<PAGE>
As filed with the Securities and Exchange Commission on March 10, 2000
Registration No. 333-
811-
SECURITIES AND EXCHANGE COMMISSION
----------------------------------
WASHINGTON, D.C. 20549
PRIVILEGE SELECT
FORM N-4
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 X
Pre-Effective Amendment No.
---
Post-Effective Amendment No.
---
and
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No.
PFL LIFE VARIABLE ANNUITY ACCOUNT E
(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 Public Offering:
- --------------------------------------------
As soon as practicable after the effective date of the Registration statement.
Registrant hereby amends this registration statement on such date or dates as
may be necessary to delay its effective date until Registrant shall file a
further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933, or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
PRIVILEGE SELECT
Issued Through
PFL LIFE VARIABLE ANNUITY ACCOUNT E
by
PFL LIFE INSURANCE COMPANY -
A TRANSAMERICA COMPANY
Prospectus
[DATE]
This prospectus and the mutual fund prospectuses give you important information
about the policies and the mutual funds. Please read them carefully before you
invest and keep them for future reference.
If you would like more information about the Privilege Select variable annuity
policy, you can obtain a free copy of the Statement of Additional Information
(SAI) dated . Please call us at (800) 525-6205 or write us at: PFL
------------
Life Insurance Company, Financial Markets Division, Variable Annuity Department,
4333 Edgewood Road N.E., Cedar Rapids, Iowa, 52499-0001. A registration
statement, including the SAI, has been filed with the Securities and Exchange
Commission (SEC) and is incorporated herein by reference. Information about the
separate account can be reviewed and copied at the SEC's Public Reference Room
in Washington, D.C. You may obtain information about the operation of the public
reference room by calling the SEC at 1-800-SEC-0330. The SEC also maintains a
web site (http://www.sec.gov) that contains the prospectus, the SAI, material
incorporated by reference, and other information. The table of contents of the
SAI is included at the end of this prospectus.
Please note that the policies and the mutual funds:
. are not bank deposits
. are not federally insured
. are not endorsed by any bank or government agency
. are not guaranteed to achieve their goal
. are subject to risks, including loss of premium
The Securities and Exchange Commission has not approved or disapproved these
securities, or passed upon the adequacy of this prospectus. Any representation
to the contrary is a criminal offense.
This flexible premium annuity policy has many investment choices. There is a
fixed account, which offers interest at rates that are guaranteed by PFL Life
Insurance Company (PFL), and twenty-nine mutual fund portfolios offered by the
underlying funds listed below. You can choose any combination of these
investment choices. You bear the entire investment risk for all amounts you put
in the mutual fund portfolios.
VARIABLE INSURANCE PRODUCTS FUND
(VIP) - SERVICE CLASS 2
Fidelity - VIP Money Market Portfolio
Fidelity - VIP High Income Portfolio
Fidelity - VIP Equity-Income Portfolio
Fidelity - VIP Growth Portfolio
VARIABLE INSURANCE PRODUCTS FUND II
(VIP II) - INITIAL CLASS
Fidelity - VIP II Index 500 Portfolio
VARIABLE INSURANCE PRODUCTS FUND II
(VIP II) - SERVICE CLASS 2
Fidelity - VIP II Contrafund Portfolio
VARIABLE INSURANCE PRODUCTS FUND III
(VIP III) - SERVICE CLASS 2
Fidelity - VIP III Mid Cap Portfolio
MFS VARIABLE INSURANCE TRUST
MFS Bond Series
MFS Capital Opportunities Series
MFS Growth Series
MFS New Discovery Series
MFS Utilities Series
OPPENHEIMER VARIABLE ACCOUNT FUNDS
Oppenheimer Capital Appreciation Fund/VA
Oppenheimer Global Securities Fund/VA
Oppenheimer Main Street Growth & Income Fund/VA
Oppenheimer Multiple Strategies Fund/VA
Oppenheimer Strategic Bond Fund/VA
STI CLASSIC VARIABLE TRUST
STI Capital Appreciation Fund
STI Growth & Income Fund
STI International Equity Fund
STI Investment Grade Bond Fund
STI Mid-Cap Equity Fund
STI Quality Growth Stock Fund
STI Small Cap Equity Fund
STI Value Income Stock Fund
WRL SERIES FUND, INC.
WRL Goldman Sachs Small Cap
WRL Janus Global
WRL Janus Growth
WRL VKAM Emerging Growth
<PAGE>
TABLE OF CONTENTS Page
GLOSSARY OF TERMS....................................
SUMMARY..............................................
ANNUITY POLICY FEE TABLE.............................
EXAMPLES
1. THE ANNUITY POLICY..............................
2. PURCHASE........................................
Policy Issue Requirements.......................
Premium Payments................................
Initial Premium Requirements....................
Additional Premium Payments.....................
Maximum Total Premium Payments..................
Allocation of Premium Payments..................
Policy Value....................................
3. INVESTMENT CHOICES..............................
The Separate Account............................
The Fixed Account...............................
Transfers.......................................
4. PERFORMANCE.....................................
5. EXPENSES........................................
Surrender Charges...............................
Excess Interest Adjustment......................
Mortality and Expense Risk Fee..................
Administrative Charges..........................
Premium Taxes...................................
Federal, State and Local Taxes..................
Transfer Fee....................................
Family Income Protector.........................
Portfolio Management Fees.......................
6. ACCESS TO YOUR MONEY............................
Surrenders......................................
Delay of Payment and Transfers..................
Excess Interest Adjustment......................
7. ANNUITY PAYMENTS
(THE INCOME PHASE)..............................
Annuity Payment Options.........................
8. DEATH BENEFIT...................................
When We Pay A Death Benefit.....................
When We Do Not Pay A Death Benefit..............
Amount of Death Benefit.........................
Guaranteed Minimum Death Benefit................
Adjusted Partial Withdrawal.....................
9. TAXES
Annuity Policies in General.....................
Qualified and Nonqualified Policies............
Withdrawals - Qualified Policies................
Withdrawals - 403(b) Policies...................
Diversification and Distribution Requirements...
Withdrawals - Nonqualified Policies.............
Taxation of Death Benefit Proceeds..............
Annuity Payments................................
Transfers, Assignments or Exchanges
of Policies...................................
Possible Tax Law Changes........................
10. ADDITIONAL FEATURES.............................
Systematic Payout Option........................
Family Income Protector.........................
Nursing Care and Terminal Condition
Withdrawal Option............................
Unemployment Waiver.............................
Telephone Transactions..........................
Dollar Cost Averaging Program...................
Asset Rebalancing...............................
11. OTHER INFORMATION...............................
Ownership.......................................
Assignment......................................
PFL Life Insurance Company......................
The Separate Account............................
Mixed and Shared Funding........................
Reinstatements..................................
Voting Rights...................................
Distributor of the Policies.....................
Non-Participating Policy .......................
Variations in Policy Provisions.................
IMSA
Legal Proceedings...............................
Financial Statements............................
TABLE OF CONTENTS OF THE STATEMENT
OF ADDITIONAL INFORMATION............................
APPENDIX A
Historical Performance Data..........................
2
<PAGE>
GLOSSARY OF TERMS
Accumulation Unit--An accounting unit of measure used in calculating the policy
value in the separate account before the annuity commencement date.
Annuitant--The person during whose life any annuity payments involving life
contingencies will continue.
Annuity Commencement Date--The date upon which annuity payments are to commence.
The annuity commencement date may not be later than the last day of the policy
month starting after the annuitant attains age 85, except as expressly allowed
by PFL. In no event will this date be later than the last day of the policy
month following the month in which the annuitant attains age 95. The annuity
commencement date may be required to be earlier for qualified policies.
Annuity Payment Option--A method of receiving a stream of annuity payments
selected by the owner.
Cash Value--The policy value increased or decreased by an excess interest
adjustment, less the service charge, and less any applicable premium taxes,
surrender charge and family income protector rider fee.
Cumulative Free Percentage--The percentage (as applied to the policy value)
which is available free of any surrender charge.
Excess Interest Adjustment--A positive or negative adjustment to amounts
withdrawn upon partial or full surrenders from the fixed account guaranteed
period options, or to amounts applied to annuity payment options. The adjustment
reflects changes in the interest rates that PFL declared 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 the owner receives upon full surrender or commencement of annuity
payments, depending upon whether there has been an increase or decrease in
interest rates, respectively.
Fixed Account--One or more investment choices under the policy that are part of
PFL's general assets and are not in the separate account.
Guaranteed Period Options--The various guaranteed interest rate periods of the
fixed account which may be offered by PFL and into which premium payments may be
paid or amounts transferred.
Owner--The person who may exercise all rights and privileges under the policy.
The owner during the lifetime of the annuitant and prior to the annuity
commencement date is the person designated as the owner or a successor owner in
the information that we require to issue a policy.
Policy Value--On or before the annuity commencement date, the policy value is
equal to the owner's:
. premium payments; minus
. partial withdrawals (including the net effect of any applicable excess
interest adjustments and/or surrender charges on such withdrawals); plus
. interest credited in the fixed account; plus or minus
. accumulated gains or losses in the separate account; minus
. service charges, premium taxes, rider fees, and transfer fees, if any.
Separate Account--PFL Life Variable Annuity Account E, a separate account
established and registered as a unit investment trust under the Investment
Company Act of 1940, (the "1940 Act"), as amended, to which premium payments
under the policies may be allocated.
Subaccount--A subdivision within the separate account, the assets of which are
invested in a specified portfolio of the underlying funds.
(Note: The SAI contains a more extensive Glossary.)
3
<PAGE>
SUMMARY
The sections in this summary correspond to sections in this prospectus, which
discuss the topics in more detail.
1. THE ANNUITY POLICY
The flexible premium variable annuity policy offered by PFL Life Insurance
Company (PFL, we, us or our) provides a way to invest on a tax-deferred basis in
the following investment choices: subaccounts of the separate account and a
fixed account of PFL. The policy is intended to accumulate money for retirement
or other long-term investment purposes.
This policy offers twenty-nine subaccounts that are listed in Section 3. Each
subaccount invests exclusively in shares of one of the portfolios of the
underlying funds. The policy value may depend on the investment experience of
the selected subaccounts. Therefore, you bear the entire investment risk with
respect to all policy value in any subaccount. You could lose the amount that
you invest.
The fixed account offers an interest rate that PFL guarantees. We guarantee to
return your investment with interest credited for all amounts allocated to the
fixed account.
You can transfer money between any of the investment choices within certain
limits. We reserve the right to impose a $10 fee for each transfer in excess of
12 transfers per policy year.
The policy, like all deferred annuity policies, has two phases: the
"accumulation phase" and the "income phase." During the accumulation phase,
earnings accumulate on a tax-deferred basis and are taxed as ordinary income
when you take them out of the policy. The income phase occurs when you begin
receiving regular payments from your policy. The money you can accumulate during
the accumulation phase will largely determine the income payments you receive
during the income phase.
2. PURCHASE
You can buy this policy with $2,000 or more under most circumstances. You can
add as little as $50 at any time during the accumulation phase.
3. INVESTMENT CHOICES
You can allocate your premium payments to one or more of the following
investment choices described in the underlying fund prospectuses:
Fidelity - VIP Money Market Portfolio
Fidelity - VIP Equity-Income Portfolio
Fidelity - VIP Growth Portfolio
Fidelity - VIP High Income Portfolio
Fidelity - VIP II Index 500 Portfolio
Fidelity - VIP II Contrafund Portfolio
Fidelity - VIP III Mid Cap Portfolio
MFS Bond Series
MFS Capital Opportunities Series
MFS Growth Series
MFS New Discovery Series
MFS Utilities Series
Oppenheimer Capital Appreciation Fund/VA
Oppenheimer Global Securities Fund/VA
Oppenheimer Main Street Growth & Income Fund/VA
Oppenheimer Multiple Strategies Fund/VA
Oppenheimer Strategic Bond Fund/VA
STI Capital Appreciation Fund
STI Growth & Income Fund
STI International Equity Fund
STI Investment Grade Bond Fund
STI Mid-Cap Equity Fund
STI Quality Growth Stock Fund
STI Small Cap Equity Fund
STI Value Income Stock Fund
WRL Goldman Sachs Small Cap
WRL Janus Global
WRL Janus Growth
WRL VKAM Emerging Growth
Depending upon their investment performance, you can make or lose money in any
of these subaccounts.
You can also allocate your premium payments to the fixed account.
4. PERFORMANCE
The value of the policy will vary up or down depending upon the investment
performance of the subaccounts you choose. We provide performance information in
Appendix
4
<PAGE>
A and in the SAI. This data is not intended to indicate future performance.
5. EXPENSES
No deductions are made from premium payments at the time you buy the policy so
that the full amount of each premium payment is invested in one or more of your
investment choices.
We may deduct a surrender charge of up to 6.0% of premium payments withdrawn
within five years after the premium is paid. However, after the tenth policy
year, no surrender charges apply, regardless of when you made your last premium
payment. To calculate surrender charges, we consider the premium you paid to
come out before any earnings.
Full surrenders and partial withdrawals from a guaranteed period option of the
fixed account may also be subject to an excess interest adjustment, which may
increase or decrease the amount you receive. This adjustment may also apply to
amounts applied to an annuity payment option from a guaranteed period option of
the fixed account.
We deduct daily mortality and expense risk fees and administrative charges of
either 1.25% or 1.40% per year from the assets in each subaccount, depending on
the guaranteed minimum death benefit you choose.
During the accumulation phase, we deduct an annual service charge of no more
than $30 from the policy value on each policy anniversary and at the time of
surrender. The charge is waived if either the policy value or the sum of all
premium payments, minus all partial withdrawals, is at least $50,000.
We will deduct state premium taxes, which currently range from 0% to 3.50%, upon
total surrender, payment of a death benefit, or when annuity payments begin.
If you elect the "family income protector" rider, there is an annual fee during
the accumulation phase of 0.30% of the minimum annuitization value. If you
receive annuity payments under the rider, then during the income phase there is
a guaranteed payment fee at an annual rate of 1.25% of the daily net asset value
in the separate account.
The value of the net assets of the subaccounts will reflect the management fee
and other expenses incurred by the underlying portfolios.
6. ACCESS TO YOUR MONEY
You can take money out anytime during the accumulation phase (except under
certain qualified policies). You may take out up to 10% of the policy value free
of surrender charges each policy year. The percentage that may be taken free of
surrender charges is referred to as the cumulative free percentage. Any
cumulative free percentage that is not taken in one year is carried forward and
is available to be taken in the following policy year free of surrender charges.
Amounts withdrawn in excess of the cumulative free percentage may be subject to
a surrender charge and excess interest adjustment. You may also have to pay
income tax and a tax penalty on any money you take out.
7. ANNUITY PAYMENTS (THE INCOME PHASE)
The policy allows you to receive income under one of five annuity payment
options. You may choose from fixed payment options, variable payment options, or
a combination of both. If you select a variable payment option, the dollar
amount of your payments may go up or down.
8. DEATH BENEFIT
If you are both the owner and the annuitant and you die before the income phase
begins, then your beneficiary will receive a death benefit.
Naming different persons as owner and annuitant can affect whether the death
benefit is payable and to whom amounts will be paid. Use care when naming
owners, annuitants and beneficiaries, and consult your agent if you have
questions.
You may choose one of the following guaranteed minimum death benefits:
. 5% Growth through age 80
. Annual Step-Up through age 80
. Return of Premium
Charges are higher for the 5% Growth through age 80 and Annual Step-Up through
age 80 death benefits.
5
<PAGE>
If the owner is not the annuitant, no death benefit is paid if the owner dies.
9. TAXES
Your earnings, if any, are not taxed until you take them out. If you take money
out during the accumulation phase, earnings come out first for federal tax
purposes, and are taxed as ordinary income. If you are younger than 59 1/2 when
you take money out, you may be charged a 10% federal penalty tax on the
earnings. Payments during the income phase may be considered partly a return of
your original investment so that part of each payment would not be taxable as
income.
10. ADDITIONAL FEATURES
This policy has additional features that might interest you. These include the
following:
. You can arrange to have money automatically sent to you monthly, quarterly,
semi-annually, or annually while your policy is in the accumulation phase.
This feature is referred to as the "systematic payout option." Amounts you
receive may be included in your gross income, and in certain circumstances,
may be subject to penalty taxes.
. You can elect an optional rider that guarantees you a minimum annuitization
value. This feature is called the "family income protector." There is an
extra charge for this rider and the rider may vary by state.
. Under certain medically related circumstances, we will allow you to
surrender or partially withdraw your policy value without a surrender
charge and excess interest adjustment. This feature is called the "nursing
care and terminal condition withdrawal option."
. Under certain unemployment circumstances, you may withdraw all or a portion
of the policy value free of surrender charges and excess interest
adjustments. This feature is called the "unemployment waiver."
. You may make transfers and/or change the allocation of additional premium
payments by telephone.
. You can arrange to have a certain amount of money automatically transferred
from the fixed account, either monthly or quarterly, to your choice of
subaccounts. This feature is called "dollar cost averaging."
. We will, upon your request, automatically transfer amounts among the
subaccounts on a regular basis to maintain a desired allocation of the
policy value among the various subaccounts. This feature is called "asset
rebalancing."
These features are not available in all states and may not be suitable for your
particular situation.
11. OTHER INFORMATION
Right to Cancel Period. You may return your policy for a refund. The amount of
time you have to return the policy will depend on the state where the policy was
issued. It is generally only 10 days. The amount of the refund will generally be
the policy value. PFL will pay the refund within 7 days after it receives
written notice of cancellation and the returned policy. The policy will then be
deemed void. In some states you may have more than ten days to return a policy,
or receive a refund of more (or less) than the policy value.
No Probate. Usually, when the annuitant dies, the person you choose as your
beneficiary will receive the death benefit under this policy without going
through probate. State laws vary on how the amount that may be paid is treated
for estate tax purposes.
Who should purchase the policy? This policy is designed for people seeking
long-term tax-deferred accumulation of assets, generally for retirement or other
long-term purposes; and for persons who have maximized their use of other
retirement savings methods, such as 401(k) plans. The tax-deferred feature is
most attractive to people in high federal and state tax brackets. The tax
deferral features of variable annuities are unnecessary when purchased to fund a
qualified plan. You should not buy this policy if you are looking for a
short-term investment or if you cannot take the risk of losing the money that
you put in.
There are various 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 guaranteed death benefit
and the guaranteed level of certain charges, are appropriate for your needs.
6
<PAGE>
Financial Statements. Financial statements for PFL are in the SAI.
12. INQUIRIES
If you need more information, please contact us at:
Administrative and Service Office
Financial Markets Division
Variable Annuity Department
PFL Life Insurance Company
4333 Edgewood Road N.E.
P.O. Box 3183
Cedar Rapids, IA 52406-3183
7
<PAGE>
================================================================================
ANNUITY POLICY FEE TABLE
================================================================================
Policy Owner Transaction Expenses
- --------------------------------------------------------------------------------
Sales Load On Purchase Payments............................. 0
Maximum Surrender Charge
(as a % of Premium Payments Surrendered)(1)(2)......... 6%
Surrender Fees.............................................. 0
Service Charge (2).......................................... $30 Per Policy
Transfer Fee (2)............................................ Currently No Fee
Family Income Protector (optional) (3)
Rider Fee............................................. 0.30%
- --------------------------------------------------------------------------------
================================================================================
Separate Account Annual Expenses
(as a percentage of average account value)
- --------------------------------------------------------------------------------
Mortality and Expense Risk Fees(4).......................... 1.25%
Administrative Charge....................................... 0.15%
TOTAL SEPARATE ACCOUNT
ANNUAL EXPENSES............................................. 1.40%
================================================================================
Portfolio Annual Expenses (5)
(as a percentage of average net assets and after expense reimbursements)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Management Other Rule Total Portfolio
Fees Expenses 12b-1 Fees Annual Expenses
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fidelity - VIP Money Market Portfolio
Fidelity - VIP High Income Portfolio
Fidelity - VIP Equity-Income Portfolio (6)
Fidelity - VIP Growth Portfolio (6)
Fidelity - VIP II Index 500 Portfolio (6)
Fidelity - VIP II Contrafund Portfolio (6)
Fidelity - VIP III Mid Cap Portfolio (6)
MFS Bond Series
MFS Capital Opportunities Series
MFS Growth Series
MFS New Discovery Series
MFS Utilities Series
Oppenheimer Capital Appreciation Fund/VA
Oppenheimer Global Securities Fund/VA
Oppenheimer Main Street Growth & Income Fund/VA
Oppenheimer Multiple Strategies Fund/VA
Oppenheimer Strategic Bond Fund/VA
STI Capital Appreciation Fund
STI Growth & Income Fund
STI International Equity Fund
STI Investment Grade Bond Fund
STI Mid-Cap Equity Fund
STI Quality Growth Stock Fund
STI Small Cap Equity Fund
STI Value Income Stock Fund
WRL Goldman Sachs Small Cap
WRL Janus Global
WRL Janus Growth
WRL VKAM Emerging Growth
</TABLE>
================================================================================
8
<PAGE>
(1) The surrender charge is decreased based on the number of years since the
premium payment was made, from 6% in the year in which the premium payment
was made to 0% in the sixth year after the premium payment was made.
However, after the tenth policy year, no surrender charges apply,
regardless of when you made your last premium payment. If applicable, a
surrender charge will only be applied to withdrawals that exceed the amount
available under certain listed exceptions.
(2) The surrender charge and transfer fee, if any are imposed, apply to each
policy, regardless of how policy value is allocated among the separate
account and the fixed account. The service charge is the lesser of $30 or
2% of the policy value. It applies to both the fixed account and the
separate account, and is assessed on a pro rata basis relative to each
account's policy value as a percentage of the policy's total policy value.
There is no fee for the first 12 transfers per year. For additional
transfers, PFL may charge a fee of $10 per transfer, but currently does not
charge for any transfers. Separate account annual expenses do not apply to
the fixed account.
(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) Mortality and expense risk fees shown (1.25%) are for the "5% Growth
through age 80 Death Benefit" and the "Annual Step-Up through age 80 Death
Benefit." This reflects a fee that is 0.15% higher than the 1.10%
corresponding fee for the "Return of Premium Death Benefit."
(5) The fee table information relating to the underlying funds was provided to
PFL by the underlying funds, their investment advisers or managers, and PFL
has not independently verified such information. Actual future expenses of
the portfolios may be greater or less than those shown in the Table.
(6) A portion of the brokerage commissions that certain funds pay was used to
reduce fund expenses. In addition, certain funds, or Fidelity Management &
Research Company on behalf of certain funds, have entered into arrangements
with their custodian whereby credits realized as a result of uninvested
cash balances were used to reduce custodian expenses. The total operating
expenses, after reimbursement for the Fidelity - VIP II Index 500 Portfolio
and the Fidelity - VIP III Mid Cap Portfolio reflect these reductions in
the table above.
9
<PAGE>
EXAMPLES
You would pay the following expenses on a $1,000 investment, assuming a
hypothetical 5% annual return on assets, assuming the entire policy value is in
the applicable subaccount, and assuming the family income protector rider has
been selected:
The expenses reflect different mortality and expense risk fees depending on
which death benefit you select:
A = Return of Premium Death Benefit (1.10% charge)
B = 5 % Growth through age 80 Death Benefit or the Annual Step-Up through age 80
Death Benefit (1.25% charge)
<TABLE>
<CAPTION>
====================================================================================================================================
If the policy is annuitized at
If the policy is surrendered the end of the applicable time
at the end of the applicable period or if the policy is not
time period. surrendered or annuitized.
----------------------------------------------------------------------------
1 Year 3 Years 1 Year 3 Years
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity - VIP Money Market Portfolio A
- ------------------------------------------------------------------------------------------------------------------------------------
B
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity - VIP High Income Portfolio A
- ------------------------------------------------------------------------------------------------------------------------------------
B
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity - VIP Equity-Income Portfolio A
- ------------------------------------------------------------------------------------------------------------------------------------
B
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity - VIP Growth Portfolio A
- ------------------------------------------------------------------------------------------------------------------------------------
B
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity - VIP II Index 500 Portfolio A
- ------------------------------------------------------------------------------------------------------------------------------------
B
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity - VIP II Contrafund Portfolio A
- ------------------------------------------------------------------------------------------------------------------------------------
B
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity - VIP III Mid Cap Portfolio A
- ------------------------------------------------------------------------------------------------------------------------------------
B
- ------------------------------------------------------------------------------------------------------------------------------------
MFS Bond Series A
- ------------------------------------------------------------------------------------------------------------------------------------
B
- ------------------------------------------------------------------------------------------------------------------------------------
MFS Capital Opportunities Series A
- ------------------------------------------------------------------------------------------------------------------------------------
B
- ------------------------------------------------------------------------------------------------------------------------------------
MFS Growth Series A
- ------------------------------------------------------------------------------------------------------------------------------------
B
- ------------------------------------------------------------------------------------------------------------------------------------
MFS New Discovery Series A
- ------------------------------------------------------------------------------------------------------------------------------------
B
- ------------------------------------------------------------------------------------------------------------------------------------
MFS Utilities Series A
- ------------------------------------------------------------------------------------------------------------------------------------
B
- ------------------------------------------------------------------------------------------------------------------------------------
Oppenheimer Capital Appreciation Fund/VA A
- ------------------------------------------------------------------------------------------------------------------------------------
B
- ------------------------------------------------------------------------------------------------------------------------------------
Oppenheimer Global Securities Fund/VA A
- ------------------------------------------------------------------------------------------------------------------------------------
B
- ------------------------------------------------------------------------------------------------------------------------------------
Oppenheimer Main Street Growth & Income Fund/VA A
- ------------------------------------------------------------------------------------------------------------------------------------
B
- ------------------------------------------------------------------------------------------------------------------------------------
Oppenheimer Multiple Strategies Fund/VA A
- ------------------------------------------------------------------------------------------------------------------------------------
B
- ------------------------------------------------------------------------------------------------------------------------------------
Oppenheimer Strategic Bond Fund/VA A
- ------------------------------------------------------------------------------------------------------------------------------------
B
- ------------------------------------------------------------------------------------------------------------------------------------
STI Capital Appreciation Fund A
- ------------------------------------------------------------------------------------------------------------------------------------
B
- ------------------------------------------------------------------------------------------------------------------------------------
STI Growth & Income Fund A
- ------------------------------------------------------------------------------------------------------------------------------------
B
- ------------------------------------------------------------------------------------------------------------------------------------
STI International Equity Fund A
- ------------------------------------------------------------------------------------------------------------------------------------
B
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
10
<PAGE>
EXAMPLES continued....
