PFL LIFE VARIABLE ANNUITY ACCOUNT A, 497, 1997-08-21

PFL LIFE VARIABLE ANNUITY ACCOUNT A
497, 1997-08-21

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PROSPECTUS August 7, 1997

THE ATLAS PORTFOLIO BUILDER VARIABLE ANNUITY

Issued Through

PFL LIFE VARIABLE ANNUITY ACCOUNT A

PFL LIFE INSURANCE COMPANY

The Atlas Portfolio Builder Variable Annuity Policy is a Flexible Premium
Variable Annuity that is offered by PFL Life Insurance Company ("PFL") through
Atlas Securities, Inc. ("Atlas"). Atlas is a corporate affiliate of World
Savings and Loan Association and World Savings Bank, FSB (collectively, "World
Savings"). You can use the Policy to accumulate funds for retirement or other
long-term financial planning purposes. You are generally not taxed on any
earnings on amounts you invest until you withdraw them or begin to receive
annuity payments. The Policy is a "variable" annuity because the value of your
investments can go up or down based on the performance of mutual fund
portfolios that you select. It is a flexible premium policy because after you
purchase it you can generally make additional investments of any amount of
$500 or more, until the Annuity Commencement Date when PFL begins making
annuity payments to you.

You have sixteen investment options to choose from. They include these
fifteen mutual fund portfolios ("Portfolios") of the Atlas Insurance Trust,
Dreyfus Variable Investment Fund, the Endeavor Series Trust, Federated
Insurance Series and the WRL Series Fund, Inc.:

ATLAS DREYFUS ENDEAVOR
----- ------- --------
Balanced Growth Capital Appreciation Dreyfus Small Cap Value
Disciplined Stock T. Rowe Price Equity Income
Growth & Income T. Rowe Price Growth Stock
Quality Bond Value Equity (OpCap Advisors)
Small Cap

FEDERATED WRL
--------- ---
High Income Bond Fund II Emerging Growth (Van Kampen American
Utility Fund II Capital Asset Management, Inc.)
Global (Janus Capital Corp.)
Growth (Janus Capital Corp.)

You as the Owner of the Policy, bear the entire investment risk for all
amounts that you allocate to any of the mutual funds. This means that you
could lose the amount that you invest. But if the mutual fund shares increase
in value, then the value of your Policy will also increase.

The sixteenth investment option is the Fixed Account. If you invest in one
of the alternatives offered in the Fixed Account, then PFL guarantees to
return your investment with interest at rates that PFL will declare from time
to time.

Of course, you can choose any combination of these investment options. You
can also transfer amounts among these options (subject to some restrictions).

LIKE ALL SECURITIES, THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

ATVAPO897
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You should only purchase a Policy as a long-term investment. However, you do
have access to all or some of the current cash value of your investments at
any time before the Annuity Commencement Date. But, if you do withdraw cash
from your Policy, there may be a surrender charge. You may also have to pay
income taxes on some or all of the amount you withdraw, and if you are under
the age 59 1/2 there may also be a tax penalty. Finally, there may be an
interest penalty if you make a premature withdrawal from certain options
within the Fixed Account (this is called an "Excess Interest Adjustment," and
it could also result in your earning extra interest). PFL has the right to
postpone withdrawals from the Fixed Account.

Prospectuses for the mutual fund portfolios are attached to the back of this
Prospectus. This Prospectus and the mutual fund prospectuses give you vital
information about the Policies and the mutual funds. Please read them
carefully before you invest. Keep them for future reference.

PLEASE NOTE THAT THE POLICIES AND THE MUTUAL FUNDS:

. ARE NOT WORLD SAVINGS DEPOSITS

. ARE NOT FEDERALLY INSURED

. ARE NOT ENDORSED BY WORLD SAVINGS OR ANY GOVERNMENT AGENCY

. ARE NOT GUARANTEED TO ACHIEVE THEIR GOAL.

This Prospectus sets forth the information that a prospective purchaser
should consider before purchasing a Policy. A Statement of Additional
Information about the Policy and the Mutual Fund Account which has the same
date as this Prospectus has been filed with the Securities and Exchange
Commission and is incorporated herein by reference. The Statement of
Additional Information is available at no cost to any person requesting a copy
by writing Atlas or by calling 1-800-933-2852. The table of contents of the
Statement of Additional Information is included at the end of this Prospectus.
Additional information may also be obtained directly from PFL.

This Prospectus and the Statement of Additional Information generally
describe only the Policies and the Mutual Fund Account, except when the Fixed
Account is specifically mentioned.

Atlas Securities, Inc.
794 Davis Street, PO Box 1894
San Leandro CA 94577

PFL Life Insurance Company
Administrative and Service Office:
Financial Markets Division--Variable Annuity Department
4333 Edgewood Road, N.E.
Cedar Rapids, Iowa 52499-0001

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TABLE OF CONTENTS

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PAGE
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<S> <C>
DEFINITIONS............................................................... 5
SUMMARY................................................................... 8
FINANCIAL STATEMENTS...................................................... 18
HISTORICAL PERFORMANCE DATA............................................... 18
Standardized Performance Data........................................... 18
Other Performance Data.................................................. 18
Subadviser Performance ................................................. 20
PUBLISHED RATINGS......................................................... 21
PFL LIFE INSURANCE COMPANY................................................ 21
THE ATLAS PORTFOLIO BUILDER ACCOUNTS...................................... 21
The Mutual Fund Account................................................. 21
The Fixed Account....................................................... 25
Transfers............................................................... 27
Reinstatements.......................................................... 28
Telephone Transactions.................................................. 28
Dollar Cost Averaging................................................... 28
Asset Rebalancing....................................................... 29
THE POLICY................................................................ 29
Policy Application and Issuance of Policies--Premium Payments........... 29
Additional Premium Payments........................................... 30
Maximum Total Premium Payments........................................ 30
Allocation of Premium Payments........................................ 30
Payment Not Honored by Bank........................................... 30
Policy Value............................................................ 30
The Mutual Fund Policy Value.......................................... 31
Amendments.............................................................. 31
Non-participating Policy................................................ 31
DISTRIBUTIONS UNDER THE POLICY............................................ 31
Surrenders.............................................................. 31
Nursing Care and Terminal Condition Withdrawal Option................... 32
Excess Interest Adjustments (EIA)....................................... 33
Systematic Payout Option................................................ 33
Minimum Required Distributions and Restrictions Under Qualified Poli-
cies................................................................... 34
Restrictions Under the Texas Optional Retirement Program................ 34
Restrictions Under Section 403(b) Plans................................. 34
Annuity Payments........................................................ 34
Annuity Commencement Date............................................. 34
Election of Payment Option............................................ 35
Premium Tax........................................................... 35
Supplementary Contract................................................ 35
Annuity Payment Options................................................. 35
Death Benefit........................................................... 38
Death of Annuitant Prior to Annuity Commencement Date................. 38
Death On or After Annuity Commencement Date........................... 39
Beneficiary........................................................... 39
Death of Owner.......................................................... 39
CHARGES AND DEDUCTIONS.................................................... 40
Surrender Charge........................................................ 40
</TABLE>

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<TABLE>
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<S> <C>
Mortality and Expense Risk Fee........................................... 40
Administrative Charge.................................................... 41
Premium Taxes............................................................ 41
Federal, State and Local Taxes........................................... 41
Transfer Fee............................................................. 41
Other Expenses Including Investment Advisory Fees........................ 41
CERTAIN FEDERAL INCOME TAX CONSEQUENCES.................................... 42
Tax Status of Policy..................................................... 42
Taxation of Annuities.................................................... 43
DISTRIBUTION OF THE POLICIES............................................... 46
VOTING RIGHTS.............................................................. 47
LEGAL PROCEEDINGS.......................................................... 47
STATEMENT OF ADDITIONAL INFORMATION........................................ 48
Appendix A............................................................... A-1
</TABLE>

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DEFINITIONS

Accumulation Unit--An accounting unit of measure used in calculating the
Policy Value in the Mutual Fund Account before the Annuity Commencement Date.

Adjusted Policy Value--An amount equal to the Policy Value increased or
decreased by any Excess Interest Adjustments.

Administrative and Service Office--PFL Life Insurance Company, Financial
Markets Division--Variable Annuity Department, 4333 Edgewood Road, N.E., Cedar
Rapids, Iowa 52499-0001.

Annuitant--The person entitled to receive Annuity Payments after the Annuity
Commencement Date and during whose life any Annuity Payments involving life
contingencies will continue.

Annuity Commencement Date--The date upon which Annuity Payments are to
commence. The Annuity Commencement Date may not be later than the last day of
the policy month starting after the Annuitant attains age 95. The Annuity
Commencement Date may be required to be earlier for Qualified Policies.

Annuity Payment Option or 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 after the
Annuity Commencement Date.

Atlas--Atlas Securities, Inc. A registered broker/dealer and the exclusive
selling agent for the Atlas Portfolio Builder Variable Annuity.

Asset Rebalancing--The process by which the Owner may authorize automatic
transfers of amounts among the Subaccounts of the Separate Account and the One
Year Fixed Option periodically to maintain a desired allocation of the Policy
Value among these Investment Options.

Beneficiary--The person who has the right to the death benefit set forth in
the Policy.

Business Day--Any day when the New York Stock Exchange is open for business.

Cash Value--The Policy Value, increased or decreased by any Excess Interest
Adjustment, less the Surrender Charge, if any.

Code--The Internal Revenue Code of 1986, as amended.

Cumulative Free Percentage--The percentage (as applied to the Cumulative
Premium Payments) which is available to the Owner free of any Surrender
Charge.

Current Interest Rate--The interest rate or rates currently guaranteed to be
credited on amounts allocated to the Fixed Account. The effective annual
interest rate will always equal or exceed a minimum of 3%.

Dollar Cost Averaging--The process by which the Owner may elect to
systematically transfer amounts from the One Year Fixed Option in order to
invest them in the Mutual Fund Account.

Due Proof of Death--A certified copy of a death certificate, a certified
copy of a decree of a court of competent jurisdiction as to the finding of
death, a written statement by the attending physician, or any other proof
satisfactory to PFL, will constitute Due Proof of Death.

Excess Interest Adjustment--A positive or negative adjustment to amounts
partially withdrawn, to amounts surrendered by the Owner from the Fixed
Account Guaranteed Period Options, or to amounts applied to Annuity Payment
Options. The adjustment reflects changes in the interest rates

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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
surrender or commencement of Annuity Payments, depending upon whether there
has been an increase or decrease in interest rates, respectively.

Fixed Account--A group of Investment Options under the Policy, other than
the Mutual Fund Account, which is part of the general assets of PFL that are
not in separate accounts.

Fixed Annuity Payments--Payments made pursuant to an Annuity Payment Option
which do not fluctuate in amount.

Gross Partial Withdrawal--The total amount which will be deducted from the
Policy Value as a result of each partial withdrawal.

Guaranteed Period Options--The various guaranteed interest rate periods
which may be offered by PFL under the Fixed Account into which Premium
Payments may be paid or amounts transferred.

Investment Options--Any of the Guaranteed Period Options of the Fixed
Account, the One Year Fixed Option, and any of the Subaccounts of the Mutual
Fund Account.

Mutual Fund Account--The PFL Life Variable Annuity Account A, a separate
account established and registered as a unit investment trust under the
Investment Company Act of 1940, to which Premium Payments under the Policies
may be allocated.

Nonqualified Policy--A Policy other than a Qualified Policy.

One Year Fixed Option--An account in the Fixed Account into or from which
Premium Payments may be paid or amounts transferred, and which may be used for
Dollar Cost Averaging, Asset Rebalancing other transfers and partial
withdrawals.

PFL--PFL Life Insurance Company, the issuer of the Policies.

Policy--One of the Atlas Portfolio Builder Variable Annuity policies offered
by this Prospectus.

Policy Anniversary--Each anniversary of the Policy Date.

Policy Date--The date shown on the Policy data page attached to the Policy
and the date on which the Policy becomes effective.

Policy Owner or 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 application.

Policy Value--On or before the Annuity Commencement Date, this is an amount
equal to (a) the Premium Payments; minus (b) partial withdrawals taken
(including any applicable Excess Interest Adjustments and Surrender Charges on
such partial withdrawals); plus (c) interest credited in the Fixed Account;
plus or minus (d) accumulated gains or losses in the Mutual Fund Account
(including applicable fees and charges); minus (e) any applicable premium or
other taxes and transfer fees, if any.

Policy Year--Each 12-month period beginning on the Policy Date shown on the
Policy data page and each Policy Anniversary thereafter.

Premium Payment--An amount paid to PFL by the Policy Owner or on the Policy
Owner's behalf as consideration for the benefits provided by the Policy.

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Qualified Policy--A Policy issued in connection with retirement plans that
qualify for special Federal income tax treatment under the Code.

Subaccount--A subdivision within the Mutual Fund Account, the assets of
which are invested in a specified Portfolio of the Underlying Funds.

Successor Policy Owner--A person appointed by the Policy Owner to succeed to
ownership of the Policy in the event of the death of the Policy Owner (if the
Policy Owner is not the Annuitant) before the Annuity Commencement Date.

Surrender Charge--The applicable contingent deferred sales charge, assessed
on certain surrenders or partial withdrawals of Premium Payments to cover
expenses relating to the sale of the Policies.

Systematic Payout Option--A process by which the Owner may elect to receive
periodic automatic payments to be made from the Policy Value subject to
certain requirements.

Underlying Funds--The portfolios of the Atlas Insurance Trust, the Dreyfus
Variable Investment Fund, the Endeavor Series Trust, Federated Insurance
Series and the WRL Series Fund, Inc., that are described in this Prospectus.

Valuation Period--The period of time from one determination of Accumulation
Unit and Annuity Unit values to the next subsequent determination of values.
Such determination is made as of the close of trading on the New York Stock
Exchange on each Business Day.

Variable Annuity Payments--Payments made pursuant to an Annuity Payment
Option which fluctuate as to dollar amount or payment term in relation to the
investment performance of the specified Subaccounts within the Mutual Fund
Account.

Written Notice or Written Request--Written notice, signed by the Owner, that
gives PFL the information it requires and is received at the Administrative
and Service Office. For some transactions, PFL may accept an electronic notice
such as telephone instructions. Such electronic notice must meet the
requirements PFL establishes for such notices.

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THE ATLAS PORTFOLIO BUILDER
VARIABLE ANNUITY

SUMMARY

The following summary is intended to provide a brief overview of the Policy.
More detailed information can be found in the sections of this Prospectus that
follow, all of which should be read in their entirety.

THE POLICY

The Atlas Portfolio Builder Variable Annuity is a tax-deferred flexible
premium variable annuity policy which can be purchased on a non-tax qualified
basis or with the proceeds from certain plans qualifying for special federal
income tax treatment. The Policy gives the Owner the ability to accumulate
funds on a tax-deferred basis and to receive periodic annuity payments on a
variable basis, a fixed basis, or a combination of both. The Owner allocates
the Premium Payments among the various options available under the Mutual Fund
Account and the Fixed Account. The Policy is intended for long-term purposes,
such as retirement, and for persons who have maximized their use of other
retirement savings methods, such as 401(k) plans and individual retirement
accounts (IRAs).

