058 57,136 57,136
Interest rate cap.................. 4,445 725 5,618 1,513
Interest rate swaps................ 1,916 6,667 -- 2,546
Separate account assets............ 3,348,611 3,348,611 2,517,365 2,517,365
Liabilities
Investment contract liabilities.... 4,084,683 4,017,509 4,345,181 4,283,461
Separate account liabilities....... 3,271,005 3,213,251 2,452,205 2,452,205
</TABLE>
3. INVESTMENTS
The carrying value and estimated fair value of investments in debt securities
were as follows:
<TABLE>
<CAPTION>
Gross Gross
Carrying Unrealized Unrealized Estimated
Value Gains Losses Fair Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
December 31, 1998
Bonds:
United States Government and
agencies........................ $ 150,085 $ 2,841 $ 321 $ 152,605
State, municipal and other
government...................... 62,948 918 1,651 62,215
Public utilities................. 139,732 5,053 2,555 142,230
Industrial and miscellaneous..... 2,068,086 78,141 34,493 2,111,734
Mortgage and other asset-backed
securities...................... 2,401,591 45,185 15,044 2,431,732
---------- -------- ------- ----------
4,822,442 132,138 54,064 4,900,516
Preferred stocks................... 14,754 75 91 14,738
---------- -------- ------- ----------
$4,837,196 $132,213 $54,155 $4,915,254
========== ======== ======= ==========
</TABLE>
12
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS--(Continued)
<TABLE>
<CAPTION>
Gross Gross
Carrying Unrealized Unrealized Estimated
Value Gains Losses Fair Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
December 31, 1997
Bonds:
United States Government and
agencies........................ $ 188,241 $ 2,562 $ 21 $ 190,782
State, municipal and other
government...................... 61,532 2,584 1,774 62,342
Public utilities................. 121,582 5,384 2,952 124,014
Industrial and miscellaneous..... 1,955,587 85,233 7,752 2,033,068
Mortgage and other asset-backed
securities...................... 2,586,202 55,382 5,263 2,636,321
---------- -------- ------- ----------
4,913,144 151,145 17,762 5,046,527
Preferred stocks................... 2,750 5,279 -- 8,029
---------- -------- ------- ----------
$4,915,894 $156,424 $17,762 $5,054,556
========== ======== ======= ==========
</TABLE>
The carrying value and estimated fair value of bonds at December 31, 1998,
by contractual maturity, are shown below. Expected maturities may differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Carrying Estimated
Value Fair Value
---------- ----------
<S> <C> <C>
Due in one year or less............................... $ 151,747 $ 148,410
Due after one year through five years................. 1,211,064 1,232,329
Due after five years through ten years................ 753,543 761,787
Due after ten years................................... 304,497 326,258
---------- ----------
2,420,851 2,468,784
Mortgage and other asset-backed securities............ 2,401,591 2,431,732
---------- ----------
$4,822,442 $4,900,516
========== ==========
</TABLE>
A detail of net investment income is presented below:
<TABLE>
<CAPTION>
Year Ended December 31
--------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Interest on bonds and notes......................... $374,478 $373,496 $364,356
Dividends on equity investments..................... 1,357 1,460 1,436
Interest on mortgage loans.......................... 77,960 80,266 69,418
Rental income on real estate........................ 6,553 7,501 9,526
Interest on policy loans............................ 4,080 3,400 3,273
Other investment income............................. 2,576 613 1,799
-------- -------- --------
Gross investment income............................. 467,004 466,736 449,808
Investment expenses................................. 20,020 20,312 21,471
-------- -------- --------
Net investment income............................... $446,984 $446,424 $428,337
======== ======== ========
</TABLE>
13
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS--(Continued)
Proceeds from sales and maturities of debt securities and related gross
realized gains and losses were as follows:
<TABLE>
<CAPTION>
Year Ended December 31
----------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Proceeds.................................... $3,347,174 $3,284,095 $2,112,831
========== ========== ==========
Gross realized gains........................ $ 48,760 $ 30,094 $ 19,876
Gross realized losses....................... (8,072) (17,265) (19,634)
---------- ---------- ----------
Net realized gains.......................... $ 40,688 $ 12,829 $ 242
========== ========== ==========
</TABLE>
At December 31, 1998, investments with an aggregate carrying value of
$5,935,160 were on deposit with regulatory authorities or were restrictively
held in bank custodial accounts for the benefit of such regulatory authorities
as required by statute.
Realized investment gains (losses) and changes in unrealized gains (losses)
for investments are summarized below:
<TABLE>
<CAPTION>
Realized
---------------------------
Year Ended December 31
---------------------------
1998 1997 1996
-------- -------- -------
<S> <C> <C> <C>
Debt securities................................... $ 40,688 $ 12,829 $ 242
Short-term investments............................ 1,533 (19) (197)
Equity securities................................. (879) 6,972 1,798
Mortgage loans on real estate..................... 12,637 2,252 (5,530)
Real estate....................................... 3,176 4,252 1,210
Other invested assets............................. (2,523) 1,632 12
-------- -------- -------
54,632 27,918 (2,465)
Tax effect........................................ (22,290) (10,572) (1,235)
Transfer to interest maintenance reserve.......... (28,944) (10,187) 197
-------- -------- -------
Net realized gains (losses)....................... $ 3,398 $ 7,159 $(3,503)
======== ======== =======
</TABLE>
<TABLE>
<CAPTION>
Change in Unrealized
---------------------------
Year Ended December 31
---------------------------
1998 1997 1996
-------- ------- ---------
<S> <C> <C> <C>
Debt securities.................................. $(60,604) $40,289 $(115,867)
Equity securities................................ 5,750 5,653 2,929
-------- ------- ---------
Change in unrealized appreciation
(depreciation).................................. $(54,854) $45,942 $(112,938)
======== ======= =========
</TABLE>
Gross unrealized gains and gross unrealized losses on equity securities were
as follows:
<TABLE>
<CAPTION>
December 31
-------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Unrealized gains..................................... $15,980 $10,356 $ 9,590
Unrealized losses.................................... (3,710) (3,836) (8,723)
------- ------- -------
Net unrealized gains................................. $12,270 $ 6,520 $ 867
======= ======= =======
</TABLE>
14
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS--(Continued)
During 1998, the Company issued mortgage loans with interest rates ranging
from 5.88% to 7.86%. The maximum percentage of any one mortgage loan to the
value of the underlying real estate at origination was 90% for commercial
loans and 95% for residential loans. Mortgage loans with a carrying value of
$245 were non-income producing for the previous twelve months. Accrued
interest of $89 related to these mortgage loans was excluded from investment
income. The Company requires all mortgaged properties to carry fire insurance
equal to the value of the underlying property.
At December 31, 1998 and 1997, the Company held a mortgage loan loss reserve
in the asset valuation reserve of $16,104 and $11,985, respectively. The
mortgage loan portfolio is diversified by geographic region and specific
collateral property type as follows:
Geographic Distribution
<TABLE>
<CAPTION>
December 31
-------------
1998 1997
----- -----
<S> <C> <C>
South Atlantic............................ 32% 29%
E. North Central.......................... 16 12
Pacific................................... 15 15
Mountain.................................. 10 10
Middle Atlantic........................... 10 7
W. South Central.......................... 6 9
W. North Central.......................... 5 6
E. South Central.......................... 3 8
New England............................... 3 4
</TABLE>
Property Type Distribution
<TABLE>
<CAPTION>
December 31
-------------
1998 1997
----- -----
<S> <C> <C>
Retail.................................... 35% 35%
Office.................................... 30 31
Industrial................................ 21 6
Apartment................................. 12 14
Other..................................... 2 14
</TABLE>
At December 31, 1998, the Company had no investments (excluding U.S.
Government guaranteed or insured issues) which individually represented more
than ten percent of capital and surplus and the asset valuation reserve.
The Company utilizes a variety of off-balance sheet financial instruments as
part of its efforts to hedge and manage fluctuations in the market value of
its investment portfolio attributable to changes in general interest rate
levels and to manage duration mismatch of assets and liabilities. These
instruments include interest rate exchange agreements (swaps and caps),
options, and commitments to extend credit and all involve elements of credit
and market risks in excess of the amounts recognized in the accompanying
financial statements at a given point in time. The contract or notional
amounts of those instruments reflect the extent of involvement in the various
types of financial instruments.
The Company's exposure to credit risk is the risk of loss from a
counterparty failing to perform according to the terms of the contract. That
exposure includes settlement risk (i.e., the risk that the
15
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS--(Continued)
counterparty defaults after the Company has delivered funds or securities
under terms of the contract) that would result in an accounting loss and
replacement cost risk (i.e., the cost to replace the contract at current
market rates should the counterparty default prior to settlement date). Credit
loss exposure resulting from nonperformance by a counterparty for commitments
to extend credit is represented by the contractual amounts of the instruments.
At December 31, 1998 and 1997, the Company's outstanding financial
instruments with on and off-balance sheet risks, shown in notional amounts,
are summarized as follows:
<TABLE>
<CAPTION>
Notional Amount
-----------------
1998 1997
-------- --------
<S> <C> <C>
Derivative securities:
Interest rate swaps:
Receive fixed--pay floating............................... $100,000 $100,000
Receive floating (uncapped)--pay floating (capped)........ 53,011 67,229
Receive floating (LIBOR)--pay floating (S&P).............. 60,000 --
Interest rate cap agreements................................ 500,000 500,000
</TABLE>
4. REINSURANCE
The Company reinsures portions of risk on certain insurance policies which
exceed its established limits, thereby providing a greater diversification of
risk and minimizing exposure on larger risks. The Company remains contingently
liable with respect to any insurance ceded, and this would become an actual
liability in the event that the assuming insurance company became unable to
meet its obligation under the reinsurance treaty.