<TABLE>
<CAPTION>
====================================================================================================================================
If the policy is annuitized at
If the policy is surrendered the end of the applicable time
at the end of the applicable period or if the policy is not
time period. surrendered or annuitized.
----------------------------------------------------------------------------
1 Year 3 Years 1 Year 3 Years
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
STI Investment Grade Bond Fund A
- ------------------------------------------------------------------------------------------------------------------------------------
B
- ------------------------------------------------------------------------------------------------------------------------------------
STI Mid-Cap Equity Fund A
- ------------------------------------------------------------------------------------------------------------------------------------
B
- ------------------------------------------------------------------------------------------------------------------------------------
STI Quality Growth Stock Fund A
- ------------------------------------------------------------------------------------------------------------------------------------
B
- ------------------------------------------------------------------------------------------------------------------------------------
STI Small Cap Equity Fund A
- ------------------------------------------------------------------------------------------------------------------------------------
B
- ------------------------------------------------------------------------------------------------------------------------------------
STI Value Income Stock Fund A
- ------------------------------------------------------------------------------------------------------------------------------------
B
- ------------------------------------------------------------------------------------------------------------------------------------
WRL Goldman Sachs Small Cap A
- ------------------------------------------------------------------------------------------------------------------------------------
B
- ------------------------------------------------------------------------------------------------------------------------------------
WRL Janus Global A
- ------------------------------------------------------------------------------------------------------------------------------------
B
- ------------------------------------------------------------------------------------------------------------------------------------
WRL Janus Growth A
- ------------------------------------------------------------------------------------------------------------------------------------
B
- ------------------------------------------------------------------------------------------------------------------------------------
WRL VKAM Emerging Growth A
- ------------------------------------------------------------------------------------------------------------------------------------
B
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The above table will assist you in understanding the costs and expenses that you
will bear, directly or indirectly. These include the 1999 expenses of the
underlying fund portfolios. In addition to the expenses listed above, premium
taxes may be applicable.
The examples should not be considered a representation of past or future
expenses, and actual expenses may be greater or lesser than those shown. The
assumed 5% annual return is hypothetical and should not be considered a
representation of past or future annual returns, which may be greater or less
than the assumed rate.
In these examples, the $30 service charge is reflected as a charge of %
--------
based on an anticipated average policy value of $ .
---------------
Financial Information. The subaccounts had not commenced operations as of
December 31, 1999, 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 Privilege Select variable annuity policy offered
by PFL Life Insurance Company.
An annuity is a policy between you, the owner, and an insurance company (in this
case PFL), where the insurance company promises to pay you an income in the form
of annuity payments. These payments begin on a designated date, referred to as
the annuity commencement date. Until the annuity commencement date, your annuity
is in the accumulation phase and the earnings (if any) are tax deferred. Tax
deferral means you generally are not taxed on your annuity until you take money
out of your annuity. After the annuity commencement date, your annuity switches
to the income phase.
The policy is a flexible premium variable annuity. You can use the policy to
accumulate funds for retirement or other long-term financial planning purposes.
This policy is a "flexible premium" policy because after you purchase it, you
can generally make additional investments of any amount of $50 or more, until
the annuity commencement date. But you are not required to make any additional
investments.
The policy is a "variable" annuity because the value of your investments can go
up or down based on the performance of your investment choices. If you invest in
the variable annuity portion of the policy, the amount of money you are able to
accumulate in your policy during the accumulation phase depends upon the
performance of your investment choices. The amount of annuity payments you
receive during the income phase from the variable annuity portion of your policy
also depends upon the investment performance of your investment choices for the
income phase. However, if you annuitize under the family income protector rider,
then PFL will guarantee a minimum amount of your annuity payments.
The policy also contains a fixed account. The fixed account offers interest at
rates that we guarantee will not decrease during the selected guaranteed period.
There may be different interest rates for each different guaranteed period that
you select.
2. PURCHASE
Policy Issue Requirements
PFL will not issue a policy unless:
. PFL receives all information needed to issue the policy;
. PFL receives a minimum initial premium payment; and
. You (annuitant and any joint owner) are age 84 or younger.
We reserve the right to reject any application or premium payment.
Premium Payments
You should make checks for premium payments payable only to PFL Life Insurance
Company and send them to the administrative and service office. Your check must
be honored in order for PFL to pay any associated payments and benefits due
under the policy.
Initial Premium Requirements
The initial premium payment for most policies must be at least $2,000. There is
no minimum initial premium payment for policies issued under section 403(b) of
the Internal Revenue Code; however, your premium must be received within 90 days
of the policy date or your policy will be canceled. We will credit your initial
premium payment to your policy within two business days after the day we receive
it and your complete policy information. If we are unable to credit your initial
premium payment, we will contact you within five business days and explain why.
We will also return your initial premium payment at that time unless you 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
12
<PAGE>
business day we receive your premium and required information. Additional
premium payments must be received before the New York Stock Exchange closes to
get same-day pricing of the premium payment.
Maximum Total Premium Payments
We allow premium payments up to a total of $1,000,000 without prior approval.
Allocation of Premium Payments
When you purchase a policy, we will allocate your premium payment to the
investment choices you select. Your allocation must be in whole percentages and
must total 100%. We will allocate additional premium payments the same way,
unless you request a different allocation.
If you allocate your premium payment to the dollar cost averaging fixed account,
you must give us directions regarding the subaccount(s) to which transfers are
to be made or we cannot accept your premium payment.
You may change allocations for future additional premium payments by sending us
written instructions or by telephone, subject to the limitations described below
under "Telephone Transactions." The allocation change will apply to premium
payments received after the date we receive the change request.
Policy Value
You should expect your policy value to change from valuation period to valuation
period. A valuation period begins at the close of trading on the New York Stock
Exchange on each business day and ends at the close of trading on the next
succeeding business day. A business day is each day that the New York Stock
Exchange is open. The New York Stock Exchange generally closes at 4:00 p.m.
eastern time. Holidays are generally not business days.
3. INVESTMENT CHOICES
The Separate Account
The Privilege Select variable annuity separate account currently consists of
twenty-nine subaccounts.
The Underlying Funds Portfolios. The subaccounts invest in shares of the various
- -------------------------------
underlying fund portfolios. The companies that provide investment advice and
administrative services for the underlying fund portfolios offered through this
policy are listed below. The following investment choices are currently offered
through this policy:
VARIABLE INSURANCE PRODUCTS FUND
(VIP) - SERVICE CLASS 2
Managed by Fidelity Management & Research Company
Fidelity - VIP Money Market Portfolio
Fidelity - VIP Equity-Income Portfolio
Fidelity - VIP Growth Portfolio
Fidelity - VIP High Income Portfolio
VARIABLE INSURANCE PRODUCTS FUND II
(VIP II) - INITIAL CLASS
Managed by Fidelity Management & Research Company
Fidelity - VIP II Index 500 Portfolio
VARIABLE INSURANCE PRODUCTS FUND II
(VIP II) - SERVICE CLASS 2
Managed by Fidelity Management & Research Company
Fidelity - VIP II Contrafund Portfolio
VARIABLE INSURANCE PRODUCTS FUND III
(VIP III) - SERVICE CLASS 2
Managed by Fidelity Management & Research Company
Fidelity - VIP III Mid Cap Portfolio
MFS VARIABLE INSURANCE TRUST
Managed by Massachusetts Financial Services Company
MFS Bond Series
MFS Capital Opportunities Series
MFS Growth Series
MFS New Discovery Series
MFS Utilities Series
OPPENHEIMER VARIABLE ACCOUNT FUNDS
Managed by OppenheimerFunds, Inc.
Oppenheimer Capital Appreciation Fund/VA
Oppenheimer Global Securities Fund/VA
Oppenheimer Main Street Growth & Income Fund/VA
Oppenheimer Multiple Strategies Fund/VA
Oppenheimer Strategic Bond Fund/VA
STI CLASSIC VARIABLE TRUST
Managed by STI Capital Management, N.A.
STI Capital Appreciation Fund
13
<PAGE>
STI Growth & Income Fund
STI International Equity Fund
STI Investment Grade Bond Fund
STI Mid-Cap Equity Fund
STI Quality Growth Stock Fund
STI Small Cap Equity Fund
STI Value Income Stock Fund
WRL SERIES FUND, INC.
Subadvised By Goldman Sachs Asset Management
WRL Goldman Sachs Small Cap
Subadvised By Janus Capital Corporation
WRL Janus Global
WRL Janus Growth
Subadvised By Van Kampen Asset Management Inc.
WRL VKAM Emerging Growth
The general public may not purchase these underlying fund portfolios. The
investment objectives and policies may be similar to other portfolios and mutual
funds managed by the same investment adviser or manager that are sold directly
to the public. You should not expect the investment results of the underlying
fund portfolios to be the same as those of other portfolios or mutual funds.
More detailed information, including an explanation of the portfolios'
investment objectives, may be found in the current prospectuses for the
underlying funds portfolios, which are attached to this prospectus. You should
read the prospectuses for the underlying fund portfolios carefully before you
invest.
We may receive expense reimbursements or other revenues from the underlying
funds or their managers. The amount of these reimbursements or revenues, if any,
may be based on the amount of assets that PFL or the separate account invests in
the underlying fund portfolios.
We do not guarantee that any of the subaccounts will always be available for
premium payments, allocations, or transfers. See the SAI for more information
concerning the possible addition, deletion or substitution of investments.
The Fixed Account
Premium payments allocated and amounts transferred to the fixed account become
part of PFL's general account. Interests in the general account have not been
registered under the Securities Act of 1933 (the "1933 Act"), nor is the general
account registered as an investment company under the 1940 Act. Accordingly,
neither the general account nor any interests therein are generally subject to
the provisions of the 1933 or 1940 Acts. PFL has been advised that the staff of
the SEC has not reviewed the disclosures in this prospectus which relate to the
fixed account.
We guarantee that the interest credited to the fixed account will not be less
than 3% per year. At the end of a guaranteed period option you selected, the
value in that guaranteed period option will automatically be transferred into a
new guaranteed period option of the same length (or the next shorter period if
the same period is no longer offered) at the current interest rate for that
period. You can transfer to another investment choice by giving us notice within
30 days before the end of the expiring guaranteed period.
Surrenders or partial withdrawals from a guaranteed period option of the fixed
account are subject to an excess interest adjustment. This adjustment may
increase or decrease the amount of interest credited to your policy. The excess
interest adjustment0 will not decrease the interest credited to your policy
below 3% per year, however. You bear the risk that we will not credit interest
greater than 3% per year. We determine credited rates, which are guaranteed for
at least one year, in our sole discretion.
If you select the fixed account, your money will be placed with the other
general assets of PFL. The amount of money you are able to accumulate in the
fixed account during the accumulation phase depends upon the total interest
credited. The amount of annuity payments you receive during the income phase
from the fixed portion of your policy will remain level for the entire income
phase.
Transfers
During the accumulation phase, you may make transfers to or from any subaccount
or the fixed account as often as you wish within certain limitations.
Transfers from a guaranteed period option of the fixed account are limited to
the following:
. If 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 the guaranteed period option to another investment choice. No
excess interest adjustment will apply.
14
<PAGE>
. Transfers of amounts equal to interest credited on a monthly, quarterly,
semi-annual or annual basis. This may affect your overall
interest-crediting rate, because transfers are deemed to come from the
oldest premium payment first.
Otherwise, you cannot transfer out of the fixed account.
There are no transfers permitted out of the dollar cost averaging fixed account
option except through the dollar cost averaging program.
Each transfer must be at least $500, or the entire subaccount value. Transfers
of guaranteed period option amounts equal to interest credited must be at least
$50. If less than $500 remains, then we reserve the right to include that amount
in the transfer. Transfers must be received while the New York Stock Exchange is
open to get same-day pricing of the transaction.
During the income phase of your policy, you may transfer values out of any
subaccount up to four times per policy year. However, you cannot transfer values
out of the fixed account in this phase. The minimum amount that can be
transferred during this phase is the lesser of $10 of monthly income, or the
entire monthly income of the annuity units in the subaccount from which the
transfer is being made.
Transfers may be made by telephone, subject to the limitations described below
under "Telephone Transactions."
Currently, there is no charge for transfers or limit on the number of transfers
during the accumulation phase. However, in the future, the number of transfers
permitted may be limited and a $10 charge per transfer may apply. We reserve the
right to prohibit transfers to the fixed account if we are crediting an
effective annual interest rate of 3.0% (the guaranteed minimum).
The policy you are purchasing was not designed for professional market timing
organizations or other persons that use programmed, large, or frequent
transfers. The use of such transfers may be disruptive to an underlying fund
portfolio. We reserve the right to reject any premium payment or transfer
request from any person, if, in our judgment, an underlying fund portfolio would
be unable to invest effectively in accordance with its investment objectives and
policies or would otherwise be potentially adversely affected.
4. PERFORMANCE
PFL periodically advertises performance of the various investment portfolios. We
may disclose at least four different kinds of performance. First, we may
calculate performance by determining the percentage change in the value of an
accumulation unit by dividing the increase (decrease) for that unit by the value
of the accumulation unit at the beginning of the period. This performance number
reflects the deduction of the mortality and expense risk fees and administrative
charges. It does not reflect the deduction of any applicable premium taxes or
surrender charges. The deduction of any applicable premium taxes or surrender
charges would reduce the percentage increase or make greater any percentage
decrease.
Second, any advertisement will also include total return figures, which reflect
the deduction of the mortality and expense risk fees, administrative charges and
surrender charges.
Third, for periods starting prior to the date the policies were first offered,
the performance will be based on the historical performance of the corresponding
investment portfolios for the periods commencing from the date on which the
particular investment portfolio was made available through the separate account.
Fourth, in addition, for certain investment portfolios, performance may be shown
for the period commencing from the inception date of the investment portfolio.
These figures should not be interpreted to reflect actual historical performance
of the separate account.
We also may, from time to time, include in our advertising and sales materials,
tax deferred compounding charts and other hypothetical illustrations, which may
include comparisons of currently taxable and tax deferred investment programs,
based on selected tax brackets.
Appendix 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.
15
<PAGE>
5. EXPENSES
There are charges and expenses associated with your policy that reduce the
return on your investment in the policy.
Surrender Charges
During the accumulation phase, you can withdraw part or all of the cash value.
Cash value is the policy value increased or decreased by any excess interest
adjustment, less the annual service charge, and less any applicable surrender
charge, premium taxes and family income protector rider fees. We may deduct a
surrender charge to compensate us for expenses relating to policy sales,
including commissions to registered representatives and other promotional
expenses.
You can withdraw up to 10% of your policy value each year free of surrender
charges. This free amount is cumulative and is referred to as the cumulative
free percentage and is determined at the time of the withdrawal. If you withdraw
money in excess of the cumulative free percentage, you might have to pay a
surrender charge, which is a contingent deferred sales charge, on the excess
amount. The following schedule shows the surrender charges that apply during the
five years following each premium payment:
- ------------------------------------------------------
Surrender Charge
Number of Years Since (as a percentage of
Premium Payment Date premium withdrawn)
- ------------------------------------------------------
0-1 6%
- ------------------------------------------------------
1-2 6%
- ------------------------------------------------------
2-3 6%
- ------------------------------------------------------
3-4 4%
- ------------------------------------------------------
4-5 2%
- ------------------------------------------------------
5 or more 0%
- ------------------------------------------------------
For example, assume your policy value is $100,000 at the beginning of policy
year 2 and you withdraw $30,000. Since that amount is more than your cumulative
free percentage of 20% that is available at that time, you would pay a surrender
charge of $600 on the remaining $10,000 (6% of $30,000-$20,000).
You receive the full amount of a requested partial withdrawal because we deduct
any surrender charge and any applicable excess interest adjustment from your
remaining policy value. You receive your cash value upon full surrender.
For surrender charge purposes, the oldest premium is considered to be withdrawn
first. After the tenth policy year, no surrender charges apply, regardless of
when you made your last premium payment.
Keep in mind that withdrawals may be taxable, and if made before age 59 1/2, may
be subject to a 10% federal penalty tax. For tax purposes, withdrawals are
considered to come from earnings first.
Surrender charges are waived if you withdraw money under the nursing care and
terminal condition withdrawal option or the unemployment waiver.
Excess Interest Adjustment
Withdrawals of cash value from the fixed account may be subject to an excess
interest adjustment. This adjustment could retroactively reduce the interest
credited in the fixed account to the guaranteed minimum of 3% per year. See
"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. For the Return of Premium Death Benefit the mortality and expense risk
fee is at an annual rate of 1.10% of assets. During the accumulation phase, for
the 5% Growth through age 80 Death Benefit and the Annual Step-Up through age 80
Death Benefit, the mortality and expense risk fee is at an annual rate of 1.25%
of assets. During the income phase, the mortality and expense risk fee for these
benefits is at an annual rate of 1.10% of assets. This annual fee is assessed
daily based on the et asset value of each subaccount.
If this charge does not cover our actual costs, we absorb the loss. Conversely,
if the charge more than covers actual costs, the excess is added to our surplus.
We expect to profit from this charge. We may use our profit or surplus for any
proper purpose, including distribution expenses.
16
<PAGE>
Administrative Charges
We deduct an annual administrative charge to cover the costs of administering
the policies. This charge is equal to an annual rate of 0.15% of the daily net
asset value of the separate account.
In addition, an annual service charge of $30 (but not more than 2% of the policy
value) is charged on each policy anniversary and at surrender. The service
charge is waived if your policy value or the sum of your premiums, less all
partial withdrawals, is at least $50,000.
Premium Taxes
Some states assess premium taxes on the premium payments you make. We currently
do not deduct for these taxes at the time you make a premium payment. However,
we will deduct the total amount of premium taxes, if any, from the policy value
when:
. you elect to begin receiving annuity payments;
. you surrender the policy; or
. you die and a death benefit is paid (you must also be the annuitant for the
death benefit to be paid).
Generally, premium taxes range from 0% to 3.50%, depending on the state.
Federal, State and Local Taxes
We may in the future deduct charges from the policy for any taxes we incur
because of the policy. However, no deductions are being made at the present
time.
Transfer Fee
Currently there is no charge for transfers. However, if you make more than 12
transfers per year before the annuity commencement date, we reserve the right to
charge $10 for each additional transfer. Premium payments, asset rebalancing and
dollar cost averaging transfers are not considered transfers. All transfer
requests made at the same time are treated as a single request.
Family Income Protector
If you elect the family income protector, there is an annual rider fee during
the accumulation phase of 0.30% of the minimum annuitization value, and a
guaranteed payment fee during the income phase of 1.25% of the daily net asset
value if you annuitize under the rider. The annual rider fee is also deducted if
you surrender the policy. We may raise these fees in the future.
Portfolio Management Fees
The value of the assets in each subaccount will reflect the fees and expenses
paid by the underlying fund. A list of these expenses is found in the "Fee
Table" section of this prospectus. See the prospectuses for the underlying funds
for more information.
6. ACCESS TO YOUR MONEY
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
. any applicable surrender charges, premium taxes, service charges, and
family income protector rider fees.
If you want to take a partial withdrawal, in most cases it must be for at least
$500. Unless you tell us otherwise, we will take the withdrawal from each of the
investment choices in proportion to the policy value.
Remember that any withdrawal you take will reduce the policy value, and might
reduce the amount of the death benefit. See Section 8, Death Benefit, for more
details.
Withdrawals may be subject to an excess interest adjustment. Withdrawals from
the fixed account may also be subject to an excess interest adjustment. Income
taxes, federal tax penalties and certain restrictions may apply to any
withdrawals you make.
Withdrawals from qualified policies may be restricted or prohibited.
17
<PAGE>
During the income phase, you will receive annuity payments under the annuity
payment option you select; however, you generally may not take any other
withdrawals, either complete or partial.
Delay of Payment and Transfers
Payment of any amount due from the separate account for a surrender, a death
benefit, or the death of the owner of a nonqualified policy, will generally
occur within seven business days from the date all required information is
received by PFL. PFL may be permitted to defer such payment from the separate
account if:
. the New York Stock Exchange is closed other than for usual weekends or
holidays or trading on the Exchange is otherwise restricted; or
. an emergency exists as defined by the SEC or the SEC requires that trading
be restricted; or
. the SEC permits a delay for the protection of owners.
In addition, transfers of amounts from the subaccounts may be deferred under
these circumstances.
Pursuant to the requirements of certain state laws, we reserve the right to
defer payment of the cash value from the fixed account for up to six months. We
may also defer payment of any amount until your premium check has cleared your
bank.
Excess Interest Adjustment
Money that you withdraw from a guaranteed period option of the fixed account
before the end of its guaranteed period (the number of years you specified the
money would remain in a guaranteed period option of the fixed account) may be
subject to an excess interest adjustment. At the time you request a withdrawal,
if interest rates set by PFL have risen since the date of the initial guarantee,
the excess interest adjustment will result in a lower cash value on surrender.
However, if interest rates have fallen since the date of the initial guarantee,
the excess interest adjustment will result in a higher cash value on surrender.
Generally, all withdrawals from a guaranteed payment option during the first
policy year are subject to an excess interest adjustment. Any amount withdrawn
during a subsequent policy year in excess of 10% of your cumulative free
percentage is also generally subject to an excess interest adjustment. Beginning
in the second policy year, you can, however, withdraw up to 10% of your
cumulative free percentage each policy year, in one or more withdrawals, without
an excess interest adjustment.
There will be no excess interest adjustment on any of the following:
. lump sum withdrawals of the cumulative free percentage available;
. nursing care and terminal condition withdrawals;
. unemployment withdrawals;
. periodic withdrawals of cumulative interest credited;
. withdrawals to satisfy any minimum distribution requirements; and
. systematic payout option payments, which do not exceed the cumulative
interest credited.
Please note that in these circumstances you will not receive a higher cash value
if interest rates have fallen nor will you receive a lower cash value if
interest rates have risen.
7. ANNUITY PAYMENTS
(THE INCOME PHASE)
You choose the annuity commencement date. You can change this date by giving us
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 generally cannot be after the
policy month following the month in which the annuitant attains age 85. We may
allow a later annuity commencement date, but in no event will that date be later
than the last day of the policy month following the month in which the annuitant
attains age 95.
Election of Annuity Payment Option. Before the annuity commencement date, if the
- ----------------------------------
annuitant is alive, you may choose an annuity payment option or change your
election. If the annuitant dies before the annuity commencement date, the
beneficiary may elect to receive the death benefit in a lump sum or under one of
the annuity payment options.
Unless you specify otherwise, the annuitant will receive the annuity payments.
After the annuitant's death, the beneficiary will receive any remaining
guaranteed payments.
18
<PAGE>
Annuity Payment Options
The policy provides five annuity payment options that are described below. You
may chose any combination of annuity payment options. We will use your "adjusted
policy value" to provide these annuity payments. The adjusted policy value is
the policy value increased or decreased by any applicable excess interest
adjustment. If the adjusted policy value on the annuity commencement date is
less than $2,000, PFL reserves the right to pay it in one lump sum in lieu of
applying it under an annuity payment option. You can receive payments monthly,
quarterly, semi-annually, or annually. (We reserve the right to change the
frequency if payments would be less than $50.)
Unless you choose to receive variable payments under annuity payment options 3
or 5, the amount of each payment will be set on the annuity commencement date
and will not change. You may, however, choose to receive variable payments under
payment options 3 and 5. The dollar amount of the first variable payment will be
determined in accordance with the annuity payment rates set forth in the
applicable table contained in the policy. The dollar amount of additional
variable payments will vary based on the investment performance of the
subaccount(s) that you select.
The dollar amount of each variable payment after the first may increase,
decrease or remain constant. If the actual investment performance exactly
matched the assumed investment return of 5% at all times, the amount of each
variable annuity payment would remain equal. If actual investment performance
exceeds the assumed investment return, the amount of the variable annuity
payments would increase. Conversely, if actual investment performance is lower
than the assumed investment return, the amount of the variable annuity payments
would decrease.
A charge for premium taxes and an excess interest adjustment may be made when
annuity payments begin.
The annuity payment options are explained below. Options 1, 2, and 4 are fixed
only. Options 3 and 5 can be fixed or variable.
Payment Option 1--Interest Payments. We will pay the interest on the amount we
- -----------------------------------
use to provide annuity payments in equal payments, or this amount may be left to
accumulate for a period of time you and PFL agree to. You and PFL will agree on
withdrawal rights when you elect this option.
Payment Option 2--Income for a Specified Period. We will make level payments
- -----------------------------------------------
only for the fixed period you choose. No funds will remain at the end.
Payment Option 3--Life Income. You may choose between:
- -----------------------------
Fixed Payments
. No Period Certain --We will make level payments only during the annuitant's
lifetime.
. 10 Years Certain--We will make level payments for the longer of the
annuitant's lifetime or ten years.
. Guaranteed Return of Policy Proceeds--We will make level payments for the
longer of the annuitant's lifetime or until the total dollar amount of
payments we made to you equals the amount applied to this option.
Variable Payments
. No Period Certain--Payments will be made only during the lifetime of the
annuitant.
. 10 Years Certain--Payments will be made for the longer of the annuitant's
lifetime or ten years.
Payment Option 4--Income of a Specified Amount. Payments are made for any
- ----------------------------------------------
specified amount until the amount applied to this option, with interest, is
exhausted. This will be a series of level payments followed by a smaller final
payment.
Payment Option 5--Joint and Survivor Annuity. You may choose between:
- --------------------------------------------
Fixed Payments
. Payments are made during the joint lifetime of the payee and a joint payee
of your selection. Payments will be made as long as either person is
living.
Variable Payments
. Payments are made as long as either the payee or the joint payee is living.
Other annuity payment options may be arranged by agreement with PFL. Certain
annuity payment options may not be available in all states.
NOTE CAREFULLY:
- ---------------
IF:
. you choose Life Income with No Period Certain or a Joint and Survivor
Annuity; and
. the annuitant(s) dies before the due date of the second annuity payment;
THEN:
. we may make only one annuity payment.