THE ACCOUNTS

The Mutual Fund Account. The Mutual Fund Account is a separate account of
PFL, which currently is divided into fifteen Subaccounts. Each Subaccount
invests exclusively in shares of a corresponding portfolio of the Atlas
Insurance Trust, the Dreyfus Variable Investment Fund, the Endeavor Series
Trust ("Endeavor"), Federated Insurance Series, and the WRL Series Fund, Inc.
("WRL"). The following Portfolios are available, as shown under the various
managers or subadvisers to the portfolios:

Managed by Atlas Advisers, Inc.:
.Balanced Growth

Managed by The Dreyfus Corporation:
.Capital Appreciation
.Disciplined Stock
.Growth & Income
.Quality Bond
.Small Cap
.Small Cap Value (Endeavor)

Managed by Federated Advisers:
.High Income Bond Fund II
.Utility Fund II

Managed by Janus Capital Corporation:
.Global (WRL)
.Growth (WRL)

Managed by OpCap Advisors:
.Value Equity (Endeavor)

Managed by T. Rowe Price Associates, Inc.:
.Equity Income (Endeavor)
.Growth Stock (Endeavor)

Managed by Van Kampen American Capital Asset Management, Inc.:
.Emerging Growth (WRL)

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The Policy Value will depend on the investment experience of the selected
Subaccounts. The Owner bears the entire investment risk with respect to
Premium Payments allocated to, and amounts transferred to, the Mutual Fund
Account. (See "THE ATLAS PORTFOLIO BUILDER ACCOUNTS--The Mutual Fund Account"
p. 21.)

The Fixed Account. The Fixed Account guarantees a minimum effective annual
interest rate of 3% on: Premium Payments and transfers to, less partial
withdrawals and transfers from, that Account. Upon surrender, PFL guarantees
return of at least the Premium Payments made to, less prior partial
withdrawals and transfers from the Fixed Account. PFL will always offer a
Current Interest Rate which will be guaranteed for at least one year from the
date of the Premium Payment or transfer. PFL may, in its sole discretion,
declare a higher Current Interest Rate from time-to-time. PFL may offer
optional guaranteed interest rate periods into which Premium Payments may be
made or amounts transferred. PFL also offers a One Year Fixed Option with a
one-year interest rate guarantee. There will be no Excess Interest Adjustments
on transfers, partial withdrawals or surrenders from the One Year Fixed
Option. Systematic Dollar Cost Averaging transfers will also be allowed from
the One Year Fixed Option. (See "THE ATLAS PORTFOLIO BUILDER ACCOUNTS--The
Fixed Account" p. 25.)

PREMIUM PAYMENTS

A Nonqualified Policy may be purchased with a minimum initial Premium
Payment of $5,000, and a Qualified Policy generally may be purchased with a
minimum initial Premium Payment of $2,000. For 403(b) annuities, PFL must
receive the initial Premium Payment (in any amount selected by the Owner)
within ninety (90) days following the Policy Date or the Policy will be
canceled. An Owner may make subsequent additional Premium Payments of at least
$500 each at any time before the Annuity Commencement Date. The maximum total
Premium Payments allowed without prior approval of PFL is $1,000,000. Unless
otherwise required by applicable law, at the time of each Premium Payment no
charges or fees are deducted, so the entire Premium Payment is invested
immediately. (See "CHARGES AND DEDUCTIONS--Surrender Charge," p. 40 and
CHARGES AND DEDUCTIONS--Premium Taxes," p. 41.)

The Owner must allocate the initial Premium Payment among the various
Investment Options according to allocation percentages in the Policy
application or transmittal form. Any allocation must be in whole percents, and
the total allocation must equal 100%. Allocations specified by the Owner for
the Initial Premium Payment will be used for additional Premium Payments
unless the Owner requests a change in allocation. Allocations of additional
Premium Payments may be changed by sending Written Notice to Atlas. Changes in
allocations will not be effective until they are received at PFL's
Administrative and Service Office. (See "THE POLICY--Policy Application and
Issuance of Policies--Premium Payments," p. 29.)

RIGHT TO CANCEL PERIOD

The Owner may, until the end of the period of time specified in the Policy
(the Right to Cancel period), examine the Policy and return it for a refund.
The applicable period will depend on the state in which the Policy is issued.
In most states the period is ten days after the Policy is delivered to the
Owner. Several states allow for a longer period to return the Policy. The
amount of the refund will also depend on the state in which the Policy is
issued. Ordinarily the amount of the refund will be the Policy Value. However,
some states may require a return of the Premium Payments, or the greater of
the Premium Payments or the Policy Value. PFL will pay the refund within seven
days after it receives written notice of cancellation and the returned Policy.
The Policy will then be deemed void.

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TRANSFERS BEFORE THE ANNUITY COMMENCEMENT DATE

An Owner can transfer values from any one of the Investment Options to any
other Investment Option, subject to the limits established by PFL. Transfers
of funds among Investment Options are only allowed as follows:

. When any Guaranteed Period ends, Policy Values may be transferred to any
of the other Investment Options. No Excess Interest Adjustment will apply
to these transfers.

. Dollar Cost Averaging transfers from the One Year Fixed Account Option
may be made to one or more other Investment Options (subject to limits
established by PFL).

. Transfers other than Dollar Cost Averaging transfers from the One Year
Fixed Option may be made to one or more Subaccounts of the Mutual Fund
Account. Each such transfer must be at least $500.

. The minimum amount that may be transferred from a Subaccount of the
Mutual Fund Account to any other Investment Option is the lesser of $500
or the entire Subaccount value. PFL reserves the right to include the
remaining Subaccount value in the transfer if the remaining value is less
than $500.

(See "THE ATLAS PORTFOLIO BUILDER ACCOUNTS--Transfers," p. 27, and
"DISTRIBUTIONS UNDER THE POLICY--Excess Interest Adjustment," p. 33.)
Transfers currently may be made either by telephone or by sending Written
Notice to Atlas. (See "THE ATLAS PORTFOLIO BUILDER ACCOUNTS--Telephone
Transactions," p. 28.)

PFL reserves the right to impose a $10 fee for each transfer in excess of 12
transfers per Policy Year. At the present time, however, PFL does not charge
for transfers. (See "THE ATLAS PORTFOLIO BUILDER ACCOUNTS--Transfers," p. 27.)

SURRENDERS AND PARTIAL WITHDRAWALS

The Owner may elect to surrender the Policy or make a partial withdrawal
from the Policy ($250 minimum) in exchange for a cash payment from PFL at any
time prior to the earlier of the Annuitant's death or the Annuity Commencement
Date. A surrender or partial withdrawal may be subject to deductions for
Surrender Charges and Excess Interest Adjustments. (See "CHARGES AND
DEDUCTIONS," p. 40.) A surrender or partial withdrawal request must be made by
Written Request, and a request for a partial withdrawal must specify the
Investment Options from which the withdrawal is requested. There is currently
no limit on the frequency or timing of partial withdrawals. (See
"DISTRIBUTIONS UNDER THE POLICY--Surrenders," p. 31). For Qualified Policies
the retirement plan or applicable law may restrict or penalize withdrawals. In
addition to the applicable charges and deductions under the Policy, surrenders
and partial withdrawals may be subject to premium taxes, income taxes and a
10% Federal penalty tax.

NURSING CARE AND TERMINAL CONDITION WITHDRAWAL OPTION

If the Annuitant, Annuitant's spouse, Owner or Owner's spouse (only the
Annuitant or Annuitant's spouse if the Owner is not a natural person): (1) has
been confined in a hospital or nursing facility for 30 consecutive days or (2)
has been diagnosed as having a terminal condition as defined in the Policy or
endorsement, (generally a life expectancy of not more than 12 months) then
partial withdrawals or surrenders may be taken with no Surrender Charge or
Excess Interest Adjustment. (This benefit may not be available in New Jersey--
see the Policy or endorsement for details.) (See "DISTRIBUTIONS UNDER THE
POLICY--Nursing Care and Terminal Condition Withdrawal Option," p. 32).

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CHARGES AND DEDUCTIONS

Surrender Charge. In order to permit investment of the entire Premium
Payment, PFL does not deduct sales or other charges at the time the Policy is
purchased. However, a Surrender Charge of up to 7% of the Premium Payment is
imposed on certain surrenders or partial withdrawals of Premium Payments in
order to cover expenses relating to the distribution of the Policies. The
applicable Surrender Charge is based on the Policy Year. There will be no
Surrender Charge imposed five or more years after the Policy Date. (See
"CHARGES AND DEDUCTIONS--Surrender Charge," p. 40.)

In each Policy Year the Owner may request partial withdrawals ($250 minimum)
of up to 10% of the Cumulative Premium Payments free of Surrender Charges. The
amount that may be taken free of Surrender Charges each Policy Year is
cumulative. This is referred to as the "Cumulative Free Percentage." That is,
Cumulative Free Percentages which are not taken are carried forward and are
available to be taken in following Policy Years free of Surrender Charges.
Cumulative Free Percentage withdrawals that have been previously taken will
reduce the Cumulative Free Percentage that is available. (See "DISTRIBUTIONS
UNDER THE POLICY--Surrenders," p. 31.) Amounts withdrawn in the first five
Policy Years in excess of the available Cumulative Free Percentage will be
subject to a Surrender Charge.

Excess Interest Adjustment. Full surrenders, partial withdrawals and amounts
applied to a Payment Option from the Guaranteed Period Options of the Fixed
Account prior to the end of the Guaranteed Period, and which are in excess of
the cumulative interest credited up to the time of the withdrawal, are subject
to an Excess Interest Adjustment. Depending upon rates of interest being
offered by PFL, the effect of an Excess Interest Adjustment could eliminate
all interest in excess of the minimum guaranteed effective annual interest
rate of 3%, or it could result in the crediting of additional interest. (See
"DISTRIBUTIONS UNDER THE POLICY--Excess Interest Adjustments," p. 33.)

Account Charges. PFL deducts a daily charge equal to a percentage of the net
assets in the Mutual Fund Account for the mortality and expense risks assumed
by PFL. The effective annual rate of this charge is 1.25%. (See "CHARGES AND
DEDUCTIONS--Mortality and Expense Risk Fee," p. 40.)

PFL also deducts a daily Administrative Charge from the net assets of the
Mutual Fund Account to partially cover expenses incurred by PFL in connection
with the administration of the Account and the Policies. The effective annual
rate of this charge is .15% of the value of the Mutual Fund Account's net
assets. (See "CHARGES AND DEDUCTIONS--Administrative Charge," p. 41.)

PFL guarantees that the account charges for mortality and expense risks and
administrative expenses will not exceed a total of 1.40%. These account
charges are not applied to amounts in the Fixed Account.

Taxes. PFL may incur premium taxes relating to the Policies. When permitted
by state law, PFL will not deduct any premium taxes related to a particular
Policy from the Policy Value until withdrawal of Policy Value, payment of the
death benefit, or the Annuity Commencement Date. Premium taxes currently range
from 0% to 3.50% of Premium Payments. (See "CHARGES AND DEDUCTIONS--Premium
Taxes," p. 41.)

No charges are currently made against any of the Accounts for federal,
state, or local income taxes. Should PFL determine that any such taxes be
imposed with respect to any of the Accounts, PFL may deduct such taxes from
amounts held in the relevant Account. (See "CHARGES AND DEDUCTIONS--Federal,
State and Local Taxes," p. 41.)

Charges Against the Underlying Funds. The value of the net assets of the
Subaccounts of the Mutual Fund Account will reflect the investment advisory
fees and other expenses incurred by the Underlying Funds.

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Expense Data. The charges and deductions are summarized in the following
tables. This tabular information regarding expenses assumes that the entire
Policy Value is in the Mutual Fund Account.

<TABLE>
<CAPTION>
ATLAS THE DREYFUS CORPORATION
--------- -------------------------------------------------------------
SMALL CAP
BALANCED CAPITAL DISCIPLINED GROWTH & QUALITY VALUE
GROWTH(5) APPRECIATION STOCK(7) INCOME BOND SMALL CAP (END.)
--------- ------------ ----------- -------- ------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
POLICY OWNER TRANSACTION
EXPENSES (1)
Sales Load on Purchase
Payments................ 0 0 0 0 0 0 0
Maximum Surrender Charge
(as a % of Premium
Payment
Surrendered)(2)......... 7% 7% 7% 7% 7% 7% 7%
Surrender Fees........... 0 0 0 0 0 0 0
----------------------------------------------------------------------------
Service Charge........... none
----------------------------------------------------------------------------
Transfer Fee............. Currently No Fee
MUTUAL FUND ACCOUNT ANNUAL
EXPENSES
(AS A PERCENTAGE OF
ACCOUNT VALUE)
Mortality and Expense
Risk Fees............... 1.25% 1.25% 1.25% 1.25% 1.25% 1.25% 1.25%
Administrative Charge.... 0.15% 0.15% 0.15% 0.15% 0.15% 0.15% 0.15%
---- ---- ---- ---- ---- ---- ----
Total Mutual Fund Account
Annual Expenses......... 1.40% 1.40% 1.40% 1.40% 1.40% 1.40% 1.40%
UNDERLYING FUND ANNUAL
EXPENSES (3) (4)
(AS A PERCENTAGE OF
AVERAGE NET ASSETS, AFTER
WAIVERS AND
REIMBURSEMENTS)
Management/Administrative
Fees.................... 0.10% 0.75% 0.59% 0.75% 0.65% 0.75% 0.80%
Other Expenses........... 0.40% 0.09% 0.21% 0.08% 0.14% 0.04% 0.12%
---- ---- ---- ---- ---- ---- ----
Rule 12b-1 Fees.......... -- -- -- -- -- -- --
Total Underlying Fund
Annual Expenses......... 0.50% 0.84% 0.80% 0.83% 0.79% 0.79% 0.92%
</TABLE>

<TABLE>
<CAPTION>
VAN KAMPEN
FEDERATED OPCAP T.ROWE PRICE AMERICAN
ADVISERS JANUS CAPITAL CORP. ADVISORS ASSOCIATES, INC. CAPITAL
--------------- ---------------------- -------- ------------------- ----------
HIGH
INCOME VALUE EQUITY EMERGING
BOND UTILITY GLOBAL GROWTH EQUITY INCOME GROWTH STOCK GROWTH
FUND II FUND II (WRL)(6) (WRL)(6) (END.) (END.) (END.) (WRL) (6)
------- ------- --------- --------- -------- ------ ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
POLICY OWNER TRANSACTION
EXPENSES (1)
Sales Load on Purchase
Payments................ 0 0 0 0 0 0 0 0
Maximum Surrender Charge
(as a % of Premium
Payment Surrendered)
(2)..................... 7% 7% 7% 7% 7% 7% 7% 7%
Surrender Fees........... 0 0 0 0 0 0 0 0
------------------------------------------------------------------------------------
Service Charge none
------------------------------------------------------------------------------------
Transfer Fee............. Currently No Fee
MUTUAL FUND ACCOUNT ANNUAL
EXPENSES
(AS A PERCENTAGE OF
ACCOUNT VALUE)
Mortality and Expense
Risk Fees............... 1.25% 1.25% 1.25% 1.25% 1.25% 1.25% 1.25% 1.25%
Administrative Charge.... 0.15% 0.15% 0.15% 0.15% 0.15% 0.15% 0.15% 0.15%
---- ---- --------- --------- ---- ---- ---- ----
Total Mutual Fund Account
Annual Expenses......... 1.40% 1.40% 1.40% 1.40% 1.40% 1.40% 1.40% 1.40%
UNDERLYING FUND ANNUAL
EXPENSES (3) (4)
(AS A PERCENTAGE OF
AVERAGE NET ASSETS, AFTER
WAIVERS AND
REIMBURSEMENTS)
Management/Administrative
Fees.................... 0.60% 0.75% 0.80% 0.80% 0.80% 0.80% 0.80% 0.80%
Other Expenses........... 0.20% 0.10% 0.19% 0.08% 0.50% 0.16% 0.21% 0.14%
---- ---- --------- --------- ---- ---- ---- ----
Rule 12b-1 Fees -- -- -- -- -- -- -- --
Total Underlying Fund
Annual Expenses......... 0.80% 0.85% 0.99% 0.88% 1.30% 0.96% 1.01% 0.94%
</TABLE>