Reinsurance assumption and cession treaties are transacted primarily with
affiliates. Premiums earned reflect the following reinsurance assumed and
ceded amounts:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Direct premiums............................. $1,533,822 $1,312,446 $1,457,450
Reinsurance assumed......................... 2,366 2,038 1,796
Reinsurance ceded........................... (173,564) (246,372) (300,546)
---------- ---------- ----------
Net premiums earned......................... $1,362,624 $1,068,112 $1,158,700
========== ========== ==========
</TABLE>
The Company received reinsurance recoveries in the amount of $173,297,
$183,638 and $168,155 during 1998, 1997 and 1996, respectively. At December
31, 1998 and 1997, estimated amounts recoverable from reinsurers that have
been deducted from policy and contract claim reserves totaled $47,956 and
$60,437, respectively. The aggregate reserves for policies and contracts were
reduced for reserve credits for reinsurance ceded at December 31, 1998 and
1997 of $2,163,905 and $2,434,130, respectively.
At December 31, 1998, amounts recoverable from unauthorized reinsurers of
$55,379 (1997--$73,080) and reserve credits for reinsurance ceded of $49,835
(1997--$78,838) were associated with a single reinsurer and its affiliates.
The Company holds collateral under these reinsurance agreements in the form of
trust agreements totaling $106,226 at December 31, 1998 that can be drawn on
for amounts that remain unpaid for more than 120 days.
16
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS--(Continued)
5. INCOME TAXES
For federal income tax purposes, the Company joins in a consolidated tax
return filing with certain affiliated companies. Under the terms of a tax-
sharing agreement between the Company and its affiliates, the Company computes
federal income tax expense as if it were filing a separate income tax return,
except that tax credits and net operating loss carryforwards are determined on
the basis of the consolidated group. Additionally, the alternative minimum tax
is computed for the consolidated group and the resulting tax, if any, is
allocated back to the separate companies on the basis of the separate
companies' alternative minimum taxable income.
Federal income tax expense differs from the amount computed by applying the
statutory federal income tax rate to gain from operations before federal
income tax expense and net realized capital gains (losses) on investments for
the following reasons:
<TABLE>
<CAPTION>
Year Ended December 31
-------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Computed tax at federal statutory rate (35%)......... $39,177 $42,775 $37,256
Tax reserve adjustment............................... 607 2,004 2,211
Excess tax depreciation.............................. (223) (392) (384)
Deferred acquisition costs--tax basis................ 11,827 4,308 5,583
Prior year under (over) accrual...................... 1,750 (1,016) (499)
Dividend received deduction.......................... (1,053) (941) (454)
Charitable contribution.............................. -- (848) --
Other items--net..................................... (2,250) (2,509) (2,536)
------- ------- -------
Federal income tax expense........................... $49,835 $43,381 $41,177
======= ======= =======
</TABLE>
Prior to 1984, as provided for under the Life Insurance Company Tax Act of
1959, a portion of statutory income was not subject to current taxation but
was accumulated for income tax purposes in a memorandum account referred to as
the policyholders' surplus account. No federal income taxes have been provided
for in the financial statements on income deferred in the policyholders'
surplus account ($20,387 at December 31, 1998). To the extent dividends are
paid from the amount accumulated in the policyholders' surplus account, net
earnings would be reduced by the amount of tax required to be paid. Should the
entire amount in the policyholders' surplus account become taxable, the tax
thereon computed at current rates would amount to approximately $7,135.
The Company's federal income tax returns have been examined and closing
agreements have been executed with the Internal Revenue Service through 1987.
During 1996, there was a $5,025 prior period adjustment to the tax accrual.
This included a $2,100 writeoff of an intangible asset for tax purposes, and a
federal income tax refund of $1,829 for tax years 1984 through 1986 and
related interest of $1,686, net of a tax effect of $590. An examination is
underway for years 1993 through 1995.
6. POLICY AND CONTRACT ATTRIBUTES
A portion of the Company's policy reserves and other policyholders' funds
(including separate account liabilities) relates to liabilities established on
a variety of the Company's products that are not subject to significant
mortality or morbidity risk; however, there may be certain restrictions placed
upon
17
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS--(Continued)
the amount of funds that can be withdrawn without penalty. The amount of
reserves on these products, by withdrawal characteristics, are summarized as
follows:
<TABLE>
<CAPTION>
December 31
-------------------------------------
1998 1997
------------------ ------------------
Percent Percent
of of
Amount Total Amount Total
---------- ------- ---------- -------
<S> <C> <C> <C> <C>
Subject to discretionary withdrawal with
market value adjustment................. $ 82,048 1% $ 8,912 0%
Subject to discretionary withdrawal at
book value less surrender charge........ 515,778 5 755,300 8
Subject to discretionary withdrawal at
market value............................ 3,211,896 34 2,454,845 27
Subject to discretionary withdrawal at
book value (minimal or no charges or
adjustments)............................ 5,519,265 58 5,821,049 63
Not subject to discretionary withdrawal
provision............................... 228,030 2 203,522 2
---------- --- ---------- ---
9,557,017 100% 9,243,628 100%
Less reinsurance ceded................... 2,124,769 2,372,495
---------- ----------
Total policy reserves on annuities and
deposit fund liabilities................ $7,432,248 $6,871,134
========== ==========
</TABLE>
A reconciliation of the amounts transferred to and from the separate accounts
is presented below:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Transfers as reported in the summary of operations
of the separate accounts statement:
Transfers to separate accounts.................... $345,319 $281,095 $227,864
Transfers from separate accounts.................. 79,808 9,819 75,172
-------- -------- --------
Net transfers to separate accounts.................. 265,511 271,276 152,692
Reconciling adjustments--charges for investment
management, administration fees and contract
guarantees......................................... 191 26,204 19,093
-------- -------- --------
Transfers as reported in the summary of operations
of the life, accident and health annual statement.. $265,702 $297,480 $171,785
======== ======== ========
</TABLE>
18
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS--(Continued)
Reserves on the Company's traditional life products are computed using mean
reserving methodologies. These methodologies result in the establishment of
assets for the amount of the net valuation premiums that are anticipated to be
received between the policy's paid-through date to the policy's next
anniversary date. At December 31, 1998 and 1997, these assets (which are
reported as premiums deferred and uncollected) and the amounts of the related
gross premiums and loadings, are as follows:
<TABLE>
<CAPTION>
Gross Loading Net
------- ------- -------
<S> <C> <C> <C>
December 31, 1998
Life and annuity:
Ordinary direct first year business................ $ 3,346 $2,500 $ 846
Ordinary direct renewal business................... 21,435 6,365 15,070
Group life direct business......................... 1,171 536 635
Reinsurance ceded.................................. (1,367) (44) (1,323)
------- ------ -------
24,585 9,357 15,228
Accident and health:
Direct............................................. 108 -- 108
Reinsurance ceded.................................. (18) -- (18)
------- ------ -------
Total accident and health............................ 90 -- 90
------- ------ -------
$24,675 $9,357 $15,318
======= ====== =======
December 31, 1997
Life and annuity:
Ordinary direct first year business................ $ 2,316 $1,698 $ 618
Ordinary direct renewal business................... 22,724 6,834 15,890
Group life direct business......................... 1,523 646 877
Reinsurance ceded.................................. (1,464) (81) (1,383)
------- ------ -------
25,099 9,097 16,002
Accident and health:
Direct............................................. 148 -- 148
Reinsurance ceded.................................. (49) -- (49)
------- ------ -------
Total accident and health............................ 99 -- 99
------- ------ -------
$25,198 $9,097 $16,101
======= ====== =======
</TABLE>
At December 31, 1998 and 1997, the Company had insurance in force
aggregating $44,233 and $69,271, respectively, in which the gross premiums are
less than the net premiums required by the standard valuation standards
established by the Insurance Division, Department of Commerce, of the State of
Iowa. The Company established policy reserves of $998 and $1,128 to cover
these deficiencies at December 31, 1998 and 1997, respectively.
7. DIVIDEND RESTRICTIONS
The Company is subject to limitations, imposed by the State of Iowa, on the
payment of dividends to its parent company. Generally, dividends during any
twelve-month period may not be paid, without prior regulatory approval, in
excess of the greater of (a) 10 percent of statutory capital and surplus as of
the preceding December 31, or (b) statutory gain from operations for the
preceding year. Subject to
19
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS--(Continued)
the availability of unassigned surplus at the time of such dividend, the
maximum payment which may be made in 1999, without the prior approval of
insurance regulatory authorities, is $62,100.
The Company paid dividends to its parent of $120,000, $62,000 and $20,000 in
1998, 1997 and 1996, respectively.
8. RETIREMENT AND COMPENSATION PLANS
The Company's employees participate in a qualified benefit pension plan
sponsored by AEGON. The Company has no legal obligation for the plan. The
Company recognizes pension expense equal to its allocation from AEGON. The
pension expense is allocated among the participating companies based on the
FASB No. 87 expense as a percent of salaries. The benefits are based on years
of service and the employee's compensation during the highest five consecutive
years of employment. Pension expense aggregated $380, $422 and $1,056 for the
years ended December 31, 1998, 1997 and 1996, respectively. The plan is
subject to the reporting and disclosure requirements of the Employee
Retirement and Income Security Act of 1974.
The Company's employees also participate in a contributory defined
contribution plan sponsored by AEGON which is qualified under Section 401(k)
of the Internal Revenue Service Code. Employees of the Company who customarily
work at least 1,000 hours during each calendar year and meet the other
eligibility requirements, are participants of the plan. Participants may elect
to contribute up to fifteen percent of their salary to the plan. The Company
will match an amount up to three percent of the participant's salary.
Participants may direct all of their contributions and plan balances to be
invested in a variety of investment options. The plan is subject to the
reporting and disclosure requirements of the Employee Retirement and Income
Security Act of 1974. Expense related to this plan was $233, $226 and $297 for
the years ended December 31, 1998, 1997 and 1996, respectively.