19
<PAGE>
IF:
. you choose Income for a Specified Period, Life Income with 10 Years
Certain, Life Income with Guaranteed Return of Policy Proceeds, or Income
of a Specified Amount; and
. the person receiving payments dies prior to the end of the guaranteed
period;
THEN:
. the remaining guaranteed payments will be continued to that person's
beneficiary, or their present value may be paid in a single sum.
We will not pay interest on amounts represented by uncashed annuity payment
checks if the postal or other delivery service is unable to deliver checks to
the payee's address of record. The person receiving payments is responsible to
keep PFL informed of their current address.
8. DEATH BENEFIT
We will pay a death benefit to your beneficiary, under certain circumstances, if
the annuitant dies during the accumulation phase and the annuitant was also an
owner. (If the annuitant was not an owner, a death benefit may or may not be
paid. See below.) The beneficiary may choose an annuity payment option, or may
choose to receive a lump sum.
When We Pay A Death Benefit
Before the Annuity Commencement Date
- ------------------------------------
We will pay a death benefit to your beneficiary IF:
. you are both the annuitant and the owner of the policy; and
. you die before the annuity commencement date.
If the only beneficiary is your surviving spouse, then he or she may elect to
continue the policy as the new annuitant and owner, instead of receiving the
death benefit. All future surrender charges will be waived.
We will also pay a death benefit to your beneficiary IF:
. you are not the annuitant; and
. the annuitant dies before the annuity commencement date; and
. you specifically requested that the death benefit be paid upon the
annuitant's death.
Distribution requirements apply to the policy value upon the death of any owner.
These requirements are detailed in the SAI.
After the Annuity Commencement Date
- -----------------------------------
The death benefit payable, if any, on or after the annuity commencement date
depends on the annuity payment option selected.
IF:
. you are not the annuitant; and
. you die on or after the annuity commencement date; and
. the entire interest in the policy has not been paid to you;
THEN:
. the remaining portion of such interest in the policy will be distributed at
least as rapidly as under the method of distribution being used as of the
date of your death.
When We Do Not Pay A Death Benefit
No death benefit is paid in the following cases:
- ------------------------------------------------
IF:
. you are not the annuitant; and
. the annuitant dies prior to the annuity commencement date; and
. you did not specifically request that the death benefit be paid upon the
annuitant's death;
THEN:
. you will become the new annuitant and the policy will continue.
IF:
. you are not the annuitant; and
. you die prior to the annuity commencement date;
THEN:
. the new owner must surrender the policy within five years of your death for
the policy value increased or decreased by an excess interest adjustment.
Note carefully. If the owner does not name a contingent owner, the owner's
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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
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no contingent owner is named in a written notice PFL receives.
Amount of Death Benefit
Death benefit provisions may differ from state to state. The death benefit may
be paid as a lump sum or as annuity payments. The amount of the death benefit
depends on the guaranteed minimum death benefit option you chose when you bought
the policy. The death benefit will be the greatest of:
. policy value on the date we receive the required information; or
. cash value on the date we receive the required information (this could be
more than the policy value if there is a positive excess interest
adjustment that exceeds the surrender charge); or
. guaranteed minimum death benefit, if any (discussed below), plus premium
payments, less partial withdrawals from the date of death to the date the
death benefit is paid.
Guaranteed Minimum Death Benefit
On the policy application, you generally may choose one of the three guaranteed
minimum death benefit options listed below.
After the policy is issued, you cannot make an election and the death benefit
cannot be changed.
A. Return of Premium Death Benefit
- ------------------------------------
The Return of Premium Death Benefit is the total premium payments, less any
adjusted partial withdrawals (discussed below) as of the date of death.
The Return of Premium Death Benefit will be in effect if you do not choose
one of the other options on the policy application. After the policy is
issued, you cannot make an election and the death benefit cannot be
changed.
B. 5% Growth through age 80 Death Benefit
- -------------------------------------------
The 5% Growth through age 80 Death Benefit is the total premium payments,
less any adjusted partial withdrawals, plus interest at an effective annual
rate of 5% from the premium payment date or withdrawal date to the date of
death (but not later than your 81st birthday). There is an extra charge for
this death benefit.
The 5% Growth through age 80 Death Benefit is not available if the owner or
annuitant is 81 or older on the policy date.
C. Annual Step-Up through age 80 Death Benefit
- ------------------------------------------------
On each policy anniversary before your 81st birthday, a new "stepped-up"
death benefit is determined and becomes the guaranteed minimum death
benefit for that policy year. The death benefit is equal to:
. the largest policy value on the policy date or on any policy
anniversary before you reach age 81; plus
. any premium payments you have made since then; minus
. any adjusted partial withdrawals we have paid to you since then.
There is an extra charge for this death benefit.
The Annual Step-Up through age 80 Death Benefit is not available if the
owner or annuitant is 81 or older on the policy date.
IF, under all three death benefit options:
. the surviving spouse elects to continue the policy instead of receiving the
death benefit; and
. the guaranteed minimum death benefit is greater than the policy value;
THEN:
. we will increase the policy value to be equal to the guaranteed minimum
death benefit. This increase is made only at the time the surviving spouse
elects to continue the policy.
Adjusted Partial Withdrawal
When you request a partial withdrawal, your guaranteed minimum death benefit
will be reduced by an amount called the adjusted partial withdrawal. Under
certain circumstances, the adjusted partial withdrawal may be more than the
amount of your withdrawal request. It is also possible that if a death benefit
is paid after you have made a partial withdrawal, then the total amount paid
could be less than the total premium payments. We have included a detailed
explanation of this adjustment in the SAI.
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9. TAXES
NOTE: PFL has prepared the following information on federal income taxes as a
general discussion of the subject. It is not intended as tax advice to any
individual. You should consult your own tax adviser about your own
circumstances. PFL has included an additional discussion regarding taxes in the
SAI.
Annuity Policies in General
Deferred annuity policies are a way of setting aside money for future needs like
retirement. Congress recognized how important saving for retirement is and
provided special rules in the Internal Revenue Code for annuities. Simply
stated, these rules provide that generally you will not be taxed on the
earnings, if any, on the money held in your annuity policy until you take the
money out. This is referred to as tax deferral. There are different rules as to
how you will be taxed depending on how you take the money out and the type of
policy - qualified or nonqualified (discussed below).
You will not be taxed on increases in the value of your policy until a
distribution occurs - either as a withdrawal or as annuity payments.
When a non-natural person (e.g., corporation or certain other entities other
than tax-qualified trusts) owns a nonqualified policy, the policy will generally
not be treated as an annuity for tax purposes.
Qualified and Nonqualified Policies
If you purchase the policy under an individual retirement annuity, a pension
plan, or specially sponsored program, your policy is referred to as a qualified
policy.
Qualified policies are issued in connection with the following plans:
. Individual Retirement Annuity (IRA): A traditional IRA allows individuals
to make contributions, which may be deductible, to the 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 Plans: 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 policy.
Withdrawals - Qualified Policies
The above information describing the taxation of nonqualified policies does not
apply to qualified policies.
There are special rules that govern with respect to qualified policies.
Generally, these rules restrict:
. the amount that can be contributed to the policy during any year; and
. the time when amounts can be paid from the policies.
In addition, a penalty tax may be assessed on amounts withdrawn from the policy
prior to the date you reach age 59 1/2, unless you meet one of the exceptions to
this rule. You may also be required to begin taking minimum distributions from
the policy by a certain date. The terms of the plan may limit the rights
otherwise available to you under the policies. We have provided more information
in the SAI.
You should consult your legal counsel or tax adviser if you are considering
purchasing a policy for use with any retirement plan.
Withdrawals - 403(b) Policies
The Internal Revenue Code limits the withdrawal of premium payments from certain
403(b) policies. Withdrawals can generally only be made when an owner:
. reaches age 59 1/2;
. leaves his/her job;
. dies;
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. becomes disabled (as that term is defined in the Internal Revenue Code); or
. in the case of hardship. However, in the case of hardship, the owner can
only withdraw the premium payments and not any earnings.
Diversification and Distribution Requirements
The Internal Revenue Code provides that the underlying investments for a
variable annuity must satisfy certain diversification requirements in order to
be treated as an annuity policy. The policy must also meet certain distribution
requirements at the death of an owner in order to be treated as an annuity
policy. These diversification and distribution requirements are discussed in the
SAI. PFL may modify the policy to attempt to maintain favorable tax treatment.
Withdrawals - Nonqualified Policies
If you make a withdrawal from your policy before the annuity commencement date,
the Internal Revenue Code treats that withdrawal as first coming from earnings
and then from your premium payments. When you make a withdrawal you are taxed on
the amount of the withdrawal that is earnings. (The excess interest adjustment
resulting from the withdrawal may affect the amount on which you are taxed.)
Different rules apply for annuity payments. See "Annuity Payments" below.
The Internal Revenue Code also provides that withdrawn earnings may be subject
to a penalty. The amount of the penalty is equal to 10% of the amount that is
includable in income. Some withdrawals will be exempt from the penalty. They
include any amounts:
. paid on or after the taxpayer reaches age 59 1/2;
. paid after the taxpayer dies;
. paid if the taxpayer becomes totally disabled (as that term is defined in
the Internal Revenue Code);
. paid in a series of substantially equal payments made annually (or more
frequently) under a lifetime annuity;
. paid under an immediate annuity; or
. which come from premium payments made prior to August 14, 1982.
All deferred non-qualified policies that are issued by PFL (or its affiliates)
to the same owner during any calendar year are treated as one annuity for
purposes of determining the amount includable in the owner's income when a
taxable distribution occurs.
Taxation of Death Benefit Proceeds
Amounts may be distributed from the policy because of the death of an owner or
the annuitant. Generally, such amounts are includable in the income of the
recipient IF:
. distributed in a lump sum, these amounts are taxed in the same manner as a
full surrender; or
. 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 policy" remains
generally the total premium payments (less amounts received which were not
includable in gross income). The same tax treatment applies to any amounts
distributed after an owner's death.
Annuity Payments
Although the tax consequences may vary depending on the annuity payment option
you select, in general, for nonqualified and certain qualified policies, only a
portion of the annuity payments you receive will be includable in your gross
income.
In general, the excludable portion of each annuity payment you receive will be
determined as follows:
. Fixed payments - by dividing the "investment in the policy" 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 policy" 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 policy" 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 policy" to each such
option, for purposes of
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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 policy" as of the
annuity commencement date, over the aggregate amount of annuity payments
received that was excluded from gross income, is generally allowable as a
deduction for your last taxable year.
Transfers, Assignments or Exchanges of Policies
A transfer of ownership or assignment of a policy, the designation of an
annuitant or other beneficiary who is not also the owner, the selection of
certain annuity commencement dates, or a change of annuitant, may result in
certain income or gift tax consequences to the owner that are beyond the scope
of this discussion. An owner contemplating any such transfer, assignment,
selection, or change should contact a competent tax adviser with respect to the
potential tax effects of such a transaction.
Possible Tax Law Changes
Although the likelihood of legislative changes is uncertain, there is always the
possibility that the tax treatment of the policy could change by legislation or
otherwise. You should consult a tax adviser with respect to legal developments
and their effect on the policy.
10. ADDITIONAL FEATURES
Systematic Payout Option
You can select at any time (during the accumulation phase) to receive regular
payments from your policy by using the systematic payout option. Under this
option, you can receive up to 10% (annually) of your policy value free of
surrender charges. Payments can be made monthly, quarterly, semi-annually, or
annually. Each payment must be at least $50, and cannot exceed the cumulative
free percentage divided by the number of payments per year. Monthly and
quarterly payments must be made by electronic funds transfer directly to your
checking or savings account. There is no charge for this benefit.
Family Income Protector
The 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
the total amount you will have to apply to a family income protector 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 or the minimum
annuitization value.
Minimum Annuitization Value. The minimum annuitization value is:
- ---------------------------
. the policy value on the date the rider is issued; plus
. any additional premium payments; minus
. an adjustment for any withdrawals made after the date the rider is issued;
. accumulated at the annual growth rate written on page one of the rider;
minus
. any premium taxes.
The annual growth rate is currently 6% per year. PFL may, at its discretion,
change the rate in the future, but the rate will never be less than 3% per year.
Once the rider is added to your policy, the annual growth rate will not vary
during the life of that rider. Withdrawals may reduce the minimum annuitization
value on a basis greater than dollar-for-dollar. See the SAI for more
information.
The minimum annuitization value may only be used to annuitize using the family
income protector payment options and may not be used with any of the annuity
payment options listed in Section 7 of this prospectus. The family income
protector payment options are:
. Life Income--An election may be made for "No Period Certain" or "10 Years
Certain". In the event of the death of the annuitant prior to the end of
the chosen period certain, the remaining period certain payments will be
continued to the beneficiary.
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. 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) are also
guaranteed not to change after the rider is added. However, all of these benefit
specifications may change if you elect to upgrade the minimum annuitization
value.
Minimum Annuitization Value Upgrade. You can upgrade your minimum annuitization
- -----------------------------------
value to the policy value within 30 days after any policy anniversary before
your 85th birthday (earlier if required by state law). For your convenience, we
will put the last date to upgrade on page one of the rider.
If you upgrade:
. the current rider will terminate and a new one will be issued with its own
specified guaranteed benefits and fees;
. the new rider's specified benefits and fees may not be as advantageous as
before; and
. you will have a new ten year waiting period before you can exercise the
family income protector.
It generally will not be to your advantage to upgrade unless your policy value
exceeds your minimum annuitization value on the applicable policy anniversary.
Conditions of Exercise of the Family Income Protector. You can only annuitize
- -----------------------------------------------------
using the family income protector within the 30 days after the tenth or later
policy anniversary after the family income protector is elected or, in the case
of an upgrade of the minimum annuitization value, the tenth or later policy
anniversary following the upgrade. PFL may, at its discretion, change the
waiting period before the family income protector can be exercised in the
future. You cannot, however, annuitize using the family income protector after
the policy anniversary after your 94th birthday (earlier if required by state
law). For your convenience, we will put the first and last date to annuitize
using the family income protector on page one of the rider.
Note Carefully--If you annuitize at any time other than indicated above, you
cannot use the family income protector.
Guaranteed Minimum Stabilized Payments. Annuity payments under the family income
- --------------------------------------
protector are guaranteed to never be less than the initial payment. See the SAI
for information concerning the calculation of the initial payment. The payments
will also be "stabilized" or held constant during each policy year.
During the first policy year after annuitizing using the family income
protector, each stabilized payment will equal the initial payment. On each
policy anniversary thereafter, the stabilized payment will increase or decrease
depending on the performance of the investment options you selected, and then be
held constant at that amount for that policy year. The stabilized payment on
each policy anniversary will equal the greater of the initial payment or the
payment supportable by the annuity units in the selected investment options. See
the SAI for additional information concerning stabilized payments.
Family Income Protector Rider Fee. A rider fee, currently 0.30% of the minimum
- ---------------------------------
annuitization value on the policy anniversary, is charged annually prior to
annuitization. We will also charge this fee if you make a complete withdrawal.
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
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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.
The family income protector may vary by state and may not be available in all
states.
Nursing Care and Terminal Condition
Withdrawal Option
No surrender charges or excess interest adjustment will apply if you or your
spouse has been:
. confined in a hospital or nursing facility for 30 days in a row; or
. diagnosed with a terminal condition (usually a life expectancy of 12 months
or less).
This benefit is also available to the annuitant or annuitant's spouse if the
owner is not a natural person. This benefit is not available if the confinement
or condition existed when you purchased the policy.
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
. employed full time on the policy date; and
. unemployed for at least 60 days in a row at the time of withdrawal; and
. must have a minimum cash value at the time of withdrawal of $5,000.
You must provide written proof from your State's Department of Labor, which
verifies that you qualify for and are receiving unemployment benefits at the
time of withdrawal.
You can select this benefit at any time (during the accumulation phase) and
there is no charge for this benefit.
This benefit is also available to the annuitant or annuitant's spouse if the
owner is not a natural person. This benefit may not be available in all states.
See the policy for details.
Telephone Transactions
You may make transfers and change the allocation of additional premium payments
by telephone IF:
. you select the "Telephone Transfer/Reallocation Authorization" box in the
policy application or enrollment information; or
. you later make this request in writing.
You will be required to provide certain information for identification purposes
when requesting a transaction by telephone and we may record your telephone
call. We may also require written confirmation of your request. We will
26
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not be liable for following telephone requests that we believe are genuine.
Telephone requests must be received while the New York Stock Exchange is open to
get same-day pricing of the transaction. We may discontinue this option at any
time.
Dollar Cost Averaging Program
During the accumulation phase, you may instruct us to automatically transfer
money from the dollar cost averaging fixed account option into one or more
variable subaccounts. 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.
If you choose to allocate additional premium payments to the dollar cost
averaging program, you must complete a separate request for each additional
premium payment. 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 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.
11. OTHER INFORMATION
Ownership
You, as owner of the policy, exercise all rights under the policy. You can
change the owner at any time by notifying us in writing. An ownership change may
be a taxable event.
Assignment
You can also assign the policy any time during your lifetime. PFL will not be
bound by the assignment until we receive written notice of the assignment. We
will not be liable for any payment or other action we take in accordance with
the policy before we receive notice of the assignment. There may be limitations
on your ability to assign a qualified policy. An assignment may have tax
consequences.
PFL Life Insurance Company
PFL Life Insurance Company was incorporated under the laws of the State of Iowa
on April 19, 1961 as NN Investors Life Insurance Company, Inc. It is engaged in
the sale of life and health insurance and annuity policies. PFL is a
Transamerica Company and a wholly-owned indirect subsidiary of AEGON USA, Inc.
which conducts most of its operations through subsidiary companies engaged in
the insurance business or in providing non-insurance financial services. All of
the stock of AEGON USA, Inc. is indirectly owned by AEGON N.V. of The
Netherlands, the securities of which are publicly traded. AEGON N.V., a holding
company, conducts its business through subsidiary companies engaged primarily in
the insurance business. PFL is licensed in the District of Columbia, Guam, and
in all states except New York.
All obligations arising under the policies, including the promise to make
annuity payments, are general corporate obligations of PFL.
The Separate Account
PFL established a separate account, called the PFL Life Variable Annuity Account
E, under the laws of the State of
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Iowa on February 20, 1997. The separate account receives and currently invests
the premium payments that are allocated to the separate account for investment
in shares of the underlying fund portfolios.
The separate account is registered with the SEC as a unit investment trust under
the 1940 Act. However, the SEC does not supervise the management, the investment
practices, or the policies of the separate account or PFL. Income, gains, and
losses, whether or not realized, from assets allocated to the separate account
are, in accordance with the policies, credited or charged against the separate
account without regard to PFL's other income, gains or losses.
The assets of the separate account are held in PFL's name on behalf of the
separate account and belong to PFL. However, those assets that underlie the
policies are not chargeable with liabilities arising out of any other business
PFL may conduct. The separate account includes other subaccounts that are not
available under these policies.
Mixed and Shared Funding
Before making a decision concerning the allocation of premium payments to a
particular subaccount, please read the prospectuses for the underlying funds.
The underlying funds are not limited to selling their shares to this separate
account and can accept investments from any separate account or qualified
retirement plan. Since the underlying fund portfolios are available to
registered separate accounts offering variable annuity products of PFL, as well
as variable annuity and variable life products of other insurance companies, and
qualified retirement plans, there is a possibility that a material conflict may
arise between the interests of this separate account and one or more of the
other accounts of another participating insurance company. In the event of a
material conflict, the affected insurance companies, including PFL, agree to
take any necessary steps to resolve the matter. This includes removing their
separate accounts from the underlying funds. See the prospectuses for the
underlying fund for more details.
Reinstatements
You may surrender your policy and transfer your money directly to another life
insurance company (sometimes referred to as a 1035 Exchange or a
trustee-to-trustee transfer). You may also request us to reinstate your policy
after such a transfer by returning the same total dollar amount of funds to the
applicable investment choices. The dollar amount will be used to purchase new
accumulation units at the then current price. Because of changes in market
value, your new accumulation units may be worth more or less than the units you
previously owned. We recommend that you consult a tax professional to explain
the possible tax consequences of exchanges and/or reinstatements.
Voting Rights
PFL will vote all shares of the underlying funds in accordance with instructions
we receive from you and other owners that have voting interests in the
portfolios. We will send you and other owners written requests for instructions
on how to vote those shares. When we receive those instructions, we will vote
all of the shares in proportion to those instructions. If, however, we determine
that we are permitted to vote the shares in our own right, we may do so.
Each person having a voting interest will receive proxy material, reports, and
other materials relating to the appropriate portfolio.
Distributor of the Policies
AFSG Securities Corporation is the principal underwriter of the policies. Like
PFL, it is a Transamerica Company and an indirect wholly-owned subsidiary of
AEGON USA, Inc. It is located at 4333 Edgewood Road N.E., Cedar Rapids, IA
52499-0001. AFSG Securities Corporation is registered as a broker/dealer under
the Securities Exchange Act of 1934. It is a member of the National Association
of Securities Dealers, Inc.
Commissions of up to 6% of premium payments will be paid to broker/dealers who
sell the policies under agreements with AFSG Securities Corporation. These
commissions are not deducted from premium payments. In addition, certain
production, persistency and managerial bonuses may be paid. PFL may also pay
compensation to banks and other financial institutions for their services in
connection with the sale and servicing of the policies.
Non-participating Policy
The policy does not participate or share in the profits or surplus earnings of
PFL. No dividends are payable on the policy.
28
<PAGE>
Variations in Policy Provisions
Certain provisions of the policies may vary from the descriptions in this
prospectus in order to comply with different state laws. See your policy for
variations since any such state variations will be included in your policy or in
riders or endorsements attached to your policy.
IMSA
PFL is a charter member of the Insurance Marketplace Standards Association
(IMSA). IMSA is an independent, voluntary organization of life insurance
companies. It promotes high ethical standards in the sales, advertising and
servicing of individual life insurance and annuity products. Companies must
undergo a rigorous self and independent assessment of their practices to become
a member of IMSA. The IMSA logo in our sales literature shows our ongoing
commitment to these standards.
Legal Proceedings
There are no legal proceedings to which the separate account is a party or to
which the assets of the account are subject. PFL, like other life insurance
companies, is involved in lawsuits. In some class action and other lawsuits
involving other insurers, substantial damages have been sought and/or material
settlement payments have been made. Although the outcome of any litigation
cannot be predicted with certainty, PFL believes that at the present time there
are no pending or threatened lawsuits that are reasonably likely to have a
material adverse impact on the separate account or PFL.
Financial Statements
The financial statements for PFL are included in the SAI. There are no financial
statements for the separate account because as of December 31, 1999, it had not
commenced operations.
TABLE OF CONTENTS OF THE STATEMENT
OF ADDITIONAL INFORMATION
Glossary of Terms
The Policy - General Provisions
Certain Federal Income Tax Consequences
Investment Experience
Family Income Protector - Additional Information
Historical Performance Data
Published Ratings
State Regulation of PFL
Administration
Records and Reports
Distribution of the Policies
Voting Rights
Other Products
Custody of Assets
Legal Matters
Independent Auditors
Other Information
Financial Statements
29
<PAGE>
APPENDIX A
HISTORICAL PERFORMANCE DATA
Standardized Performance Data
PFL may advertise historical yields and total returns for the subaccounts of the
separate account. These figures are based on historical earnings and are
calculated according to guidelines from the SEC. They do not indicate future
performance.
Fidelity - VIP Money Market Subaccount. The yield of the Fidelity - VIP Money
- --------------------------------------
Market Subaccount for a policy refers to the annualized income generated by an
investment under a policy in the subaccount over a specified seven-day period.
The yield is calculated by assuming that the income generated for that seven-day
period is generated each seven-day period over a 52-week period and is shown as
a percentage of the investment. The effective yield is calculated similarly but,
when annualized, the income earned by an investment under a policy in the
subaccount is assumed to be reinvested. The effective yield will be slightly
higher than the yield because of the compounding effect of this assumed
reinvestment.
Other Subaccounts. The yield of a subaccount of the separate account (other than
- -----------------
the Fidelity -VIP Money Market Subaccount) for a policy refers to the annualized
income generated by an investment under a policy in the subaccount over a
specified 30-day period. The yield is calculated by assuming that the income
generated by the investment during that 30-day period is generated each 30-day
period over a 12-month period and is shown as a percentage of the investment.
The total return of a subaccount of the separate account refers to return
quotations assuming an investment under a policy has been held in the subaccount
for various periods of time including a period measured from the date the
subaccount commenced operations. When a subaccount has been in operation for 1,
5, and 10 years, respectively, the total return for these periods will be
provided. The total return quotations for a subaccount will represent the
average annual compounded rates of return that equate an initial investment of
$1,000 in the subaccount to the redemption value of that investment as of the
last day of each of the periods for which total return quotations are provided.
The yield and total return calculations for a subaccount do not reflect the
effect of any premium taxes that may be applicable to a particular policy, and
they do not reflect the rider charge for the optional family income protector.
The yield calculations also do not reflect the effect of any surrender charge
that may be applicable to a particular policy. To the extent that any or all of
a premium tax and/or surrender charge is applicable to a particular policy, the
yield and/or total return of that policy will be reduced. For additional
information regarding yields and total returns calculated using the standard
formats briefly summarized above, please refer to the SAI, a copy of which may
be obtained from the administrative and service office upon request.
Non-Standardized Performance Data
In addition to the standardized data discussed above, similar performance data
for other periods may also be shown.
PFL may also advertise or disclose average annual total return or other
performance data in non-standardized formats for a subaccount of the separate
account. The non-standardized performance data may assume that no surrender
charge is applicable, and may also make other assumptions such as the amount
invested in a subaccount, differences in time periods to be shown, or the effect
of partial withdrawals or annuity payments.
All non-standardized performance data will be advertised only if the
standardized performance data is also disclosed. For additional information
regarding the calculation of other performance data, please refer to the SAI.
Adjusted Historical Performance Data. The following performance data is historic
- ------------------------------------
performance data for the underlying portfolios since their inception reduced by
some or all of the fees and charges under the policy. Such adjusted historic
performance includes data that precedes the inception dates of the subaccounts.
This data is designed to show the performance that would have resulted if the
policy had been in existence during that time, based on the performance of the
applicable portfolio and the assumption that the applicable subaccount was in
existence for the same period as the portfolio with a level of charges equal to
those currently assessed under the policies. This data is not intended to
indicate future performance.