- 12 -
<PAGE>

- -------------------------
(1) The Surrender Charge and Transfer Fee, if any is imposed, apply to each
Policy, regardless of how Policy Value is allocated between the Mutual
Fund Account and the Fixed Account. Mutual Fund Account Annual Expenses do
not apply to the Fixed Account.
(2) The Surrender Charge is decreased based on the number of years since the
Policy Date, from 7% in the first Policy Year to 0% in the sixth Policy
Year.
(3) The fee table information relating to the Underlying Funds was provided to
PFL by the Underlying Funds, relative to the year ended December 31, 1996,
and PFL has not independently verified such information. (See "CHARGES AND
DEDUCTIONS--Other Expenses Including Investment Advisory Fees," p. 41.)
Expense information for the Atlas Balanced Growth Portfolio, which had not
commenced operations at the date of this Prospectus, is an annualized
estimate for 1997.
(4) Net of advisory fee waivers or expense reimbursements by the respective
investment adviser. Without such waivers or reimbursements, the total
underlying fund annual expenses for the fiscal year ended December 31,
1996, would have been as follows: Dreyfus Capital Appreciation portfolio--
1.00%; Dreyfus Disciplined Stock portfolio--0.96%; Federated High Income
Bond Fund II--1.39%; and Federated Utility Bond Fund II--1.36%.
(5) Atlas Advisers, Inc. has agreed to reduce its advisory fee and assume
expenses of the Balanced Growth Portfolio to the extent necessary to limit
the portfolio's total direct annual operating expenses to 0.50% through at
least April 30, 1998. The Portfolio will also indirectly bear its pro rata
share of fees and expenses incurred by the underlying Atlas Funds. The
prospectus for the Portfolio provides specific information on the fees and
expenses of the Portfolio and the expense ratios for each of the
underlying Atlas Funds in which the Portfolio will invest. The range of
the average weighted expense ratio for the Portfolio, including such
indirect expenses is expected to be 1.61% to 1.81%. A range is provided
since the average assets of the Portfolio invested in each of the
underlying Atlas Funds will fluctuate.
(6) Effective January 1, 1997, the WRL Series Fund, Inc. adopted a Plan of
Distribution pursuant to Rule 12b-1 under the Investment Company Act of
1940 (the "1940 Act") ("Distribution Plan") and pursuant to the
Distribution Plan, has entered into a Distribution Agreement with
InterSecurities, Inc. ("ISI"), principal underwriter for the WRL Series
Fund, Inc. Under the Distribution Plan, the WRL Series Fund, Inc., on
behalf of the Growth Portfolio, the Global Portfolio and the Emerging
Growth Portfolio is authorized to pay to various service providers, as
direct payment for expenses incurred in connection with the distribution
of a Portfolio's shares, amounts equal to actual expenses associated with
distributing a Portfolio's shares, up to a maximum rate of 0.15% on an
annualized basis of the average daily net assets. This fee is measured and
accrued daily and paid monthly. ISI has determined that it will not seek
payment by the WRL Series Fund, Inc. of distribution expenses with respect
to any portfolio (including the Growth, Global and Emerging Growth
Portfolios) during the fiscal year ending December 31, 1997. Owners will
be notified in advance prior to ISI's seeking such reimbursement.
(7) Annualized Expenses from April 30, 1996, (commencement of portfolio
operations) to December 31, 1996, for the Disciplined Stock Portfolio.

- 13 -
<PAGE>

Examples

An Owner would pay the following expenses on a $1,000 investment, assuming a
hypothetical 5% annual return on assets and assuming the entire Policy Value
is in the applicable Subaccount:

1. If the Policy is surrendered at the end of the applicable time period:

<TABLE>
<CAPTION>
1 YEAR 3 YEARS
------ -------
<S> <C> <C>
Atlas Advisers, Inc.
Balanced Growth Subaccount............................... $77 $ 86
The Dreyfus Corporation
Capital Appreciation Subaccount.......................... $86 $112
Disciplined Stock Subaccount............................. $85 $111
Growth & Income Subaccount............................... $86 $112
Quality Bond Subaccount.................................. $85 $111
Small Cap Subaccount..................................... $85 $111
Small Cap Value (End.) Subaccount........................ $87 $114
Federated Advisers
High Income Bond Fund II Subaccount...................... $85 $111
Utility Fund II Subaccount............................... $86 $112
Janus Capital Corporation
Global (WRL) Subaccount.................................. $87 $117
Growth (WRL) Subaccount.................................. $86 $113
OpCap Advisors
Value Equity (End.) Subaccount........................... $90 $126
T. Rowe Price Associates, Inc.
Equity Income (End.) Subaccount.......................... $87 $116
Growth Stock (End.) Subaccount........................... $87 $117
Van Kampen American Capital Asset Management, Inc.
Emerging Growth (WRL) Subaccount......................... $87 $115
</TABLE>

2. If the Policy is annuitized at the end of the applicable time period:

<TABLE>
<CAPTION>
1 YEAR 3 YEARS
------ -------
<S> <C> <C>
Atlas Advisers, Inc.
Balanced Growth Subaccount............................... $14 $44
The Dreyfus Corporation
Capital Appreciation Subaccount.......................... $23 $70
Disciplined Stock Subaccount............................. $22 $69
Growth & Income Subaccount............................... $23 $70
Quality Bond Subaccount.................................. $22 $69
Small Cap Subaccount..................................... $22 $69
Small Cap Value (End.) Subaccount........................ $24 $72
Federated Advisers
High Income Bond Fund II Subaccount...................... $22 $69
Utility Fund II Subaccount............................... $23 $70
Janus Capital Corporation
Global (WRL) Subaccount.................................. $24 $75
Growth (WRL) Subaccount.................................. $23 $71
OpCap Advisors
Value Equity (End.) Subaccount........................... $27 $84
T. Rowe Price Associates, Inc.
Equity Income (End.) Subaccount.......................... $24 $74
Growth Stock (End.) Subaccount........................... $24 $75
Van Kampen American Capital Asset Management, Inc.
Emerging Growth (WRL) Subaccount......................... $24 $73
</TABLE>

- 14 -
<PAGE>

3. If the Policy is not surrendered or annuitized:

The above tables are intended to assist the Owner in understanding the costs
and expenses of the Mutual Fund Account and the Underlying Funds that the
Owner will bear, directly or indirectly. These include the 1996 expenses of
the Underlying Funds, or in the case of the Atlas Insurance Trust, its
estimated annualized expenses for 1997. (See "CHARGES AND DEDUCTIONS," p. 40,
and the Underlying Funds' prospectuses.) In addition to the expenses listed
above, premium taxes, currently ranging from 0% to 3.50% of Premium Payments
may be applicable.

THE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES, AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. THE
ASSUMED 5% ANNUAL RETURN IS HYPOTHETICAL AND SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE ANNUAL RETURNS, WHICH MAY BE GREATER OR LESS
THAN THE ASSUMED RATE. THE FIGURES AND DATA FOR UNDERLYING FUND ANNUAL
EXPENSES HAVE BEEN PROVIDED (OR ESTIMATED) BY THE UNDERLYING FUNDS FOR 1996
AND PFL HAS NOT INDEPENDENTLY VERIFIED THEIR ACCURACY.

DEATH BENEFIT

In the event that the Annuitant who is not the Owner dies prior to the
Annuity Commencement Date, the Owner will become the Annuitant unless the
Owner specifically requests on the application or in a Written Request that
the death benefit be paid upon the Annuitant's death and PFL agrees to such an
election. If the Annuitant is also the Owner, upon receipt of proof that the
Annuitant has died before the Annuity Commencement Date, the Death Benefit is
calculated and is payable to the Beneficiary when we receive an election of
the method of settlement and return of the Policy.

The amount of the Death Benefit will depend on the state where the Policy is
purchased and the age(s) of the Annuitant(s) on the Policy Date. The death
benefit is equal to the greatest of: (1) the Policy Value on the date PFL
receives due proof of the Annuitant's death and an election of a method of
settlement; (2) the Cash Value on the date PFL receives due proof of the
Annuitant's death and an election of a method of settlement; and (3) the
Guaranteed Minimum Death Benefit, plus any additional Premium Payments
received less any Gross Partial Withdrawals, from the date of the Annuitant's
death to the date of payment of death proceeds.

- 15 -
<PAGE>

PFL guarantees that the Death Benefit will be at least a minimum amount (the
"Guaranteed Minimum Death Benefit") as follows: When all of the Annuitants are
younger than age 75 on the Policy Date, the Guaranteed Minimum Death Benefit
is the greater of a "5% Annually Compounding" Death Benefit or a "Step-Up"
Death Benefit. The "5% Annually Compounding" Death Benefit is equal to: (a)
the total Premium Payments; minus (b) Adjusted Partial Withdrawals, (as
described below); plus (c) interest accumulated at 5% per year from the
Premium Payment or withdrawal date to the earlier of the Annuitant's date of
death or the Annuitant's 76th birthday. The "Step-Up" Death Benefit is equal
to (a) the largest Policy Value on the Policy Date or on any Policy
Anniversary prior to the earlier of the Annuitant's date of death or prior to
the Annuitant's 76th birthday; plus (b) any Premium Payments subsequent to the
date of the Policy Anniversary with the largest Policy Value; minus (c) any
Adjusted Partial Withdrawals (as described below), subsequent to the date of
the Policy Anniversary with the largest Policy Value.

When any Annuitant is age 75 or older on the Policy Date, the Guaranteed
Minimum Death Benefit is a "Return of Premium" Death Benefit, which is equal
to: (a) the total Premium Payments; minus (b) Adjusted Partial Withdrawals,
(as described below) as of the Annuitant's date of death.

The Adjustment factor is equal to: the amount of the death proceeds prior to
the partial withdrawal; divided by the Policy Value prior to the partial
withdrawal.

The Death Benefit is not paid on the death of an Owner if the Owner is not
the Annuitant. If an Owner who is not the Annuitant dies before the Annuity
Commencement date, the amount payable under the Policy upon surrender will be
the Policy Value increased or decreased by any applicable Excess Interest
Adjustment.

If the age or sex of an Annuitant has been misstated, the death benefit will
be that which the Premium Payments would have purchased for the correct age or
sex of that Annuitant.

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 the Policy itself
for variations. Any such state variations will be included in the Policy
itself or in riders or endorsements attached to the Policy.

New Jersey residents: Annuity payments must begin on or before the Policy
Anniversary that is closest to the Annuitant's 70th birthday or the 10th
Policy Anniversary, whichever occurs last. The Owner may not select a
Guaranteed Period Option that would extend beyond that date. The Owner's
options at the Annuity Commencement Date are to elect a lump sum payment, or
elect to receive annuity payments under one of the Fixed Payment Options. New
Jersey residents cannot elect Variable Payment Options. Consult your agent and
the policy form itself for details regarding these and other terms applicable
to policies sold in New Jersey.

FEDERAL INCOME TAX CONSEQUENCES OF INVESTMENT IN THE POLICY

With respect to Owners who are natural persons, there should be no federal
income tax on increases in the Policy Value until a distribution under the
Policy occurs (e.g., a surrender, partial withdrawal or Annuity Payment) or is
deemed to occur (e.g., a pledge or assignment of a Policy). Generally, a
portion of any distribution or deemed distribution will be taxable as ordinary
income. The taxable portion of certain distributions will be subject to
withholding unless the recipient elects otherwise. In addition, a penalty tax
may apply to certain distributions or deemed distributions under the Policy.
(See "CERTAIN FEDERAL INCOME TAX CONSEQUENCES," p. 42.)

- 16 -
<PAGE>

REQUESTS FOR INFORMATION

Any telephone requests and inquiries should be made to Atlas at 1-800-933-
2852.

Any Written Notices or Written Requests should be sent to the following
address:

Atlas Securities, Inc.
794 Davis Street, PO Box 1894
San Leandro CA 94577

Written Notices or Written Requests may also be sent to:

PFL Life Insurance Company
Administrative and Service Office:
Financial Markets Division--Variable Annuity Dept.
4333 Edgewood Road, N.E.
Cedar Rapids, Iowa 52499-0001

Note: The foregoing summary is qualified in its entirety by the detailed
information in the remainder of this Prospectus and in the Statement of
Additional Information and in the prospectuses for the Underlying Funds and in
the Policy, all of which should be referred to for more detailed information.
This Prospectus generally describes only the Policy and the Mutual Fund
Account. Separate prospectuses describe the Underlying Funds. (There is no
prospectus for the Fixed Account since interests in the Fixed Account are
deemed not to be securities. See "THE ATLAS PORTFOLIO BUILDER ACCOUNTS--The
Fixed Account, " p. 25.)

- 17 -
<PAGE>

FINANCIAL STATEMENTS

The financial statements of PFL and the independent auditors' report thereon
are contained in the Statement of Additional Information which is available
free upon request to Atlas.

HISTORICAL PERFORMANCE DATA

STANDARDIZED PERFORMANCE DATA

From time to time, PFL and Atlas may advertise historical yields and total
returns for the Subaccounts of the Mutual Fund Account. These figures will be
calculated according to standardized methods prescribed by the Securities and
Exchange Commission ("SEC"). These yields and total returns will be based on
historical returns only and are not intended to indicate future performance.

The yield of a Subaccount of the Mutual Fund Account 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 Mutual Fund Account refers to return
quotations assuming an investment under a Policy has been held in the
Subaccount for various periods of time including, but not limited to, 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. 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 Statement of Additional
Information, a copy of which may be obtained free from Atlas upon request.

OTHER PERFORMANCE DATA

PFL may present the total return data described above on a non-standardized
basis. This means that the data will not be reduced by all the fees and
charges under the Policy and that the data may be presented for different time
periods and for different Premium Payment amounts. NON-STANDARDIZED
PERFORMANCE DATA WILL ONLY BE DISCLOSED IF STANDARDIZED PERFORMANCE DATA FOR
THE REQUIRED PERIODS IS ALSO DISCLOSED.

PFL may also disclose cumulative total returns and yields for the
Subaccounts based on the inception date of the Subaccounts. These calculations
will be determined according to the formulas presented in the Statement of
Additional Information.

In addition, PFL may present historic performance data for the 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.

- 18 -
<PAGE>

For instance, as shown in the table 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. Such fees and charges include
the Mortality and Expense Risk Fee of 1.25%, and Administrative Charge of .15%
and Surrender Charges. Such data assumes a complete surrender of the Policy at
the end of the period; THEREFORE THE SURRENDER CHARGE IS DEDUCTED.

THE AVERAGE ANNUAL TOTAL RETURNS OF THE PORTFOLIOS SINCE THEIR INCEPTION
REDUCED BY ALL THE FEES AND CHARGES UNDER THE POLICY ARE:

<TABLE>
<CAPTION>
PERIOD ENDED DECEMBER 31, 1996(1)
-----------------------------------------------
FROM
PORTFOLIO CORRESPONDING
INCEPTION OR PORTFOLIO
1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
------ ------- ------------- ----------------
<S> <C> <C> <C> <C>
Atlas Advisers, Inc.
Balanced Growth Subaccount.. N/A N/A N/A (2)
The Dreyfus Corporation
Capital Appreciation
Subaccount................. 18.72% N/A 15.93% April 5, 1993
Disciplined Stock
Subaccount................. N/A N/A 11.15% April 30, 1996
Growth & Income Subaccount.. 13.87% N/A 25.79% May 2, 1994
Quality Bond Subaccount..... (3.87)% 10.25% 8.01% August 31, 1990
Small Cap Subaccount........ 9.70% 34.53% 47.31% August 31, 1990
Small Cap Value (End.)
Subaccount................. 18.79% N/A 11.18% May 4, 1993
Federated Advisers
High Income Bond Fund II
Subaccount................. 7.39% N/A 7.88% February 2, 1994
Utility Fund II Subaccount.. 4.62% N/A 7.84% April 14, 1994
Janus Capital Corporation
Global (WRL) Subaccount..... 20.91% N/A 18.92% December 3, 1992
Growth (WRL) Subaccount..... 11.06% 9.63% 16.52% October 2, 1986
OpCap Advisors
Value Equity (End.)
Subaccount................. 16.98% N/A 15.54% May 27, 1993
T. Rowe Price Associates, Inc.
Equity Income (End.)
Subaccount................. 13.00% N/A 21.62% January 3, 1995
Growth Stock (End.)
Subaccount................. 13.89% N/A 25.37% January 3, 1995
Van Kampen American Capital
Asset Management, Inc.
Emerging Growth (WRL)
Subaccount................. 11.99% N/A 18.30% March 1, 1993
</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.
(2) The Atlas Balanced Growth Portfolio is expected to commence operations on
or about the date of this Prospectus, therefore no comparable information
is available.