AEGON sponsors supplemental retirement plans to provide the Company's senior
management with benefits in excess of normal pension benefits. The plans are
noncontributory, and benefits are based on years of service and the employee's
compensation level. The plans are unfunded and nonqualified under the Internal
Revenue Service Code. In addition, AEGON has established incentive deferred
compensation plans for certain key employees of the Company. AEGON also
sponsors an employee stock option plan for individuals employed at least three
years and a stock purchase plan for its producers, with the participating
affiliated companies establishing their own eligibility criteria, producer
contribution limits and company matching formula. These plans have been
accrued or funded as deemed appropriate by management of AEGON and the
Company.
In addition to pension benefits, the Company participates in plans sponsored
by AEGON that provide postretirement medical, dental and life insurance
benefits to employees meeting certain eligibility requirements. Portions of
the medical and dental plans are contributory. The expenses of the
postretirement plans calculated on the pay-as-you-go basis are charged to
affiliates in accordance with an intercompany cost sharing arrangement. The
Company expensed $62, $62 and $184 for the years ended December 31, 1998, 1997
and 1996, respectively.
9. RELATED PARTY TRANSACTIONS
The Company shares certain offices, employees and general expenses with
affiliated companies.
The Company receives data processing, investment advisory and management,
marketing and administration services from certain affiliates. During 1998,
1997 and 1996, the Company paid $18,706, $18,705 and $17,028, respectively,
for these services, which approximates their costs to the affiliates.
20
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS--(Continued)
Payables to affiliates bear interest at the thirty-day commercial paper rate
of 4.95% at December 31, 1998. During 1998, 1997 and 1996, the Company paid
net interest of $1,491, $1,188 and $174, respectively, to affiliates.
During 1997, the Company received a capital contribution of $153 in cash
from its parent.
At December 31, 1998 and 1997, the Company has short-term notes payable to
an affiliate of $9,421 and $16,400, respectively. Interest on these notes
accrues at rates ranging from 5.13% to 5.52% at December 31, 1998 and at 5.60%
at December 31, 1997.
During 1998, the Company issued life insurance policies to certain
affiliated companies, covering the lives of certain employees of those
affiliates. Premiums of $174,000 related to these policies were recognized
during the year, and aggregate reserves for policies and contracts are
$181,720 at December 31, 1998.
10. COMMITMENTS AND CONTINGENCIES
The Company is a party to legal proceedings incidental to its business.
Although such litigation sometimes includes substantial demands for
compensatory and punitive damages, in addition to contract liability, it is
management's opinion, after consultation with counsel and a review of
available facts, that damages arising from such demands will not be material
to the Company's financial position.
The Company is subject to insurance guaranty laws in the states in which it
writes business. These laws provide for assessments against insurance
companies for the benefit of policyholders and claimants in the event of
insolvency of other insurance companies. Assessments are charged to operations
when received by the Company except where right of offset against other taxes
paid is allowed by law; amounts available for future offsets are recorded as
an asset on the Company's balance sheet. Potential future obligations for
unknown insolvencies are not determinable by the Company. The future
obligation has been based on the most recent information available from the
National Organization of Life and Health Insurance Guaranty Associations. The
Company has established a reserve of $17,901 and $17,700 and an offsetting
premium tax benefit of $7,631 and $7,984 at December 31, 1998 and 1997,
respectively, for its estimated share of future guaranty fund assessments
related to several major insurer insolvencies. The guaranty fund expense
(benefit) was $1,985, $(975) and $2,617 for December 31, 1998, 1997 and 1996,
respectively.
11. YEAR 2000 (UNAUDITED)
The term Year 2000 issue generally refers to the improper processing of
dates and incorrect date calculations that might occur in computer software
and hardware and embedded systems as the Year 2000 is approached. The use of
computer programs that rely on two-digit date fields to perform computations
and decision-making functions may cause systems to malfunction when processing
information involving dates after 1999. For example, any computer software
that has date-sensitive coding might recognize a code of 00 as the year 1900
rather than the year 2000.
The Company has developed a Year 2000 Project Plan (the "Plan") to address
the Year 2000 issue as it affects the Company's internal IT ("Information
Technology") and non-IT systems, and to assess Year 2000 issues relating to
third parties with whom the Company has critical relationships.
The Plan for addressing internal systems generally includes an assessment of
internal IT and non-IT systems and equipment affected by the Year 2000 issue;
definition of strategies to address affected
21
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS--(Continued)
systems and equipment; remediation of identified systems and equipment;
internal testing and certification that each internal system is Year 2000
compliant; and a review of existing and revised business resumption and
contingency plans to address potential Year 2000 issues. The Company has
remediated and tested substantially all of its mission-critical internal IT
systems as of December 31, 1998. The Company continues to remediate and test
certain non-critical internal IT systems, internal non-IT systems and will
continue with a revalidation testing program throughout 1999.
The Company's Year 2000 issues are more complex because a number of its
systems interface with other systems not under the Company's control. The
Company's most significant interfaces and uses of third-party vendor systems
are in the bank, financial services and trust areas. The Company utilizes
various banks to handle numerous types of financial and sales transactions.
Several of these banks also provide trustee and custodial services for the
Company's investment holdings and transactions. These services are critical to
a financial services company such as the Company as its business centers
around cash receipts and disbursements to policyholders and the investment of
policyholder funds. The Company has received written confirmation from its
vendor banks regarding their status on Year 2000. The banks indicate their
dedication to resolving any Year 2000 issues related to their systems and
services prior to December 31, 1999. The Company anticipates that a
considerable effort will be necessary to ensure that its corrected or new
systems can properly interface with those business partners with whom it
transmits and receives data and other information (external systems). The
Company has undertaken specific testing regimes with these third-party
business partners and expects to continue working with its business partners
on any interfacing of systems. However, the timing of external system
compliance cannot currently be predicted with accuracy because the
implementation of Year 2000 readiness will vary from one company to another.
The Company does have some exposure to date-sensitive embedded technology
such as micro-controllers, but the Company views this exposure as minimal.
Unlike other industries that may be equipment intensive, like manufacturing,
the Company is a life insurance, and financial services organization providing
insurance annuities and pension products to its customers. As such, the
primary equipment and electronic devices in use are computers and telephone-
related equipment. This type of hardware can have date-sensitive embedded
technology which could have Year 2000 problems. Because of this exposure, the
Company has reviewed its computer hardware and telephone systems, with
assistance from the applicable vendors, and has upgraded, or replaced, or is
in the process of replacing any equipment that will not properly process date-
sensitive data in the Year 2000 or beyond.
For the Company, a reasonably likely worst case scenario might include one
or more of the Company's significant policyholder systems being non-compliant.
Such an event could result in a material disruption of the Company's
operations. Specifically, a number of the Company's operations could
experience an interruption in the ability to collect and process premiums or
deposits, process claim payments, accurately maintain policyholder
information, accurately maintain accounting records, and/or perform adequate
customer service. Should the worst case scenario occur, it could, dependent
upon its duration, have a material impact on the Company's business and
financial condition. Simple failures can be repaired and returned to
production within a matter of hours with no material impact. Unanticipated
failures with a longer service disruption period could have a more serious
impact. For this reason, the Company is placing significant emphasis on risk
management and Year 2000 business resumption contingency planning in 1999 by
modifying its existing business resumption and disaster recovery plans to
address potential Year 2000 issues.
The actions taken by management under the Year 2000 Project Plans are
intended to significantly reduce the Company's risk of a material business
interruption based on the Year 2000 issues. It should
22
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS--(Continued)
be noted that the Year 2000 computer problem, and its resolution, is complex
and multifaceted, and any company's success cannot be conclusively known until
the Year 2000 is reached. In spite of its efforts or results, the Company's
ability to function unaffected to and through the Year 2000 may be adversely
affected by actions (or failure to act) of third parties beyond our knowledge
or control. It is anticipated that there may be problems that will have to be
resolved in the ordinary course of business on and after the Year 2000.
However, the Company does not believe that the problems will have a material
adverse affect on the Company's operations or financial condition.
23
<PAGE>
PFL LIFE INSURANCE COMPANY
SUMMARY OF INVESTMENTS--OTHER THAN
INVESTMENTS IN RELATED PARTIES
December 31, 1998
(Dollars in thousands)
SCHEDULE I
<TABLE>
<CAPTION>
Amount at Which
Market Shown in the
Type of Investment Cost(1) Value Balance Sheet
------------------ ---------- ---------- ---------------
<S> <C> <C> <C>
Fixed Maturities
Bonds:
United States Government and government
agencies and authorities.............. $ 926,370 $ 943,313 $ 926,370
States, municipalities and political
subdivisions.......................... 107,975 114,146 107,975
Foreign governments.................... 54,670 53,950 54,670
Public utilities....................... 139,732 142,230 139,732
All other corporate bonds.............. 3,593,695 3,646,877 3,593,695
Redeemable preferred stock............... 14,754 14,738 14,754
---------- ---------- ----------
Total fixed maturities................... 4,837,196 4,915,254 4,837,196
Equity Securities
Common stocks:
Affiliated entities.................... 8,060 5,613 5,613
Banks, trust and insurance............. 5,935 7,193 7,193
Industrial, miscellaneous and all
other................................. 28,796 42,255 42,255
---------- ---------- ----------
Total equity securities.................. 42,791 55,061 55,061
Mortgage loans on real estate............ 1,012,433 1,012,433
Real estate.............................. 52,381 52,381
Real estate acquired in satisfaction of
debt.................................... 11,778 11,778
Policy loans............................. 60,058 60,058
Other long-term investments.............. 76,482 76,482
Cash and short-term investments.......... 83,289 83,289
---------- ----------
Total investments........................ $6,176,408 $6,188,678
========== ==========
</TABLE>
- -------------------------
(1) Original cost of equity securities and, as to fixed maturities, original
cost reduced by repayments and adjusted for amortization of premiums or
accrual of discounts.