For instance, as shown in Table 1 and Table 2 below, PFL may disclose average
annual total returns for the portfolios reduced by all fees and charges under
the policy, as if the policy had been in existence since the inception of the
portfolio. Such fees and charges include the mortality and expense risk fee,
administrative charge and surrender charges. Table 1 assumes a complete
surrender of the policy at the end of the period, and therefore the surrender
charge is deducted. Table 2 assumes that the policy is
30
<PAGE>
not surrendered, and therefore the surrender charge is not deducted. Also, Table
1 and Table 2 do reflect the rider charge for the optional family income
protector.
The following information is also based on the method of calculation described
in the SAI. The adjusted historical average annual total returns for periods
ended December 31, 1999, were as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
TABLE 1 - A
Adjusted Historical Average Annual Total Returns(1)
- ------------------------------------------------------------------------------------------------------------------------------------
5% Growth through age 80 Death Benefit or Annual Step-Up through age 80 Death Benefit
(Total Separate Account Annual Expenses: 1.40%)
- ------------------------------------------------------------------------------------------------------------------------------------
Corresponding
10 Year Portfolio
1 Year 5 Year or Inception Inception Date
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fidelity - VIP High Income Portfolio September 19, 1985
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity - VIP Equity-Income Portfolio October 9, 1986
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity - VIP Growth Portfolio October 9, 1986
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity - VIP II Index 500 Portfolio August 27, 1992
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity - VIP II Contrafund Portfolio January 3, 1995
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity - VIP III Mid Cap Portfolio December 28, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
MFS Bond Series
- ------------------------------------------------------------------------------------------------------------------------------------
MFS Capital Opportunities Series
- ------------------------------------------------------------------------------------------------------------------------------------
MFS Growth Series
- ------------------------------------------------------------------------------------------------------------------------------------
MFS New Discovery Series
- ------------------------------------------------------------------------------------------------------------------------------------
MFS Utilities Series January 3, 1995
- ------------------------------------------------------------------------------------------------------------------------------------
Oppenheimer Capital Appreciation Fund/VA April 3, 1985
- ------------------------------------------------------------------------------------------------------------------------------------
Oppenheimer Global Securities Fund/VA November 12, 1990
- ------------------------------------------------------------------------------------------------------------------------------------
Oppenheimer Main Street Growth & Income Fund/VA July 5, 1995
- ------------------------------------------------------------------------------------------------------------------------------------
Oppenheimer Multiple Strategies Fund/VA February 9, 1987
- ------------------------------------------------------------------------------------------------------------------------------------
Oppenheimer Strategic Bond Fund/VA May 3, 1993
- ------------------------------------------------------------------------------------------------------------------------------------
STI Capital Appreciation Fund October 2, 1995
- ------------------------------------------------------------------------------------------------------------------------------------
STI Growth & Income Fund
- ------------------------------------------------------------------------------------------------------------------------------------
STI International Equity Fund November 7, 1996
- ------------------------------------------------------------------------------------------------------------------------------------
STI Investment Grade Bond Fund October 2, 1995
- ------------------------------------------------------------------------------------------------------------------------------------
STI Mid-Cap Equity Fund October 2, 1995
- ------------------------------------------------------------------------------------------------------------------------------------
STI Quality Growth Stock Fund
- ------------------------------------------------------------------------------------------------------------------------------------
STI Small Cap Equity Fund October 22, 1997
- ------------------------------------------------------------------------------------------------------------------------------------
STI Value Income Stock Fund October 2, 1995
- ------------------------------------------------------------------------------------------------------------------------------------
WRL Goldman Sachs Small Cap May 3, 1999
- ------------------------------------------------------------------------------------------------------------------------------------
WRL Janus Global December 3, 1992
- ------------------------------------------------------------------------------------------------------------------------------------
WRL Janus Growth October 2, 1986
- ------------------------------------------------------------------------------------------------------------------------------------
WRL VKAM Emerging Growth March 1, 1993
- ------------------------------------------------------------------------------------------------------------------------------------
+ Ten Year Date
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
TABLE 1 - B
Adjusted Historical Average Annual Total Returns(1)
- ------------------------------------------------------------------------------------------------------------------------------------
Return of Premium Death Benefit
(Total Separate Account Annual Expenses: 1.25%)
- ------------------------------------------------------------------------------------------------------------------------------------
Corresponding
10 Year Portfolio
Portfolio 1 Year 5 Year or Inception Inception Date
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity - VIP High Income Portfolio September 19, 1985
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity - VIP Equity-Income Portfolio October 9, 1986
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity - VIP Growth Portfolio October 9, 1986
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity - VIP II Index 500 Portfolio August 27, 1992
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity - VIP II Contrafund Portfolio January 3, 1995
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity - VIP III Mid Cap Portfolio December 28, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
MFS Bond Series
- ------------------------------------------------------------------------------------------------------------------------------------
MFS Capital Opportunities Series
- ------------------------------------------------------------------------------------------------------------------------------------
MFS Growth Series
- ------------------------------------------------------------------------------------------------------------------------------------
MFS New Discovery Series
- ------------------------------------------------------------------------------------------------------------------------------------
MFS Utilities Series January 3, 1995
- ------------------------------------------------------------------------------------------------------------------------------------
Oppenheimer Capital Appreciation Fund/VA April 3, 1985
- ------------------------------------------------------------------------------------------------------------------------------------
Oppenheimer Global Securities Fund/VA November 12, 1990
- ------------------------------------------------------------------------------------------------------------------------------------
Oppenheimer Main Street Growth & Income Fund/VA July 5, 1995
- ------------------------------------------------------------------------------------------------------------------------------------
Oppenheimer Multiple Strategies Fund/VA February 9, 1987
- ------------------------------------------------------------------------------------------------------------------------------------
Oppenheimer Strategic Bond Fund/VA May 3, 1993
- ------------------------------------------------------------------------------------------------------------------------------------
STI Capital Appreciation Fund October 2, 1995
- ------------------------------------------------------------------------------------------------------------------------------------
STI Growth & Income Fund
- ------------------------------------------------------------------------------------------------------------------------------------
STI International Equity Fund November 7, 1996
- ------------------------------------------------------------------------------------------------------------------------------------
STI Investment Grade Bond Fund October 2, 1995
- ------------------------------------------------------------------------------------------------------------------------------------
STI Mid-Cap Equity Fund October 2, 1995
- ------------------------------------------------------------------------------------------------------------------------------------
STI Quality Growth Stock Fund
- ------------------------------------------------------------------------------------------------------------------------------------
STI Small Cap Equity Fund October 22, 1997
- ------------------------------------------------------------------------------------------------------------------------------------
STI Value Income Stock Fund October 2, 1995
- ------------------------------------------------------------------------------------------------------------------------------------
WRL Goldman Sachs Small Cap May 3, 1999
- ------------------------------------------------------------------------------------------------------------------------------------
WRL Janus Global December 3, 1992
- ------------------------------------------------------------------------------------------------------------------------------------
WRL Janus Growth October 2, 1986
- ------------------------------------------------------------------------------------------------------------------------------------
WRL VKAM Emerging Growth March 1, 1993
- ------------------------------------------------------------------------------------------------------------------------------------
+ Ten Year Date
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The calculation of total return performance for periods prior to inception
of the subaccounts reflects deductions for the mortality and expense risk
fee and administrative charge on a monthly basis, rather than a daily
basis. The monthly deduction is made at the beginning of each month and
generally approximates the performance that would have resulted if the
subaccounts had actually been in existence since the inception of the
portfolio.
32
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
TABLE 2 - A
Adjusted Historical Average Annual Total Returns (1)
(Assuming No Surrender Charge)
- ------------------------------------------------------------------------------------------------------------------------------------
5% Growth through age 80 Death Benefit or Annual Step-Up through age 80 Death Benefit
(Total Separate Account Annual Expenses: 1.40%)
- ------------------------------------------------------------------------------------------------------------------------------------
Corresponding
10 Year Portfolio
Portfolio 1 Year 5 Year or Inception Inception Date
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity - VIP High Income Portfolio September 19, 1985
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity - VIP Equity-Income Portfolio October 9, 1986
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity - VIP Growth Portfolio October 9, 1986
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity - VIP II Index 500 Portfolio August 27, 1992
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity - VIP II Contrafund Portfolio January 3, 1995
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity - VIP III Mid Cap Portfolio December 28, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
MFS Bond Series
- ------------------------------------------------------------------------------------------------------------------------------------
MFS Capital Opportunities Series
- ------------------------------------------------------------------------------------------------------------------------------------
MFS Growth Series
- ------------------------------------------------------------------------------------------------------------------------------------
MFS New Discovery Series
- ------------------------------------------------------------------------------------------------------------------------------------
MFS Utilities Series January 3, 1995
- ------------------------------------------------------------------------------------------------------------------------------------
Oppenheimer Capital Appreciation Fund/VA April 3, 1985
- ------------------------------------------------------------------------------------------------------------------------------------
Oppenheimer Global Securities Fund/VA November 12, 1990
- ------------------------------------------------------------------------------------------------------------------------------------
Oppenheimer Main Street Growth & Income Fund/VA July 5, 1995
- ------------------------------------------------------------------------------------------------------------------------------------
Oppenheimer Multiple Strategies Fund/VA February 9, 1987
- ------------------------------------------------------------------------------------------------------------------------------------
Oppenheimer Strategic Bond Fund/VA May 3, 1993
- ------------------------------------------------------------------------------------------------------------------------------------
STI Capital Appreciation Fund October 2, 1995
- ------------------------------------------------------------------------------------------------------------------------------------
STI Growth & Income Fund
- ------------------------------------------------------------------------------------------------------------------------------------
STI International Equity Fund November 7, 1996
- ------------------------------------------------------------------------------------------------------------------------------------
STI Investment Grade Bond Fund October 2, 1995
- ------------------------------------------------------------------------------------------------------------------------------------
STI Mid-Cap Equity Fund October 2, 1995
- ------------------------------------------------------------------------------------------------------------------------------------
STI Quality Growth Stock Fund
- ------------------------------------------------------------------------------------------------------------------------------------
STI Small Cap Equity Fund October 22, 1997
- ------------------------------------------------------------------------------------------------------------------------------------
STI Value Income Stock Fund October 2, 1995
- ------------------------------------------------------------------------------------------------------------------------------------
WRL Goldman Sachs Small Cap May 3, 1999
- ------------------------------------------------------------------------------------------------------------------------------------
WRL Janus Global December 3, 1992
- ------------------------------------------------------------------------------------------------------------------------------------
WRL Janus Growth October 2, 1986
- ------------------------------------------------------------------------------------------------------------------------------------
WRL VKAM Emerging Growth March 1, 1993
- ------------------------------------------------------------------------------------------------------------------------------------
+ Ten Year Date
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
TABLE 2 - B
Adjusted Historical Average Annual Total Returns (1)
(Assuming No Surrender Charge)
- ------------------------------------------------------------------------------------------------------------------------------------
Return of Premium Death Benefit
(Total Separate Account Annual Expenses: 1.25%)
- ------------------------------------------------------------------------------------------------------------------------------------
Corresponding
10 Year Portfolio
Portfolio 1 Year 5 Year or Inception Inception Date
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity - VIP High Income Portfolio September 19, 1985
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity - VIP Equity-Income Portfolio October 9, 1986
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity - VIP Growth Portfolio October 9, 1986
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity - VIP II Index 500 Portfolio August 27, 1992
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity - VIP II Contrafund Portfolio January 3, 1995
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity - VIP III Mid Cap Portfolio December 28, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
MFS Bond Series
- ------------------------------------------------------------------------------------------------------------------------------------
MFS Capital Opportunities Series
- ------------------------------------------------------------------------------------------------------------------------------------
MFS Growth Series
- ------------------------------------------------------------------------------------------------------------------------------------
MFS New Discovery Series
- ------------------------------------------------------------------------------------------------------------------------------------
MFS Utilities Series January 3, 1995
- ------------------------------------------------------------------------------------------------------------------------------------
Oppenheimer Capital Appreciation Fund/VA April 3, 1985
- ------------------------------------------------------------------------------------------------------------------------------------
Oppenheimer Global Securities Fund/VA November 12, 1990
- ------------------------------------------------------------------------------------------------------------------------------------
Oppenheimer Main Street Growth & Income Fund/VA July 5, 1995
- ------------------------------------------------------------------------------------------------------------------------------------
Oppenheimer Multiple Strategies Fund/VA February 9, 1987
- ------------------------------------------------------------------------------------------------------------------------------------
Oppenheimer Strategic Bond Fund/VA May 3, 1993
- ------------------------------------------------------------------------------------------------------------------------------------
STI Capital Appreciation Fund October 2, 1995
- ------------------------------------------------------------------------------------------------------------------------------------
STI Growth & Income Fund
- ------------------------------------------------------------------------------------------------------------------------------------
STI International Equity Fund November 7, 1996
- ------------------------------------------------------------------------------------------------------------------------------------
STI Investment Grade Bond Fund October 2, 1995
- ------------------------------------------------------------------------------------------------------------------------------------
STI Mid-Cap Equity Fund October 2, 1995
- ------------------------------------------------------------------------------------------------------------------------------------
STI Quality Growth Stock Fund
- ------------------------------------------------------------------------------------------------------------------------------------
STI Small Cap Equity Fund October 22, 1997
- ------------------------------------------------------------------------------------------------------------------------------------
STI Value Income Stock Fund October 2, 1995
- ------------------------------------------------------------------------------------------------------------------------------------
WRL Goldman Sachs Small Cap May 3, 1999
- ------------------------------------------------------------------------------------------------------------------------------------
WRL Janus Global December 3, 1992
- ------------------------------------------------------------------------------------------------------------------------------------
WRL Janus Growth October 2, 1986
- ------------------------------------------------------------------------------------------------------------------------------------
WRL VKAM Emerging Growth March 1, 1993
- ------------------------------------------------------------------------------------------------------------------------------------
+ Ten Year Date
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The calculation of total return performance for periods prior to inception
of the subaccounts reflects deductions for the mortality and expense risk
fee and administrative charge on a monthly basis, rather than a daily
basis. The monthly deduction is made at the beginning of each month and
generally approximates the performance that would have resulted if the
subaccounts had actually been in existence since the inception of the
portfolio.
34
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PRIVILEGE SELECT
Issued through
PFL LIFE VARIABLE ANNUITY ACCOUNT E
Offered by
PFL LIFE INSURANCE COMPANY -
A TRANSAMERICA 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 Privilege Select variable annuity offered by PFL Life
Insurance Company. You may obtain a copy of the prospectus dated____________, by
calling 1-800-525-6205, or by writing to the Administrative and Service Office,
Financial Markets Division-Variable Annuity Dept., 4333 Edgewood Road, N.E.,
Cedar Rapids, Iowa 52499-0001. The prospectus sets forth information that a
prospective investor should know before investing in a policy. Terms used in the
current prospectus for the policy are incorporated in this Statement of
Additional Information.
This Statement of Additional Information (SAI) is not a prospectus and should be
read only in conjunction with the prospectuses for the policy and the underlying
fund portfolios.
Dated: ________________
<PAGE>
TABLE OF CONTENTS
Page
----
GLOSSARY OF TERMS........................................................
THE POLICY--GENERAL PROVISIONS...........................................
Owner...............................................................
Entire Policy.......................................................
Misstatement of Age or Sex..........................................
Addition, Deletion, or Substitution of Investments..................
Excess Interest Adjustment..........................................
Reallocation of Policy Values After the Annuity Commencement Date...
Annuity Payment Options.............................................
Death Benefit.......................................................
Death of Owner......................................................
Assignment..........................................................
Evidence of Survival................................................
Non Participating...................................................
Amendments..........................................................
Employee and Agent Purchases........................................
CERTAIN FEDERAL INCOME TAX CONSEQUENCES..................................
Tax Status of the Policy............................................
Taxation of PFL.....................................................
INVESTMENT EXPERIENCE....................................................
Accumulation Units..................................................
Annuity Unit Value and Annuity Payment Rates........................
FAMILY INCOME PROTECTOR--ADDITIONAL INFORMATION..........................
HISTORICAL PERFORMANCE DATA..............................................
Money Market Yields.................................................
Other Subaccount Yields.............................................
Total Returns.......................................................
Other Performance Data..............................................
Adjusted Historical Performance Data................................
PUBLISHED RATINGS........................................................
STATE REGULATION OF PFL..................................................
ADMINISTRATION...........................................................
RECORDS AND REPORTS......................................................
DISTRIBUTION OF THE POLICIES.............................................
VOTING RIGHTS............................................................
OTHER PRODUCTS...........................................................
CUSTODY OF ASSETS........................................................
LEGAL MATTERS............................................................
INDEPENDENT AUDITORS.....................................................
OTHER INFORMATION........................................................
FINANCIAL STATEMENTS.....................................................
2
<PAGE>
GLOSSARY OF TERMS
Accumulation Unit--An accounting unit of measure used in calculating the policy
value in the separate account before the annuity commencement date.
Adjusted Policy Value--An amount equal to the policy value increased or
decreased by any excess interest adjustments applied on the annuity commencement
date.
Administrative and Service Office--Financial Markets Division Variable Annuity
Department, 4333 Edgewood Road, N.E., Cedar Rapids, Iowa 52499-0001.
Annuitant--The person during whose life any annuity payments involving life
contingencies will continue.
Annuity Commencement Date--The date upon which annuity payments are to commence.
The annuity commencement date may not be later than the last day of the policy
month starting after the annuitant attains age 85, except as expressly allowed
by PFL, but in no event later than the last day of the policy month following
the month in which the annuitant attains age 95. The annuity commencement date
may be required to be earlier for qualified policies.
Annuity Payment Option--A method of receiving a stream of annuity payments
selected by the owner.
Annuity Unit--An accounting unit of measure used in the calculation of the
amount of the second and each subsequent variable annuity payment.
Application--A written application, order form, or any other information
received electronically or otherwise upon which the policy is issued and/or is
reflected on the data or specifications page.
Beneficiary--The person who has the right to the death benefit set forth in the
policy.
Business Day--A day when the New York Stock Exchange is open for business.
Cash Value--The policy value increased or decreased by an excess interest
adjustment, less the service charge, and less any applicable premium taxes,
surrender charge, and family income protector rider fee.
Code--The Internal Revenue Code of 1986, as amended.
Cumulative Free Percentage--The percentage (as applied to the policy value)
which is available free of any surrender charge.
Excess Interest Adjustment--A positive or negative adjustment to amounts
withdrawn upon partial or full surrenders from the fixed account guaranteed
period options, or to amounts applied to annuity payment options. The adjustment
reflects changes in the interest rates declared by PFL since the date any
payment was received by or an amount was transferred to the guaranteed period
option. The excess interest adjustment can either decrease or increase the
amount to be received by the owner upon full surrender or commencement of
annuity payments, depending upon whether there has been an increase or decrease
in interest rates, respectively.
Excess Partial Withdrawal--The portion of a partial withdrawal (surrender) that
exceeds the cumulative free percentage.
Fixed Account--One or more investment choices under the policy that are part of
the general assets of PFL and are not in the separate accounts.
3
<PAGE>
Guaranteed Period Options--The various guaranteed interest rate periods of the
fixed account which may be offered by PFL and into which premium payments may be
paid or amounts transferred.
Nonqualified Policy--A policy other than a qualified policy.
Owner--The person who may exercise all rights and privileges under the policy.
The owner during the lifetime of the annuitant and prior to the annuity
commencement date is the person designated as the owner or a successor owner in
the information that we require to issue a policy.
Policy Value--On or before the annuity commencement date, the policy value is
equal to the owner's:
. premium payments; minus
. partial withdrawals (including any applicable excess interest adjustments
and/or surrender charges on such withdrawals); plus
. interest credited in the fixed account; plus or minus
. accumulated gains or losses in the separate account; minus
. service charges, premium taxes, rider fees, and transfer fees, if any.
Policy Year--A policy year begins on the policy date in which the policy becomes
effective and on each anniversary thereof.
Premium Payment--An amount paid to PFL by the owner or on the owner's behalf as
consideration for the benefits provided by the policy.
Qualified Policy--A policy issued in connection with retirement plans that
qualify for special federal income tax treatment under the Code.
Separate Account--PFL Life Variable Annuity Account E, a separate account
established and registered as a unit investment trust under the Investment
Company Act of 1940, as amended (the "1940 Act"), to which premium payments
under the policies may be allocated.
Service Charge--There is an annual service charge on each policy anniversary
(and a charge at the time of surrender during any policy year) for policy
maintenance and related administrative expenses. This annual charge is $30, but
in no event will this charge be more than 2% of the policy value.
Subaccount--A subdivision within the separate account, the assets of which are
invested in a specified portfolio of the underlying funds.
Successor Owner--A person appointed by the owner to succeed to ownership of the
policy in the event of the death of the owner who is not the annuitant before
the annuity commencement date.
Surrender Charge--The applicable contingent deferred sales charge, assessed on
certain full surrenders or partial withdrawals of premium payments to cover
expenses relating to the sale of the policies.
Underlying Funds--The designated portfolios of: (1) Variable Insurance Products
Fund (Service Class 2), Variable Insurance Products Fund II (Initial and Service
Class 2), and Variable Insurance Products Fund III (Service Class 2), managed by
Fidelity Management & Research Company; (2) MFS Variable Insurance Trust,
managed by Massachusetts Financial Services Company; (3) Oppenheimer Variable
Account Funds, managed by OppenheimerFunds, Inc.; (4) STI Class Variable Trust,
managed by STI Capital Management, N.A.; and (5) WRL Series Fund, Inc. - WRL
Goldman Sachs Small Cap, subadvised by Goldman Sachs Asset Management - WRL
Janus Global and WRL Janus Growth, subadvised by Janus Capital Corporation - and
WRL VKAM Emerging Growth, subadvised by Van Kampen Asset Management Inc.
Valuation Period--The period of time from one determination of accumulation unit
and annuity unit values to the next subsequent determination of values. Such
determinations shall be made on each business day.
4
<PAGE>
Variable Annuity Payment(s)--Payment(s) made pursuant to an annuity payment
option which fluctuate as to dollar amount or payment term in relation to the
investment performance of the specified subaccounts within the separate account.
Written Notice--Written notice, signed by the owner, that gives PFL the
information it requires and is received at the administrative and service
office. For some transactions, PFL may accept an electronic notice such as
telephone instructions. Such electronic notice must meet the requirements PFL
establishes for such notices.
5
<PAGE>
In order to supplement the description in the prospectus, the following provides
additional information about PFL and the policy, which may be of interest to a
prospective purchaser.
THE POLICY--GENERAL PROVISIONS
Owner
The policy shall belong to the owner upon issuance of the policy after
completion of an application and delivery of the initial premium payment. While
the annuitant is living, the owner may: (1) assign the policy; (2) surrender the
policy; (3) amend or modify the policy with PFL's consent; (4) receive annuity
payments or name a payee to receive the payments; and (5) exercise, receive and
enjoy every other right and benefit contained in the policy. The exercise of
these rights may be subject to the consent of any assignee or irrevocable
beneficiary; and of the owner's spouse in a community or marital property state.
Unless PFL has been notified of a community or marital property interest in the
policy, it will rely on its good faith belief that no such interest exists and
will assume no responsibility for inquiry.
A successor owner can be named in the application or in a written notice. The
successor owner will become the new owner upon your death, if you predecease the
annuitant. If no successor owner survives you and you predecease the annuitant,
your estate will become the owner.
Note Carefully. If the owner does not name a successor owner, the owner's estate
- --------------
will become the new owner. If no probate estate is opened because the owner has
precluded the opening of a probate estate by means of a trust or other
instrument, unless PFL has received written notice of the trust as a successor
owner signed prior to the owner's death, that trust may not exercise ownership
rights to the policy. It may be necessary to open a probate estate in order to
exercise ownership rights to the policy if no successor owner is named in a
written notice received by PFL.
The owner may change the ownership of the policy in a written notice. When this
change takes effect, all rights of ownership in the policy will pass to the new
owner. A change of ownership may have tax consequences.
When there is a change of owner or successor owner, the change will not be
effective until it is recorded in our records. Once recorded, it will take
effect as of the date the owner signs the written notice, subject to any payment
PFL has made or action PFL has taken before recording the change. Changing the
owner or naming a new successor owner cancels any prior choice of successor
owner, but does not change the designation of the beneficiary or the annuitant.
If ownership is transferred (except to the owner's spouse) because the owner
dies before the annuitant, the adjusted policy value generally must be
distributed to the successor owner within five years of the owner's death, or if
the first payment begins within one year of the owner's death, payments must be
made for a period certain which does not exceed that successor owner's life
expectancy.
Entire Policy
The policy, any endorsements thereon, the application, and information provided
in lieu thereof constitute the entire contract between PFL and the owner. All
statements in the application are representations and not warranties. No
statement will cause the policy to be void or to be used in defense of a claim
unless contained in the application or information provided in lieu thereof.
Misstatement of Age or Sex
If the age or sex of the annuitant has been misstated, PFL will change the
annuity benefit payable to that which the premium payments would have purchased
for the correct age or sex. The dollar amount of any underpayment made by PFL
shall be paid in full with the next payment due such person or the beneficiary.
The dollar amount of any overpayment made by PFL due to any misstatement shall
be deducted from payments subsequently accruing to such
6
<PAGE>
person or beneficiary. Any underpayment or overpayment will include interest at
5% per year, from the date of the wrong payment to the date of the adjustment.
The age of the annuitant may be established at any time by the submission of
proof satisfactory to PFL.
Addition, Deletion, or Substitution of Investments
PFL cannot and does not guarantee that any of the subaccounts or portfolios will
always be available for premium payments, allocations, or transfers. PFL retains
the right, subject to any applicable law, to make certain changes in the
separate account and its investments. PFL reserves the right to eliminate the
shares of any portfolio held by a subaccount and/or to substitute shares of
another portfolio of the underlying funds, or of another registered open-end
management investment company for the shares of any portfolio, if the shares of
the portfolio are no longer available for investment or if, in PFL's judgment,
investment in any portfolio would be inappropriate in view of the purposes of
the separate account. To the extent required by the 1940 Act, substitutions of
shares attributable to an owner's interest in a subaccount will not be made
without prior notice to the owner and the prior approval of the Securities and
Exchange Commission (SEC). Nothing contained herein shall prevent the separate
account from purchasing other securities for other series or classes of variable
annuity policies, or from effecting an exchange between series or classes of
variable annuity policies on the basis of your requests.