- 19 -
<PAGE>

In addition, as shown in the next table, PFL may present average annual
total returns for the Portfolios reduced by all fees and charges under the
Policy, as if the Policy had been in existence, EXCEPT THAT THE SURRENDER
CHARGE IS NOT DEDUCTED. Such fees and charges include the Mortality and
Expense Risk Fee of 1.25% and the Administrative Charge of .15%.

THE AVERAGE ANNUAL TOTAL RETURNS OF THE PORTFOLIOS SINCE THEIR INCEPTION
REDUCED BY ALL FEES AND CHARGES UNDER THE POLICY EXCEPT THE SURRENDER CHARGE
ARE:

<TABLE>
<CAPTION>
PERIOD ENDED DECEMBER 31, 1996(1)
---------------------------------------------
FROM
PORTFOLIO CORRESPONDING
INCEPTION PORTFOLIO
1 YEAR 5 YEARS OR 10 YEARS INCEPTION DATE
------ ------- ------------ ----------------
<S> <C> <C> <C> <C>
Atlas Advisers, Inc.
Balanced Growth Subaccount....... N/A N/A N/A (2)
The Dreyfus Corporation
Capital Appreciation Subaccount.. 23.98% N/A 16.19% April 5, 1993
Disciplined Stock Subaccount..... N/A N/A 17.33% April 30, 1996
Growth & Income Subaccount....... 19.20% N/A 26.46% May 2, 1994
Quality Bond Subaccount.......... 1.71% 10.25% 8.01% August 31, 1990
Small Cap Subaccount............. 15.08% 34.53% 47.31% August 31, 1990
Small Cap Value (End.)
Subaccount...................... 24.05% N/A 11.60% May 4, 1993
Federated Advisers
High Income Bond Fund II
Subaccount...................... 12.81% N/A 8.97% February 2, 1994
Utility Fund II Subaccount....... 10.08% N/A 9.03% April 14, 1994
Janus Capital Corporation
Global (WRL) Subaccount.......... 26.15% N/A 18.92% December 3, 1992
Growth (WRL) Subaccount.......... 16.43% 9.63% 16.52% October 2, 1986
OpCap Advisors
Value Equity (End.) Subaccount... 22.27% N/A 15.85% May 27, 1993
T. Rowe Price Associates, Inc.
Equity Income (End.) Subaccount.. 18.34% N/A 23.61% January 3, 1995
Growth Stock (End.) Subaccount... 19.23% N/A 27.25% January 3, 1995
Van Kampen American Capital Asset
Management, Inc.
Emerging Growth (WRL)
Subaccount...................... 17.35% N/A 18.49% March 1, 1993
</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.
(2) The Atlas Balanced Growth Portfolio is expected to commence operations on
or about the date of this Prospectus, therefore no comparable information
is available.

SUBADVISER PERFORMANCE

The prospectuses for the Underlying Funds present the total returns of
certain existing SEC-registered funds that are managed by Subadvisers for the
Portfolios and that have investment objectives, policies, and strategies
substantially similar to those of certain Portfolios ("Similar Subadviser
Funds"). NONE OF THE FEES AND CHARGES UNDER THE POLICY HAVE BEEN DEDUCTED FROM
SUCH SUBADVISER PERFORMANCE DATA. IF THOSE FEES AND CHARGES WERE DEDUCTED, THE
INVESTMENT RETURNS WOULD BE LOWER. THE SIMILAR SUBADVISER FUNDS ARE NOT
AVAILABLE FOR INVESTMENT UNDER THE POLICY. For more information on Subadviser
performance, see the appropriate prospectus for the Underlying Fund.

- 20 -
<PAGE>

PUBLISHED RATINGS

PFL may from time to time publish in advertisements, sales literature and
reports to Owners, the ratings and other information assigned to it by one or
more independent rating organizations such as A.M. Best Company, Standard &
Poor's Insurance Ratings Services, Moody's Investors Service, and Duff &
Phelps Credit Rating Co. The purpose of the ratings is to reflect the
financial strength and/or claims-paying ability of PFL and they should not be
considered as bearing on the investment performance of assets held in the
Mutual Fund Account or of the safety or riskiness of an investment in the
Mutual Fund 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.

PFL LIFE INSURANCE COMPANY

PFL Life Insurance Company ("PFL"), 4333 Edgewood Road, N.E., Cedar Rapids,
Iowa 52499-0001, is a stock life insurance company. It was incorporated under
the name NN Investors Life Insurance Company, Inc. under the laws of the State
of Iowa on April 19, 1961. It is principally engaged in the sale of life
insurance and annuity policies, and is licensed in the District of Columbia,
Guam, and in all states except New York. As of December 31, 1996, PFL had
assets of approximately $7.9 billion. PFL is a wholly-owned indirect
subsidiary of AEGON USA, Inc. which conducts substantially all 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.

THE ATLAS PORTFOLIO BUILDER ACCOUNTS

Premium Payments made under a Policy may be allocated to the Mutual Fund
Account, to the Fixed Account, or to a combination of these Accounts.

THE MUTUAL FUND ACCOUNT

The Mutual Fund Account was established as a separate investment account of
PFL under the laws of the State of Iowa on February 17, 1997. The Mutual Fund
Account receives and currently invests the Premium Payments under the Policies
that are allocated to it for investment only in shares of the Underlying
Funds.

The Mutual Fund Account currently is divided into fifteen Subaccounts.
Additional Subaccounts may be established in the future at the discretion of
PFL. Each Subaccount invests exclusively in shares of one of the Portfolios of
the Underlying Funds. Under Iowa law, the assets of the Mutual Fund Account
are owned by PFL but they are held separately from the other assets of PFL. To
the extent that these assets are attributable to the Policy Value of the
Policies, these assets are not chargeable with liabilities incurred in any
other business operation of PFL. Income, gains, and losses incurred on the
assets in the Subaccounts of the Mutual Fund Account, whether or not realized,
are credited to or charged against that Subaccount without regard to other
income, gains or losses of any other Account or Subaccount of PFL. Therefore,
the investment performance of any Subaccount should be entirely independent of
the investment performance of PFL's general account assets or any other
Account or Subaccount maintained by PFL.

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The Mutual Fund Account is registered with the SEC under the 1940 Act as a
unit investment trust and meets the definition of a separate account under
federal securities laws. However, the SEC does not supervise the management or
the investment practices or policies of the Mutual Fund Account or PFL.

Underlying Funds. The available Subaccounts of the Mutual Fund Account
currently invest exclusively in shares of the Underlying Funds. Each of the
Underlying Funds are diversified, open-end management investment companies,
except for the Atlas Insurance Trust. Although the Atlas Insurance Trust is a
"nondiversified" investment company, because it invests in a limited number of
mutual funds, the underlying Atlas Funds in which it invests are themselves
diversified investment companies.

Certain information concerning the Underlying Funds is set forth below. More
detailed information may be found in the Underlying Funds' current
prospectuses, which accompany or precede this Prospectus, and the Underlying
Funds' current statements of additional information. The following description
is qualified in its entirety by reference to each Underlying Fund's prospectus
and statement of additional information where more detailed information may be
found.

The fifteen Portfolios offered by the Underlying Funds provide a range of
investment alternatives that vary according to the different investment
objectives described in the Underlying Funds' prospectuses and summarized
below. The assets of each Portfolio are separate from the others, and each
Portfolio has separate investment objectives and policies. As a result, each
Portfolio operates as a separate investment fund, and the investment
performance of one Portfolio has no effect on the investment performance of
any other Portfolio. Each of the Portfolios may not be available for
investment in every state.

The ATLAS BALANCED GROWTH PORTFOLIO seeks long-term growth of capital, and
moderate current income. The Portfolio is designed to provide broad one-step
diversification among equity, fixed income, and money market securities. The
Portfolio is a "fund of funds" that diversifies its assets within set limits
among several underlying Atlas Funds. The Portfolio's strategy of investment
in other mutual funds results in greater expenses than may be incurred by
investing in the underlying Atlas Funds directly. However, the underlying
Atlas Funds are not available through the purchase of variable annuity
contracts.

The DREYFUS CAPITAL APPRECIATION PORTFOLIO seeks to provide long-term
capital growth consistent with the preservation of capital; current income is
a secondary investment objective. This portfolio invests primarily in the
common stocks of domestic and foreign issuers.

The DREYFUS DISCIPLINED STOCK PORTFOLIO seeks to provide investment results
that are greater than the total return performance of publicly-traded common
stocks in the aggregate, as represented by the Standard & Poor's 500 Composite
Stock Price Index. This portfolio will use quantitative statistical modeling
techniques and fundamental research to construct a portfolio in an attempt to
achieve its investment objective, without assuming undue risk relative to the
broad stock market.

The DREYFUS GROWTH AND INCOME PORTFOLIO seeks to provide long-term capital
growth, current income and growth of income, consistent with reasonable
investment risk. This portfolio invests primarily in equity securities, debt
securities and money market instruments of domestic and foreign issuers.

The DREYFUS QUALITY BOND PORTFOLIO seeks to provide the maximum amount of
current income to the extent consistent with the preservation of capital and
the maintenance of liquidity. This portfolio invests principally in debt
obligations of corporations, the U.S. Government and its agencies and
instrumentalities, and U.S. major banking institutions.

The DREYFUS SMALL CAP PORTFOLIO seeks to maximize capital appreciation. This
portfolio invests primarily in common stocks of domestic and foreign issuers.
This portfolio will be particularly alert to companies that The Dreyfus
Corporation considers to be emerging smaller-sized

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<PAGE>

companies which are believed to be characterized by new or innovative
products, services or processes which would enhance prospects for growth in
future earnings.

The DREYFUS SMALL CAP VALUE (ENDEAVOR) PORTFOLIO seeks capital appreciation
through investments in a diversified portfolio of equity securities of
companies with a median market capitalization of approximately $750 million,
provided that under normal market conditions at least 75% of the portfolio's
investments will be in equity securities of companies with capitalizations at
the time of purchase between $150 million and $1.5 billion.

The FEDERATED HIGH INCOME BOND FUND II PORTFOLIO seeks high current income.
The portfolio endeavors to achieve its objective by investing primarily in a
professionally managed, diversified portfolio of fixed income securities. The
fixed income securities in which the Fund intends to invest are lower-rated
corporate debt obligations, which are commonly referred to as "junk bonds."
Some of these fixed income securities may involve equity features. Capital
growth will be considered, but only when consistent with the investment
objective of high current income.

The FEDERATED UTILITY FUND II PORTFOLIO seeks moderate capital appreciation
and high current income by investing in a professionally-managed, diversified
portfolio of utility company equity and debt securities. The portfolio is
actively managed to help reduce interest rate risk through the use of
convertible securities.

The VALUE EQUITY (ENDEAVOR) PORTFOLIO MANAGED BY OPCAP ADVISORS seeks long-
term capital appreciation through investment in securities (primarily equity
securities) of companies that are believed by the portfolio's investment
advisor to be undervalued in the marketplace in relation to factors such as
the companies' assets or earnings.

The GLOBAL (WRL) PORTFOLIO MANAGED BY JANUS CAPITAL CORPORATION seeks long-
term growth of capital in a manner consistent with preservation of capital,
primarily through investments in common stocks of foreign and domestic
issuers. The portfolio seeks to invest in companies on a worldwide basis,
regardless of country of organization or place of principal business activity,
as well as domestic and foreign governments, government agencies and other
governmental entities. Realization of income is not a significant investment
consideration and any income realized on the portfolio's investments will,
therefore, be incidental to the portfolio's objective.

The GROWTH (WRL) PORTFOLIO MANAGED BY JANUS CAPITAL CORPORATION seeks growth
of capital. The portfolio will invest substantially all of its assets in
common stocks when the subadviser believes that the relevant market
environment favors profitable investing in those securities. Common stock
investments are selected in industries and companies that the subadviser
believes are experiencing favorable demand for their products and services,
and which operate in a favorable competitive environment and regulatory
climate. The subadviser's analysis and selection process focuses on stocks
issued by companies with earnings growth potential. In particular, the Growth
Portfolio intends to buy stocks with earnings growth potential that may not be
recognized by the market. Securities are selected solely for their growth
potential; investment income is not a consideration.

The T. ROWE PRICE EQUITY INCOME (ENDEAVOR) PORTFOLIO seeks to provide
substantial dividend income and also capital appreciation by investing
primarily in dividend-paying common stocks of established companies. In
pursuing its objective, the portfolio emphasizes companies with favorable
prospects for increasing dividend income, and secondarily, capital
appreciation. Over time, the income component (dividends and interest earned)
of the portfolio's investments is expected to be a significant contributor to
the portfolio's total return. The portfolio's yield is expected to be
significantly above that of the Standard & Poor's 500 Composite Stock Price
Index. Total return will consist primarily of dividend income and secondarily
of capital appreciation (or depreciation).

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<PAGE>

THE T. ROWE PRICE GROWTH STOCK (ENDEAVOR) PORTFOLIO seeks long-term growth
of capital and to increase dividend income through investment primarily in
common stocks of well-established growth companies. A growth company is
defined by the portfolio's investment adviser as one which: (1) has
demonstrated historical growth of earnings faster than the growth of inflation
and the economy in general; and (2) has indications of being able to continue
this growth pattern in the future. Total return will consist primarily of
capital appreciation or depreciation and secondarily of dividend income.

THE EMERGING GROWTH (WRL) PORTFOLIO MANAGED BY VAN KAMPEN AMERICAN CAPITAL
ASSET MANAGEMENT, INC. seeks capital appreciation. The portfolio seeks to
achieve its objective by investing primarily in common stocks of small and
medium sized companies. Under normal conditions, at least 65% of the
portfolio's total assets will be invested in common stocks of small and medium
sized companies, both domestic and foreign, in the early stages of their life
cycle, that the portfolio's sub-adviser believes have the potential to become
major enterprises. Investments in such companies may offer greater
opportunities for growth of capital than larger, more established companies,
but also involve certain special risks. Emerging growth companies often have
limited product lines, markets, or financial resources, and they may be
dependent upon one or a few key people for management. The securities of such
companies may be subject to more abrupt or erratic market movements than
securities of larger, more established companies or the market averages in
general.

THERE IS NO ASSURANCE THAT ANY OF THE UNDERLYING FUNDS' PORTFOLIOS WILL
ACHIEVE ITS INVESTMENT OBJECTIVE.

The investment adviser for the Atlas Insurance Trust is Atlas Advisers,
Inc., a subsidiary of Golden West Financial Corporation.

The Dreyfus Variable Investment Fund's investment adviser is The Dreyfus
Corporation, a wholly owned subsidiary of Mellon Bank, N.A., which is a wholly
owned subsidiary of Mellon Bank Corporation.

The Endeavor Series Trust's investment adviser is Endeavor Investment
Advisers, which is a general partnership of which Endeavor Management Co. is
the managing partner. Endeavor Management Co. holds a 50.01% interest in
Endeavor Investment Advisers. AUSA Financial Markets, Inc., an affiliate of
PFL, holds the remaining 49.99% interest.