24
<PAGE>
PFL LIFE INSURANCE COMPANY
SUPPLEMENTARY INSURANCE INFORMATION
(Dollars in thousands)
SCHEDULE III
<TABLE>
<CAPTION>
Future Benefits,
Policy Claims
Benefits Policy and Net Losses and Other
and Unearned Contract Premium Investment Settlement Operating Premiums
Expenses Premiums Liabilities Revenue Income* Expenses Expenses* Written
---------- -------- ----------- ---------- ---------- ---------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Year Ended December 31,
1998
Individual life......... $1,355,283 $ -- $ 8,976 $ 514,194 $ 85,258 $ 545,720 $ 87,455 --
Individual health....... 94,294 9,631 12,123 68,963 8,004 48,144 30,442 $ 68,745
Group life and health... 93,405 10,298 36,908 111,547 11,426 82,690 54,352 108,769
Annuity................. 3,925,293 -- -- 667,920 342,296 592,085 298,222 --
---------- ------- ------- ---------- -------- ---------- --------
$5,468,275 $19,929 $58,007 $1,362,624 $446,984 $1,268,639 $470,471
========== ======= ======= ========== ======== ========== ========
Year Ended December 31,
1997
Individual life......... $ 882,003 $ -- $ 8,550 $ 200,175 $ 75,914 $ 211,921 $ 36,185 --
Individual health....... 62,033 9,207 12,821 63,548 5,934 37,706 29,216 $ 63,383
Group life and health... 88,211 11,892 44,977 146,694 11,888 103,581 91,568 143,580
Annuity................. 4,204,125 -- -- 657,695 352,688 571,434 364,216 --
---------- ------- ------- ---------- -------- ---------- --------
$5,236,372 $21,099 $66,348 $1,068,112 $446,424 $ 924,642 $521,185
========== ======= ======= ========== ======== ========== ========
Year Ended December 31,
1996
Individual life......... $ 734,350 $ -- $ 7,240 $ 202,082 $ 66,538 $ 197,526 $ 38,067 --
Individual health....... 39,219 8,680 13,631 55,871 5,263 32,903 29,511 $ 55,678
Group life and health... 78,418 14,702 53,486 174,781 12,877 105,459 122,953 171,320
Annuity................. 4,408,419 -- -- 725,966 343,659 800,121 230,417 --
---------- ------- ------- ---------- -------- ---------- --------
$5,260,406 $23,382 $74,357 $1,158,700 $428,337 $1,136,009 $420,948
========== ======= ======= ========== ======== ========== ========
</TABLE>
- -------------
* Allocations of net investment income and other operating expenses are based
on a number of assumptions and estimates, and the results would change if
different methods were applied.
25
<PAGE>
PFL LIFE INSURANCE COMPANY
REINSURANCE
(Dollars in thousands)
SCHEDULE IV
<TABLE>
<CAPTION>
Assumed Percentage
Ceded to From of Amount
Gross Other Other Net Assumed
Amount Companies Companies Amount to Net
---------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Year Ended December 31,
1998
Life insurance in force.. $6,384,095 $438,590 $39,116 $5,984,621 .6%
========== ======== ======= ========== ===
Premiums:
Individual life........ $ 515,164 $ 3,692 $ 2,366 $ 513,838 .5%
Individual health...... 76,438 7,475 -- 68,963 --
Group life and health.. 255,848 144,301 -- 111,547 --
Annuity................ 686,372 18,096 -- 668,276 --
---------- -------- ------- ---------- ---
$1,533,822 $173,564 $ 2,366 $1,362,624 .2%
========== ======== ======= ========== ===
Year Ended December 31,
1997
Life insurance in force.. $5,025,027 $420,519 $35,486 $4,639,994 .8%
========== ======== ======= ========== ===
Premiums:
Individual life........ $ 201,691 $ 3,554 $ 2,038 $ 200,175 1.0%
Individual health...... 73,593 10,045 -- 63,548 --
Group life and health.. 339,269 192,575 -- 146,694 --
Annuity................ 697,893 40,198 -- 657,695 --
---------- -------- ------- ---------- ---
$1,312,446 $246,372 $ 2,038 $1,068,112 .2%
========== ======== ======= ========== ===
Year Ended December 31,
1996
Life insurance in force.. $4,863,416 $477,112 $30,685 $4,416,989 .7%
========== ======== ======= ========== ===
Premiums:
Individual life........ $ 204,144 $ 3,858 $ 1,796 $ 202,082 .9%
Individual health...... 68,699 12,828 -- 55,871 --
Group life and health.. 390,296 215,515 -- 174,781 --
Annuity................ 794,311 68,345 -- 725,966 --
---------- -------- ------- ---------- ---
$1,457,450 $300,546 $ 1,796 $1,158,700 .2%
========== ======== ======= ========== ===
</TABLE>
26
<PAGE>
PFL Life Variable Annuity Account C
The separate account had not commenced operations as of the date of this
prospectus, therefore there are no separate account financials to report at
this time.
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant has caused this Registration Statement to be signed on its
behalf, in the City of Cedar Rapids and State of Iowa, on this 8/th/ day of
December, 1999.
PFL LIFE VARIABLE
ANNUITY ACCOUNT C
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 December 8, 1999
- ----------------------------- ----------
Patrick S. Baird
/s/ Craig D. Vermie Director December 8, 1999
- ----------------------------- ----------
Craig D. Vermie
/s/ William L. Busler Director December 8, 1999
- ------------------------------ ----------
William L. Busler (Principal Executive Officer)
/s/ Larry N. Norman Director December 8, 1999
- ------------------------------ ----------
Larry N. Norman
/s/ Douglas C. Kolsrud Director December 8, 1999
- ------------------------------ ----------
Douglas C. Kolsrud
/s/ Robert J. Kontz Vice President and December 8, 1999
- ------------------------------ ----------
Robert J. Kontz Corporate Controller
/s/ Brenda K. Clancy Treasurer December 8, 1999
- ------------------------------ ----------
Brenda K. Clancy
</TABLE>
<PAGE>
Registration No.
333-83957
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________
EXHIBITS
TO
FORM N-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
FOR
EXTRA VARIABLE ANNUITY
_______________
<PAGE>
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit Page No.*
- -------------- --------------------------------------------------------- ---------------
<S> <C> <C>
(3)(a) Principal Underwriting Agreement by and between PFL Life
Insurance Company, on its own behalf and on the behalf
of the Mutual Fund Account, and AFSG Securities
Corporation.
(3)(b) Form of Broker/Dealer Supervision and Sales Agreement by
and between AFSG Securities Corporation and the
Broker/Dealer.
(8)(a)(1) Amendment No. 6 to Participation Agreement by and
between PFL Life Insurance Company, Endeavor Management
Co. and Endeavor Series Trust.
(8)(b)(1) Amendment No. 12 to Participation Agreement among WRL
Series Fund, Inc., PFL Life Insurance Company, AUSA Life
Insurance Company, Inc. and Peoples Benefit Life
Insurance Company.
(10)(a) Consent of Independent Auditors
(14) Powers of Attorney
</TABLE>
- -----------------------------------------------------------
* Page numbers included only in manually executed original.
<PAGE>
EXHIBIT (3)(a)
--------------
PRINCIPAL UNDERWRITING AGREEMENT
<PAGE>
PRINCIPAL UNDERWRITING AGREEMENT
THIS PRINCIPAL UNDERWRITING AGREEMENT made and effective as of the 27th day
of September, 1999, by and between AFSG SECURITIES CORPORATION ("AFSG"), a
Pennsylvania corporation, and PFL LIFE INSURANCE COMPANY ("PFL"), an Iowa
corporation, on its own behalf and on behalf the separate investment accounts of
PFL set forth in Exhibit A attached hereto and made a part hereof (collectively,
---------
the "Account").
WITNESSETH:
WHEREAS, the Account was established or acquired by PFL under the laws of
the State of Iowa, pursuant to a resolution of PFL's Board of Directors in order
to set aside the investment assets attributable to certain flexible premium,
multi-funded annuity contracts ("Contracts") issued by PFL;
WHEREAS, PFL has registered or will register the Account with the
Securities and Exchange Commission ("SEC") as a unit investment trust under the
Investment Company Act of 1940 (the "1940 Act");
WHEREAS, PFL has registered or will register the Contracts under the
Securities Act of 1933 (the "1933 Act");
WHEREAS, AFSG is and will continue to be registered as a broker-dealer with
the SEC under the Securities Exchange Act of 1934 (the "1934 Act"), and a member
of the National Association of Securities Dealers, Inc. (the "NASD") prior to
the offer and sale of the Contracts; and
WHEREAS, PFL proposes to have the Contracts sold and distributed through
AFSG, and AFSG is willing to sell and distribute such Contracts under the terms
stated herein;
NOW, THEREFORE, the parties, intending to be legally bound, hereby agree
as follows:
2
<PAGE>
1. Appointment as Distributor/Principal Underwriter. PFL grants to AFSG
------------------------------------------------
the exclusive right to be, and AFSG agrees to serve as, distributor and
principal underwriter of the Contracts during the term of this Agreement. AFSG
agrees to use its best efforts to solicit applications for the Contracts and
otherwise perform all duties and functions which are necessary and proper for
the distribution of the Contracts.
2. Prospectus. AFSG agrees to offer the Contracts for sale in accordance
----------
with the registration statements and prospectus therefor then in effect. AFSG
is not authorized to give any information or to make any representations
concerning the Contracts other than those contained in the current prospectus
therefor filed with the SEC or in such sales literature as may be authorized by
PFL.
3. Considerations. All premiums, purchase payments or other moneys
--------------
payable under the Contracts shall be remitted promptly in full together with
such application, forms and any other required documentation to PFL or its
designated servicing agent and shall become the exclusive property of PFL.
Checks or money orders in payment under the Contracts shall be drawn to the
order of "PFL Life Insurance Company" and funds may be remitted by wire if prior
written approval is obtained from PFL.