New subaccounts may be established when, in the sole discretion of PFL,
marketing, tax, investment or other conditions warrant. Any new subaccounts may
be made available to existing owners on a basis to be determined by PFL. Each
additional subaccount will purchase shares in a mutual fund portfolio or other
investment vehicle. PFL may also eliminate one or more subaccounts if, in its
sole discretion, marketing, tax, investment or other conditions warrant such
change. In the event any subaccount is eliminated, PFL will notify owners and
request a reallocation of the amounts invested in the eliminated subaccount. If
no such reallocation is provided by the owner, PFL will reinvest the amounts
invested in the eliminated subaccount in the subaccount that invests in the
Fidelity - VIP Money Market portfolio (or in a similar portfolio of money market
instruments) or in another subaccount, if appropriate.
In the event of any such substitution or change, PFL may, by appropriate
endorsement, make such changes in the policies as may be necessary or
appropriate to reflect such substitution or change. Furthermore, if deemed to be
in the best interests of persons having voting rights under the policies, the
separate account may be (i) operated as a management company under the 1940 Act
or any other form permitted by law, (ii) deregistered under the 1940 Act in the
event such registration is no longer required or (iii) combined with one or more
other separate accounts. To the extent permitted by applicable law, PFL also may
(1) transfer the assets of the separate account associated with the policies to
another account or accounts, (2) restrict or eliminate any voting rights of
owners or other persons who have voting rights as to the separate account, (3)
create new separate accounts, (4) add new subaccounts to or remove existing
subaccounts from the separate account, or combine subaccounts, or (5) add new
underlying funds, or substitute a new fund for an existing fund.
Excess Interest Adjustment
Money that you withdraw from or apply to an annuity payment option from a
guaranteed period option of the fixed account before the end of its guaranteed
period (the number of years you specified the money would remain in the
guaranteed period option) may be subject to an excess interest adjustment. At
the time you request a withdrawal, if interest rates PFL set have risen since
the date of the initial guarantee, the excess interest adjustment will result in
a lower cash value. However, if interest rates have fallen since the date of the
initial guarantee, the excess interest adjustment will result in a higher cash
value.
Excess interest adjustments will not reduce the adjusted policy value for a
guaranteed period option below the amount paid into it, less any prior partial
withdrawals and transfers from that guaranteed period option, plus interest at
the policy's minimum guaranteed effective annual interest rate of 3%. This is
referred to as the excess interest adjustment floor.
The formula which will be used to determine the excess interest adjustment is:
7
<PAGE>
S*(G - C)*(M/12)
S = Gross amount being withdrawn that is subject to the excess interest
adjustment
G = Guaranteed Interest Rate applicable to S.
C = Current Guaranteed Interest Rate then being offered on new premium payments
for the next longer guaranteed period than "M". If this policy form or such
a guaranteed period is no longer offered, "C" will be the U.S. Treasury rate
for the next longer maturity (in whole years) than "M" on the 25th day of
the previous calendar month, plus up to 2%.
M = Number of months remaining in the current guaranteed period, rounded up to
the next higher whole number of months.
* = multiplication
/\= exponentiation
<TABLE>
<CAPTION>
Example 1 (Full Surrender, rates increase by 3%):
<S> <C>
- -------------------------------------------------------------------------------------------------------------------------------
Single premium: $50,000
- -------------------------------------------------------------------------------------------------------------------------------
Guarantee period: 5 Years
- -------------------------------------------------------------------------------------------------------------------------------
Guarantee rate: 5.50% per annum
- -------------------------------------------------------------------------------------------------------------------------------
Full surrender: middle of contract year 3
- -------------------------------------------------------------------------------------------------------------------------------
Policy value at middle of contract year 3 = 50,000* (1.055) /\ 2.5 = 57,161.18
- -------------------------------------------------------------------------------------------------------------------------------
Surrender charge free amount at middle of policy year 3 = 57,161.18* .30 = 17,148.35
- -------------------------------------------------------------------------------------------------------------------------------
Excess interest adjustment free amount at middle of policy = 57,161.18 -50,000 = 7,161.18
year 3
- -------------------------------------------------------------------------------------------------------------------------------
Amount subject to excess interest adjustment = 57,161.18 -7,161.18 = 50,000.00
- -------------------------------------------------------------------------------------------------------------------------------
Excess interest adjustment floor = 50,000* (1.03) /\ 2.5 = 53,834.80
- -------------------------------------------------------------------------------------------------------------------------------
Excess interest adjustment
G = .055
C = .085
M = 30
- -------------------------------------------------------------------------------------------------------------------------------
Excess interest adjustment = S* (G - C)* (M/12)
= 50,000.00* (.055 - .085)* (30/12)
= -3,750.00, but excess interest adjustment cannot cause the
adjusted policy value to fall below the excess interest
adjustment floor, so the adjustment is limited to 53,834.80
- 57,161.18 = -3,326.38
- -------------------------------------------------------------------------------------------------------------------------------
Adjusted policy value = policy value + excess interest adjustment
= 57,161.18 - 3,326.38 = 53,834.80
- -------------------------------------------------------------------------------------------------------------------------------
Surrender charge = (50,000 - 17,148.35)* .06 = 1,971.10
- -------------------------------------------------------------------------------------------------------------------------------
Cash value at middle of policy year 3 = policy value + excess interest adjustment -surrender charge
= 57,161.18 - 3,326.38 - 1,971.10
= 51,863.70
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
Example 2 (Full Surrender, rates decrease by 1%):
<S> <C>
- -------------------------------------------------------------------------------------------------------------------------------
Single premium: $50,000
- -------------------------------------------------------------------------------------------------------------------------------
Guarantee period: 5 Years
- -------------------------------------------------------------------------------------------------------------------------------
Guarantee rate: 5.50% per annum
- -------------------------------------------------------------------------------------------------------------------------------
Full surrender: middle of contract year 3
- -------------------------------------------------------------------------------------------------------------------------------
Policy value at middle of policy year 3 = 50,000* (1.055) /\ 2.5 = 57,161.18
- -------------------------------------------------------------------------------------------------------------------------------
Surrender charge free amount at middle of policy year 3 = 57,161.18* .30 = 17,148.35
- -------------------------------------------------------------------------------------------------------------------------------
Excess interest adjustment free amount at middle of policy = 57,161.18 - 50,000 = 7,161.18
year 3
- -------------------------------------------------------------------------------------------------------------------------------
Amount subject to excess interest adjustment = 57,161.18 - 7,161.18 = 50,000.00
- -------------------------------------------------------------------------------------------------------------------------------
Excess interest adjustment floor = 50,000* (1.03) /\ 2.5 = 53,834.80
- -------------------------------------------------------------------------------------------------------------------------------
Excess interest adjustment
G = .055
C = .045
M = 30
- -------------------------------------------------------------------------------------------------------------------------------
Excess interest adjustment = S* (G - C)* (M/12)
= 50,000* (.055 - .045)* (30/12)
= 1,250.00
- -------------------------------------------------------------------------------------------------------------------------------
Adjusted policy value = policy value + excess interest adjustment
= 57,161.18 + 1,250.00 = 58,411.18
- -------------------------------------------------------------------------------------------------------------------------------
Surrender charge = (50,000 - 17,148.35)* .06 = 1,971.10
- -------------------------------------------------------------------------------------------------------------------------------
Cash value at middle of policy year 3 = policy value + excess interest adjustment -surrender charge
= 57,161.18 + 1,250 - 1,971.10
= 56,440.08
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
On a partial withdrawal, PFL will pay the owner the full amount of withdrawal
requested (as long as the policy value is sufficient). Surrender charge--Free
withdrawals will reduce the policy value by the amount withdrawn. Amounts
withdrawn in excess of the surrender charge--Free amount will reduce the policy
value by an amount equal to:
X - Y + Z
X = excess partial withdrawal = requested withdrawal less cumulative free
percentage
Y = excess interest adjustment = (A)*(G - C)*(M/12) where G, C, and M
are defined above, with "A" substituted for "S" in the definition of G and
M.
A = amount of partial withdrawal which is subject to excess interest adjustment
= requested withdrawal--excess interest adjustment--cumulative free
percentage, where excess interest adjustment--cumulative free percentage =
cumulative interest credited at time of, but prior to, withdrawal.
Z = surrender charge on X minus Y.
9
<PAGE>
<TABLE>
<CAPTION>
Example 3 (Partial Withdrawal, rates increase by 1%):
<S> <C>
- -------------------------------------------------------------------------------------------------------------------------------
Single premium: $50,000
- -------------------------------------------------------------------------------------------------------------------------------
Guarantee period: 5 Years
- -------------------------------------------------------------------------------------------------------------------------------
Guarantee rate: 5.50% per annum
- -------------------------------------------------------------------------------------------------------------------------------
Partial surrender: $30,000; middle of contract year 3
- -------------------------------------------------------------------------------------------------------------------------------
Policy value at middle of policy year 3 = 50,000* (1.055) /\ 2.5 = 57,161.18
- -------------------------------------------------------------------------------------------------------------------------------
Surrender charge free amount at middle of policy year 3 = 57,161.18* .30 = 17,148.35
- -------------------------------------------------------------------------------------------------------------------------------
Excess interest adjustment free amount at middle of policy = 57,161.18 - 50,000 = 7,161.18
year 3
- -------------------------------------------------------------------------------------------------------------------------------
Excess interest adjustment / surrender charge
X = 30,000 -17,148.35 = 12,851.65
A = 30,000 -7,161.18 = 22,838.82
G = .055
C = .065
M = 30
Y = 22,838.82* (.055 -.065)* (30/12) = -570.97
Z = .06* [12,851.65 -(-570.97)] = 805.36
- -------------------------------------------------------------------------------------------------------------------------------
Reduction to policy value due to surrender charge-- = 17,148.35
- -------------------------------------------------------------------------------------------------------------------------------
Reduction to policy value due to excess withdrawal = X -Y + Z
= 12,851.65 - (-570.97) + 805.36
= 14,227.98
- -------------------------------------------------------------------------------------------------------------------------------
Policy value after withdrawal at middle of policy year 3 = 57,161.18 - [17,148.35 + 14,227.98]
= 57,161.18 - [17,148.35 + 12,851.65 - (-570.97) + 805.36]
= 57,161.18 - [30,000 - (-570.97) + 805.36]
= 57,161.18 -31,376.33 = 25,784.85
- -------------------------------------------------------------------------------------------------------------------------------
Example 4 (Partial Withdrawal, rates decrease by 1%):
- -------------------------------------------------------------------------------------------------------------------------------
Single premium: $50,000
- -------------------------------------------------------------------------------------------------------------------------------
Guarantee period: 5 Years
- -------------------------------------------------------------------------------------------------------------------------------
Guarantee rate: 5.50% per annum
- -------------------------------------------------------------------------------------------------------------------------------
Partial surrender: $30,000; middle of contract year 3
- -------------------------------------------------------------------------------------------------------------------------------
Policy value at middle of policy year 3 = 50,000 (1.055) /\ 2.5 = 57,161.18
- -------------------------------------------------------------------------------------------------------------------------------
Surrender charge free amount at middle of policy year 3 = 57,161.18* .30 = 17,148.35
- -------------------------------------------------------------------------------------------------------------------------------
Excess interest adjustment free amount at middle of policy = 57,161.18 -50,000 = 7,161.18
year 3
- -------------------------------------------------------------------------------------------------------------------------------
Excess interest adjustment / surrender charge
X = 30,000-17,148.35 = 12,851.65
A = 30,000-7,161.18 = 22,838.82
G = .055
C = .045
M = 30
Y = 22,838.82* (.055-.045)* (30/12) = 570.97
Z = .06* [12,851.65-(570.97)] = 736.84
- -------------------------------------------------------------------------------------------------------------------------------
Reduction to policy value due to surrender charge-- = 17,148.35
- -------------------------------------------------------------------------------------------------------------------------------
Reduction to policy value due to excess withdrawal = X -Y + Z
= 12,851.65 -570.97 + 736.84
= 13,017.52
- -------------------------------------------------------------------------------------------------------------------------------
Policy value after withdrawal at middle of policy year 3 = 57,161.18 -[17,148.35 + 13,017.52]
= 57,161.18 -[17,148.35 + 12,851.65 -570.97 + 736.84]
= 57,161.18 -[30,000 /\ (570.97) + 736.84]
= 57,161.18 -30,165.87 = 26,995.31
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
10
<PAGE>
Reallocation of Policy Values After the Annuity Commencement Date
After the annuity commencement date, the owner may reallocate the value of a
designated number of annuity units of a subaccount of the separate account then
credited to a policy into an equal value of annuity units of one or more other
subaccounts of the separate account, or the fixed account. An annuity unit is an
accounting unit used in the calculation of the amount of the second and each
subsequent variable annuity payment. The reallocation shall be based on the
relative value of the annuity units of the account(s) or subaccount(s) at the
end of the business day on the next payment date. The minimum amount which may
be reallocated is the lesser of (1) $10 of monthly income or (2) the entire
monthly income of the annuity units in the account or subaccount from which the
transfer is being made. If the monthly income of the annuity units remaining in
an account or subaccount after a reallocation is less than $10, PFL reserves the
right to include the value of those annuity units as part of the transfer. The
request must be in writing to PFL's administrative and service office. There is
no charge assessed in connection with such reallocation. A reallocation of
policy value may be made up to four times in any given policy year.
After the annuity commencement date, no transfers may be made from the fixed
account to the separate account.
Annuity Payment Options
During the lifetime of the annuitant and prior to the annuity commencement date,
the owner may choose an annuity payment option or change the election, but
written notice of any election or change of election must be received by PFL at
its administrative and service office at least thirty (30) days prior to the
annuity commencement date. If no election is made prior to the annuity
commencement date, annuity payments will be made under (i) Payment Option 3,
life income with fixed (level) payments for 10 years certain, using the existing
adjusted policy value of the fixed account, or (ii) under Payment Option 3, life
income with variable payments for 10 years certain using the existing policy
value of the separate account, or (iii) in a combination of (i) and (ii).
The person who elects an annuity payment option can also name one or more
successor payees to receive any unpaid amount PFL has at the death of a payee.
Naming these payees cancels any prior choice of a successor payee.
A payee who did not elect the annuity payment option does not have the right to
advance or assign payments, take the payments in one sum, or make any other
change. However, the payee may be given the right to do one or more of these
things if the person who elects the option tells PFL in writing and PFL agrees.
Variable Payment Options. The dollar amount of the first variable annuity
- -------------------------
payment will be determined in accordance with the annuity payment rates set
forth in the applicable table contained in the policy. The tables are based on a
5% effective annual Assumed Investment Return and the "1983 Table a" (male,
female, and unisex if required by law) mortality table with projection using
Scale G factors, assuming a maturity date in the year 2000. ("The 1983 Table a"
mortality rates are adjusted based on improvements in mortality since 1983 to
more appropriately reflect increased longevity. This is accomplished using a set
of improvement factors referred to as projection scale G.) The dollar amount of
additional variable annuity payments will vary based on the investment
performance of the subaccount(s) of the separate account selected by the
annuitant or beneficiary.
Determination of the First Variable Payment. The amount of the first variable
- --------------------------------------------
payment depends upon the sex (if consideration of sex is allowed under state
law) and adjusted age of the annuitant. The adjusted age is the annuitant's
actual age nearest birthday, on the annuity commencement date, adjusted as
follows:
Annuity Commencement Date Adjusted Age
------------------------- ------------
Before 2001 Actual Age
2001-2010 Actual Age minus 1
2011-2020 Actual Age minus 2
2021-2030 Actual Age minus 3
2031-2040 Actual Age minus 4
After 2040 As determined by PFL
11
<PAGE>
This adjustment assumes an increase in life expectancy, and therefore it results
in lower payments than without such an adjustment.
Determination of Additional Variable Payments. All variable annuity payments
- ----------------------------------------------
other than the first are calculated using annuity units which are credited to
the policy. The number of annuity units to be credited in respect of a
particular subaccount is determined by dividing that portion of the first
variable annuity payment attributable to that subaccount by the annuity unit
value of that subaccount on the annuity commencement date. The number of annuity
units of each particular subaccount credited to the policy then remains fixed,
assuming no transfers to or from that subaccount occur. The dollar value of
variable annuity units in the chosen subaccount will increase or decrease
reflecting the investment experience of the chosen subaccount. The dollar amount
of each variable annuity payment after the first may increase, decrease or
remain constant, and is equal to the sum of the amounts determined by
multiplying the number of annuity units of each particular subaccount credited
to the policy by the annuity unit value for the particular subaccount on the
date the payment is made.
Death Benefit
Adjusted Partial Withdrawal. The amount of your Guaranteed Minimum Death Benefit
- ----------------------------
is reduced due to a partial withdrawal called the adjusted partial withdrawal.
The reduction amount depends on the relationship between your guaranteed minimum
death benefit and policy value. The adjusted partial withdrawal is the sum of
(1) and (2), where:
(1) The surrender charge-free withdrawal amount taken; and
(2) The amount that an excess partial withdrawal (the portion of a
withdrawal that can be subject to a surrender charge) reduces the
policy value times [(a) divided by (b)] where:
(a) is the amount of the death benefit prior to the excess partial
withdrawal; and
(b) is the policy value prior to the excess partial withdrawal.
The following examples describe the effect of a withdrawal on the guaranteed
minimum death benefit and policy value.
<TABLE>
<S> <C>
- ------------------------------------------------------------------------------------------------------------------------------
EXAMPLE 1
(Assumed Facts for Example)
- ------------------------------------------------------------------------------------------------------------------------------
$75,000 current guaranteed minimum death benefit before withdrawal
- ------------------------------------------------------------------------------------------------------------------------------
$50,000 current policy value before withdrawal
- ------------------------------------------------------------------------------------------------------------------------------
$75,000 current death benefit (larger of policy value and guaranteed minimum death benefit)
- ------------------------------------------------------------------------------------------------------------------------------
6% current surrender charge percentage
- ------------------------------------------------------------------------------------------------------------------------------
$15,000 requested withdrawal
- ------------------------------------------------------------------------------------------------------------------------------
$10,000 surrender charge-free amount (assumes 20% cumulative free percentage is available)
- ------------------------------------------------------------------------------------------------------------------------------
$5,000 excess partial withdrawal (amount subject to surrender charge)
- ------------------------------------------------------------------------------------------------------------------------------
$100 excess interest adjustment--(assumes interest rates have decreased since initial guarantee)
- ------------------------------------------------------------------------------------------------------------------------------
$294 surrender charge on (excess partial withdrawal less excess interest adjustment)=0.06*(5000-100)
- ------------------------------------------------------------------------------------------------------------------------------
$5,194 reduction in policy value due to excess partial withdrawal = 5000-100+294
- ------------------------------------------------------------------------------------------------------------------------------
$17,791 adjusted partial withdrawal = $10,000+ [$5,194 * (75,000/50,000)]
- ------------------------------------------------------------------------------------------------------------------------------
$57,209 new guaranteed minimum death benefit (after withdrawal) = 75,000- 17,791
- ------------------------------------------------------------------------------------------------------------------------------
$34,806 new policy value (after withdrawal)=50,000-10,000-5,194
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Summary:
Reduction in guaranteed minimum death benefit = $17,791
Reduction in policy value = $15,194
Note, guaranteed minimum death benefit is reduced more than the policy value
since the guaranteed minimum death benefit was greater than the policy value
just prior to the withdrawal.
12
<PAGE>
<TABLE>
<S> <C>
- ------------------------------------------------------------------------------------------------------------------------------
EXAMPLE 2
(Assumed Facts for Example)
- ------------------------------------------------------------------------------------------------------------------------------
$50,000 current guaranteed minimum death benefit before withdrawal
- ------------------------------------------------------------------------------------------------------------------------------
$75,000 current policy value before withdrawal
- ------------------------------------------------------------------------------------------------------------------------------
$75,000 current death benefit (larger of policy value and guaranteed minimum death benefit)
- ------------------------------------------------------------------------------------------------------------------------------
6% current surrender charge percentage
- ------------------------------------------------------------------------------------------------------------------------------
$15,000 requested withdrawal
- ------------------------------------------------------------------------------------------------------------------------------
$11,250 surrender charge-free amount (assumes 15% cumulative free percentage is available)
- ------------------------------------------------------------------------------------------------------------------------------
$3,750 excess partial withdrawal (amount subject to surrender charge)
- ------------------------------------------------------------------------------------------------------------------------------
$-100 excess interest adjustment--(assumes interest rates have increased since initial guarantee)
- ------------------------------------------------------------------------------------------------------------------------------
$ 231 surrender charge on (excess partial withdrawal less excess interest adjustment)=0.06*[(3750-(-100))]
- ------------------------------------------------------------------------------------------------------------------------------
$4,081 reduction in policy value due to excess partial withdrawal=3750-(-100) +231 =3750 + 100 +231
- ------------------------------------------------------------------------------------------------------------------------------
$15,331 adjusted partial withdrawal = $11,250+ [$4,081 * (75,000/75,000)]
- ------------------------------------------------------------------------------------------------------------------------------
$34,669 new guaranteed minimum death benefit (after withdrawal) = 50,000-15,331
- ------------------------------------------------------------------------------------------------------------------------------
$59,669 new policy value (after withdrawal)=75,000in-11,250-4,081
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Summary:
Reduction in guaranteed minimum death benefit = $15,331
Reduction in policy value = $15,331
Note, guaranteed minimum death benefit and policy value are reduced by the same
amount since the policy value was equal to the guaranteed minimum death benefit
just prior to the withdrawal.
Due proof of death of the annuitant is proof that the annuitant who is the owner
died prior to the commencement of annuity payments. A certified copy of a death
certificate, a certified copy of a decree of a court of competent jurisdiction
as to the finding of death, a written statement by the attending physician, or
any other proof satisfactory to PFL, will constitute due proof of death. Upon
receipt of this proof and an election of a method of settlement and return of
the policy, the death benefit generally will be paid within seven days, or as
soon thereafter as PFL has sufficient information about the beneficiary to make
the payment. The beneficiary may receive the amount payable in a lump sum cash
benefit, or, subject to any limitation under any state or federal law, rule, or
regulation, under one of the annuity payment options described above, unless a
settlement agreement is effective at the death of the owner preventing such
election.
Distribution Requirements. If the annuitant was the owner, and the beneficiary
- --------------------------
was not the annuitant's spouse, the death benefit must (1) be distributed within
five years of the date of the deceased owner's death, or (2) payments under an
annuity payment option must begin no later than one year after the deceased
owner's death and must be made for the beneficiary's lifetime or for a period
certain (so long as any period certain does not exceed the beneficiary's life
expectancy). Death proceeds which are not paid to or for the benefit of a
natural person must be distributed within five years of the date of the deceased
owner's death. If the sole beneficiary is the deceased owner's surviving spouse,
such spouse may elect to continue the policy as the new annuitant and owner
instead of receiving the death benefit. (See "Certain Federal Income Tax
Consequences.")
If the annuitant is not the owner, and the owner dies prior to the annuity
commencement date, a successor owner may surrender the policy at any time for
the amount of the adjusted policy value. If the successor owner is not the
deceased owner's spouse, however, the adjusted policy value must be distributed:
(1) within five years after the date of the deceased owner's death, or (2)
payments under an annuity payment option must begin no later than one year after
the deceased owner's death and must be made for the successor owner's lifetime
or for a period certain (so long as any period certain does not exceed the
successor owner's life expectancy).
Beneficiary. The beneficiary designation in the application will remain in
- ------------
effect until changed. The owner may change the designated beneficiary by sending
written notice to PFL. The beneficiary's consent to such change is not required
unless the beneficiary was irrevocably designated or law requires consent. (If
an irrevocable beneficiary
13
<PAGE>
dies, the owner may then designate a new beneficiary.) The change will take
effect as of the date the owner signs the written notice, whether or not the
owner is living when the Notice is received by PFL. PFL will not be liable for
any payment made before the written notice is received. If more than one
beneficiary is designated, and the owner fails to specify their interests, they
will share equally.
Death of Owner
Federal tax law requires that if any owner (including any joint owner or any
successor owner who has become a current owner) dies before the annuity
commencement date, then the entire value of the policy must generally be
distributed within five years of the date of death of such owner. Certain rules
apply where (1) the spouse of the deceased owner is the sole beneficiary; (2)
the owner is not a natural person and the primary annuitant dies or is changed;
or (3) any owner dies after the annuity commencement date. See "Certain Federal
Income Tax Consequences" below for more information about these rules. Other
rules may apply to qualified policies.
Assignment
During the lifetime of the annuitant the owner may assign any rights or benefits
provided by the policy if your policy is a nonqualified policy. An assignment
will not be binding on PFL until a copy has been filed at its administrative and
service office. The rights and benefits of the owner and beneficiary are subject
to the rights of the assignee. PFL assumes no responsibility for the validity or
effect of any assignment. Any claim made under an assignment shall be subject to
proof of interest and the extent of the assignment. An assignment may have tax
consequences.
Unless you so direct by filing written notice with PFL, no beneficiary may
assign any payments under the policy before they are due. To the extent
permitted by law, no payments will be subject to the claims of any beneficiary's
creditors.
Ownership under qualified policies is restricted to comply with the Code.
Evidence of Survival
PFL reserves the right to require satisfactory evidence that a person is alive
if a payment is based on that person being alive. No payment will be made until
PFL receives such evidence.
Non-Participating
The policy will not share in PFL's surplus earnings; no dividends will be paid.
Amendments
No change in the policy is valid unless made in writing by PFL and approved by
one of PFL's officers. No registered representative has authority to change or
waive any provision of the policy.
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
14
<PAGE>
and charges including, but not limited to, the service charge, the surrender
charges, the mortality and expense risk fee and the administrative charge for
certain sales under circumstances which may result in savings of certain costs
and expenses. In addition, there may be other circumstances of which PFL is not
presently aware which could result in reduced sales or distribution expenses.