Federated Insurance Series was originally established as "Insurance
Management Series" in 1993. The investment adviser for the fund is Federated
Advisers.

WRL Series Fund, Inc.'s investment adviser is WRL Investment Management,
Inc., a direct, wholly owned subsidiary of Western Reserve Life Assurance Co.
of Ohio, Inc., which is an affiliate of PFL.

The Underlying Funds' prospectuses should be read carefully before any
decision is made concerning the allocation of Premium Payments to a particular
Subaccount. The Underlying Funds are not limited to selling their shares to
the Mutual Fund Account and are permitted to accept investments from any
separate account of an insurance company and qualified retirement plans. Since
the Portfolios of the Underlying Funds are available to registered separate
accounts offering variable annuity products of PFL, as well as variable
annuity and variable life products of other insurance companies and qualified
retirement plans, there is a possibility that a material conflict may arise
between the interests of the Mutual Fund Account and one or more of the
separate accounts of another participating insurance company. In the event of
a material conflict, the affected insurance companies, including PFL, agree to
take any necessary steps, including removing their separate accounts from the
Underlying Funds, to resolve the matter. See the Underlying Funds'
prospectuses for further details.

PFL may receive expense reimbursements or other revenues from the Underlying
Funds, their portfolios or their investment advisers.

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<PAGE>

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 Mutual Fund
Account and its investments. PFL reserves the right to eliminate the shares of
any Portfolio held by a Subaccount and to substitute shares of another
Portfolio of the Underlying Funds, or of another registered open-end
management investment company for the shares of any Portfolio, if the shares
of the Portfolio are no longer available for investment or if, in PFL's
judgment, investment in any Portfolio would be inappropriate in view of the
purposes of the Mutual Fund Account. To the extent required by the 1940 Act,
substitutions of shares attributable to an Owner's interest in a Subaccount
will not be made without prior notice to the Owner and the prior approval of
the SEC. Nothing contained herein shall prevent the Mutual Fund 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 requests made by Owners.

New Subaccounts may be established when, in the discretion of PFL and Atlas,
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
and Atlas. Each additional Subaccount will purchase shares in a mutual fund
portfolio or other investment vehicle. PFL may also eliminate one or more
Subaccounts if, PFL and Atlas determine that, marketing, tax, investment or
other conditions warrant such change. In the event any Subaccount is
eliminated, PFL and Atlas 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 another Subaccount, that PFL deems to be 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 Mutual Fund 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 Mutual Fund
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 Mutual Fund Account, (3) create new mutual fund
accounts, (4) add new Subaccounts to or remove existing Subaccounts from the
Mutual Fund Account, or combine Subaccounts, or (5) add new underlying funds,
or substitute a new fund for an existing fund.

THE FIXED ACCOUNT

This Prospectus is generally intended to serve as a disclosure document only
for the Policy and the Mutual Fund Account. For complete details regarding the
Fixed Account, see the Policy itself.

Premium Payments allocated and amounts transferred to the Fixed Account
become part of the general account of PFL, which supports insurance and
annuity obligations. 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 while the staff
of the SEC has not reviewed the disclosures in this Prospectus which relate to
the Fixed Account, the disclosures may be subject to certain generally
applicable provisions of the federal securities laws relating to the accuracy
and completeness of the statements made in the Prospectus.

The Fixed Account is part of the general assets of PFL, other than those in
the Mutual Fund Account or in any other segregated asset account. The Policy
Owner may allocate Premium Payments to the Fixed Account at the time of
Premium Payment or by subsequent transfers from the Mutual Fund Account.
Rather than the Policy Owner bearing the investment risk, as is the case for
Policy Value allocated to the Mutual Fund Account, PFL bears the full
investment risk for all

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<PAGE>

Policy Value allocated to the Fixed Account. PFL has sole discretion to invest
the assets of its general account, including the Fixed Account, subject to
applicable law. While PFL bears the full investment risk for all Policy Value
in the Fixed Account, all guaranteed rates or benefits are subject to PFL's
claims-paying ability.

Premium Payments applied to, and any amounts transferred to, the Fixed
Account will reflect a fixed interest rate. The interest rates PFL sets will
be credited for increments of at least one year measured from each Premium
Payment or transfer date. These rates will never be less than an effective
annual interest rate of 3%.

Upon surrender of the Policy the Owner will receive at least the Premium
Payments applied to, less prior partial withdrawals and transfers from the
Fixed Account.

Guaranteed Periods. PFL may offer optional guaranteed interest rate periods
("Guaranteed Period Options" or "GPOs") into which Premium Payments may be
paid or amounts transferred. Currently, PFL offers Guaranteed Period Options
for periods of 5 or 7 years. The current interest rate PFL sets for funds
placed in each Guaranteed Period Option will apply to those funds until the
end of the Guaranteed Period. At the end of the Guaranteed Period, the Premium
Payment or amount transferred into the Guaranteed Period Option less any
partial withdrawals or transfers from that Guaranteed Period Option, including
the effect of any Excess Interest Adjustment or Surrender Charge due to
partial withdrawals prior to the end of the Guaranteed Period, plus accrued
interest, will be rolled into a new Guaranteed Period Option.

The Owner may choose the Guaranteed Period Option into which the funds are
to be placed by giving PFL notice within 30 days before the end of the
expiring Guaranteed Period. In the absence of such election, the new
Guaranteed Period will be the same as the expiring one. If that Guaranteed
Period Option is no longer offered by PFL, the next shorter Guaranteed Period
Option then being offered will be used. If there is not a shorter Guaranteed
Period Option being offered, PFL will roll the funds into the One Year Fixed
Option.

Surrenders or partial withdrawals from a Guaranteed Period Option prior to
the end of the Guaranteed Period and which are in excess of the cumulative
interest credited at the time of, but prior to, the withdrawal are subject to
an Excess Interest Adjustment on the amount withdrawn. See "DISTRIBUTIONS
UNDER THE POLICY--Excess Interest Adjustment," p. 33.) Transfers of amounts up
to the cumulative interest credited up to the time of the transfer are allowed
with no Excess Interest Adjustment. No other transfers from any Guaranteed
Period Option to any other Investment Option will be allowed prior to the end
of the Guaranteed Period. (See "Transfers," p. 27.)

For purposes of crediting interest, the oldest Premium Payment or transfer
into a Guaranteed Period Option within the Fixed Account, plus interest
allocable to that Premium Payment or transfer, is considered to be withdrawn
first; the next oldest Premium Payment or transfer plus interest is considered
to be withdrawn next, and so on (this is a "first-in, first-out" procedure).

One Year Fixed Option. PFL will offer a One Year Fixed Option, into which
Premium Payments may be paid or amounts transferred. The current interest rate
PFL sets for funds entering this option is guaranteed for one year.
Surrenders, partial withdrawals and transfers from the One Year Fixed Option
to any of the other Investment Options are permitted without incurring any
Excess Interest Adjustments. In addition, Dollar Cost Averaging transfers are
only available from the One Year Fixed Option.

Dollar Cost Averaging. Transfers under a Dollar Cost Averaging program will
not be subject to an Excess Interest Adjustment. Dollar cost averaging
requires regular investment regardless of fluctuating prices and does not
guarantee profits nor prevent losses in a declining market. Before electing
this option, individuals should consider their financial ability to continue
transfers through periods of both high and low price levels. (See "THE ATLAS
PORTFOLIO BUILDER ACCOUNTS--Dollar Cost Averaging" p. 28.)

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Current Interest Rates. PFL periodically will establish an applicable
Current Interest Rate for each of the Guaranteed Period Options and the One
Year Fixed Option within the Fixed Account. Current Interest Rates may be
changed by PFL frequently or infrequently depending on interest rates on
investments available to PFL and other factors as described below, but once
established, the rate will be guaranteed for the duration of the Option.
However, any amount withdrawn or transferred from a Guaranteed Period Option
may be subject to an Excess Interest Adjustment, except at the end of the
Guaranteed Period. (See "DISTRIBUTIONS UNDER THE POLICY--Excess Interest
Adjustment," p. 33.)

The Current Interest Rate will not be less than an effective rate of 3% per
year, regardless of any application of the Excess Interest Adjustment. PFL has
no specific formula for determining the rate of interest that it will declare
as a Current Interest Rate, as this rate will be reflective of interest rates
available on the types of debt instruments in which PFL intends to invest
amounts allocated to the Fixed Account. In addition, PFL's management may
consider other factors in determining Current Interest Rates for a particular
Guaranteed Period including but not limited to: regulatory and tax
requirements; sales commissions and administrative expenses borne by the
Company; general economic trends; and consultation with Atlas regarding
competitive factors. There is no obligation to declare a rate in excess of 3%;
the Policy Owner assumes the risk that declared rates will not exceed 3%. PFL
has complete discretion to declare any rate of at least 3%, regardless of
market interest rates, the amounts earned by PFL on its investments, or any
other factors.

PFL'S MANAGEMENT HAS COMPLETE AND SOLE DISCRETION TO DETERMINE THE CURRENT
INTEREST RATES. PFL CANNOT PREDICT OR GUARANTEE THE LEVEL OF FUTURE CURRENT
INTEREST RATES, EXCEPT THAT PFL GUARANTEES THAT FUTURE EFFECTIVE INTEREST
RATES WILL NOT BE BELOW 3% PER YEAR.

TRANSFERS

Prior to the Annuity Commencement Date, an Owner can transfer Policy Values
from any the Investment Option to another within certain limits. Subject to
the limitations and restrictions described below, transfers from an Investment
Option may be made, up to thirty days prior to the Annuity Commencement Date,
by sending Written Notice, signed by the Owner, to Atlas.

Transfers currently may be made without charge as often as the Owner wishes,
subject to the minimum dollar amounts specified below. PFL reserves the right
to limit these transfers to no more than 12 per Policy Year in the future or
to charge up to $10 per transfer in excess of 12 per Policy Year.

Transfers of funds among Investment Options are only allowed as follows:

. Before the Guaranteed Period ends, a maximum amount equal to the interest
credited to any of the Guaranteed Period Options may be transferred
("interest transfers"). No Excess Interest Adjustment will apply to
interest transfers. PFL's interest crediting rates on amounts in the Fixed
Account, however, are determined using a "first-in first-out" ("FIFO")
method, and interest transfers may affect the credited rate on the
remaining amounts. There is a $50 minimum for each interest transfer.
. When any Guaranteed Period ends, Policy Values may be transferred to any of
the other Investment Options. No Excess Interest Adjustment will apply to
these transfers. PFL will provide notice of the termination of the
Guaranteed Period Option, and at least a 30-day period in which to elect an
Investment Option.
. Dollar Cost Averaging transfers from the One Year Fixed Account Option may
be made to one or more other Investment Options (subject to limits
established by PFL).
. Transfers other than Dollar Cost Averaging transfers from the One Year
Fixed Option may be made to one or more Subaccounts of the Mutual Fund
Account. Each such transfer must be at least $500.
. The minimum amount that may be transferred from a Subaccount of the Mutual
Fund Account to any other Investment Option is the lesser of $500 or the
entire Subaccount value. PFL

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<PAGE>

reserves the right to include the remaining Subaccount value in the
transfer if the remaining value is less than $500.

After the Annuity Commencement Date, transfers out of the Fixed Account are
not permitted. The Owner may transfer the value of the variable annuity units
from one Subaccount to another within the Mutual Fund Account, or to the Fixed
Account. The minimum amount that may be transferred is the lesser of $10
monthly income or the entire monthly income of the variable annuity units in
the Subaccount from which the transfer is being made. If the monthly income of
the remaining units in a Subaccount is less than $10, PFL reserves the right
to include the value of those variable annuity units as part of the transfer.
(See "DISTRIBUTIONS UNDER THE POLICY--Annuity Payment Options," p. 35.)

Transfers may be made by telephone, subject to the provisions described
below under "Telephone Transactions."

REINSTATEMENTS

Requests are occasionally received by PFL to reinstate funds which had been
transferred to another life insurance company pursuant to a Section 1035
exchange or trustee-to-trustee transfer under the Code. In this situation PFL
will require the Owner to replace the same total dollar amount of funds in the
applicable Subaccounts and/or Fixed Accounts as was taken from them to effect
the exchange. The total dollar amount of funds reapplied to the Mutual Fund
Account will be used to purchase a number of Accumulation Units available for
each Subaccount based on the Accumulation Unit values at the date of
reinstatement (within two days of the date the funds are received by PFL). It
should be noted that the number of Accumulation Units available on the
Reinstatement date may be more or less than the number surrendered for the
exchange. Amounts reapplied to the Fixed Account will be entitled to receive
the interest rate they would otherwise have received had they not been
withdrawn. However, an adjustment will be made to the amount reapplied to
compensate PFL for the additional interest credited during the period of time
between the withdrawal and the reapplication of the funds. Owners should
consult a qualified personal tax adviser concerning the tax consequences of
any Internal Revenue Code Section 1035 exchanges or reinstatements.

TELEPHONE TRANSACTIONS

Owners may make transfers and change the allocation of subsequent Premium
Payments by telephone if "Telephone Transfer/Reallocation Authorization" has
been requested on the Policy application or subsequent authorization by the
Owner by appropriate Written Request. PFL and Atlas will not be liable for
following instructions communicated by telephone that it reasonably believes
to be genuine. However, PFL and Atlas will employ reasonable procedures to
confirm that instructions communicated by telephone are genuine. If either PFL
or Atlas fails to do so, it may be liable for any losses due to unauthorized
or fraudulent instructions. All telephone requests will be recorded on voice
recorder equipment for the protection of the Owner. The Owner, when making
telephone requests, will be required to provide the Owner's social security
number, or other information for identification purposes.

Telephone requests must be received by Atlas no later than 1:00 p.m. Pacific
(4:00 p.m. Eastern) time in order to receive same-day pricing of the
transaction.

The telephone transaction privilege may be discontinued at any time as to
some or all Owners and PFL may require written confirmation of a telephone
transaction request at its discretion.

DOLLAR COST AVERAGING (DCA)

Under the Dollar Cost Averaging program, prior to the Annuity Commencement
Date, the Owner can instruct PFL to automatically transfer a dollar amount
specified by the Owner from the One Year Fixed Option to any other Subaccount
or Subaccounts of the Mutual Fund Account. The automatic transfers can occur
monthly or quarterly and will occur on the 28th day of the month. If

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<PAGE>

the DCA request is received prior to the 28th day of any month, the first
transfer will occur on the 28th day of that month. If the DCA request is
received on or after the 28th day of any month, the first transfer will occur
on the 28th day of the following month.

Dollar Cost Averaging results in the purchase of more Accumulation Units
when the Accumulation Unit value is low, and fewer Accumulation Units when the
Accumulation Unit value is high. However, there is no guarantee that the
Dollar Cost Averaging program will result in higher Policy Values or will
otherwise be successful.

The Owner may request Dollar Cost Averaging either at the time of purchase
of the Policy or later. The program will terminate when the amount in the One
Year Fixed Account is insufficient for the next transfer, at which time the
entire remaining balance is transferred. The Owner may start, stop, increase
or decrease the amount of the Dollar Cost Averaging transfers by submitting a
new Dollar Cost Averaging form or a Written Notice which gives PFL the facts
needed. There is no charge for participation in this program.

ASSET REBALANCING

Prior to the Annuity Commencement Date the Owner may instruct PFL to
automatically transfer amounts among the Subaccounts of the Mutual Fund
Account and the One Year Fixed Option on a regular basis to maintain a desired
allocation of the Policy Value among the One Year Fixed Option and the various
Subaccounts offered. Rebalancing will occur on a monthly, quarterly, semi-
annual, or annual basis based on the Policy Date, and beginning on a date
selected by the Owner. The Owner must select the percentage of the One Year
Fixed Option Policy Value and the Mutual Fund Account Policy Value desired in
each of the various Subaccounts offered (totaling 100%). Any amounts in the
Guaranteed Period Options of the Fixed Account are ignored for purposes of
asset rebalancing. Rebalancing may be started, stopped, or changed at any
time, except that rebalancing will not be available when: (1) a Dollar Cost
Averaging program is in effect; or (2) any other transfer is requested.