4. Copies of Information. On behalf of the Account, PFL shall furnish
---------------------
AFSG with copies of all prospectuses, financial statements and other documents
which AFSG reasonably requests for use in connection with the distribution of
the Contracts.
5. Representations. AFSG represents that it is (a) duly registered as a
---------------
broker-dealer under the 1934 Act, (b) a member in good standing of the NASD and
(c) to the extent necessary to offer the Contracts, duly registered or otherwise
qualified under the securities laws of any state or other jurisdiction. AFSG
shall be responsible for carrying out its sales and underwriting obligations
hereunder in continued compliance with the NASD Rules and federal and state
securities and insurance laws and regulations. Further, AFSG represents and
warrants that it will
3
<PAGE>
adopt, abide by and enforce the principles set forth in the Principles and Code
of Ethical Market Conduct of the Insurance Marketplace Standards Association as
adopted by the Company.
6. Other Broker-Dealer Agreements. AFSG is hereby authorized to enter
------------------------------
into written sales agreements with other independent broker-dealers for the sale
of the Contracts. All such sales agreements entered into by AFSG shall provide
that each independent broker-dealer will assume full responsibility for
continued compliance by itself and by its associated persons with the NASD Rules
and applicable federal and state securities and insurance laws, shall provide
that each independent broker-dealer will adopt, abide by and enforce the
principles set forth in the Principles and Code of Ethical Market Conduct of the
Insurance Marketplace Standards Association as adopted by the Company, and shall
be in such form and contain such other provisions as PFL may from time to time
require. All associated persons of such independent broker-dealers soliciting
applications for the Contracts shall be duly and appropriately registered by the
NASD and licensed and appointed by PFL for the sale of Contracts under the
insurance laws of the applicable states or jurisdictions in which such Contracts
may be lawfully sold. All applications for Contracts solicited by such broker-
dealers through their representatives, together with any other required
documentation and premiums, purchase payments and other moneys, shall be handled
as set forth in paragraph 3 above.
7. Insurance Licensing and Appointments. PFL shall apply for the proper
------------------------------------
insurance licenses and appointments in appropriate states or jurisdictions for
the designated persons associated with AFSG or with other independent broker-
dealers that have entered into sales agreements with AFSG for the sale of
Contracts, provided that PFL reserves the right to refuse to appoint any
proposed registered representative as an agent or broker, and to terminate an
agent or broker once appointed.
8. Recordkeeping. PFL and AFSG shall cause to be maintained and preserved
-------------
for the periods prescribed such accounts, books, and other documents as are
required of them by the
4
<PAGE>
1940 Act, and 1934 Act, and any other applicable laws and regulations. The
books, accounts and records of PFL, of the Account, and of AFSG as to all
transactions hereunder shall be maintained so as to disclose clearly and
accurately the nature and details of the transactions. PFL (or such other entity
engaged by PFL for this purpose), on behalf of and as agent for AFSG, shall
maintain AFSG's books and records pertaining to the sale of Contracts to the
extent as mutually agreed upon from time to time by PFL and AFSG; provided that
such books and records shall be the property of AFSG, and shall at all times be
subject to such reasonable periodic, special or other audit or examination by
the SEC, NASD, any state insurance commissioner and/or all other regulatory
bodies having jurisdiction. PFL shall be responsible for sending on behalf of
and as agent for AFSG all required confirmations on customer transactions in
compliance with applicable regulations, as modified by an exemption or other
relief obtained by PFL. AFSG shall cause PFL to be furnished with such reports
as PFL may reasonably request for the purpose of meeting its reporting and
recordkeeping requirements under the insurance laws of the State of Iowa and any
other applicable states or jurisdictions. PFL agrees that its records relating
to the sale of Contracts shall be subject to such reasonable periodic, special
or other audit or examination by the SEC, NASD, and any state insurance
commissioner and/or all other regulatory bodies having jurisdiction.
9. Commissions. PFL shall have the responsibility for paying on behalf of
-----------
AFSG (a) any compensation to other independent broker-dealers and their
associated persons due under the terms of any sales agreements entered into
pursuant to paragraph 6 above, between AFSG and such broker-dealers as agreed to
by PFL and (b) all commissions or other fees to associated persons of AFSG which
are due for the sale of the Contracts in the amounts and on such terms and
conditions as PFL and AFSG determine. Notwithstanding the preceding sentence,
no broker-dealer, associated person or other individual or entity shall have an
interest in any deductions or other fees payable to AFSG as set forth herein.
5
<PAGE>
10. Expense Reimbursement. PFL shall reimburse AFSG for all costs and
---------------------
expenses incurred by AFSG in furnishing the services, materials, and supplies
required by the terms of this Agreement.
11. Indemnification. PFL agrees to indemnify AFSG for any losses incurred
---------------
as a result of any action taken or omitted by AFSG, or any of its officers,
agents or employees, in performing their responsibilities under this Agreement
in good faith and without willful misfeasance, gross negligence, or reckless
disregard of such obligations.
12. Regulatory Investigations. AFSG and PFL agree to cooperate fully in
-------------------------
any insurance or judicial regulatory investigation or proceeding arising in
connection with Contracts distributed under this Agreement. AFSG and PFL
further agree to cooperate fully in any securities regulatory inspection,
inquiry, investigation or proceeding or any judicial proceeding with respect to
PFL, AFSG, their affiliates and their representatives to the extent that such
inspection, inquiry, investigation or proceeding or judicial proceeding is in
connection with Contracts distributed under this Agreement. Without limiting
the foregoing:
(a) AFSG will be notified promptly of any customer complaint or notice of
any regulatory inspection, inquiry investigation or proceeding or judicial
proceeding received by PFL with respect to AFSG or any representative or which
may affect PFL's issuance of any Contracts marketed under this Agreement; and
(b) AFSG will promptly notify PFL of any customer complaint or notice of
any regulatory inspection, inquiry, investigation or judicial proceeding
received by AFSG or any representative with respect to PFL or its affiliates in
connection with any Contracts distributed under this Agreement.
In the case of a customer complaint, AFSG and PFL will cooperate in
investigating such complaint and shall arrive at a mutually satisfactory
response.
6
<PAGE>
13. Termination.
-----------
(a) This Agreement may be terminated by either party hereto upon 60 days'
prior written notice to the other party.
(b) This Agreement may be terminated upon written notice of one party to
the other party hereto in the event of bankruptcy or insolvency of such party to
which notice is given.
(c) This Agreement may be terminated at any time upon the mutual written
consent of the parties hereto.
(d) AFSG shall not assign or delegate its responsibilities under this
Agreement without the written consent of PFL.
(e) Upon termination of this Agreement, all authorizations, rights and
obligations shall cease except the obligations to settle accounts hereunder,
including payments or premiums or contributions subsequently received for
Contracts in effect at the time of termination or issued pursuant to
applications received by PFL prior to termination.
14. Regulatory Impact. This Agreement shall be subject to, among other
-----------------
laws, the provisions of the 1940 Act and the 1934 Act and the rules,
regulations, and rulings thereunder and of the NASD, from time to time in
effect, including such exemptions from the 1940 Act as the SEC may grant, and
the terms hereof shall be interpreted and construed in accordance therewith.
AFSG shall submit to all regulatory and administrative bodies having
jurisdiction over the operations of the Account, present or future; and will
provide any information, reports or other material which any such body by reason
of this Agreement may request or require pursuant to applicable laws or
regulations.
15. Severability. If any provision of this Agreement shall be held or
------------
made invalid by a court decision, statute, rule or otherwise, the remainder of
this Agreement shall not be affected thereby.
7
<PAGE>
16. Choice of Law. This Agreement shall be construed, enforced and
-------------
governed by the laws of the State of Iowa.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their respective duly authorized officials as of the day and year
first above written.
AFSG SECURITIES CORPORATION PFL LIFE INSURANCE COMPANY
By: /s/ Larry N. Norman By: /s/ William L. Busler
---------------------- ------------------------
Larry N. Norman William L. Busler
Title: President Title: President
8
<PAGE>
EXHIBIT A
1. PFL Endeavor Variable Annuity Account
2. PFL Endeavor Platinum Variable Annuity Account
3. PFL Endeavor Target Account
4. PFL Retirement Builder Variable Annuity Account
5. PFL Wright Variable Annuity Account
6. PFL Life Variable Annuity Account A
7. PFL Life Variable Annuity Account C
8. PFL Life Variable Annuity Account D
9
<PAGE>
EXHIBIT (3)(b)
--------------
FORM OF BROKER/DEALER SUPERVISION AND SALES AGREEMENT
<PAGE>
SELECTED BROKER AGREEMENT
AGREEMENT dated__________________________,19____, by and between AFSG
Securities Corporation ("Distributor"), a Pennsylvania corporation, PFL Life
Insurance Company ("Company") and ____________________________ ("Broker"), a
_____________________corporation. This Agreement supersedes and replaces any
prior Selected Broker Agreement regarding the subject matter between the parties
hereto.
WITNESSETH:
In consideration of the mutual promises contained herein, the parties hereto
agree as follows:
A. Definitions
-----------
(1) Contracts--Variable life insurance contracts and/or variable annuity
contracts described in Schedule A attached hereto and issued by PFL
Life Insurance Company and for which Distributor has been appointed the
principal underwriter pursuant to Distribution Agreements, copies of
which have been furnished to Broker.
(2) Accounts--Separate accounts established and maintained by Company
pursuant to the laws of Iowa, as applicable, to fund the benefits under
the Contracts.
(3) The Funds--, open-end management investment companies registered under
the 1940 Act, shares of which are sold to the Accounts in connection
with the sale of the Contracts, as described in the Prospectus for the
Contracts.
(4) Registration Statement--The registration statements and amendments
thereto relating to the Contracts, the Accounts, and the Funds,
including financial statements and all exhibits.
(5) Prospectus--The prospectuses included within the Registration
Statements.
(6) 1933 Act--The Securities Act of 1933, as amended.
(7) 1934 Act--The Securities Exchange Act of 1934, as amended.