Credits to the policy or reductions in these fees and charges will not be
unfairly discriminatory against any owner.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following summary does not constitute tax advice. It is a general discussion
of certain of the expected federal income tax consequences of investment in and
distributions with respect to a policy, based on the Internal Revenue Code of
1986, as amended, proposed and final Treasury Regulations thereunder, judicial
authority, and current administrative rulings and practice. This summary
discusses only certain federal income tax consequences to "United States
Persons," and does not discuss state, local, or foreign tax consequences. United
States Persons means citizens or residents of the United States, domestic
corporations, domestic partnerships and trusts or estates that are subject to
United States federal income tax regardless of the source of their income.
Tax Status of the Policy
The following discussion is based on the assumption that the policy qualifies as
an annuity contract for federal income tax purposes.
Diversification Requirements. Section 817(h) of the Code provides that in order
- ----------------------------
for a variable contract which is based on a segregated asset account to qualify
as an annuity contract under the Code, the investments made by such account must
be "adequately diversified" in accordance with Treasury regulations. The
Treasury regulations issued under Section 817(h) (Treas. Reg. (S) 1.817-5)
apply a diversification requirement to each of the subaccounts of the separate
account. The separate account, through the underlying funds and their
portfolios, intends to comply with the diversification requirements of the
Treasury. PFL has entered into agreements regarding participation in the
Privilege Select that require the underlying funds and their portfolios to be
operated in compliance with the Treasury regulations.
Owner Control. In certain circumstances, owners of variable annuity contracts
- -------------
may be considered the owners, for federal income tax purposes, of the assets of
the separate account used to support their contracts. In those circumstances,
income and gains from the separate account assets would be includable in the
variable annuity contractowner's gross income. Several years ago, the Internal
Revenue Service stated in published rulings that a variable contractowner will
be considered the owner of separate account assets if the contractowner
possesses incidents of ownership in those assets, such as the ability to
exercise investment control over the assets. More recently, the Treasury
Department announced, in connection with the issuance of regulations concerning
investment diversification, that those regulations "do not provide guidance
concerning the circumstances in which investor control of the investments of a
segregated asset account may cause the investor, rather than the insurance
company, to be treated as the owner of the assets in the account." This
announcement also stated that guidance would be issued by way of regulations or
rulings on the "extent to which policyholders may direct their investments to
particular subaccounts without being treated as owners of underlying assets."
The ownership rights under the contract are similar to, but different in certain
respects from those described by the IRS in rulings in which it was determined
that contractowners were not owners of separate account assets. For example, the
owner of a policy has the choice of one or more subaccounts in which to allocate
premiums and policy values, and may be able to transfer among these accounts
more frequently than in such rulings. These differences could result in
policyowners being treated as the owners of the assets of the separate account.
In addition, PFL does not know what standards will be set forth, if any, in the
regulations or rulings which the Treasury Department has stated it expects to
issue. PFL therefore reserves the right to modify the policies as necessary to
attempt to prevent the policyowners from being considered the owners of a pro
rata share of the assets of the separate account.
15
<PAGE>
Distribution Requirements. The Code also requires that nonqualified policies
- -------------------------
contain specific provisions for distribution of policy proceeds upon the death
of any owner. In order to be treated as an annuity contract for federal income
tax purposes, the Code requires that such policies provide that if any owner
dies on or after the annuity commencement date and before the entire interest in
the policy has been distributed, the remaining portion must be distributed at
least as rapidly as under the method in effect on such owner's death. If any
owner dies before the annuity commencement date, the entire interest in the
policy must generally be distributed within five years after such owner's date
of death or be applied to provide an immediate annuity under which payments will
begin within one year of such owner's death and will be made for the life of the
beneficiary or for a period not extending beyond the life expectancy of the
beneficiary. However, if such owner's death occurs prior to the annuity
commencement date, and such owner's surviving spouse is named the beneficiary,
then the policy may be continued with the surviving spouse as the new owner. If
any owner is not a natural person, then for purposes of these distribution
requirements, the primary annuitant shall be treated as the owner and any death
or change of such primary annuitant shall be treated as the death of an owner.
The policy contains provisions intended to comply with these requirements of the
Code. No regulations interpreting these requirements of the Code have yet been
issued and thus no assurance can be given that the provisions contained in the
policies satisfy all such Code requirements. The provisions contained in the
policies will be reviewed and modified if necessary to maintain their compliance
with the Code requirements when clarified by regulation or otherwise.
Withholding. The portion of any distribution under a policy that is includable
- -----------
in gross income will be subject to federal income tax withholding unless the
recipient of such distribution elects not to have federal income tax withheld.
Election forms will be provided at the time distributions are requested or made.
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. Different withholding requirements may apply
in the case of non-United States persons.
Qualified Policies. The qualified policy is designed for use with several types
- ------------------
of tax-qualified retirement plans. The tax rules applicable to participants and
beneficiaries in tax-qualified retirement plans vary according to the type of
plan and the terms and conditions of the plan. Special favorable tax treatment
may be available for certain types of contributions and distributions. Adverse
tax consequences may result from contributions in excess of specified limits;
distributions prior to age 59 1/2 (subject to certain exceptions); distributions
that do not conform to specified commencement and minimum distribution rules;
and in other specified circumstances. Some retirement plans are subject to
distribution and other requirements that are not incorporated into PFL's policy
administration procedures. Owners, participants and beneficiaries are
responsible for determining that contributions, distributions and other
transactions with respect to the policies comply with applicable law.
For qualified plans under Section 401(a), 403(a), 403(b), and 457, the Code
requires that distributions generally must commence no later than the later of
April 1 of the calendar year following the calendar year in which the owner (or
plan participant) (i) reaches age 70 1/2 or (ii) retires, and must be made in a
specified form or manner. If the plan participant is a "5 percent owner" (as
defined in the Code), or if the policy is a traditional individual retirement
annuity, then distributions generally must begin no later than April 1 of the
calendar year in which the owner (or plan participant) reaches age 70 1/2. Each
owner is responsible for requesting distributions under the policy that satisfy
applicable tax rules.
PFL makes no attempt to provide more than general information about use of the
policy with the various types of retirement plans. Purchasers of policies for
use with any retirement plan should consult their legal counsel and tax adviser
regarding the suitability of the policy.
Individual Retirement Annuities. In order to qualify as a traditional individual
- -------------------------------
retirement annuity under Section 408(b) of the Code, a policy must contain
certain provisions: (i) the owner must be the annuitant; (ii) the policy
generally is not transferable by the owner, e.g., the owner may not designate a
new owner, designate a successor
16
<PAGE>
owner or assign the policy as collateral security; (iii) the total premium
payments for any calendar year on behalf of any individual may not exceed
$2,000, except in the case of a rollover amount or contribution under Sections
402(c), 403(a)(4), 403(b)(8) or 408(d)(3) of the Code; (iv) annuity payments or
partial withdrawals must begin no later than April 1 of the calendar year
following the calendar year in which the annuitant attains age 70 1/2; (v) an
annuity payment option with a Period Certain that will guarantee annuity
payments beyond the life expectancy of the annuitant and the beneficiary may not
be selected; (vi) certain payments of death benefits must be made in the event
the annuitant dies prior to the distribution of the policy value; and (vii) the
entire interest of the owner is non-forfeitable. Policies intended to qualify as
traditional individual retirement annuities under Section 408(b) of the Code
contain such provisions. Amounts in the IRA (other than nondeductible
contributions) are taxed when distributed from the IRA. Distributions prior to
age 59 1/2 (unless certain exceptions apply) are subject to a 10% penalty tax.
Section 408 of the Code also indicates that no part of the funds for an
individual retirement account or annuity ("IRA") may be invested in a life
insurance contract, but the regulations thereunder allow such funds to be
invested in an annuity policy that provides a death benefit that equals the
greater of the premiums paid or the cash value for the contract. The policy
provides an enhanced death benefit that could exceed the amount of such a
permissible death benefit, but it is unclear to what extent such an enhanced
death benefit could disqualify the policy under Section 408 of the Code. The
Internal Revenue Service has not reviewed the policy for qualification as an
IRA, and has not addressed in a ruling of general applicability whether an
enhanced death benefit provision, such as the provision in the policy, comports
with IRA qualification requirements.
Roth Individual Retirement Annuities (Roth IRA). The Roth IRA, under Section
- -----------------------------------------------
408A of the Code, contains many of the same provisions as a traditional IRA.
However, there are some differences. First, the contributions are not deductible
and must be made in cash or as a rollover or transfer from another Roth IRA or
other IRA. A rollover from or conversion of an IRA to a Roth IRA may be subject
to tax and other special rules may apply. You should consult a tax adviser
before combining any converted amounts with any other Roth IRA contributions,
including any other conversion amounts from other tax years. The Roth IRA is
available to individuals with earned income and whose adjusted gross income is
under $110,000 for single filers, $160,000 for married filing jointly, and
$10,000 for married filing separately. The amount per individual that may be
contributed to all IRAs (Roth and traditional) is $2,000. Secondly, the
distributions are taxed differently. The Roth IRA offers tax-free distributions
when made from assets which have been held in the account for 5 tax years and
are made after attaining age 59 1/2, to pay for qualified first time homebuyer
expenses (lifetime maximum of $10,000) or due to death or disability. All other
distributions are subject to income tax when made from earnings and may be
subject to a premature withdrawal penalty tax unless an exception applies.
Unlike the traditional IRA, there are no minimum required distributions during
the owner's lifetime; however, required distributions at death are the same.
Section 403(b) Plans. Under Section 403(b) of the Code, payments made by public
- --------------------
school systems and certain tax exempt organizations to purchase policies for
their employees are excludable from the gross income of the employee, subject to
certain limitations. However, such payments may be subject to FICA (Social
Security) taxes. The policy includes a death benefit that in some cases may
exceed the greater of the premium payments or the policy value. The death
benefit could be characterized as an incidental benefit, the amount of which is
limited in any tax-sheltered annuity under Section 403(b). Because the death
benefit may exceed this limitation, employers using the policy in connection
with such plans should consult their tax adviser. Additionally, in accordance
with the requirements of the Code, Section 403(b) annuities generally may not
permit distribution of (i) elective contributions made in years beginning after
December 31, 1988, and (ii) earnings on those contributions and (iii) earnings
on amounts attributed to elective contributions held as of the end of the last
year beginning before January 1, 1989. Distributions of such amounts will be
allowed only upon the death of the employee, on or after attainment of age 59
1/2, separation from service, disability, or financial hardship, except that
income attributable to elective contributions may not be distributed in the case
of hardship.
Corporate Pension and Profit Sharing Plans and H.R. 10 Plans. Sections 401(a)
- ------------------------------------------------------------
and 403(a) of the Code permit corporate employers to establish various types of
retirement plans for employees and self-employed individuals to establish
qualified plans for themselves and their employees. Such retirement plans may
permit the purchase of the policies to accumulate retirement savings. Adverse
tax consequences to the plan, the participant or both may result
17
<PAGE>
if the policy is assigned or transferred to any individual as a means to provide
benefit payments. The policy includes a death benefit that in some cases may
exceed the greater of the premium payments or the policy value. The death
benefit could be characterized as an incidental benefit, the amount of which is
limited in an pension or profit sharing plan. Because the death benefit may
exceed this limitation, employers using the policy in connection with such plans
should consult their tax adviser.
Deferred Compensation Plans. Section 457 of the Code, while not actually
- ---------------------------
providing for a qualified plan (as that term is not used in the Code), provides
for certain deferred compensation plans with respect to service for state
governments, local governments, political sub-divisions, agencies,
instrumentalities and certain affiliates of such entities, and tax exempt
organizations. The policies can be used with such plans. Under such plans a
participant may specify the form of investment in which his or her participation
will be made. For non-governmental 457 plans, all such investments, however, are
owned by, and are subject to, the claims of the general creditors of the
sponsoring employer. Depending on the terms of the particular plan, a
non-governmental employer may be entitled to draw on deferred amounts for
purposes unrelated to its Section 457 plan obligations. In general, all amounts
received under a Section 457 plan are taxable and are subject to federal income
tax withholding as wages.
Non-natural Persons. Pursuant to Section 72(u) of the Code, an annuity contract
- -------------------
held by a taxpayer other than a natural person generally will not be treated as
an annuity contract under the Code; accordingly, an owner who is not a natural
person will recognize as ordinary income for a taxable year the excess of (i)
the sum of the cash value as of the close of the taxable year and all previous
distributions under the policy over (ii) the sum of the premium payments paid
for the taxable year and any prior taxable year and the amounts includable in
gross income for any prior taxable year with respect to the policy. For these
purposes, the policy value at year-end may have to be increased by any positive
excess interest adjustment which could result from a full surrender at such
time. There is, however, no definitive guidance on the proper tax treatment of
excess interest adjustments and the owner should contact a competent tax adviser
with respect to the potential tax consequences of an excess interest adjustment.
Notwithstanding the preceding sentences in that paragraph, Section 72(u) of the
Code does not apply to (i) a policy where the nominal owner is not a natural
person but the beneficial owner of which is a natural person, (ii) a policy
acquired by the estate of a decedent by reason of such decedent's death, (iii) a
qualified policy (other than one qualifying under Section 457) or (iv) a
single-payment where the annuity the commencement date is no later than one year
from the date of the single premium payment; such policies are taxed as
described in the prospectus.
Taxation of PFL
PFL at present is taxed as a life insurance company under part I of subchapter L
of the Code. The separate account is treated as part of PFL and, accordingly,
will not be taxed separately as a "regulated investment company" under
subchapter M of the Code. PFL does not expect to incur any federal income tax
liability with respect to investment income and net capital gains arising from
the activities of the separate account retained as part of the reserves under
the policy. Based on this expectation, it is anticipated that no charges will be
made against the separate account for federal income taxes. If, in future years,
any federal income taxes are incurred by PFL with respect to the separate
account, PFL may make a charge to the separate account.
INVESTMENT EXPERIENCE
A "Net Investment Factor" is used to determine the value of accumulation units
and annuity units, and to determine annuity payment rates.
Accumulation Units
Allocations of a premium payment directed to a subaccount are credited in the
form of accumulation units. Each subaccount has a distinct accumulation unit
value. The number of units credited is determined by dividing the premium
payment or amount transferred to the subaccount by the accumulation unit value
of the subaccount as of the end of the valuation period during which the
allocation is made. For each subaccount, the accumulation unit value for a given
business day is based on the net asset value of a share of the corresponding
portfolio of the
18
<PAGE>
underlying funds less any applicable charges or fees. The investment performance
of the portfolio, expenses, and deductions of certain charges affect the value
of an accumulation unit.
Upon allocation to the selected subaccount of the separate account, premium
payments are converted into accumulation units of the subaccount. The number of
accumulation units to be credited is determined by dividing the dollar amount
allocated to each subaccount by the value of an accumulation unit for that
subaccount as next determined after the premium payment is received at the
administrative and service office or, in the case of the initial premium
payment, when the application is completed, whichever is later. The value of an
accumulation unit was arbitrarily determined at the inception of each
subaccount. Thereafter, the value of an accumulation unit is determined as of
the close of trading on each day the New York Stock Exchange is open for
business.
An index (the "net investment factor") which measures the investment performance
of a subaccount during a valuation period, is used to determine the value of an
accumulation unit for the next subsequent valuation period. The net investment
factor may be greater or less than or equal to one; therefore, the value of an
accumulation unit may increase, decrease or remain the same from one valuation
period to the next. The owner bears this investment risk. The net investment
performance of a subaccount and deduction of certain charges affect the
accumulation unit value.
The net investment factor for any subaccount for any valuation period is
determined by dividing (a) by (b) and subtracting (c) from the result, where:
(a) is the net result of:
. the net asset value per share of the shares held in the
subaccount determined at the end of the current valuation period;
plus
. 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
. a per share credit or charge for any taxes determined by PFL to
have resulted from the investment operations of the subaccount;
(b) the net asset value per share of the shares held in the subaccount
determined as of the end of the immediately preceding valuation
period; and
(c) is the charge for mortality and expense risk during the valuation
period (equal on an annual basis to 1.10% for the Return of Premium
Death Benefit and 1.25% for both the 5% Growth through age 80 Death
Benefit or the Annual Step-Up through age 80 Death Benefit) of the
daily net asset value of the subaccount, plus the .15% administrative
charge for all three Death Benefit Options.
Illustration of Accumulation Unit Value Calculations
Formula and Illustration for Determining the Net Investment Factor
(Assume Either the 5% Growth through age 80 Death Benefit or
the Annual Step-Up through age 80 Death Benefit is in effect.)
Investment Experience Factor = (A + B - C) - E
-----------
D
Where: A = The net asset value of an underlying fund share as of the end of
the current valuation period. Assume...................A = $11.57
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
19
<PAGE>
D = The net asset value of an underlying fund share at the end of the
immediately preceding valuation period. Assume.........D = $11.40
E = The daily deduction for mortality and expense risk fee and
administrative charges, which totals 1.40% on an annual basis.
On a daily basis................................... = .0000380909
<TABLE>
<S> <C>
Then, the net investment factor = (11.57 + 0 - 0) - .0000380909 = Z = 1.0148741898
--------------
11.40
</TABLE>
Formula and Illustration for Determining Accumulation Unit Value
Accumulation unit value = A * B
Where: A = The accumulation unit value for the immediately preceding
valuation period. Assume................................. = $X
B = The net investment factor for the current valuation period.
Assume.................................................... = Y
Then, the accumulation unit value = $X * Y = $Z
Annuity Unit Value and Annuity Payment Rates
The amount of variable annuity payments will vary with annuity unit values.
Annuity unit values rise if the net investment performance of the subaccount
exceeds the assumed interest rate of 5% annually. Conversely, annuity unit
values fall if the net investment performance of the subaccount is less than the
assumed rate. The value of a variable annuity unit in each subaccount was
established at $1.00 on the date operations began for that subaccount. The value
of a variable annuity unit on any subsequent business day is equal to (a)
multiplied by (b) multiplied by
(c), where:
(a) is the variable annuity unit value for that subaccount on the immediately
preceding business day;
(b) is the net investment factor for that subaccount for the valuation period;
and
(c) is the investment result adjustment factor for the valuation period.
The investment result adjustment factor for the valuation period is the product
of discount factors of .99986634 per day to recognize the 5% effective annual
Assumed Investment Return. The valuation period is the period from the close of
the immediately preceding business day to the close of the current business day.
The net investment factor for the policy used to calculate the value of a
variable annuity unit in each subaccount for the valuation period is determined
by dividing (i) by (ii) and subtracting (iii) from the result, where:
(i) is the result of:
. the net asset value of a fund share held in that subaccount
determined at the end of the current valuation period; plus
. the per share amount of any dividend or capital gain distributions
made by the fund for shares held in that subaccount if the ex-
dividend date occurs during the valuation period; plus or minus
. a per share charge or credit for any taxes reserved for, which PFL
determines to have resulted from the investment operations of the
subaccount.
(ii) is the net asset value of a fund share held in that subaccount determined
as of the end of the immediately preceding valuation period.
(iii) is a factor representing the mortality and expense risk fee and
administrative charge. This factor is equal, on an annual basis, to 1.25%
(for Death Benefit Option A) or 1.40% (for Death Benefit Options B and C)
of the daily net asset value of a fund share held in that subaccount.
20
<PAGE>
The dollar amount of subsequent variable annuity payments will depend upon
changes in applicable annuity unit values.
The annuity payment rates vary according to the annuity option elected and the
sex and adjusted age of the annuitant at the annuity commencement date. The
policy also contains a table for determining the adjusted age of the annuitant.
Illustration of Calculations for Annuity Unit Value
and Variable Annuity Payments
Formula and Illustration for Determining Annuity Unit Value
Annuity unit value = A * B * C
Where: A = Annuity unit value for the immediately preceding valuation
period. Assume............................................= $X
B = Investment experience factor for the valuation period for
which the annuity unit value is being calculated.
Assume....................................................= Y
C = A factor to neutralize the assumed interest rate of 5% built
into the annuity tables used. Assume......................= Z
Then, the annuity unit value is:
$X * Y * Z = $Q
Formula and Illustration for Determining Amount of
First Monthly Variable Annuity Payment
First monthly variable annuity payment = A * B
-----
$1,000
Where: A = The policy value as of the annuity commencement date.
Assume....................................................= $X
B = The annuity purchase rate per $1,000 based upon the option
selected, the sex and adjusted age of the annuitant according
to the tables contained in the policy. Assume.............= $Y
Then, the first monthly variable annuity payment = $X * $Y = $Z
-------
1,000
Formula and Illustration for Determining the Number of Annuity Units
Represented by Each Monthly Variable Annuity Payment
Number of annuity units = A
-
B
Where: A = The dollar amount of the first monthly variable annuity
payment. Assume...........................................= $X
B = The annuity unit value for the valuation date on which the
first monthly payment is due. Assume......................= $Y
Then, the number of annuity units = $X = Z
--
$Y
21
<PAGE>
FAMILY INCOME PROTECTOR--ADDITIONAL INFORMATION
The amounts shown below are hypothetical guaranteed minimum monthly payment
amounts under the "family income protector" for a $100,000 premium when annuity
payments do not begin until the rider anniversary indicated in the left-hand
column. These figures assume the following:
. there were no subsequent premium payments or withdrawals;
. there were no premium taxes;
. the $100,000 premium is subject to the family income protector;
. the annuitant is (or both annuitants are) 60 years old when the rider
is issued;
. the annual growth rate is 6.0% (once established, an annual growth
rate will not change during the life of the family income protector
rider); and
. there was no upgrade of the minimum annuitization value.
Six different annuity payment options are illustrated: a male annuitant, a
female annuitant and a joint and survivor annuity, each on a Life Only and a
Life with 10 Year Certain basis. The figures below, which are the amount of the
first monthly payment, are based on an assumed investment return of 3%.
Subsequent payments will never be less than the amount of the first payment
(although subsequent payments are calculated using a 5% assumed investment
return).
Illustrations of guaranteed minimum payments based on other assumptions will be
provided upon request.
<TABLE>
<CAPTION>
Life Only = Life Annuity with No Period Certain Life 10 = Life Annuity with 10 Years Certain
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------
Rider Anniversary at
Exercise Date Male Female Joint & Survivor
- ------------------------------------------------------------------------------------------------------------------------
Life Only Life 10 Life Only Life 10 Life Only Life 10
- ------------------------------------------------------------------------------------------------------------------------
10 (age 70) $1,135 $1,067 $ 976 $ 949 $ 854 $ 852
- ------------------------------------------------------------------------------------------------------------------------
15 1,833 1,634 1,563 1,469 1,332 1,318
- ------------------------------------------------------------------------------------------------------------------------
20 (age 80) 3,050 2,479 2,598 2,287 2,146 2,078
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
This hypothetical illustration should not be deemed representative of past or
future performance of any underlying variable investment option.
Withdrawals will affect the minimum annuitization value as follows: Each policy
year, withdrawals up to the limit of the total free amount (the minimum
annuitization value on the last policy anniversary multiplied by the annual
growth rate) reduce the minimum annuitization value on a dollar-for-dollar
basis. Withdrawals over this free amount will reduce the minimum annuitization
value on a pro rata basis by an amount equal to the minimum annuitization value
immediately prior to the excess withdrawal multiplied by the percentage
reduction in the policy value resulting from the excess withdrawal. The free
amount will always be a relatively small fraction of the minimum annuitization
value.
Examples of the effect of withdrawals on the minimum annuitization value are as
follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
EXAMPLE 1
- ---------------------------------------------------------------------------------------------------
Assumptions
<S> <C>
. minimum annuitization value on last policy anniversary: $10,000
. minimum annuitization value at time of distribution: $10,500
. policy value at time of distribution: $15,000
. distribution amount: $500
. prior distribution in current policy year: None
- ---------------------------------------------------------------------------------------------------
Calculations
. maximum annual free amount: $10,000 x 6% = $600
. policy value after distribution: $15,000 - $500 = $14,500
. minimum annual value after distribution: $10,500 - $500 = $10,000
- ---------------------------------------------------------------------------------------------------
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
EXAMPLE 2
- --------------------------------------------------------------------------------------------------------------------
Assumptions
<S> <C>
. minimum annuitization value on last policy anniversary: $10,000
. minimum annuitization value at time of distribution: $10,500
. policy value at time of distribution: $15,000
. distribution amount: $1,500
. prior distribution in current policy year: $1,000
- --------------------------------------------------------------------------------------------------------------------
Calculations
. maximum annual free amount: $0.0
(prior distributions have exceeded the current year free amount of $600 [$10,000 x 6% = $600])
. policy value after distribution: $15,000 - $1,500 = $13,500
(since the policy value is reduced 10% ($1,500/$15,000), the minimum annuitization value is also reduced 10%)
. minimum annual value after distribution: $10,500 - (10% x $10,500) = $9,450
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
EXAMPLE 3
- --------------------------------------------------------------------------------------------------------------------
Assumptions
. minimum annuitization value on last policy anniversary: $10,000
. minimum annuitization value at time of distribution: $10,500
. policy value at time of distribution: $7,500
. distribution amount: $1,500
. prior distribution in current policy year: $1,000
- --------------------------------------------------------------------------------------------------------------------
Calculations
. maximum annual free amount: $0.0
(prior distributions have exceeded the current year free amount of $600 [$10,000 x 6% = $600])
. policy value after distribution: $7,500 - $1,500 = $6,000
(since the policy value is reduced 20% ($1,500/$7,500), the minimum annuitization value is also reduced 20%)
. minimum annual value after distribution: $10,500 - (20% x $10,500) = $8,400
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
The amount of the first payment provided by the family income protector will be
determined by multiplying each $1,000 of minimum annuitization value by the
applicable annuity factor shown on Schedule I of the family income protector
rider. The applicable annuity factor depends upon the annuitant's (and joint
annuitant's, if any) sex (or without regard to gender if required by law), age,
and the family income protector payment option selected and is based on a
guaranteed interest rate of 3% and the "1983 Table a" mortality table with
projection using Scale G factors, assuming a maturity date in the year 2000.
Subsequent payments will be calculated as described in the family income
protector rider using a 5% assumed investment return. Subsequent payments may
fluctuate annually in accordance with the investment performance of the annuity
subaccounts. However, subsequent payments are guaranteed to never be less than
the initial payment.