Asset rebalancing transactions are not subject to an Excess Interest
Adjustment. There is no charge for participation in this program.

THE POLICY

The Atlas Portfolio Builder Variable Annuity Policy is a flexible premium
variable annuity policy. The rights and benefits under the Policy are
summarized below; however, the description of the Policy contained in this
Prospectus is qualified in its entirety by reference to the Policy itself, a
copy of which is available upon request from PFL. The Policy may be purchased
on a non-tax qualified basis ("Nonqualified Policy"). The Policy may also be
purchased and used in connection with retirement plans or individual
retirement accounts that qualify for favorable federal income tax treatment
("Qualified Policy").

POLICY APPLICATION AND ISSUANCE OF POLICIES--PREMIUM PAYMENTS

Before it will issue a Policy, PFL must receive a completed Policy
application or transmittal form and a minimum initial Premium Payment of
$5,000 for a Nonqualified Policy or $2,000 for a Qualified Policy at its
Administrative and Service Office. There is no minimum initial Premium Payment
required for tax deferred 403(b) annuities, the Owner may specify any amount
for such annuities. PFL reserves the right to increase or decrease these
amounts for a class of Policies issued after some future date. For 403(b)
annuities, PFL must receive the initial Premium Payment within ninety days
following the Policy Date or the Policy will be canceled. A Policy ordinarily
will be issued only in respect of Owners and Annuitants Age 0 through 80.
Acceptance or declination of an application shall be based on PFL's
underwriting standards, and PFL reserves the right to reject any application
or Premium Payment based on those underwriting standards. The initial Premium
Payment is the only Premium Payment required to be paid under a Policy.

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<PAGE>

If the application or transmittal form can be accepted in the form received,
the initial Premium Payment will be credited to the Policy Value within two
Business Days after the later of receipt of the information needed to issue
the Policy and receipt of the initial Premium Payment. If the initial Premium
Payment cannot be credited because the application or other issuing
requirements are incomplete, the applicant will be contacted within five
Business Days and given an explanation for the delay and the initial Premium
Payment will be returned at that time unless the applicant consents to PFL's
retaining the initial Premium Payment and crediting it as soon as the
necessary requirements are fulfilled.

The date on which the initial Premium Payment is credited to the Policy
Value is the Policy Date. The Policy Date is the date used to determine Policy
Years and Policy Anniversaries.

All checks or drafts for Premium Payments should be made payable to PFL Life
Insurance Company. The Death Benefit will not take effect until the Premium
Payment is received and any check or draft for the Premium Payment is honored.

Additional Premium Payments. While the Annuitant is living and prior to the
Annuity Commencement Date, the Owner may make Additional Premium Payments at
any time, and in any frequency. The minimum Additional Premium Payment under
both a Nonqualified Policy and a Qualified Policy is $500. Additional Premium
Payments will be credited to the Policy and added to the Policy Value as of
the Business Day when the premium and required information are received by PFL
at its Administrative and Service Office.

Maximum Total Premium Payments. The maximum total Premium Payments allowed
without prior approval of PFL is $1,000,000.

Allocation of Premium Payments. An Owner must allocate Premium Payments to
one or more of the Investment Options. THE OWNER MUST SPECIFY THE INITIAL
ALLOCATION IN THE POLICY APPLICATION OR TRANSMITTAL FORM. THIS ALLOCATION WILL
BE USED FOR ADDITIONAL PREMIUM PAYMENTS UNLESS THE OWNER REQUESTS A CHANGE OF
ALLOCATION. All allocations must be made in whole percentages and must total
100%. If the Owner fails to specify how Premium Payments are to be allocated,
the Premium Payment(s) cannot be accepted.

The Owner may change the allocation instructions for future Additional
Premium Payments by sending a Written Notice or by telephone (subject to the
provisions described under "THE ATLAS PORTFOLIO BUILDER ACCOUNTS--Telephone
Transactions," p. 28). The allocation change will apply to Premium Payments
received after the date the Written Notice or telephone request is received.

Payment Not Honored by Bank. Any payment due under the Policy which is
derived, all or in part, from any amount paid to PFL by check or draft may be
postponed until such time as PFL determines that such instrument has been
honored.

POLICY VALUE

On or before the Annuity Commencement Date, the Policy Value is equal to the
Owner's:

(1) Premium Payments; minus
(2) Partial withdrawals (including any applicable Excess Interest
Adjustments and/or Surrender Charges on such withdrawals); plus
(3) interest credited in the Fixed Account; plus or minus
(4) accumulated gains or losses in the Mutual Fund Account; minus
(5) Premium taxes and transfer fees, if any.

The Policy Value is expected to change from Valuation Period to Valuation
Period, reflecting the investment experience of the selected Subaccount(s), as
well as the deductions for charges. A Valuation Period is the period between
successive Business Days. It begins at the close of business

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on each Business Day and ends at the close of business on the next succeeding
Business Day. A Business Day is each day that the New York Stock Exchange is
open for trading. Holidays are generally not Business Days.

The Mutual Fund Policy Value. When a Premium Payment is allocated or an
amount is transferred to a Subaccount of the Mutual Fund Account, it is
credited to the Policy Value in the form of Accumulation Units. Each
Subaccount of the Mutual Fund Account 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. When amounts are transferred out of, or fully surrendered or
partially withdrawn from a Subaccount, Accumulation Units are canceled or
redeemed in a similar manner.

For each Subaccount, the Accumulation Unit Value for a given Business Day is
based on the net asset value of a share of the corresponding Portfolio of the
Underlying Funds less any applicable charges or fees. Therefore, the
Accumulation Unit Values will fluctuate from day to day based on the
investment experience of the corresponding Portfolio. The determination of
Subaccount Accumulation Unit Values is described in detail in the Statement of
Additional Information.

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 Policies to meet the requirements of the
Internal Revenue Code, regulations or published rulings. An Owner can refuse
such a change by giving Written Notice, but a refusal may result in adverse
tax consequences.

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.

DISTRIBUTIONS UNDER THE POLICY

SURRENDERS

Prior to the Annuity Commencement Date, the Owner may surrender all or a
portion of the Cash Value in exchange for a payment from PFL. The Cash Value
is the Adjusted Policy Value, less the Surrender Charge, if any. (See
"DISTRIBUTIONS UNDER THE POLICY--Annuity Payment Options," p. 35.) The Policy
cannot be surrendered after the Annuity Commencement Date. (See "DISTRIBUTIONS
UNDER THE POLICY--Annuity Payments," p. 34.)

When requesting a partial withdrawal ($250 minimum), the Owner must instruct
PFL how the amount withdrawn is to be allocated among the various Investment
Options. If the Owner's request for a partial withdrawal from a Fixed Account
Option is greater than the Cash Value of that Fixed Account Option, PFL will
pay the Owner the amount of the Cash Value of that Fixed Account Option. If no
allocation instructions are given, the withdrawal will be deducted from each
Investment Option in the same proportion that the Owner's interest in each
Investment Option bears to the total Policy Value. If any partial withdrawal
reduces the Cash Value below $500, PFL reserves the right to pay the full Cash
Value and terminate the Policy. PFL reserves the right to defer payment of the
Cash Value from the Fixed Account for up to six months. If the Annuitant dies
after PFL receives the request, but before the request is processed, the
request will be processed before the death proceeds are determined.

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<PAGE>

In each Policy Year the Owner may request partial surrenders ($250 minimum)
of up to 10% of the cumulative premiums at the time of withdrawal free of
Surrender Charges. The amount that may be taken free of Surrender Charges each
Policy Year is cumulative. This is referred to as the Cumulative Free
Percentage. That is, Cumulative Free Percentages which are not taken are
carried forward and are available to be taken in subsequent Policy Years free
of Surrender Charges. Partial withdrawals previously taken (including
Cumulative Free Percentage withdrawals, Systematic Payouts and Minimum
Required Distributions) reduce the Cumulative Free Percentage that is
available. For example, 10% Cumulative Free Percentage is available at the
beginning of the first Policy Year. If no partial withdrawals are taken in the
first Policy Year, the first year unused Cumulative Free Percentage of 10% is
carried forward to the second Policy Year. The unused 10% from year one plus
10% additional Cumulative Free Percentage available at the beginning of Policy
Year two accumulates to a 20% Cumulative Free Percentage as of the beginning
of Policy Year two. Assume only 5% is used in Policy Year two. Thus the
Cumulative Free Percentage available as of the beginning of Policy Year three
would be 25% (i.e., 20% - 5% = 15% unused from Policy Year two, plus an
additional 10% available at the beginning of Policy Year three). Amounts
withdrawn in excess of the available Cumulative Free Percentage will be
subject to a Surrender Charge (up to 7%).

Upon surrender or Partial Withdrawal, the cumulative interest credited at
the time of, but prior to, the surrender or Partial Withdrawal will not be
subject to an Excess Interest Adjustment.

The Gross Partial Withdrawal is the total amount which will be deducted from
the Policy Value as a result of each partial withdrawal and is equal to R
minus E plus SC, where:

R is the requested partial withdrawal;
E is the Excess Interest Adjustment;
SC equals the Surrender Charge on (EPW minus E), where:
EPW is the Excess Partial Withdrawal Amount

The total amount which will be deducted from the Policy Value may be more or
less than the requested partial withdrawal amount, depending on whether
Surrender Charges and/or Excess Interest Adjustments apply at the time the
Owner requests the partial withdrawal. The Excess Partial Withdrawal Amount is
the portion of the requested partial withdrawal that is subject to Surrender
Charge. (See "CHARGES AND DEDUCTIONS--Surrender Charge," p. 40, "DISTRIBUTIONS
UNDER THE POLICY--Excess Interest Adjustment," p. 33 and Appendix A.)

Since the Owner assumes the investment risk with respect to all Premium
Payments allocated to the Mutual Fund Account, and because withdrawals may be
subject to a Surrender Charge, and possibly premium taxes, and withdrawals
from the Fixed Account may be subject to an Excess Interest Adjustment, the
total amount paid upon total surrender of the Cash Value (taking any prior
surrenders into account) may be more or less than the total Premium Payments
made. Following a surrender of the total Cash Value, or at any time the Policy
Value is zero, all rights of the Owner and Annuitant will terminate.

In addition to the Excess Interest Adjustment and Surrender Charge and any
applicable premium taxes, surrenders and partial withdrawals may be subject to
income taxes and, if taken prior to age 59 1/2, a ten percent penalty tax.
(See "CERTAIN FEDERAL INCOME TAX CONSEQUENCES," p. 42.)

NURSING CARE AND TERMINAL CONDITION WITHDRAWAL OPTION

In some states, if the Annuitant, Annuitant's spouse, Owner or Owner's
spouse (only the Annuitant or Annuitant's spouse if the Owner is not a natural
person)-(1) has been confined in a hospital or nursing facility for 30
consecutive days or (2) has been diagnosed as having a terminal condition as
defined in the Policy or endorsement, (generally a life expectancy of not more
than 12 months) then the Surrender Charge and the Excess Interest Adjustment
are not imposed on surrenders or partial withdrawals. (Since this benefit may
not be available in New Jersey--see the Policy or endorsement for details.)

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<PAGE>

EXCESS INTEREST ADJUSTMENT (EIA)

An Excess Interest Adjustment applies in the following situations:

(1) Withdrawal of all or any portion of the Cash Value,
(2) Exercise of the Annuity Payment Options,
(3) When death proceeds are calculated.

The Excess Interest Adjustment is only applied to transactions affecting the
Guaranteed Period Options of the Fixed Account and is based on any change in
interest rates declared by PFL from the time the affected Guaranteed Periods
started until the time the Excess Interest Adjustment Occurs. The Excess
Interest Adjustment is applied as follows:

. The Excess Interest Adjustment is only applied when the transactions
occur before any Guaranteed Period ends;
. Transfers to the Guaranteed Period Options of the Fixed Account are
considered Premium Payments for purposes of determining the Excess
Interest Adjustment;
. The Excess Interest Adjustment is distinct from, and is applied prior
to, the Surrender Charge;
. The Excess Interest Adjustment may affect the Guaranteed Minimum Death
Benefit;
. If interest rates declared by PFL have decreased from the time the
affected Guaranteed Period(s) started until the time the transaction
occurs, the Excess Interest Adjustment will result in additional funds
available to the Owner;
. If interest rates declared by PFL have increased from the time the
affected Guaranteed Period(s) started until the time the transaction
occurs, the Adjustment will result in a decrease in the funds available
to the Owner. However, this decrease, if any, will be limited such that
the interest credited will not fall below the amount determined using
the 3% guaranteed effective annual interest rate;
. At the time of Surrender, the cumulative interest credited to the
Guaranteed Period Options of the Fixed Account will not be subject to an
Excess Interest Adjustment.
. Certain other amounts, such as Nursing Care Withdrawals and minimum
required distributions for tax purposes are not subject to the Excess
Interest Adjustment.

At the time of surrender of the Policy, the Excess Interest Adjustment for
each Guaranteed Period Option will not reduce the Adjusted Policy Value for
that Guaranteed Period Option below the amount paid into, less any prior
withdrawals and transfers from that Guaranteed Period Option, plus interest at
the 3% guaranteed effective annual interest rate.

The formula for calculating the Excess Interest Adjustment and examples of
the application of the Excess Interest Adjustment are set forth in Appendix A
to this Prospectus.

SYSTEMATIC PAYOUT OPTION

Under the Systematic Payout Option, the Owner can instruct PFL to make, free
from Surrender Charges, automatic payments to the Owner monthly, quarterly,
semi-annually or annually from one or more specified Subaccounts. Monthly and
quarterly payments can only be accomplished by electronic funds transfer
directly to a checking or savings account. The minimum payment is $50. The
maximum payment is 10% of the cumulative Premium Payments at the time the
Systematic Payout is made divided by the number of payments made per year (for
example, 12 for monthly). Any applicable Excess Interest Adjustment would only
apply to systematic payouts which are in excess of the cumulative interest
credited to the Guaranteed Period Options of the Fixed Account (less any prior
withdrawals of interest) at the time of the payout. The "Request for
Systematic Payout" form must specify a date for the first payment, which must
be at least 30 days but not more than one year after the form is submitted
(that is, Systematic Payouts will start at the end of the payment mode
selected, but not earlier than 30 days from the date of request).

The Surrender Charge and Excess Interest Adjustment will be waived for
Owners under age 59 1/2 on Qualified Policies if they take Systematic Payouts
using one of the payout methods described in IRS Notice 89-25, Q&A-12 (the
Life Expectancy Recalculation Option, Amortization, or Annuity Factor) which
generally requires payments for life or life expectancy. These payments must

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<PAGE>

be continued until the later of age 59 1/2 or five years from commencement of
the payments. No additional withdrawals may be taken during the time these
payments are made. For Qualified Policies, Owners age 59 1/2 or older, the
Surrender Charge and Excess Interest Adjustment will be waived if payments are
made using the Life Expectancy Recalculation Option.

Qualified Policies are subject to complex rules with respect to restrictions
on and taxation of distributions, including the applicability of penalty
taxes. In addition, the tax treatment of systematic payouts from Nonqualified
Policies has had an unfavorable ruling regarding the ability to avoid the 10%
penalty tax. Therefore, the Owner should consult a qualified tax adviser
before requesting a Systematic Payout. In certain circumstances withdrawn
amounts may be included in the Owner's gross income. (See "CERTAIN FEDERAL
INCOME TAX CONSEQUENCES," p. 42.)