(8) 1940 Act--The Investment Company Act of 1940, as amended.
(9) SEC--The Securities and Exchange Commission.
(10) NASD--The National Association of Securities Dealers, Inc.
B. Agreements of Distributor
-------------------------
(1) Pursuant to the authority delegated to it by Company, Distributor
hereby authorizes Broker during the term of this Agreement to solicit
applications for Contracts from eligible persons provided that there is
an effective Registration Statement relating to such Contracts and
provided further that Broker has been notified by Distributor that the
Contracts are qualified for sale under all applicable securities and
insurance laws of the state or jurisdiction in which the application
will be solicited. In connection with the solicitation of applications
for Contracts, Broker is hereby authorized to offer riders that are
available with the Contracts in accordance with instructions furnished
by Distributor or Company.
(2) Distributor, during the term of this Agreement, will notify Broker of
the issuance by the SEC of any stop order with respect to the
Registration Statement or any amendments thereto or the initiation of
any proceedings for that purpose or for any other purpose relating to
the registration and/or offering of the Contracts and of any other
action or circumstance that may prevent the lawful sale of the
Contracts in any state or jurisdiction.
(3) During the term of this Agreement, Distributor shall advise Broker of
any amendment to the Registration Statement or any amendment or
supplement to any Prospectus.
C. Agreements of Broker
--------------------
(1) It is understood and agreed that Broker is a registered broker/dealer
under the 1934 Act and a member of the NASD and that the agents or
representatives of Broker who will be soliciting applications for the
Contracts also will be duly registered representative of Broker.
(2) Commencing at such time as Distributor and Broker shall agree upon,
Broker agrees to use commercially reasonable efforts to find purchasers
for the Contracts acceptable to Company. In meeting its obligation to
use its commercially reasonable efforts to solicit applications for
Contracts, Broker shall, during the term of this Agreement, engage in
the following activities:
(a) Regularly utilize only training, sales and promotional materials
relating to the Contracts which have been approved by Company.
(b) Establish and implement reasonable procedures for periodic
inspection and supervision of sales practices of its agents or
representatives and submit periodic reports to Distributor as may be
requested on the results of such inspections and the compliance with
such procedures.
(c) Broker shall take reasonable steps to ensure that the various
representatives appointed by it shall not make recommendations to an
applicant to purchase a Contract in the absence of reasonable grounds
to believe that
<PAGE>
the purchase of the Contract is suitable for such applicant. While not
limited to the following, a determination of suitability shall be based on
information furnished to a representative after reasonable inquiry of such
applicant concerning the applicant's insurance and investment objectives,
financial situation and needs, and, if applicable, the likelihood that the
applicant will make the premium payments contemplated by the Contract.
(d) Broker shall adopt, abide by, and enforce the principles set forth in
the Principles and Code of Ethical market Conduct of the Insurance
Marketplace Standards Association as adopted by the Company and provided to
You with this Agreement.
(3) All payments for Contracts collected by agents or representatives of
Broker shall be held at all times in a fiduciary capacity and shall be
remitted promptly in full together with such applications, forms and other
required documentation to an office of the Company designated by
Distributor. Checks or money orders in payment of initial premiums shall
be drawn to the order of "PFL Life Insurance Company." Broker acknowledges
that the Company retains the ultimate right to control the sale of the
Contracts and that the Distributor or Company shall have the unconditional
right to reject, in whole or part, any application for the Contract. In
the event Company or Distributor rejects an application, Company
immediately will return all payments directly to the purchaser and Broker
will be notified of such action. In the event that any purchaser of a
Contract elects to return such Contract pursuant to the free look right,
the purchaser will receive a refund of either premium payments or the value
of the invested portion of such premiums as set forth in the Contract and
according to applicable state law. The Broker will be notified of any such
action.
(4) Broker shall act as an independent contractor, and nothing herein contained
shall constitute Broker, its agents or representatives, or any employees
thereof as employees of Company or Distributor in connection with
solicitation of applications for Contracts. Broker, its agents or
representatives, and its employees shall not hold themselves out to be
employees of Company or Distributor in this connection or in any dealings
with the public.
(5) Broker agrees that any material, including material it develops, approves
or uses for sales, training, explanatory or other purposes in connection
with the solicitation of applications for Contracts hereunder (other than
generic advertising materials which do not make specific reference to the
Company or the Contracts) will only be used after receiving the written
consent of Distributor to such material and, where appropriate, the
endorsement of Company to be obtained by Distributor.
(6) Solicitation and other activities by Broker shall be undertaken only in
accordance with applicable Company procedures, ethical principles and
manuals, and applicable laws and regulations. No agent or representative
of Broker shall solicit applications for the contracts until duly licensed
and appointed by Company (such appointment not to be unreasonably withheld
by the Company) as a life insurance and variable contract broker or agent
of Company in the appropriate states or other jurisdictions. Broker shall
ensure that such agents or representatives fulfill any training
requirements necessary to be licensed and that such agents or
representatives are properly supervised and controlled pursuant to the
rules and regulations of the SEC and the NASD. Broker shall certify
agents' and representatives' qualifications to the satisfaction of
Distributor, including certifying a General Letter of Recommendation set
forth in Exhibit A hereto. Broker understands and acknowledges that
neither it nor its agents or representatives is authorized by Distributor
or Company to give any information or make any representation in connection
with this Agreement or the offering of the Contracts other than those
contained in the Prospectus or other solicitation material authorized in
writing by Distributor or Company.
(7) Broker shall not have authority on behalf of Distributor or Company to:
make, alter or discharge any Contract or other form; waive any forfeiture,
extend the time of paying any premium; receive any monies or premiums due,
or to become due, to Company, except as set forth in Section C(3) of this
Agreement. Broker shall not expend, nor contract for the expenditure of
the funds of Distributor, nor shall Broker possess or exercise any
authority on behalf of Broker by this Agreement.
(8) Broker shall have the responsibility for maintaining the records of its
representatives licensed, registered and otherwise qualified to sell the
Contracts. Broker shall maintain such other records as are required of it
by applicable laws and regulations. The books, accounts and records of the
Company, the Account, Distributor and Broker relating to the sale of the
Contracts shall be maintained so as to clearly and accurately disclose the
nature and details of the transactions. All records maintained by the
Broker in connection with this Agreement shall be the property of the
Company and shall be returned to the Company upon termination of this
Agreement, free from any claims or retention of rights by the Broker.
Nothing in this Section C(8) shall be interpreted to prevent the Broker
from retaining copies of any such records which the Broker, in its
discretion, deems necessary or desirable to keep. The Broker shall keep
confidential any information obtained pursuant to this Agreement and shall
disclose such information only if the Company has authorized such
disclosure or if such disclosure is expressly required by applicable
federal or state regulatory authorities.
<PAGE>
D. Compensation
------------
(1) Pursuant to the Distribution Agreement between Distributor and Company,
Distributor shall cause Company to arrange for the payment of commissions
to Broker as compensation for the sale of each contract sold by an agent
or representative of Broker. Such amounts shall be paid to Broker or its
subsidiary insurance agency, whichever is authorized to receive insurance
commissions under applicable insurance laws, in accordance with the
schedules attached hereto, the General Agent Agreement, and the
commission schedules attached thereto. All terms and conditions of the
General Agent Agreement not otherwise conflicting with the terms herein,
shall be incorporated by reference herein. Company shall identify to
Broker with each such payment the name of the agent or representative of
Broker who solicited each Contract covered by the payment.
(2) Neither Broker nor any of its agents or representatives shall have any
right to withhold or deduct any part of any premium it shall receive for
purposes of payment of commission or otherwise. Neither Broker nor any of
its agents or representatives shall have an interest in any compensation
paid by Company to Distributor, now or hereafter, in connection with the
sale of any Contracts hereunder.
E. Complaints and Investigations
-----------------------------
(1) Broker and Distributor jointly agree to cooperate fully in any insurance
or securities regulatory investigation or proceeding or judicial
proceeding arising in connection with the Contracts marketed under this
Agreement. Broker, upon receipt, will notify Distributor of any customer
complaint or notice of any regulatory investigation or proceeding or
judicial proceeding in connection with the Contracts. Broker and
Distributor further agree to cooperate fully in any securities regulatory
investigation or proceeding or judicial proceeding with respect to
Broker, Distributor, their affiliates and their agents or representatives
to the extent that such investigation or proceeding is in connection with
Contracts marketed under this Agreement. Broker shall furnish applicable
federal and state regulatory authorities with any information or reports
in connection with its services under this Agreement which such
authorities may request in order to ascertain whether the Company's
operations are being conducted in a manner consistent with any applicable
law or regulation. Each party shall bear its own costs and expenses of
complying with any regulatory requests, subject to any right of
indemnification that may be available pursuant to Section G of this
Agreement.
F. Term of Agreement
-----------------
(1) This Agreement shall continue in force for one year from its effective
date and thereafter shall automatically be renewed every year for a
further one year period; provided that either party may unilaterally
terminate this Agreement upon thirty (30) days' written notice to the
other party of its intention to do so.
(2) Upon termination of this Agreement, all authorizations, rights and
obligations shall cease except (a) the agreements contained in Section E
hereof; (b) the indemnity set forth in Section G hereof; and (c) the
obligations to settle accounts hereunder, including commission payments
on premiums subsequently received for Contracts in effect at the time of
termination or issued pursuant to applications received by Broker prior
to termination.
(3) Distributor and Company reserve the right, without notice to Broker, to
suspend, withdraw or modify the offering of the Contracts or to change
the conditions of their offering.
G. Indemnity
---------
(1) Broker shall be held to the exercise of reasonable care in carrying out
the provisions of this Agreement.