The stabilized payment on each subsequent policy anniversary after annuitization
using the family income protector will equal the greater of the initial payment
or the payment supportable by the annuity units in the selected subaccounts. The
supportable payment is equal to the number of variable annuity units in the
selected subaccounts multiplied by the variable annuity unit values in those
subaccounts on the date the payment is made. The variable annuity unit values
used to calculate the supportable payment will assume a 5% assumed investment
return. If the supportable payment at any payment date during a policy year is
greater than the stabilized payment for that policy year, the excess will be
used to purchase additional annuity units. Conversely, if the supportable
payment at any payment date during a policy year is less than the stabilized
payment for that policy year, there will be a reduction in the number of annuity
units credited to the policy to fund the deficiency. In the case of a reduction,
you will not participate as fully in the future investment performance of the
subaccounts you selected since fewer annuity units are credited to your policy.
Purchases and reductions will be allocated to each subaccount on a proportionate
basis.
PFL bears the risk that it will need to make payments if all annuity units have
been used in an attempt to maintain the stabilized payment at the initial
payment level. In such an event, PFL will make all future payments equal to the
initial payment. Once all the annuity units have been used, the amount of your
payment will not increase or decrease
23
<PAGE>
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 Fidelity
- - VIP Money Market Subaccount for a 7-day period in a manner which does not take
into consideration any realized or unrealized gains or losses on shares of the
portfolio securities. This current annualized yield is computed by determining
the net change (exclusive of realized gains and losses on the sale of securities
and unrealized appreciation and depreciation and income other than investment
income) at the end of the 7-day period in the value of a hypothetical account
having a balance of 1 unit at the beginning of the 7-day period, dividing such
net change in account value by the value of the account at the beginning of the
period to determine the base period return, and annualizing this quotient on a
365-day basis. The net change in account value reflects (i) net income from the
portfolio attributable to the hypothetical account; and (ii) charges and
deductions imposed under a policy that are attributable to the hypothetical
account. The charges and deductions include the per unit charges for the
hypothetical account for (i) the administrative charges; and (ii) the mortality
and expense risk fee. Current Yield will be calculated according to the
following formula:
Current Yield = ((NCS * ES)/UV) * (365/7)
Where:
NCS = The net change in the value of the portfolio (exclusive of realized gains
and losses on the sale of securities and unrealized appreciation and
depreciation and income other than investment income) for the 7-day period
attributable to a hypothetical account having a balance of 1 subaccount
unit.
ES = Per unit expenses of the subaccount for the 7-day period.
UV = The unit value on the first day of the 7-day period.
Because of the charges and deductions imposed under a policy, the yield for the
Fidelity - VIP Money Market Subaccount will be lower than the yield for the
Fidelity - VIP Money Market Portfolio. The yield calculations do not reflect the
effect of any premium taxes or surrender charges that may be applicable to a
particular policy. Surrender charges range from 6% to 0% of the amount of
premium payments withdrawn based on the number of years since the premium
payment was made. However, surrender charges will not be assessed after the
tenth policy year.
PFL may also disclose the effective yield of the Fidelity - VIP Money Market
Subaccount for the same 7-day period, determined on a compounded basis. The
effective yield is calculated by compounding the base period return according to
the following formula:
Effective Yield = (1 + ((NCS - ES)/UV))365/7 - 1
Where:
NCS = The net change in the value of the account (exclusive of realized gains
and losses on the sale of securities and unrealized appreciation and
depreciation and income other than investment income) for the 7-day period
attributable to a hypothetical account having a balance of 1 subaccount
unit.
ES = Per unit expenses of the subaccount for the 7-day period.
UV = The unit value on the first day of the 7-day period.
The yield on amounts held in the Fidelity - VIP Money Market Subaccount normally
will fluctuate on a daily basis. Therefore, the disclosed yield for any given
past period is not an indication or representation of future yields or rates of
return. The Fidelity - VIP Money Market Subaccount actual yield is affected by
changes in interest rates on money market securities, average portfolio maturity
of the Fidelity - VIP Money Market Portfolio, the types and quality of portfolio
securities held by the Fidelity - VIP Money Market Portfolio and its operating
expenses. There was no yield or effective yield for the Fidelity - VIP Money
Market Subaccount for the seven days ended December 31, 1999, because the
Fidelity - VIP Money Market subaccount had not yet commenced operations.
24
<PAGE>
Other Subaccount Yields
PFL may from time to time advertise or disclose the current annualized yield of
one or more of the subaccounts of the separate account (except the Fidelity -VIP
Money Market Subaccount) for 30-day periods. The annualized yield of a
subaccount refers to income generated by the subaccount over a specific 30-day
period. Because the yield is annualized, the yield generated by a subaccount
during the 30-day period is assumed to be generated each 30-day period over a
12-month period. The yield is computed by: (i) dividing the net investment
income of the subaccount less subaccount expenses for the period, by (ii) the
maximum offering price per unit on the last day of the period times the daily
average number of units outstanding for the period, compounding that yield for a
6-month period, and (iii) multiplying that result by 2. Expenses attributable to
the subaccount include (i) the administrative charge and (ii) the mortality and
expense risk fee. The 30-day yield is calculated according to the following
formula:
Yield = 2 * ((((NI - ES)/(U * UV)) + 1)6 - 1)
Where:
NI = Net investment income of the subaccount for the 30-day period attributable
to the subaccount's unit.
ES = Expenses of the subaccount for the 30-day period.
U = The average number of units outstanding.
UV = The unit value at the close (highest) of the last day in the 30-day period.
Because of the charges and deductions imposed by the separate account, the yield
for a subaccount of the separate account will be lower than the yield for its
corresponding portfolio. The yield calculations do not reflect the effect of any
premium taxes or surrender charges that may be applicable to a particular
policy. Surrender charges range from 6% to 0% of the amount of premium payments
withdrawn based on the number of years since the premium payment was made.
However, surrender charges will not be assessed after the tenth policy year.
The yield on amounts held in the subaccounts of the separate account normally
will fluctuate over time. Therefore, the disclosed yield for any given past
period is not an indication or representation of future yields or rates of
return. The types and quality of its investments and its operating expenses
affect a subaccount's actual yield.
Total Returns
PFL may from time to time also advertise or disclose total returns for one or
more of the subaccounts of the separate account for various periods of time. One
of the periods of time will include the period measured from the date the
subaccount commenced operations. When a subaccount has been in operation for 1,
5 and 10 years, respectively, the total return for these periods will be
provided. Total returns for other periods of time may from time to time also be
disclosed. Total returns represent the average annual compounded rates of return
that would equate an initial investment of $1,000 to the redemption value of
that investment as of the last day of each of the periods. The ending date for
each period for which total return quotations are provided will be for the most
recent month end practicable, considering the type and media of the
communication and will be stated in the communication.
Total returns will be calculated using subaccount unit values which PFL
calculates on each business day based on the performance of the subaccount's
underlying portfolio, and the deductions for the mortality and expense risk fee
and the administrative charges. Total return calculations will reflect the
effect of surrender charges that may be applicable to a particular period. The
total return will then be calculated according to the following formula:
P (1 + T)N = ERV
Where:
T = The average annual total return net of subaccount recurring charges.
ERV = The ending redeemable value of the hypothetical account at the end of the
period.
P = A hypothetical initial payment of $1,000.
N = The number of years in the period.
25
<PAGE>
Other Performance Data
PFL may from time to time also disclose average annual total returns in a
non-standard format in conjunction with the standard format described above. The
non-standard format will be identical to the standard format except that the
surrender charge percentage will be assumed to be 0%.
PFL may from time to time also disclose cumulative total returns in conjunction
with the standard format described above. The cumulative returns will be
calculated using the following formula assuming that the surrender charge
percentage will be 0%.
CTR = (ERV/P) -1
Where:
CTR = The cumulative total return net of subaccount recurring charges for the
period.
ERV = The ending redeemable value of the hypothetical investment at the
end of the period.
P = A hypothetical initial payment of $1,000.
All non-standardized performance data will only be advertised if the
standardized performance data for the same period, as well as for the required
period, is also disclosed.
Adjusted Historical Performance Data
From time to time, sales literature or advertisements may quote average annual
total returns for periods prior to the date the separate account commenced
operations. Such performance information for the subaccounts will be calculated
based on the performance of the various portfolios and the assumption that the
subaccounts were in existence for the same periods as those indicated for the
portfolios, with the level of policy charges that were in effect at the
inception of the subaccounts.
PUBLISHED RATINGS
PFL may from time to time publish in advertisements, sales literature and
reports to owners, the ratings and other information assigned to it by one or
more independent rating organizations such as A.M. Best Company, Standard &
Poor's Insurance Ratings Services, Moody's Investors Service and Duff & Phelps
Credit Rating Co. The purpose of the ratings is to reflect the financial
strength and/or claims-paying ability of PFL and they should not be considered
as bearing on the investment performance of assets held in the separate account
or of the safety or riskiness of an investment in the separate account. Each
year the A.M. Best Company reviews the financial status of thousands of
insurers, culminating in the assignment of Best's ratings. These ratings reflect
their current opinion of the relative financial strength and operating
performance of an insurance company in comparison to the norms of the
life/health insurance industry. In addition, the claims-paying ability of PFL as
measured by Standard & Poor's Insurance Ratings Services, Moody's Investors
Service or Duff & Phelps Credit Rating Co. may be referred to in advertisements
or sales literature or in reports to owners. These ratings are opinions of an
operating insurance company's financial capacity to meet the obligations of its
insurance policies in accordance with their terms. Claims-paying ability ratings
do not refer to an insurer's ability to meet non-policy obligations such as debt
or commercial paper obligations.
STATE REGULATION OF PFL
PFL is subject to the laws of Iowa governing insurance companies and to
regulation by the Iowa Division of Insurance. An annual statement in a
prescribed form is filed with the Division of Insurance each year covering the
operation of PFL for the preceding year and its financial condition as of the
end of such year. Regulation by the Division of Insurance includes periodic
examination to determine PFL's contract liabilities and reserves so that the
Division may determine the items are correct. PFL's books and accounts are
subject to review by the Division of Insurance at all times and a full
examination of its operations is conducted periodically by the National
Association
26
<PAGE>
of Insurance Commissioners. In addition, PFL is subject to regulation under the
insurance laws of other jurisdictions in which it may operate.
ADMINISTRATION
PFL performs administrative services for the policies. These services include
issuance of the policies, maintenance of records concerning the policies, and
certain valuation services.
RECORDS AND REPORTS
All records and accounts relating to the separate account will be maintained by
PFL. As presently required by the Investment Company Act of 1940 and regulations
promulgated thereunder, PFL will mail to all owners at their last known address
of record, at least annually, reports containing such information as may be
required under that Act or by any other applicable law or regulation. Owners
will also receive confirmation of each financial transaction and any other
reports required by law or regulation.
DISTRIBUTION OF THE POLICIES
The policies are offered to the public through brokers licensed under the
federal securities laws and state insurance laws. The offering of the policies
is continuous and PFL does not anticipate discontinuing the offering of the
policies, however, PFL reserves the right to do so.
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 SAI.
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 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.
27
<PAGE>
Each person having a voting interest in a subaccount will receive proxy
material, reports, and other materials relating to the appropriate portfolio.
OTHER PRODUCTS
PFL makes other variable annuity policies available that may also be funded
through the separate account. These variable annuity policies may have different
features, such as different investment choices or charges.
CUSTODY OF ASSETS
PFL holds assets of each of the subaccounts of the separate account. The assets
of each of the subaccounts of the separate account are segregated and held
separate and apart from the assets of the other subaccounts and from PFL's
general account assets. PFL maintains records of all purchases and redemptions
of shares of the underlying funds held by each of the subaccounts. Additional
protection for the assets of the separate account is afforded by PFL's fidelity
bond, presently in the amount of $5,000,000, covering the acts of officers and
employees of PFL.
LEGAL MATTERS
Sutherland Asbill & Brennan LLP, of Washington D.C has provided legal advice to
PFL relating to certain matters under the federal securities laws applicable to
the issue and sale of the policies.
INDEPENDENT AUDITORS
The statutory-basis financial statements and schedules of PFL as of December 31,
1999 and 1998, and for each of the three years in the period ended December 31,
1999, included in this SAI have been audited by Ernst & Young LLP, Independent
Auditors, Suite 3400, 801 Grand Avenue, Des Moines, Iowa 50309. There are no
financial statements of the separate account because it had not commenced
operations as of December 31, 1999.
OTHER INFORMATION
A Registration Statement has been filed with the Securities and Exchange
Commission, under the Securities Act of 1933 as amended, with respect to the
policies discussed in this SAI. Not all of the information set forth in the
Registration Statement, amendments and exhibits thereto has been included in the
prospectus or this SAI. Statements contained in the prospectus and this SAI
concerning the content of the policies and other legal instruments are intended
to be summaries. For a complete statement of the terms of these documents,
reference should be made to the instruments filed with the Securities and
Exchange Commission.
FINANCIAL STATEMENTS
The values of the interest of owners in the separate account will be affected
solely by the investment results of the selected subaccount(s). The financial
statements of PFL, which are included in this SAI, should be considered only as
bearing on the ability of PFL to meet its obligations under the policies. They
should not be considered as bearing on the investment performance of the assets
held in the separate account.
28
<PAGE>
PART C OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements
All required financial statements are included in Part B of this
Registration Statement.
(b) Exhibits:
(1) (a) Resolution of the Board of Directors of PFL Life
Insurance Company authorizing establishment of the
Mutual Fund Account. Note 8.
(2) Not Applicable.
(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. Note 8.
(b) Form of Broker/Dealer Supervision and Sales
Agreement by and between AFSG Securities Corporation
and the Broker/Dealer. Note 8.
(4) (a) Form of Policy. Note 9.
(5) (a) Form of Application. Note 9.
(6) (a) Articles of Incorporation of PFL Life Insurance
Company. Note 1.
(b) ByLaws of PFL Life Insurance Company. Note 1.
(7) Not Applicable.
(8) (a)(1) Participation Agreement among Variable Insurance
Products Fund, Fidelity Distributors Corporation and
PFL Life Insurance Company. Note 2.
(a)(2) Amended Schedule A to Participation Agreement among
Variable Insurance Products Fund, Fidelity
Distributors Corporation and PFL Life Insurance
Company. Note 8.
(b)(1) Participation Agreement among Variable Insurance
Products Fund II, Fidelity Distributors Corporation
and PFL Life Insurance Company. Note 2.
(b)(2) Amended Schedule A to Participation Agreement among
Variable Insurance Products Fund II, Fidelity
Distributors Corporation and PFL Life Insurance
Company. Note 8.
(c)(1) Participation Agreement among Variable Insurance
Products Fund III, Fidelity Distributors Corporation
and PFL Life Insurance Company. Note 3.
(c)(2) Amended Schedule A to Participation Agreement among
Variable Insurance Products Fund III, Fidelity
Distributors Corporation and PFL Life Insurance
Company. Note 8.
<PAGE>
(d)(1) Participation among MFS Variable Insurance Trust,
PFL Life Insurance Company and Massachusetts
Financial Services Company. Note 4.
(d)(2) Partial Termination of Participation Agreement among
MFS Variable Insurance Trust, PFL Life Insurance
Company and Massachusetts Financial Services
Company. Note 5.
(d)(3) Amendment to Participation Agreement among MFS
Variable Insurance Trust, PFL Life Insurance Company
and Massachusetts Financial Services Company. Note
9.
(e)(1) Participation Agreement among Putnam Variable Trust,
Putnam Mutual Funds Corp., and PFL Life Insurance
Company. Note 6.
(e)(2) Amendment to Participation Agreement among Putnam
Variable Trust, Putnam Mutual Funds Corp., and PFL
Life Insurance Company. Note 9.
(f) Participation Agreement among Suntrust and PFL Life
Insurance Company. Note 9.
(g)(1) Participation Agreement among WRL Series Fund, Inc.,
PFL Life Insurance Company, AUSA Life Insurance
Company, Inc. and Peoples Benefit Life Insurance
Company. Note 7.
(g)(2) Amendment to Participation Agreement among WRL
Series Fund, Inc. PFL Life Insurance Company, AUSA
Life Insurance Company, Inc., and Peoples Benefit
Life Insurance Company. Note 9.
(9) Opinion and Consent of Counsel. Note 9.
(10) (a) Consent of Independent Auditors. Note 9.
(b) Opinion and Consent of Actuary. Note 9.
(11) Not applicable.
(12) Not applicable.
(13) Performance Data Calculations. Note 9.
(14) Powers of Attorney. (P.S. Baird, C.D. Vermie, W.L.
Busler, L.N. Norman, D.C. Kolsrud, R.J. Kontz, B.K.
Clancy) Note 8.
Note 1. Incorporated by reference to the Initial Filing to Form N-4
Registration Statement (File No. 333-26209) on April 30, 1997.
Note 2. Incorporated by reference to Post-Effective Amendment No. 8 to
Form N-4 Registration Statement (File No. 33-37498) on April 28,
1999.
Note 3. Incorporated by reference to Post-Effective Amendment No. 7 to
Form N-4 Registration Statement (File No. 33-37498) on April 29,
1997.
<PAGE>
Note 4. Incorporated by reference to Post-Effective Amendment No. 2 to
Form N-4 Registration Statement (File No. 333-7509) on December
23, 1997.
Note 5. Incorporated by reference to Post-Effective Amendment No. 8 to
Form N-4 Registration Statement (File No. 333-7509) on April 29,
1999.
Note 6. Incorporated by reference to Post-Effective Amendment No. 5 to
Form N-4 Registration Statement (File No. 333-7509) on July 16,
1998.
Note 7. Incorporated by reference to Post-Effective Amendment No. 1 to
Form N-4 Registration Statement (File No. 333-26209) on April
29, 1998.
Note 8. Filed herewith
Note 9. To be filed by Amendment.
Item 25. Directors and Officers of the Depositor (PFL Life Insurance Company)
Name and Business Address Principal Positions and Offices with Depositor
- ------------------------- ----------------------------------------------
William L. Busler Director, Chairman of the Board and President
4333 Edgewood Road, N.E.
Cedar Rapids, Iowa 52499-0001
Patrick S. Baird Director, Senior Vice President and Chief
4333 Edgewood Road, N.E. Operating Officer
Cedar Rapids, Iowa 52499-0001
Craig D. Vermie Director, Vice President, Secretary and
4333 Edgewood Road, N.E. General Counsel
Cedar Rapids, Iowa 52499-0001
Douglas C. Kolsrud Director, Senior Vice President, Chief
4333 Edgewood Road, N.E. Investment Officer and Corporate Actuary
Cedar Rapids, Iowa 52499-0001
Larry N. Norman Director and Executive Vice President
4333 Edgewood Road, N.E.
Cedar Rapids, Iowa 52499-0001
Robert J. Kontz Vice President and Corporate Controller
4333 Edgewood Road, N.E.
Cedar Rapids, Iowa 52499-0001
Brenda K. Clancy Vice President, Treasurer and Chief Financial
4333 Edgewood Road, N.E. Officer
Cedar Rapids, Iowa 52499-0001
<PAGE>
Item 26. Persons Controlled by or Under Common Control with the Depositor or
Registrant
<TABLE>
<CAPTION>
Jurisdiction of Percent of Voting
Name Incorporation Securities Owned Business
- ---- ------------- ---------------- --------
<S> <C> <C> <C>
AEGON N.V. Netherlands 51.16% of Vereniging Holding company
Corporation AEGON Netherlands
Membership Association
Groninger Financieringen B.V. Netherlands 100% of AEGON N.V. Holding company
Corporation Netherlands Corporation
AEGON Netherland N.V. Netherlands 100% of AEGON N.V. Holding company
Corporation Netherlands Corporation
AEGON Nevak Holding B.V. Netherlands 100% of AEGON N.V. Holding company
Corporation Netherlands Corporation
AEGON International N.V. Netherlands 100% of AEGON N.V. Holding company
Corporation Netherlands Corporation
Voting Trust Delaware Voting Trust
Trustees:
K.J. Storm
Donald J. Shepard
H.B. Van Wijk
Dennis Hersch
AEGON U.S. Holding Delaware 100% of Voting Trust Holding company
Corporation
Short Hills Management New Jersey 100% of AEGON U.S. Holding company
Company Holding Corporation
CORPA Reinsurance New York 100% of AEGON U.S. Holding company
Company Holding Corporation
AEGON Management Indiana 100% of AEGON U.S. Holding company
Company Holding Corporation
RCC North America Inc. Delaware 100% of AEGON U.S. Holding company
Holding Corporation
AEGON USA, Inc. Iowa 100% AEGON U.S. Holding company
Holding Corporation
AUSA Holding Company Maryland 100% AEGON USA, Inc. Holding company
Monumental General Insurance Maryland 100% AUSA Holding Co. Holding company
Group, Inc.
Trip Mate Insurance Agency, Inc. Kansas 100% Monumental General Sale/admin. of travel
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Insurance Group, Inc. insurance
Monumental General Maryland 100% Monumental General Provides management
Administrators, Inc. Insurance Group, Inc. srvcs. to unaffiliated
third party
administrator
Executive Management and Maryland 100% Monumental General Provides actuarial
Consultant Services, Inc. Administrators, Inc. consulting services
Monumental General Mass Maryland 100% Monumental General Marketing arm for
Marketing, Inc. Insurance Group, Inc. sale of mass marketed
insurance coverages
Diversified Investment Delaware 100% AUSA Holding Co. Registered investment
Advisors, Inc. advisor
Diversified Investors Securities Delaware 100% Diversified Investment Broker-Dealer
Corp. Advisors, Inc.
AEGON USA Securities, Inc. Iowa 100% AUSA Holding Co. Broker-Dealer
Supplemental Ins. Division, Inc. Tennessee 100% AUSA Holding Co. Insurance
Creditor Resources, Inc. Michigan 100% AUSA Holding Co. Credit insurance
CRC Creditor Resources Canada 100% Creditor Resources, Insurance agency
Canadian Dealer Network Inc. Inc.
AEGON USA Investment Iowa 100% AUSA Holding Co. Investment advisor
Management, Inc.
AEGON USA Realty Iowa 100% AUSA Holding Co. Provides real estate
Advisors, Inc. administrative and real
estate investment
services
Quantra Corporation Delaware 100% AEGON USA Realty Real estate and financial
Advisors, Inc. software production and
sales
Quantra Software Corporation Delaware 100% Quantra Corporation Manufacture and sell
mortgage loan and
security
management software
Landauer Realty Advisors, Inc. Iowa 100% AEGON USA Realty Real estate counseling
Advisors, Inc.
Landauer Associates, Inc. Delaware 100% AEGON USA Realty Real estate counseling
Advisors, Inc.
Realty Information Systems, Inc. Iowa 100% AEGON USA Realty Information Systems for
Advisors, Inc. real estate investment
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
management
AEGON USA Realty Iowa 100% AEGON USA Real estate management
Management, Inc Realty Advisors, Inc.
USP Real Estate Investment Trust Iowa 21.89% First AUSA Life Real estate investment
Ins. Co , 13.11% PFL Life trust
Ins. Co. 4.86% Bankers
United Life Assurance Co.
RCC Properties Limited Iowa AEGON USA Realty Limited Partnership
Partnership Advisors Inc. is General
Partner and 5% owner.
AUSA Financial Markets, Inc. Iowa 100% AUSA Holding Co. Marketing
Endeavor Investment Advisors California 49.9% AUSA Financial General Partnership
Markets, Inc.
Universal Benefits Corporation Iowa 100% AUSA Holding Co. Third party administrator
Investors Warranty of Iowa 100% AUSA Holding Co. Provider of automobile
America, Inc. extended maintenance
contracts
Massachusetts Fidelity Trust Co. Iowa 100% AUSA Holding Co. Trust company
Money Services, Inc. Delaware 100% AUSA Holding Co. Provides financial
counseling for employees
and agents of affiliated
companies
Zahorik Company, Inc. California 100% AUSA Holding Co. Broker-Dealer
ZCI, Inc. Alabama 100% Zahorik Company, Inc. Insurance agency
AEGON Asset Management Delaware 100% AUSA Holding Co. Registered investment
Services, Inc. advisor
Intersecurities, Inc. Delaware 100% AUSA Holding Co. Broker-Dealer
Associated Mariner Financial Michigan 100% Intersecurities, Inc. Holding co./management
Group, Inc. services
Mariner Financial
Services, Inc. Michigan 100% Associated Mariner Broker/Dealer
Financial Group, Inc.
Mariner Planning Corporation Michigan 100% Mariner Financial Financial planning
Services, Inc.
Associated Mariner Agency, Inc. Michigan 100% Associated Mariner Insurance agency
Financial Group, Inc.
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Associated Mariner Agency Hawaii 100% Associated Mariner Insurance agency
of Hawaii, Inc. Agency, Inc.
Associated Mariner Ins. Agency Massachusetts 100% Associated Mariner Insurance agency
of Massachusetts, Inc. Agency, Inc.
Associated Mariner Agency Ohio 100% Associated Mariner Insurance agency
Ohio, Inc. Agency, Inc.
Associated Mariner Agency Texas 100% Associated Mariner Insurance agency
Texas, Inc. Agency, Inc.
Associated Mariner Agency New Mexico 100% Associated Mariner Insurance agency
New Mexico, Inc. Agency, Inc.
Mariner Mortgage Corp. Michigan 100% Associated Mariner Mortgage origination
Financial Group, Inc.
Idex Investor Services, Inc. Florida 100% AUSA Holding Co. Shareholder services
Idex Management, Inc. Delaware 50% AUSA Holding Co. Investment advisor
50% Janus Capital Corp.
IDEX Series Fund Massachusetts Various Mutual fund
First AUSA Life Insurance Maryland 100% AEGON USA, Inc. Insurance holding Company
company
AUSA Life Insurance New York 100% First AUSA Life Insurance
Company, Inc. Insurance Company
Life Investors Insurance Iowa 100% First AUSA Life Insurance
Company of America Ins. Co.
Life Investors Alliance, LLC Delaware 100% LIICA Purchases, own, and hold
the equity interest of
other
entities
Bankers United Life Iowa 100% Life Investors Ins. Insurance
Assurance Company Company of America
Life Investors Agency Iowa 100% Life Investors Ins. Marketing
Group, Inc. Company of America
PFL Life Insurance Company Iowa 100% First AUSA Life Insurance
Ins. Co.
AEGON Financial Services Minnesota 100% PFL Life Insurance Co. Marketing
Group, Inc.