MINIMUM REQUIRED DISTRIBUTIONS AND RESTRICTIONS UNDER QUALIFIED POLICIES

For Qualified Policies, partial withdrawals taken to satisfy minimum
distribution requirements under section 401(a)(9) of the Code are available
free from Surrender Charges and Excess Interest Adjustments. The amount that
will be available under the Policy will be calculated solely on the basis of
amounts in the Policy, and not other sources. The Owner must submit a Written
Request and be at least 70 1/2 years old in the calendar year that the
distribution is taken. Any amounts taken that are more than needed to satisfy
the minimum required distribution under the Code will have the appropriate
Surrender Charges and Excess Interest Adjustments applied, unless that amount
of the distribution qualifies for another exemption from Surrender Charges and
Excess Interest Adjustments as described in this Prospectus.

Other restrictions with respect to the election, commencement, or
distribution of benefits may apply under Qualified Policies or under the terms
of the plans in respect of which Qualified Policies are issued.

RESTRICTIONS UNDER THE TEXAS OPTIONAL RETIREMENT PROGRAM

Section 36.105 of the Texas Educational Code permits participants in the
Texas Optional Retirement Program (ORP) to withdraw their interest in a
variable annuity Policy issued under the ORP only upon: (1) termination of
employment in the Texas public institutions of higher education; (2)
retirement; or (3) death. Accordingly, a participant in the ORP (or the
participant's estate if the participant has died) will be required to obtain a
certificate of termination from the employer or a certificate of death before
the account can be redeemed.

RESTRICTIONS UNDER SECTION 403(B) PLANS

Section 403(b) of the Internal Revenue Code provides for tax-deferred
retirement savings plans for employees of certain non-profit and educational
organizations. In accordance with the requirements of Section 403(b), any
Policy used for a 403(b) plan will prohibit distributions of elective
contributions and earnings on elective contributions except upon death of the
employee, attainment of age 59 1/2, separation from service, disability, or
financial hardship. In addition, income attributable to elective contributions
may not be distributed in the case of hardship.

ANNUITY PAYMENTS

Annuity Commencement Date. Unless the Annuity Commencement Date is changed,
Annuity Payments under a Policy will begin on the Annuity Commencement Date.
The Annuity Commencement Date may be changed from time to time by the Owner by
Written Notice, provided that notice of each change is received by PFL at its
Administrative and Service Office at least thirty (30) days prior to the then
current Annuity Commencement Date. Except as otherwise permitted by PFL, a new
Annuity Commencement Date must be a date which is: (1) at least thirty (30)
days after the date notice of the change is received by PFL and (2) not later
than the last day of the Policy month starting after the Annuitant attains age
85. In no event will an Annuity Commencement Date be permitted to be later
than the last day of the Policy month following the month in which the

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<PAGE>

Annuitant attains age 95. The Annuity Commencement Date may also be changed by
the Beneficiary's election of the Annuity Option after the Annuitant's death.

Election of Payment Option. During the lifetime of the Annuitant and prior
to the Annuity Commencement Date, the Owner may choose a 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) Option 3, life income with level payments for 10 years certain,
using the existing Adjusted Policy Value of the Fixed Account, or (ii) under
Option 3-V, life income with variable payments for 10 years certain using the
existing Policy Value of the Mutual Fund Account, or (iii) in a combination of
(i) and (ii). If the Adjusted Policy Value on the Annuity Commencement Date is
less than $2000, PFL reserves the right to pay it in one lump sum in lieu of
applying it under a Payment Option.

Prior to the Annuity Commencement Date, the Beneficiary may elect to receive
the Death Benefit in a lump sum or under one of the Payment Options, to the
extent allowed by law and subject to the terms of any settlement agreement.
(See "Death Benefit," p. 38.) Annuity Payments will be made on either a fixed
basis or a variable basis as selected by the Owner (or the Beneficiary, after
the Annuitant's death).

The person who elects a 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 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.

Unless the Owner specifies otherwise, the payee shall be the Annuitant, or,
after the Annuitant's death, the Beneficiary. PFL may require written proof of
the age of any person who has an annuity purchased under Option 3, 3-V, 5 or
5-V.

Premium Tax. PFL may be required by state law to pay premium tax on the
amount applied to a payment option or upon withdrawal. If so, PFL will deduct
the premium tax before applying or paying the proceeds.

Supplementary Contract. Once proceeds become payable and a Payment Option
has been selected, the Policy will terminate and PFL will issue a
Supplementary Contract to reflect the terms of the option selected. The
Supplementary Contract will name the payees and will describe the payment
schedule.

ANNUITY PAYMENT OPTIONS

The Policy provides five Payment Options which are described below. Two of
these are offered as either "Fixed Payment Options" or "Variable Payment
Options," and three are only available as Fixed Payment Options. The Owner may
elect a Fixed Payment Option, a Variable Payment Option, or a combination of
both. If the Owner elects a combination, he must specify what part of the
Policy proceeds are to be applied to the Fixed and Variable Payment Options
(and he must also specify which Subaccounts for the Variable Payment Options).

NOTE CAREFULLY: Under Payment Options 3(l) and 5 (including 3-V(l) and 5-V),
it would be possible for only one Annuity Payment to be made if the
Annuitant(s) were to die before the due date of the second Annuity Payment;
only two Annuity Payments if the Annuitant(s) were to die before the due date
of the third Annuity Payment; and so forth.

On the Annuity Commencement Date, the Adjusted Policy Value will be applied
to provide for Annuity Payments under the selected Annuity Option as
specified. The Adjusted Policy Value is the

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Policy Value for the Valuation Period which ends immediately preceding the
Annuity Commencement Date, increased or decreased by any applicable Excess
Interest Adjustment.

The effect of choosing a Fixed Payment Option is that the amount of each
payment will be set on the Annuity Commencement Date and will not change. If a
Fixed Payment Option is selected, the Adjusted Policy Value will be
transferred to the general account of PFL, and the Annuity Payments will be
fixed in amount by the fixed annuity provisions selected and the age and sex
(if consideration of sex is allowed under applicable law) of the Annuitant.

Guaranteed Values. There are five Fixed Payment Options. Options 1, 2 and 4
are based on a guaranteed effective annual interest rate of 3%. Options 3 and
5 are based on a guaranteed interest rate of 3% using the "1983 Table a"
(male, female, and unisex if required by law) mortality table improved to the
year 2000 with projection scale G. ("The 1983 Table a" mortality rates are
adjusted based on improvements in mortality since 1983 to more appropriately
reflect increased longevity. This is accomplished using a set of improvement
factors referred to as projection scale G.)

Option 1--Interest Payments. The Adjusted Policy Value may be left with PFL
for any term agreed by PFL and the Owner. PFL will pay the interest in equal
payments or it may be left to accumulate. Withdrawal rights will be agreed
upon by the Owner and PFL when the option is elected.

Option 2--Income for a Specified Period. Level payments of the proceeds with
interest are made for the fixed period elected, at which time the funds are
exhausted.

Option 3--Life Income. An election may be made between:

1. "No Period Certain"--Level payments will be made during the lifetime
of the Annuitant.

2. "10 Years Certain"--Level Payments will be made for the longer of
the Annuitant's lifetime or ten years.

3. "Guaranteed Return of Policy Proceeds"--Level payments will be made
for the longer of the Annuitant's lifetime or until the total dollar
amount of payments made equals the proceeds applied to the income
option.

Option 4--Income of a Specified Amount. Payments are made for any specified
amount until the proceeds with interest are exhausted.

Option 5--Joint and Survivor Annuity. Payments are made during the joint
lifetime of the payee and a joint payee of the Owner's selection. Payments
will be made as long as either person is living.

For Options 2, 3, and 4, in the event of the death of the person receiving
payments prior to the end of the Guaranteed Period, payments will be continued
to that person's beneficiary or their present value may be paid in a single
sum.

Other options may be arranged by agreement with PFL. Certain options may not
be available in all states.

Current immediate annuity rates for the same class of annuities will be used
if higher than the guaranteed rates (guaranteed rates are based upon the
mortality tables and/or guaranteed interest rates specified in the Policy
under the section entitled "Annuity Payments").

Variable Payment Options. The dollar amount of the first Variable Annuity
Payment will be determined in accordance with the annuity payment rates set
forth in the applicable table contained in the Policy. The tables are based on
a 5% effective annual Assumed Investment Return and the "1983 Table a" (male,
female, and unisex if required by law) mortality table improved to the year
2000 with projection Scale G. ("The 1983 Table a" mortality rates are adjusted
based on improvements in mortality since 1983 to more appropriately reflect
increased longevity. This is accomplished using a set of improvement factors
referred to as projection scale G.) The dollar

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<PAGE>

amount of subsequent Variable Annuity Payments will vary based on the
investment performance of the Subaccount(s) of the Mutual Fund Account
selected by the Annuitant or Beneficiary. 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.

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 on the Annuitant's nearest birthday, on the Annuity
Commencement Date, adjusted as follows:

<TABLE>
<CAPTION>
ANNUITY COMMENCEMENT DATE ADJUSTED AGE
------------------------- ------------
<S> <C>
Before 2001............................ Actual Age
2001-2010.............................. Actual Age minus 1
2011-2020.............................. Actual Age minus 2
2021-2030.............................. Actual Age minus 3
2031-2040.............................. Actual Age minus 4
After 2040............................. As determined by PFL
</TABLE>

This adjustment assumes an increase in life expectancy, and therefore it
results in lower payments than without such an adjustment.

The following Variable Payment Options generally are available:

Option 3-V--Life Income. An election may be made between:

l. "No Period Certain"--Payments will be made during the lifetime of
the Annuitant.

2. "10 Years Certain"--Payments will be made for the longer of the
Annuitant's lifetime or ten years.

Option 5-V--Joint and Survivor Annuity. Payments are made as long as either
the Annuitant or the joint Annuitant is living.

Certain options may not be available in all states.

Determination of Subsequent 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.

Transfers. A Policy Owner may transfer the value of the Annuity Units from
one Subaccount to another within the Mutual Fund Account or to the Fixed
Account. However, after the Annuity Commencement Date no transfers may be made
from the Fixed Account to the Mutual Fund Account. The minimum amount which
may be transferred is the lesser of $10 of monthly income or the entire
monthly income of the variable Annuity Units in the Subaccount from which the
transfer is being made. The remaining Annuity Units in the Subaccount must
provide at least $10 of monthly income. If, after a transfer, the monthly
income of the remaining Annuity Units in a Subaccount

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<PAGE>

would be less than $10, PFL reserves the right to include those Annuity Units
as part of the transfer. PFL reserves the right to limit transfers between
Subaccounts or from the Mutual Fund Account to the Fixed Account after the
Annuity Commencement Date to once per Policy Year.

Tax Withholding. A portion or the entire amount of the Annuity Payments may
be taxable as ordinary income. If, at the time the Annuity Payments begin, the
Owner has not provided PFL with a written election not to have federal income
taxes withheld, PFL must by law withhold such taxes from the taxable portion
of such annuity payments and remit that amount to the federal government.
Withholding is mandatory for certain qualified Policies. (See "CERTAIN FEDERAL
INCOME TAX CONSEQUENCES," p. 42.)

Adjustment of Annuity Payments. Payments will be made at 1, 3, 6, or 12
month intervals. If the individual payments provided for would be or become
less than $50, PFL may change, at its discretion, the frequency of payments to
such intervals as will result in payments of at least $50. If the Adjusted
Policy Value on the Annuity Commencement Date is less than $2,000, PFL may pay
such value in one sum in lieu of the payments otherwise provided for.

DEATH BENEFIT

Death of Annuitant Prior to Annuity Commencement Date. A Death Benefit will
be paid to the Beneficiary if the Owner, who is the Annuitant, dies prior to
the Annuity Commencement Date. The amount of the Death Benefit will be the
greatest of a) the Policy Value on the date proof of the Annuitant's death and
an election of the method of settlement are received by PFL's Administrative
and Service Office, b) the Cash Value on the date PFL receives due proof of
the Annuitant's death and an election of a method of settlement, or c) the
Guaranteed Minimum Death Benefit ("GMDB") described below, plus any additional
Premium Payments less any Gross Partial Withdrawals from the date of the
Annuitant's death to the date of payment of the death proceeds.

PFL guarantees that the Guaranteed Minimum Death Benefit will be at least a
minimum amount as follows: When all of the Annuitants are younger than age 75
on the Policy Date, the Guaranteed Minimum Death Benefit is the greater of a
"5% Annually Compounding" Death Benefit or a "Step-Up" Death Benefit. The "5%
Annually Compounding Death Benefit is equal to: (a) the total Premium
Payments; minus (b) Adjusted Partial Withdrawals, (as described below); plus
(c) interest accumulated at 5% per year from the Premium Payment or withdrawal
date to the earlier of the Annuitant's date of death or the Annuitant's 76th
birthday. The "Step-Up" Death Benefit is equal to (a) the largest Policy Value
on the Policy Date or on any Policy Anniversary prior to the earlier of the
Annuitant's date of death or prior to the Annuitant's 76th birthday; plus (b)
any Premium Payments subsequent to the date of the Policy Anniversary with the
largest Policy Value; minus (c) any Adjusted Partial Withdrawals (as described
below), subsequent to the date of the Policy Anniversary with the largest
Policy Value.

When any Annuitant is age 75 or older on the Policy Date, the Guaranteed
Minimum Death Benefit is a "Return of Premium" Death Benefit, which is equal
to: (a) the total Premium Payments; minus (b) Adjusted Partial Withdrawals (as
described below), as of the date of death of the Annuitant.

A partial withdrawal will reduce the Guaranteed Minimum Death Benefit by an
amount referred to as the "Adjusted Partial Withdrawal." Each Adjusted Partial
Withdrawal is equal to the Gross Partial Withdrawal multiplied by an
Adjustment Factor. The Adjustment Factor is equal to the amount of the death
proceeds prior to the partial withdrawal, divided by the Policy Value prior to
the partial withdrawal.

If a partial withdrawal is taken when the Guaranteed Minimum Death Benefit
exceeds the Policy Value, then the Guaranteed Minimum Death Benefit will be
reduced in an amount greater than the amount of the partial withdrawal. In
that case, the total proceeds of a partial withdrawal followed by a Death
Benefit could be less than total Premium Payments.

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<PAGE>

If the Annuitant who is not the Owner dies, the Owner will become the
Annuitant and no Death Benefits are payable unless the Owner specifically
requests on the Policy application or in writing that the Death Benefit be
paid upon the Annuitant's death and PFL agrees to such election. See your
Policy's provisions.

Due Proof of Death of the Annuitant is proof that the Annuitant who is the
Owner died prior to the commencement of Annuity Payments. Upon receipt of this
proof and an election of a method of settlement and return of the Policy, the
Death Benefit generally will be paid within seven days, or as soon thereafter
as PFL has sufficient information about the Beneficiary to make the payment.
The Beneficiary may receive the amount payable in a lump sum cash benefit, or,
subject to any limitation under any state or federal law, rule, or regulation,
under one of the Payment Options described above, unless a settlement
agreement is effective at the death of the Annuitant preventing such election.

If the Annuitant was the Owner, and the Beneficiary was not the Annuitant's
spouse, the Death Benefit must (1) be distributed within five years of the
date of the deceased Annuitant's death, or (2) payments under a Payment Option
must begin within one year of the deceased Annuitant's death and must be made
for the Beneficiary's lifetime or for a period certain (so long as any certain
period does not exceed the Beneficiary's life expectancy). Death Proceeds
which are not paid to or for the benefit of a natural person must be
distributed within five years of the date of the deceased Annuitant's death.
If the sole Beneficiary is the deceased Annuitant's surviving spouse, such
spouse may elect to continue the Policy as the new Annuitant and Owner instead
of receiving the Death Benefit. An amount equal to the excess, if any, of the
Guaranteed Minimum Death Benefit over the Policy Value, will then be added to
the Policy Value. This amount will be added only once, at the time of such
election.(See "FEDERAL TAX MATTERS" in the Statement of Additional
Information.)