(2) Distributor agrees to indemnify and hold harmless Broker and each officer
or director of Broker against any losses, claims, damages or liability,
joint or several, to which Broker or such officer or director become
subject, under the 1933 Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or
are based upon any untrue statement or alleged untrue statement of a
material fact, required to be stated therein or necessary to make the
statements therein not misleading, contained in any Registration
Statement or any post-effective amendment thereto or in the Prospectus or
any amendment or supplement to the Prospectus, or any sales literature
provided by the Company or by the Distributor.
(3) Broker agrees to indemnify and hold harmless Company and Distributor and
each of their current and former directors and officers and each person,
if any, who controls or has controlled Company or Distributor within the
meaning of the 1933 Act or the 1934 Act, against any losses, claims,
damages or liabilities to which Company or Distributor and any such
director or officer or controlling person may become subject, under the
1933 Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based
upon:
(a) Any unauthorized use of sales materials or any verbal or written
misrepresentations or any unlawful sales practices concerning the
Contracts by Brokers, its agents, employees or representatives; or
(b) Claims by agents or representatives or employees of Broker for
commissions, service fees, development allowances or other compensation
or remuneration of any type;
(c) The failure of Broker, its officers, employees, or agents to comply
with the provisions of this Agreement; and Broker will reimburse Company
and Distributor and any director or officer or controlling person of
either for any legal or other expenses reasonably incurred by Company,
Distributor, or such director, officer of controlling
<PAGE>
person in connection with investigating or defending any such loss,
claims, damage, liability or action. This indemnity agreement will be in
addition to any liability which Broker may otherwise have.
H. Assignability
-------------
This Agreement shall not be assigned by either party without the written
consent of the other.
I. Governing Law
-------------
This Agreement shall be governed by and construed in accordance with the
laws of the State of Iowa.
J. Notices
-------
All communications under the Agreement shall be in writing and shall be
deemed delivered when mailed by certified mail, postage prepaid.
Alternatively, communications shall be deemed delivered by timely
transmission of the writing, delivery charges prepaid, to a third party
company or governmental entity providing delivery services in the
ordinary course of business, which guarantees delivery to the other party
on the next business day. Notices shall be sent to the following
addresses unless and until the addressee notifies the other party of a
change in address according to the terms of this Section:
<TABLE>
<S> <C>
(1) if to Broker, to: (2) if to the Distributor or Company, send
to the Company, to:
___________________________ PFL Life Insurance Company
___________________________(street address) Financial Markets Division
___________________________ 4333 Edgewood Road NE
___________________________(city, state, zip) Cedar Rapids, Iowa 52499
___________________________(telephone no.)
___________________________(fax no.) (319) 297-8208 (telephone no.)
Attention:_________________ (319) 297-8132 (fax no.)
</TABLE>
In Witness Whereof, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
--------------------------------
(Broker Name)
By:
-----------------------------
Title:
--------------------------
AFSG SECURITIES CORPORATION
(Distributor)
By:
-----------------------------
Title:
--------------------------
PFL LIFE INSURANCE COMPANY
(Company)
By:
-----------------------------
Title:
--------------------------
<PAGE>
EXHIBIT A
General Letter of Recommendation
BROKER-DEALER hereby certifies to the Company that all the following
requirements will be fulfilled in conjunction with the submission of
licensing/appointment papers for all applicants as agents of the Company
submitted by BROKER-DEALER. BROKER-DEALER will, upon request, forward proof of
compliance with same to the Company in a timely manner.
1. We have made a thorough and diligent inquiry and investigation relative to
each applicant's identity, residence and business reputation and declare
that each applicant is personally known to us, has been examined by us, is
known to be of good moral character, has a good business reputation, is
reliable, is financially responsible and is worthy of a license. Each
individual is trustworthy, competent and qualified to act as an agent for
the Company to hold himself out in good faith to the general public.
2. We have on file a U-4 form which was completed (and has been amended, as
required) by each applicant. We have fulfilled all the necessary
investigative requirements for the registration of each applicant as a
registered representative through our NASD member firm, including but not
limited to: (i) checking for and investigating criminal arrest and
conviction records available to Broker-Dealer on the CRD system; and (ii)
communicating with each employer of the applicant for 3 years prior to the
applicant's registration with our firm. Each applicant is presently
registered as an NASD registered representative.
The above information in our files indicates no fact or condition which
would disqualify the applicant from receiving a license and all the
findings of all investigative information is favorable.
At the time of application, in those states required by the Company, we
shall provide the Company with a copy of the entire U-4 form, or designated
pages, thereof, completed by each applicant, including any amendments or
updates thereto, and we certify those items are true copies of the
original.
3. We certify that all educational requirements have been met for the
specified state each applicant is requesting a license in, and that all
such persons have fulfilled the appropriate examination, education and
training requirements.
4. If the applicant is required to submit his picture, his signature, and
securities registration in the state in which he is applying for a license,
we certify that those items forwarded to the Company are those of the
applicant and the securities registration is a true copy of the original.
5. We hereby warrant that the applicant is not applying for a license with the
Company in order to place insurance chiefly and solely on his life or
property, or lives or property of his relatives, or property or liability
of his associates.
6. We will not permit any applicant to transact insurance in a state as an
agent until duly licensed and appointed therefor with the appropriate State
Insurance Department. No applicants have been given a contract or furnished
supplies, nor have any applicants been permitted to write, solicit
business, or act as an agent in any capacity, and they will not be so
permitted until the certificate of authority or license applied for is
received.
<PAGE>
EXHIBIT (8)(a)(1)
-----------------
AMENDMENT NO. 6 TO PARTICIPATION AGREEMENT
<PAGE>
ADDENDUM NO. 6
TO PARTICIPATION AGREEMENT AMONG
ENDEAVOR SERIES TRUST,
ENDEAVOR MANAGEMENT CO.,
PFL LIFE INSURANCE COMPANY,
AUSA LIFE INSURANCE COMPANY, INC., AND
PEOPLES BENEFIT LIFE INSURANCE COMPANY
Amendment No. 6 to the Participation Agreement among Endeavor Series Trust,
Endeavor Management Co., and PFL Life Insurance Company dated February 20, 1991
("Participation Agreement").
WHEREAS, PFL Life Insurance Company has established two separate accounts for
the purposes of selling variable annuity products, some of which are to be
funded in part by the Endeavor Series Trust; and
WHEREAS, PFL Life Insurance Company has established a separate account for the
purpose of selling variable life products funded in part by the Endeavor Series
Trust; and
NOW, THEREFORE, IT IS HEREBY AGREED that PFL Life Insurance Company, through its
respective separate accounts, PFL Life Variable Annuity Account C and PFL Life
Variable Annuity Account D, is authorized to acquire shares issued by the
Endeavor Series Trust, subject to the terms and conditions of the Participation
Agreement; and
FURTHER, IT IS HEREBY AGREED that PFL Life Insurance Company, through its
respective separate account, Legacy Builder Variable Life Separate Account, is
authorized to acquire shares issued by the Endeavor Series Trust, subject to the
terms and conditions of the Participation Agreement.
IN WITNESS WHEREOF, each of the original and subsequent parties has caused this
Addendum to be executed in its name and on its behalf by its duly authorized
representative as of September 27, 1999.
<PAGE>
PFL LIFE INSURANCE COMPANY ENDEAVOR SERIES TRUST
By its authorized officer By its authorized officer
By: /s/ William L. Busler By:/s/ Vincent J. McGuinness, Jr.
-------------------------------- --------------------------------
Title: President Title: President
----------------------------- -----------------------------
Date: September 27, 1999 Date: September 27, 1999
------------------------------ ------------------------------
AUSA LIFE INSURANCE
ENDEAVOR MANAGEMENT CO. COMPANY, INC.
By its authorized officer By its authorized officer
By: /s/ Vincent J. McGuinness, Jr. By: /s/ William L. Busler
-------------------------------- ----------------------------------
Title: CEO/President Title: Vice President
----------------------------- -------------------------------
Date: September 27, 1999 Date: September 27, 1999
------------------------------ --------------------------------
PEOPLES BENEFIT LIFE
INSURANCE COMPANY
By its authorized officer
By: /s/ Frank A. Camp
--------------------------------
Title: Vice President and
-----------------------------
Division General Counsel
-----------------------------
Date: September 27, 1999
------------------------------
<PAGE>
AMENDED
SCHEDULE A
EFFECTIVE SEPTEMBER 27, 1999
----------------------------
Account(s), Policy(ies) and Portfolio(s) Subject
to the Participation Agreement Among
Endeavor Series Trust,
Endeavor Management Co.,
PFL Life Insurance Company,
AUSA Life Insurance Company, Inc. and
Peoples Benefit Life Insurance Company
Accounts: PFL Endeavor Variable Annuity Account
AUSA Endeavor Variable Annuity Account
Peoples Benefit Life Insurance Company Separate Account V
Peoples Benefit Life Insurance Company Separate Account C
PFL Endeavor Variable Life Account
PFL Life Variable Annuity Account B
PFL Life Variable Annuity Account C
PFL Life Variable Annuity Account D
Legacy Builder Variable Life Separate Account
Policies: The Endeavor Variable Annuity
The Endeavor Platinum Variable Annuity
The AUSA Endeavor Variable Annuity
The Advisor's Edge Variable Annuity
PFL Endeavor Variable Life
Extra Variable Annuity
Access Variable Annuity
Endeavor Legacy Builder Plus
Portfolios: Endeavor Asset Allocation
Endeavor Money Market
T. Rowe Price Equity Income
T. Rowe Price Growth Stock
T. Rowe Price International Stock
Endeavor Value Equity
Endeavor Opportunity Value
Endeavor Enhanced Index
Dreyfus U.S. Government Securities
Dreyfus Small Cap Value
Endeavor Select 50
Endeavor High Yield
Endeavor Janus Growth
<PAGE>
EXHIBIT (8)(b)(1)
-----------------
AMENDMENT NO. 12 TO PARTICIPATION AGREEMENT
<PAGE>
ADDENDUM NO. 12 TO
PARTICIPATION AGREEMENT
AMONG
WRL SERIES FUND, INC.,
PFL LIFE INSURANCE COMPANY,
AUSA LIFE INSURANCE COMPANY, INC.,
AND PEOPLES BENEFIT LIFE INSURANCE COMPANY
Amendment No. 12 to the Participation Agreement among WRL Series Fund,
Inc., (the "Fund"), PFL Life Insurance Company ("PFL"), AUSA Life Insurance
Company, Inc. ("AUSA"), and Peoples Benefit Life Insurance Company ("Peoples")
dated July 1, 1992, as amended ("Participation Agreement").