AEGON Assignment Corporation Kentucky 100% AEGON Financial Administrator of
of Kentucky Services Group, Inc. structured
settlements
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
AEGON Assignment Corporation Illinois 100% AEGON Financial Administrator of structured
Services Group settlements
Southwest Equity Life Ins. Co. Arizona 100% of Common Voting Insurance
Stock
First AUSA Life Ins. Co.
Iowa Fidelity Life Insurance Co. Arizona 100% of Common Voting Insurance
Stock
First AUSA Life Ins. Co.
Western Reserve Life Assurance Ohio 100% First AUSA Life Insurance
Co. of Ohio Ins. Co.
WRL Series Fund, Inc. Maryland Various Mutual fund
WRL Investment Services, Inc. Florida 100% Western Reserve Life Provides administration for
Assurance Co. of Ohio affiliated mutual fund
WRL Investment Florida 100% Western Reserve Life Registered investment
Management, Inc. Assurance Co. of Ohio advisor
AEGON Equity Group, Inc. Florida 100% Western Reserve Life Insurance agency
Assurance Co. of Ohio
ISI Insurance Agency, Inc. California 100% Western Reserve Life Insurance agency
Assurance Co. of Ohio
ISI Insurance Agency Ohio 100% ISI Insurance Insurance agency
of Ohio, Inc. Agency Inc.
ISI Insurance Agency Texas 100% ISI Insurance Insurance agency
of Texas, Inc. Agency Inc.
ISI Insurance Agency Massachusetts 100% ISI Insurance Insurance Agency
of Massachusetts, Inc. Agency Inc.
Monumental Life Insurance Co. Maryland 100% First AUSA Life Insurance
Ins. Co.
AEGON Special Markets Maryland 100% Monumental Life Marketing
Group, Inc. Ins. Co.
Monumental General Casualty Co. Maryland 100% First AUSA Life Insurance
Ins. Co.
United Financial Services, Inc. Maryland 100% First AUSA Life General agency
Ins. Co.
Bankers Financial Life Ins. Co. Arizona 100% First AUSA Life Insurance
Ins. Co.
The Whitestone Corporation Maryland 100% First AUSA Life Insurance agency
Ins. Co.
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Cadet Holding Corp. Iowa 100% First AUSA Life Holding company
Ins. Co.
Commonwealth General Delaware 100% AEGON USA, Inc. Holding company
Corporation ("CGC")
PB Series Trust Massachusetts N/A Mutual fund
Monumental Agency Group, Inc. Kentucky 100% CGC Provider of srvcs. to
ins. cos.
Benefit Plans, Inc. Delaware 100% CGC TPA for Peoples Security
Life Insurance Company
Durco Agency, Inc. Virginia 100% Benefit Plans, Inc. General agent
Commonwealth General. Kentucky 100% CGC Administrator of
Assignment Corporation structured
settlements
AFSG Securities Corporation Pennsylvania 100% CGC Broker-Dealer
PB Investment Advisors, Inc. Delaware 100% CGC Registered investment
advisor
Diversified Financial Products Inc. Delaware 100% CGC Provider of investment,
marketing and admin.
services to ins. cos.
AEGON USA Real Estate Delaware 100% Diversified Financial Real estate and mortgage
Services, Inc. Products Inc.. holding company
Capital Real Estate Delaware 100% CGC Furniture and equipment
Development Corporation lessor
Capital General Development Delaware 100% CGC Holding company
Corporation
Ammest Realty Corporation Texas 100% Peoples Security Life Special purpose
Insurance Company subsidiary
JMH Operating Company, Inc. Mississippi 100% Peoples Security Life Real estate holdings
Insurance Company
Independence Automobile Florida 100% Capital Security Automobile Club
Association, Inc. Life Insurance Company
Independence Automobile Georgia 100% Capital Security Automobile Club
Club, Inc. Life Insurance Company
Capital 200 Block Corporation Delaware 100% CGC Real estate holdings
Capital Broadway Corporation Kentucky 100% CGC Real estate holdings
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Southlife, Inc. Tennessee 100% CGC Investment subsidiary
Ampac Insurance Agency, Pennsylvania 100% CGC Provider of management
Inc. (EIN 23-1720755) support services
National Home Life Corporation Pennsylvania 100% Ampac Insurance Special-purpose subsidiary
Agency, Inc.
Compass Rose Development Pennsylvania 100% Ampac Insurance Special-purpose subsidiary
Corporation Agency, Inc.
Frazer Association Consultants, Illinois 100% Ampac Insurance TPA license-holder
Inc. Agency, Inc.
Valley Forge Associates, Inc. Pennsylvania 100% Ampac Insurance Furniture & equipment
Agency, Inc. lessor
Veterans Benefits Plans, Inc. Pennsylvania 100% Ampac Insurance Administrator of group
Agency, Inc. insurance programs
Veterans Insurance Services, Inc. Delaware 100% Ampac Insurance Special-purpose subsidiary
Agency, Inc.
Academy Insurance Group, Inc. Delaware 100% CGC Holding company
Academy Life Insurance Co. Missouri 100% Academy Insurance Insurance company
Group, Inc.
Pension Life Insurance New Jersey 100% Academy Insurance Insurance company
Company of America Group, Inc.
Academy Services, Inc. Delaware 100% Academy Insurance Special-purpose subsidiary
Group, Inc.
Ammest Development Corp. Inc. Kansas 100% Academy Insurance Special-purpose subsidiary
Group, Inc.
Ammest Insurance Agency, Inc. California 100% Academy Insurance General agent
Group, Inc.
Ammest Massachusetts Massachusetts 100% Academy Insurance Special-purpose subsidiary
Insurance Agency, Inc. Group, Inc.
Ammest Realty, Inc. Pennsylvania 100% Academy Insurance Special-purpose subsidiary
Group, Inc.
Ampac, Inc. Texas 100% Academy Insurance Managing general agent
Group, Inc.
Ampac Insurance Agency, Inc. Pennsylvania 100% Academy Insurance Special-purpose
(EIN 23-2364438) Group, Inc. subsidiary
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Data/Mark Services, Inc. Delaware 100% Academy Insurance Provider of mgmt.
Group, Inc. services
Force Financial Group, Inc. Delaware 100% Academy Insurance Special-purpose
Group, Inc. subsidiary
Force Financial Services, Inc. Massachusetts 100% Force Fin. Group, Inc. Special-purpose
subsidiary
Military Associates, Inc. Pennsylvania 100% Academy Insurance Special-purpose
Group, Inc. subsidiary
NCOA Motor Club, Inc. Georgia 100% Academy Insurance Automobile club
Group, Inc.
NCOAA Management Company Texas 100% Academy Insurance Special-purpose
Group, Inc. subsidiary
Unicom Administrative Pennsylvania 100% Academy Insurance Provider of admin.
Services, Inc. Group, Inc. services
Unicom Administrative Germany 100% Unicom Administrative Provider of admin.
Services, GmbH Services, Inc. services
Capital Liberty, L.P. Delaware 79.2% Commonwealth Life Holding Company
Insurance Company
19.8% Peoples Security Life
Insurance Company
1% CGC
Commonwealth General LLC Turks & 100% CGC Special-purpose
Caicos Islands subsidiary
Peoples Benefit Life Missouri 3.7% CGC Insurance company
Insurance Company 20% Capital Liberty, L.P.
76.3% Monumental Life
Insurance Co.
Veterans Life Insurance Co. Illinois 100% Peoples Benefit Insurance company
Life Insurance Company
Peoples Benefit Services, Inc. Pennsylvania 100% Veterans Life Ins. Co. Special-purpose subsidiary
</TABLE>
Item 27. Number of Contract Owners
As of December 31, 1999, there were no Contract owners.
Item 28. Indemnification
The Iowa Code (Sections 490.850 et. seq.) provides for permissive
-------
indemnification in certain situations, mandatory indemnification in other
situations, and prohibits indemnification in certain situations. The Code also
specifies producers for determining when indemnification payments can be made.
<PAGE>
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Depositor pursuant to the foregoing provisions, or otherwise, the Depositor has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Depositor of expenses incurred
or paid by a director, officer or controlling person in connection with the
securities being registered), the Depositor will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
Item 29. Principal Underwriters
AFSG Securities Corporation
4333 Edgewood Road, N.E.
Cedar Rapids, Iowa 52499-0001
The directors and officers of AFSG Securities Corporation are as follows:
Larry N. Norman Thomas R. Moriarty
Director and President Vice President
Frank A. Camp Robert W. Warner
Secretary Assistant Compliance Officer
Lisa Wachendorf Linda Gilmer
Director, Vice President and Controller and Treasurer
Chief Compliance Officer
Priscilla Hechler
Anne M. Spaes Assistant Vice President and Assistant Secretary
Director and Vice President
Emily Bates Thomas Pierpan
Assistant Treasurer Assistant Vice President and Assistant Secretary
Clifton Flenniken Darin D. Smith
Assistant Treasurer Assistant Vice President and Assistant Secretary
The principal business address of each person listed is AFSG Securities
Corporation, 4333 Edgewood Road, N.E., Cedar Rapids, IA 52499-0001.
Commissions and Other Compensation Received by Principal Underwriter.
- --------------------------------------------------------------------
AFSG Securities Corporation, the broker/dealer, received $0 from the Registrant
for the year ending December 31, 1999, for its services in distributing the
Policies. No other commission or compensation was received by the principal
underwriter, directly or indirectly, from the Registrant during the fiscal year.
AFSG Securities Corporation serves as the principal underwriter for the PFL
Endeavor Variable Annuity Account, the PFL Endeavor Platinum Variable Annuity
Account, the PFL Retirement Builder Variable Annuity Account, the PFL Life
Variable Annuity Account A, the PFL Life Variable Annuity Account C, the PFL
Life Variable Annuity Account D, PFL Life Variable Annuity Account E, the PFL
Wright Variable Annuity Account, the AUSA Endeavor Variable Annuity Account, and
PFL Endeavor Variable Life Account. These accounts are separate accounts of PFL
Life Insurance Company or AUSA Life Insurance Company, Inc. AFSG Securities
Corporation also serves as principal underwriter for Separate Account I,
Separate Account II, Separate Account IV and Separate Account V of Peoples
Benefit Life Insurance Company, and for Separate Account B and Separate Account
C of AUSA Life
<PAGE>
Insurance Company, Inc.
Item 30. Location of Accounts and Records
The records required to be maintained by Section 31(a) of the Investment Company
Act of 1940 and Rules 31a-1 to 31a-3 promulgated thereunder, are maintained by
PFL Life Insurance Company at 4333 Edgewood Road, N.E., Cedar Rapids, Iowa
52499-0001.
Item 31. Management Services.
All management Contracts are discussed in Part A or Part B.
Item 32. Undertakings
(a) Registrant undertakes that it will file a post-effective amendment to this
registration statement as frequently as necessary to ensure that the
audited financial statements in the registration statement are never more
than 16 months old for so long as Premiums under the Contract may be
accepted.
(b) Registrant undertakes that it will include either (i) a postcard or similar
written communication affixed to or included in the Prospectus that the
applicant can remove to send for a Statement of Additional Information or
(ii) a space in the Policy application that an applicant can check to
request a Statement of Additional Information.
(c) Registrant undertakes to deliver any Statement of Additional Information
and any financial statements required to be made available under this Form
promptly upon written or oral request to PFL at the address or phone number
listed in the Prospectus.
(d) PFL Life Insurance Company hereby represents that the fees and charges
deducted under the contracts, in the aggregate, are reasonable in relation
to the services rendered, the expenses expected to be incurred, and the
risks assumed by PFL Life Insurance Company.
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant has caused this Registration Statement to be signed on its
behalf, in the City of Cedar Rapids and State of Iowa, on this 10th day of
March, 2000
PFL LIFE VARIABLE
ANNUITY ACCOUNT E
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 March 10, 2000
- -------------------------------------------- --------------
Patrick S. Baird
/s/ Craig D. Vermie Director March 10, 2000
- -------------------------------------------- --------------
Craig D. Vermie
/s/ William L. Busler Director March 10, 2000
- -------------------------------------------- (Principal Executive Officer) --------------
William L. Busler
/s/ Larry N. Norman Director March 10, 2000
- -------------------------------------------- --------------
Larry N. Norman
/s/ Douglas C. Kolsrud Director March 10, 2000
- ------------------------------------ --------------
Douglas C. Kolsrud
/s/ Robert J. Kontz Vice President and March 10, 2000
- -------------------------------------------- Corporate Controller --------------
Robert J. Kontz
/s/ Brenda K. Clancy Treasurer March 10, 2000
- -------------------------------------------- --------------
Brenda K. Clancy
</TABLE>
<PAGE>
Registration No.
333-______
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
EXHIBITS
TO
FORM N-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
FOR
PRIVILEGE SELECT
---------------
<PAGE>
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit Page No.*
- ----------- ---------------------- ---------
<S> <C> <C>
(1)(a) Resolution of the Board of Directors
(3)(a) Principal Underwriting Agreement
(3)(b) Form of Broker/Dealer Supervision and Sales Agreement
(8)(a)(2) Amended Schedule A to Participation Agreement among Variable
Insurance Products Fund, Fidelity Distributors Corporation and PFL
Life Insurance Company
(8)(b)(2) Amended Schedule A to Participation Agreement among Variable
Insurance Products Fund II , Fidelity Distributors Corporation and
PFL Life Insurance Company
(8)(c)(2) Amended Schedule A to Participation Agreement among Variable
Insurance Products Fund III, Fidelity Distributors Corporation and
PFL Life Insurance Company
(14) Powers of Attorney
</TABLE>
- --------
* Page numbers included only in manually executed original.
<PAGE>
EXHIBIT (1)(a)
RESOLUTION OF THE BOARD OF DIRECTORS
<PAGE>
CERTIFICATION
-------------
I, Craig D. Vermie, being the duly constituted Secretary of PFL Life Insurance
Company, an Iowa corporation with its principal place of business located at
4333 Edgewood Road N.E., Cedar Rapids, Iowa, hereby certify that the following
is a true and correct copy of a resolution adopted by the Board of Directors of
said corporation by written consent dated as of February 20, 1997, and that said
resolution is still in full force and effect:
RESOLVED, that the officers of the Company be and they hereby are
authorized to establish the " PFL Life Variable Annuity Account E," a
separate account for the purpose of selling approved variable insurance
contracts;
BE IT FURTHER RESOLVED, that the officers of this company be and they
hereby are authorized and instructed to take any and all actions
necessary in order to carry out the powers hereby conferred, including
but not limited to, the filing of any statement and amendments thereto
with the Securities and Exchange Commission, execution of any and all
required underwriting agreements, state regulatory filings, Blue Sky
filings, policy filings, and to execute any and all other documents
that may be required by any Federal, state or local regulatory agency
in order to operate the separate account.
Dated at Cedar Rapids, Iowa, this 26th day of February, 1997.
(SEAL)
By: /s/ Craig D. Vermie
------------------------
Craig D. Vermie
<PAGE>
EXHIBIT (3)(a)
---------------
PRINCIPAL UNDERWRITING AGREEMENT
BY AND BETWEEN
PFL LIFE INSURANCE COMPANY ON ITS OWN BEHALF
AND ON BEHALF OF THE MUTUAL FUND ACCOUNT,
AND AFSG SECURITIES CORPORATION.
<PAGE>
PRINCIPAL UNDERWRITING AGREEMENT
THIS PRINCIPAL UNDERWRITING AGREEMENT made and effective as of the 1st
day of March, 2000, 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. PFL Life Variable Annuity Account E
9
<PAGE>
EXHIBIT (3)(b)
FORM OF BROKER/DEALER SUPERVISION AND SALES AGREEMENT
BY AND BETWEEN
AFSG SECURITIES CORPORATION AND THE BROKER/DEALER.
<PAGE>
SELECTED BROKER AGREEMENT
AGREEMENT dated__________________________,20____, 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>
<CAPTION>
<S> <C> <C>
(1) if to Broker, to: (2) if to the Distributor or Company, send
to the Company,
PFL Life Insurance Company
______________________________ Financial Markets Division
______________________________(street address) 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)(2)
-----------------
AMENDED SCHEDULE A TO PARTICIPATION AGREEMENT BY AND BETWEEN VARIABLE INSURANCE
PRODUCTS FUND, VARIABLE INSURANCE PRODUCTS FUND II, FIDELITY DISTRIBUTORS
CORPORATION, AND PFL LIFE INSURANCE COMPANY
<PAGE>
Participation Agreement Addendum
SCHEDULE A
----------
Accounts
--------
This Schedule shall be effective as of the date of the last signature below, and
replaces and supersedes Schedule A to the Participation Agreement dated April 1,
1991 (as amended) among Variable Insurance Products Fund, Variable Insurance
Products Fund II, Fidelity Distributors Corporation and PFL Life Insurance
Company.
<TABLE>
<CAPTION>
Date of Resolutions of Company's
Board which established the
Name of Contracts Name of Accounts Accounts
----------------- ---------------- --------
<S> <C> <C>
Fidelity Income Plus Individual Fidelity Variable August 24, 1979 (by an affiliate
Variable Annuity Contracts Annuity Account subsequently acquired by the
Company)
PFL Endeavor Individual and Group PFL Endeavor VA
Variable Annuity Contracts Separate Account January 19, 1990
PFL Endeavor Platinum Individual and PFL Endeavor VA
Group Variable Annuity Contracts Separate Account January 19, 1990
PFL Retirement Builder Individual PFL Retirement Builder Variable
Variable Annuity Contracts Annuity Account March 29, 1996
PFL Retirement Builder Immediate PFL Retirement Builder Variable
Variable Annuity Contracts Annuity Account March 29, 1996
Portfolio Select Individual Variable PFL Retirement Builder Variable
Annuity Contracts Annuity Account March 29, 1996
PFL Retirement Income Builder II PFL Retirement Builder Variable
Individual Variable Annuity Contracts Annuity Account March 29, 1996
Extra Individual and Group Variable PFL Life Variable February 20, 1997
Annuity Contracts Annuity Account C
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Access Individual and Group Variable PFL Life Variable February 20, 1997
Annuity Contracts Annuity Account D
Select Advantage Individual Variable PFL Life Variable February 20, 1997
Annuity Contracts Annuity Account E
Advantage V PFL Corporate Account One August 10, 1998
PFL Variable PFL Variable Life Account A July 1, 1999
Universal Life Policy
</TABLE>
In witness whereof, we have hereunto set our hand as of the dates indicated:
PFL Life Insurance Company Variable Insurance Products Fund
By: /s/ William L. Busler By: /s/ Robert C. Pozen
----------------------------- ---------------------------
Title: President Title: Senior Vice President
----------------------------- ---------------------------
Date: February 28, 2000 Date: February 19, 2000
----------------------------- --------------------------
Fidelity Distributors Corporation Variable Insurance Products Fund II
By: /s/ Kevin Kelly By: /s/ Robert C. Pozen
----------------------------- ---------------------------
Title: Vice President Title: Senior Vice President
----------------------------- ---------------------------
Date: February 19, 2000 Date: February 19, 2000
----------------------------- ---------------------------
<PAGE>
EXHIBIT (8)(b)(2)
AMENDED SCHEDULE A TO PARTICIPATION AGREEMENT BY AND BETWEEN VARIABLE INSURANCE
PRODUCTS FUND, VARIABLE INSURANCE PRODUCTS FUND II, FIDELITY DISTRIBUTORS
CORPORATION, AND PFL LIFE INSURANCE COMPANY
<PAGE>
Participation Agreement Addendum
SCHEDULE A
----------
Accounts
--------
This Schedule shall be effective as of the date of the last signature below, and
replaces and supersedes Schedule A to the Participation Agreement dated April 1,
1991 (as amended) among Variable Insurance Products Fund, Variable Insurance
Products Fund II, Fidelity Distributors Corporation and PFL Life Insurance
Company.
<TABLE>
<CAPTION>
Date of Resolutions of Company's
Board which established the
Name of Contracts Name of Accounts Accounts
----------------- ---------------- --------
<S> <C> <C>
Fidelity Income Plus Individual Fidelity Variable August 24, 1979 (by an affiliate
Variable Annuity Contracts Annuity Account subsequently acquired by the
Company)
PFL Endeavor Individual and Group PFL Endeavor VA
Variable Annuity Contracts Separate Account January 19, 1990
PFL Endeavor Platinum Individual and PFL Endeavor VA
Group Variable Annuity Contracts Separate Account January 19, 1990
PFL Retirement Builder Individual PFL Retirement Builder Variable
Variable Annuity Contracts Annuity Account March 29, 1996
PFL Retirement Builder Immediate PFL Retirement Builder Variable
Variable Annuity Contracts Annuity Account March 29, 1996
Portfolio Select Individual Variable PFL Retirement Builder Variable
Annuity Contracts Annuity Account March 29, 1996
PFL Retirement Income Builder II PFL Retirement Builder Variable
Individual Variable Annuity Contracts Annuity Account March 29, 1996
Extra Individual and Group Variable PFL Life Variable February 20, 1997
Annuity Contracts Annuity Account C
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Access Individual and Group Variable PFL Life Variable February 20, 1997
Annuity Contracts Annuity Account D
Select Advantage Individual Variable PFL Life Variable February 20, 1997
Annuity Contracts Annuity Account E
Advantage V PFL Corporate Account One August 10, 1998
PFL Variable PFL Variable Life Account A July 1, 1999
Universal Life Policy
</TABLE>
In witness whereof, we have hereunto set our hand as of the dates indicated:
PFL Life Insurance Company Variable Insurance Products Fund
By: /s/ William L. Busler By: /s/ Robert C. Pozen
----------------------------- ---------------------------
Title: President Title: Senior Vice President
----------------------------- ---------------------------
Date: February 28, 2000 Date: February 19, 2000
----------------------------- --------------------------
Fidelity Distributors Corporation Variable Insurance Products Fund II
By: /s/ Kevin Kelly By: /s/ Robert C. Pozen
----------------------------- ---------------------------
Title: Vice President Title: Senior Vice President
----------------------------- ---------------------------
Date: February 19, 2000 Date: February 19, 2000
----------------------------- ---------------------------
<PAGE>
EXHIBIT (8)(c)(2)
AMENDED SCHEDULE A TO PARTICIPATION AGREEMENT BY AND BETWEEN VARIABLE INSURANCE
PRODUCTS FUND III, FIDELITY DISTRIBUTORS CORPORATION, AND PFL LIFE INSURANCE
COMPANY
<PAGE>
Participation Agreement Addendum
SCHEDULE A
----------
Accounts
--------
This Schedule shall be effective as of the date of the last signature below, and
replaces and supersedes Schedule A to the Participation Agreement dated March
21, 1997 among Variable Insurance Products Fund III, Fidelity Distributors
Corporation and PFL Life Insurance Company.
<TABLE>
<CAPTION>
Date of Resolutions of Company's
Board which established the
Name of Contracts Name of Accounts Accounts
----------------- ---------------- --------
<S> <C> <C>
Fidelity Income Plus Individual Fidelity Variable August 24, 1979 (by an affiliate
Variable Annuity Contracts Annuity Account subsequently acquired by the
Company)
PFL Endeavor Individual and Group PFL Endeavor VA
Variable Annuity Contracts Separate Account January 19, 1990
PFL Endeavor Platinum Individual and PFL Endeavor VA
Group Variable Annuity Contracts Separate Account January 19, 1990
PFL Retirement Builder Individual PFL Retirement Builder Variable
Variable Annuity Contracts Annuity Account March 29, 1996
PFL Retirement Builder Immediate PFL Retirement Builder Variable
Variable Annuity Contracts Annuity Account March 29, 1996
Portfolio Select Individual Variable PFL Retirement Builder Variable
Annuity Contracts Annuity Account March 29, 1996
PFL Retirement Income Builder II PFL Retirement Builder Variable
Individual Variable Annuity Contracts Annuity Account March 29, 1996
Extra Individual and Group Variable PFL Life Variable February 20, 1997
Annuity Contracts Annuity Account C
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Access Individual and Group Variable PFL Life Variable February 20, 1997
Annuity Contracts Annuity Account D
Select Advantage Individual Variable PFL Life Variable February 20, 1997
Annuity Contracts Annuity Account E
Advantage V PFL Corporate Account One August 10, 1998
PFL Variable PFL Variable Life Account A July 1, 1999
Universal Life Policy
</TABLE>
In witness whereof, we have hereunto set our hand as of the dates indicated:
PFL Life Insurance Company Variable Insurance Products Fund III
By: /s/ William L. Busler By: /s/ Robert C. Pozen
----------------------------- ---------------------------
Title: President Title: Senior Vice President
----------------------------- ---------------------------
Date: February 28, 2000 Date: February 19, 2000
----------------------------- ---------------------------
Fidelity Distributors Corporation
By: /s/ Kevin Kelly
-----------------------------
Title: Vice President
-----------------------------
Date: February 19, 2000
-----------------------------
<PAGE>
EXHIBIT (14)
POWERS OF ATTORNEY
<PAGE>
POWER OF ATTORNEY
WITH RESPECT TO
PFL LIFE VARIABLE ANNUITY ACCOUNT E
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 E, 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
March 8, 2000
- -------------------------
Date
<PAGE>
POWER OF ATTORNEY
WITH RESPECT TO
PFL LIFE VARIABLE ANNUITY ACCOUNT E
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 E, 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
March 8, 2000
- --------------------
Date
<PAGE>
POWER OF ATTORNEY
WITH RESPECT TO
PFL LIFE VARIABLE ANNUITY ACCOUNT E
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 E, 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
March 8, 2000
- ----------------------
Date
<PAGE>
POWER OF ATTORNEY
WITH RESPECT TO
PFL LIFE VARIABLE ANNUITY ACCOUNT E
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 E, 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
March 8, 2000
- ------------------------
Date
<PAGE>
POWER OF ATTORNEY
WITH RESPECT TO
PFL LIFE VARIABLE ANNUITY ACCOUNT E
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 E, 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
March 8, 2000
- --------------------------
Date
<PAGE>
POWER OF ATTORNEY
WITH RESPECT TO
PFL LIFE VARIABLE ANNUITY ACCOUNT E
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 E, 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
March 8, 2000
- --------------------------
Date
<PAGE>
POWER OF ATTORNEY
WITH RESPECT TO
PFL LIFE VARIABLE ANNUITY ACCOUNT E
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 E, 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
March 8, 2000
- -------------------------
Date