WHEREAS, PFL has established PFL Life Variable Annuity Account C and PFL
Life Variable Annuity Account D, separate accounts for purposes of selling
variable annuity products, which are to be funded in part by the WRL Series
Fund, Inc.
NOW, THEREFORE, IT IS HEREBY AGREED that PFL, through its separate
accounts, PFL Life Variable Annuity Account C and PFL Life Variable Annuity
Account D, is authorized to acquire shares issued by WRL Series Fund, Inc.,
subject to the terms and conditions of the Participation Agreement.
IN WITNESS WHEREOF, each of the parties has caused this Addendum to be
executed in its name and on its behalf by its duly authorized representative as
of September 27, 1999.
PFL LIFE INSURANCE COMPANY WRL SERIES FUND, INC.
By its authorized officer By its authorized officer
By: /s/ William L. Busler By: /s/ Thomas E. Pierpan
---------------------------------- ----------------------------------
William L. Busler Thomas E. Pierpan
Title: President Title: Vice President, Secretary and
------------------------------- -------------------------------
Associate General Counsel
-------------------------------
AUSA LIFE INSURANCE PEOPLES BENEFIT LIFE
COMPANY, INC. INSURANCE COMPANY
By its authorized officer By its authorized officer
By: /s/ William L. Busler By: /s/ Frank A. Camp
---------------------------------- -----------------------------------
William L. Busler Frank A. Camp
Title: Vice President Title: Vice President and
------------------------------- ---------------------------------
Division General Counsel
---------------------------------
<PAGE>
AMENDED
SCHEDULE A
Effective September 27, 1999
Account(s), Policy(ies) and Portfolio(s)
Subject to the Participation Agreement
--------------------------------------
Account(s): PFL Endeavor Variable Annuity Account
PFL Endeavor Platinum Variable Annuity Account
Mutual Fund Account
PFL Life Variable Annuity Account A
PFL Life Variable Annuity Account C
PFL Life Variable Annuity Account D
PFL Retirement Builder Variable Annuity Account
AUSA Life Insurance Company, Inc. Separate Account C
Peoples Benefit Life Insurance Company Separate Account V
Legacy Builder Variable Life Separate Account
AUSA Series Life Account
Policy(ies): PFL Endeavor Variable Annuity
PFL Endeavor Platinum Variable Annuity
AUSA Endeavor Variable Annuity
Atlas Portfolio Builder Variable Annuity
Extra Variable Annuity
Access Variable Annuity
Retirement Income Builder II Variable Annuity
AUSA & Peoples - Advisor's Edge Variable Annuity
Peoples - Advisor's Edge Select Variable Annuity
Legacy Builder II
Legacy Builder Plus
AUSA Freedom Financial Builder
Portfolio(s): WRL Series Fund, Inc.
WRL Janus Growth
WRL AEGON Bond
WRL J.P. Morgan Money Market
WRL Janus Global
WRL LKCM Strategic Total Return
WRL VKAM Emerging Growth
WRL Alger Aggressive Growth
WRL AEGON Balanced
WRL Federated Growth & Income
WRL C.A.S.E. Growth
WRL NWQ Value Equity
WRL GE/Scottish Equitable International Equity
WRL GE U.S. Equity
WRL J.P. Morgan Real Estate Securities
WRL T. Rowe Price Dividend Growth
WRL T. Rowe Price Small Cap
WRL Goldman Sachs Growth
WRL Goldman Sachs Small Cap
WRL Pilgrim Baxter Mid Cap Growth
WRL Salomon All Cap
WRL Dreyfus Mid Cap
WRL Third Avenue Value
WRL Dean Asset Allocation
<PAGE>
EXHIBIT (10)(a)
---------------
CONSENT OF INDEPENDENT AUDITORS
<PAGE>
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Independent Auditors"
in the Statement of Additional Information and to the use of our report dated
February 19, 1999 with respect to the statutory-basis financial statements and
schedules of PFL Life Insurance Company, included in the Pre-Effective
Amendment No. 1 to the Registration Statement (Form N-4 No. 333-83957) and
related Prospectus of the Extra Variable Annuity.
/s/ Ernst & Young LLP
Des Moines, Iowa
December 8, 1999
<PAGE>
EXHIBIT (14)
------------
POWERS OF ATTORNEY
<PAGE>
POWER OF ATTORNEY
WITH RESPECT TO
PFL LIFE VARIABLE ANNUITY ACCOUNT C
Know all men by these presents that Douglas C. Kolsrud, whose signature appears
below, constitutes and appoints Craig D. Vermie and Brenda K. Clancy, and each
of them, his attorneys-in-fact, each with the power of substitution, for him in
any and all capacities, to sign any registration statements and amendments
thereto for the PFL Life Variable Annuity Account C, and to file the same, with
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
each of said attorneys-in-fact, or their substitute, may do or cause to be done
by virtue hereof.
/s/ Douglas C. Kolsrud
------------------------------
Douglas C. Kolsrud
Senior Vice President
PFL Life Insurance Company
September 27, 1999
- ------------------------
Date
<PAGE>
POWER OF ATTORNEY
WITH RESPECT TO
PFL LIFE VARIABLE ANNUITY ACCOUNT C
Know all men by these presents that Robert J. Kontz, whose signature appears
below, constitutes and appoints Craig D. Vermie and Brenda K. Clancy, and each
of them, his attorneys-in-fact, each with the power of substitution, for him in
any and all capacities, to sign any registration statements and amendments
thereto for the PFL Life Variable Annuity Account C, and to file the same, with
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
each of said attorneys-in-fact, or their substitute, may do or cause to be done
by virtue hereof.
/s/ Robert J. Kontz
---------------------------
Robert J. Kontz
Vice President
PFL Life Insurance Company
September 27, 1999
- ------------------------
Date
<PAGE>
POWER OF ATTORNEY
WITH RESPECT TO
PFL LIFE VARIABLE ANNUITY ACCOUNT C
Know all men by these presents that Patrick S. Baird, whose signature appears
below, constitutes and appoints Craig D. Vermie and Brenda K. Clancy, and each
of them, his attorneys-in-fact, each with the power of substitution, for him in
any and all capacities, to sign any registration statements and amendments
thereto for the PFL Life Variable Annuity Account C, and to file the same, with
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
each of said attorneys-in-fact, or their substitute, may do or cause to be done
by virtue hereof.
/s/ Patrick S. Baird
---------------------------
Patrick S. Baird
Senior Vice President
PFL Life Insurance Company
September 27, 1999
- ----------------------
Date
<PAGE>
POWER OF ATTORNEY
WITH RESPECT TO
PFL LIFE VARIABLE ANNUITY ACCOUNT C
Know all men by these presents that Craig D. Vermie, whose signature appears
below, constitutes and appoints Craig D. Vermie and Brenda K. Clancy, and each
of them, his attorneys-in-fact, each with the power of substitution, for him in
any and all capacities, to sign any registration statements and amendments
thereto for the PFL Life Variable Annuity Account C, and to file the same, with
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
each of said attorneys-in-fact, or their substitute, may do or cause to be done
by virtue hereof.
/s/ Craig D. Vermie
--------------------------
Craig D. Vermie
Vice President
PFL Life Insurance Company
September 27, 1999
- ----------------------
Date
<PAGE>
POWER OF ATTORNEY
WITH RESPECT TO
PFL LIFE VARIABLE ANNUITY ACCOUNT C
Know all men by these presents that Brenda K. Clancy, whose signature appears
below, constitutes and appoints Craig D. Vermie and Brenda K. Clancy, and each
of them, her attorneys-in-fact, each with the power of substitution, for her in
any and all capacities, to sign any registration statements and amendments
thereto for the PFL Life Variable Annuity Account C, and to file the same, with
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
each of said attorneys-in-fact, or their substitute, may do or cause to be done
by virtue hereof.
/s/ Brenda K. Clancy
--------------------------
Brenda K. Clancy
Vice President
PFL Life Insurance Company
September 27, 1999
- -----------------------------
Date
<PAGE>
POWER OF ATTORNEY
WITH RESPECT TO
PFL LIFE VARIABLE ANNUITY ACCOUNT C
Know all men by these presents that William L. Busler, whose signature appears
below, constitutes and appoints Craig D. Vermie and Brenda K. Clancy, and each
of them, his attorneys-in-fact, each with the power of substitution, for him in
any and all capacities, to sign any registration statements and amendments
thereto for the PFL Life Variable Annuity Account C, and to file the same, with
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
each of said attorneys-in-fact, or their substitute, may do or cause to be done
by virtue hereof.
/s/ William L. Busler
---------------------------
William L. Busler
President
PFL Life Insurance Company
September 27, 1999
- ----------------------
Date
<PAGE>
POWER OF ATTORNEY
WITH RESPECT TO
PFL LIFE VARIABLE ANNUITY ACCOUNT C
Know all men by these presents that Larry N. Norman, whose signature appears
below, constitutes and appoints Craig D. Vermie and Brenda K. Clancy, and each
of them, his attorneys-in-fact, each with the power of substitution, for him in
any and all capacities, to sign any registration statements and amendments
thereto for the PFL Life Variable Annuity Account C, and to file the same, with
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
each of said attorneys-in-fact, or their substitute, may do or cause to be done
by virtue hereof.
/s/ Larry N. Norman
-------------------------
Larry N. Norman
Executive Vice President
PFL Life Insurance Company
September 27, 1999
- ----------------------
Date