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 within five years after the date of death of the Owner, or
payments under a Payment Option must begin within one year of the deceased
Owner's death and must be made for the Beneficiary's lifetime or for a period
certain (so long as any certain period does not exceed the Beneficiary's life
expectancy).

Death On or After Annuity Commencement Date. The Death Benefit payable on or
after the Annuity Commencement Date, if any, depends on the Payment Option
selected. If any Owner dies on or after the Annuity Commencement Date, but
before the entire interest in the Policy is distributed, 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 that Owner's
death.

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 consent is
required by law. (If an irrevocable Beneficiary dies, the Owner may then
designate a new Beneficiary.) The change will take effect as of the date the
Owner signs the Written Notice, whether or not the Owner is living when the
Notice is received by PFL. PFL will not be liable for any payment made before
the Written Notice is received. If more than one Beneficiary is designated,
and the Owner fails to specify their interests, they will share equally.

DEATH OF OWNER

Federal tax law requires that if any Owner (including any joint Owner or any
Successor Owner who has become a current Owner) dies before the Annuity
Commencement Date, then the entire value of the Policy must generally be
distributed within five years of the date of death of such Owner. Certain
rules apply where 1) the spouse of the deceased Owner is the sole beneficiary,
2) the Owner is not a natural person and the primary Annuitant dies or is
changed, or 3) any Owner dies after the Annuity Commencement Date. (See
"FEDERAL TAX MATTERS" in the Statement of Additional Information.) Other rules
may apply to Qualified Policies. (See also "Death Benefit" p. 38.)

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<PAGE>

CHARGES AND DEDUCTIONS

When permitted by state law, no deductions are made from Premium Payments
when made, so that the full amount of each Premium Payment is invested in one
or more of the Accounts. PFL will make certain charges and deductions in
connection with the Policy in order to compensate it for incurring expenses in
distributing the Policy, bearing mortality and expense risks under the Policy,
and administering the Accounts and the Policies. Charges may also be made for
premium taxes, federal, state or local taxes, or for certain transfers or
other transactions. Charges and expenses are also deducted from the Underlying
Funds.

SURRENDER CHARGE

PFL will incur expenses relating to the sale of Policies, including
commissions to registered representatives and other promotional expenses. PFL
may apply a Surrender Charge, which is a contingent deferred sales charge, to
any amount withdrawn in connection with a Partial Withdrawal or surrender in
order to cover distribution expenses. A Surrender Charge, if applicable, will
only be applied to withdrawals which exceed the Cumulative Free Percentage up
to the time of the withdrawal. (See "DISTRIBUTIONS UNDER THE POLICY--
Surrenders" p. 31.)

The Surrender Charge is not imposed upon exercise of the Nursing Care and
Terminal Condition Option. This feature may not be available in all states.
(See "DISTRIBUTIONS UNDER THE POLICY--Nursing Care and Terminal Condition
Withdrawal Option," p. 32.)

Amounts withdrawn in excess of the Surrender Charge-Free withdrawal amount
are subject to a Surrender Charge. The amount of the Surrender Charge is
determined by multiplying the amount of the Premium Payment withdrawn by the
applicable Surrender Charge Percentage. The applicable Surrender Charge
Percentage will depend upon the number of years that have elapsed since the
Policy Date. Premium Payments are deemed to be withdrawn before earnings, and
after all Premium Payments have been withdrawn, the remaining Adjusted Policy
Value may be withdrawn without any Surrender Charge. The following is the
table of Surrender Charge Percentages:

<TABLE>
<CAPTION>
APPLICABLE SURRENDER
CHARGE PERCENTAGE
(AS PERCENTAGE OF
PREMIUM PAYMENT
POLICY YEAR WITHDRAWN)
----------- --------------------
<S> <C>
1................................................... 7%
2................................................... 7%
3................................................... 6%
4................................................... 5%
5................................................... 4%
6 or later............................................ 0%
</TABLE>

No Surrender Charge will be applied after the fifth Policy Year. For
example, additional Premium Payments made in year four in the above schedule
would only be subject to a Surrender Charge for two years, in the amount of 5%
of the premium payment for withdrawals during year four and 4% for withdrawals
during year five.

PFL anticipates that the Surrender Charge will not generate sufficient funds
to pay the cost of distributing the Policies. If this charge is insufficient
to cover the distribution expenses, the deficiency will be met from PFL's
general funds, which will include amounts derived from the fee for mortality
and expense risks.

MORTALITY AND EXPENSE RISK FEE

PFL imposes a charge as compensation for bearing certain mortality and
expense risks in connection with the Policies. This charge is equal to an
effective annual rate of 1.25% of the daily net asset value of the Mutual Fund
Account. The Mortality and Expense Risk Fee is reflected in the Accumulation
or Annuity Unit Values for the Policy for each Subaccount.

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<PAGE>

Policy Values and Annuity Payments are not affected by changes in actual
mortality experience nor by actual expenses incurred by PFL. The mortality
risks assumed by PFL arise from its contractual obligations to make Annuity
Payments (determined in accordance with the Annuity tables and other
provisions contained in the Policy) and to pay Death Benefits prior to the
Annuity Commencement Date. Thus, Owners are assured that neither an
Annuitant's own longevity nor an unanticipated improvement in general life
expectancy will adversely affect the periodic Annuity Payments that the
Annuitant will receive under the Policy.

PFL also bears substantial risk in connection with the Death Benefit
Guarantee since PFL will pay a Death Benefit equal to the Guaranteed Minimum
Death Benefit if that amount is higher than the greater of the Policy Value or
the Cash Value.

The expense risk assumed by PFL is the risk that PFL's actual expenses in
administering the Policy and the Accounts will exceed the amount recovered
through the Mortality and Expense Risk Fee and the Administrative Charge.

If the Mortality and Expense Risk Fee is insufficient to cover PFL's actual
costs, PFL will bear the loss; conversely, if the charge is more than
sufficient to cover costs, the excess will be profit to PFL. PFL expects a
profit from this charge. To the extent that the Surrender Charge is
insufficient to cover the actual cost of Policy distribution, the deficiency
will be met from PFL's general corporate assets, which may include amounts, if
any, derived from the Mortality and Expense Risk Fee. A Mortality and Expense
Risk Fee is also assessed during the annuity phase for all Variable Payment
Options.

ADMINISTRATIVE CHARGE

PFL deducts a daily Administrative Charge from the net assets of the Mutual
Fund Account to partially cover expenses incurred by PFL in connection with
the administration of the Mutual Fund Account and the Policies. The effective
annual rate of this charge is .15% of the net assets in the Mutual Fund
Account.

PREMIUM TAXES

PFL currently makes no deduction from the Premium Payments for any state
premium taxes PFL pays in connection with Premium Payments under the Policies.
However, PFL will deduct the aggregate premium taxes paid on behalf of a
particular Policy from the Policy Value on (i) the Annuity Commencement Date
(thus reducing the Policy Value), (ii) the total surrender of a Policy, or
(iii) payment of the death proceeds of a Policy. Premium taxes currently range
from 0% to 3.50% of Premium Payments depending upon the state.

FEDERAL, STATE AND LOCAL TAXES

No charges are currently made for federal, state, or local taxes other than
premium taxes. However, PFL reserves the right to deduct charges in the future
for any taxes or other economic burden resulting from the application of any
tax laws that PFL determines to be attributable to the accounts or the
policies.

TRANSFER FEE

There is no charge for the first 12 allowable transfers among Investment
Options in each Policy Year. PFL reserves the right to impose a $10 charge for
the thirteenth and each subsequent transfer request made by the Owner during a
single Policy Year. For the purpose of determining whether a Transfer Fee is
payable, Premium Payment allocations are not considered transfers. All
transfer requests made simultaneously will be treated as a single request.

OTHER EXPENSES INCLUDING INVESTMENT ADVISORY FEES

Each of the Portfolios of the Underlying Funds is responsible for all of its
expenses. In addition, charges will be made against each of the Portfolios of
the Underlying Funds for investment advisory

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<PAGE>

services provided to the Portfolio. The net assets of each Portfolio of the
Underlying Funds will reflect deductions in connection with the investment
advisory fee and other expenses. The Atlas Insurance Trust is a "Fund of
Funds" that invests in other mutual fund portfolios; therefore, total expenses
may be higher than other investment options, since an investment in the Atlas
Balanced Growth subaccount involves two sets of advisory fees and expenses.

For more information concerning the investment advisory fee and other
charges against the Portfolios, see the prospectuses for the Underlying Funds,
current copies of which accompany this Prospectus.

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 (the "Code"), 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.

At the time the initial Premium Payment is paid, a prospective purchaser
must specify whether he or she is purchasing a Nonqualified Policy or a
Qualified Policy. If the initial Premium Payment is derived from an exchange
or surrender of another annuity policy, PFL may require that the prospective
purchaser provide information with regard to the federal income tax status of
the previous annuity policy. PFL will require that persons purchase separate
Policies if they desire to invest monies qualifying for different annuity tax
treatment under the Code. Each such separate Policy would require the minimum
initial Premium Payment stated above. Subsequent Additional Premium Payments
under a Policy must qualify for the same federal income tax treatment as the
initial Premium Payment under the Policy; PFL will not accept a Subsequent
Additional Premium Payment under a Policy if the federal income tax treatment
of such Premium Payment would be different from that of the initial Premium
Payment.

The Qualified Policies were designed for use by retirement plans and
individual retirement accounts that qualify for special federal income tax
treatment under Sections 401(a), 403(b), or 408(a), or 457 of the Code and
individuals purchasing individual retirement annuities that qualify for
special federal income tax treatment under Section 408(b) of the Code. Certain
requirements must be satisfied in purchasing a Qualified Policy in order for
the plan, account or annuity to retain its special tax treatment. This summary
is not intended to cover such requirements, and assumes that Qualified
Policies are purchased pursuant to retirement plans or individual retirement
accounts, or are individual retirement annuities, that qualify for such
special tax treatment. This summary was prepared by PFL after consultation
with tax counsel, but no opinion of tax counsel has been obtained.

THE DISCUSSION SET FORTH BELOW IS INCLUDED FOR GENERAL PURPOSES ONLY. EACH
POTENTIAL PURCHASER IS URGED TO CONSULT HIS/HER OWN TAX ADVISER AS TO THE
CONSEQUENCES OF INVESTMENT IN A POLICY UNDER FEDERAL AND APPLICABLE STATE,
LOCAL AND FOREIGN TAX LAWS.

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. The
Statement of Additional Information discusses the tax requirements for
qualifying as an annuity contract.

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<PAGE>

TAXATION OF ANNUITIES

The discussion below applies only to those Policies owned by natural
persons, and that qualify as annuity contracts for federal income tax
purposes. With respect to Owners who are natural persons, the Policy should be
treated as an annuity contract for federal income tax purposes.

In General. Except as described below with respect to Owners who are not
natural persons, an Owner who holds a Policy satisfying the diversification
and distribution requirements described in the Statement of Additional
Information should not be taxed on increases in the Policy Value until an
amount is received or deemed received, e.g., upon a partial or full surrender,
assignment, or as Annuity Payments under the Annuity Option selected.
Generally, any amount received or deemed received under a Nonqualified Annuity
Contract prior to the Annuity Commencement Date is deemed to come first from
any "Income on the Contract" and then from the "Investment in the Contract."
The "Investment in the Contract" generally equals total premium payments less
amounts received which were not includable in gross income. To the extent that
the Policy Value (ignoring any surrender charges except on a full surrender)
exceeds the "Investment in the Contract," such excess constitutes the "Income
on the Contract." For these purposes such "Income on the Contract" shall be
computed by reference to the aggregation rules described below, and the amount
includable in gross income will be taxable as ordinary income. If at the time
that any amount is received or deemed received there is no "Income on the
Contract" (e.g., because the gross Policy Value does not exceed the
"Investment in the Contract" and no aggregation rule applies), then such
amount received or deemed received will not be includable in gross income, and
will simply reduce the "Investment in the Contract."

For this purpose, the assignment, pledge or agreement to assign or pledge
any portion of the Policy Value (including assignment of Owner's right to
receive Annuity Payments prior to the Annuity Commencement Date) generally
will be treated as a distribution in the amount of such portion of the Policy
Value. Additionally, if an Owner designates a new Owner prior to the Annuity
Commencement Date without receiving full and adequate consideration, the old
Owner generally will be treated as receiving a distribution under the Policy
in an amount equal to the Policy Value. A transfer of ownership or an
assignment of a Policy, or designation of an Annuitant or Beneficiary who is
not also the Owner, as well as the selection of certain Annuity Commencement
Dates, may result in certain tax consequences to the Owner that are not
discussed herein. An Owner contemplating any such transfer, designation,
selection or assignment of a Policy should contact a competent tax adviser
with respect to the potential tax effects of such a transaction.

Aggregation Rules. Generally all Nonqualified deferred annuity contracts
issued by the same company (or an affiliated company) to the same owner during
any calendar year shall be treated as one annuity contract, and "aggregated"
for purposes of determining the amount includable in gross income. In
addition, for such purposes all individual retirement annuities and accounts
under Section 408 of the Code for an individual are aggregated, and generally
all distributions therefrom during a calendar year are treated as one
distribution made as of the end of such year.

Surrenders or Partial Withdrawals. In the case of a partial withdrawal
(including systematic payouts) under a Nonqualified Policy, the amount
received generally will be includable in gross income to the extent that it
does not exceed the "Income on the Contract" which is generally equal to the
excess of the Policy Value immediately before the partial withdrawal over the
"Investment in the Contract" at that time. However, for these purposes the
Policy Value immediately before a partial withdrawal may have to be increased
by any positive Excess Interest Adjustment which results from such a partial
withdrawal or which could result from a simultaneous full surrender, and may
need further adjustments if the aggregation rules apply. 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 that may
apply in the case of a Non-Qualified Policy or a Qualified Policy. In the case
of a partial surrender (including systematic payouts) under a Qualified Policy
(other than one qualified under Section 457 of the Code), a ratable portion of
the amount received is generally excludable from gross income, based on the
ratio of the "Investment in the Contract" to the individual's total account
balance or accrued benefit under the retirement plan at the time of each such
payment. For a Qualified Policy,

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<PAGE>

the "Investment in the Contract" can be zero, and generally any distribution
would therefore be fully taxable. Special tax rules may be available for
certain distributions from a Qualified Policy. In the case of a surrender
under a Nonqualified Policy or a Qualified Policy, the amount received
generally will be taxable only to the extent it exceeds the "Investment in the
Contract," unless the aggregation rules apply.

Annuity Payments. Although the tax consequences may vary depending on the
Annuity Payment Option elected under the Policy, in general, for Nonqualified
and certain Qualified Policies, only a portion of the Annuity Payments
received after the Annuity Commencement Date will be includable in the gross
income of the recipient.

For Fixed Annuity Payments, in general the excludable portion of each
payment is determined by dividing the "Investment in the Contract" on the
Annuity Commencement Date by the total expected value of the Annuity Payments
for the term of the payments. The remainder of each Annuity Payment is
includable in gross income. Once the "Investment in the Contract" has been
fully recovered, the full amount of any additional Annuity Payments is
includable in gross income.

For Variable Annuity Payments, the includable portion is generally
determined by an equation that establishes a specific dollar amount of each
payment that is excludable from gross income. This dollar amount is determined
by dividing the "Investment in the Contract" on the Annuity Commencement Date
by the total number of expected periodic payments. The remainder of each
Annuity Payment is includable in gross income. Once the "Investment in the
Contract" has been fully recovered, the full amount of any additional Annuity
Payments is includable in gross income.

Where an Owner allocates a portion of the Adjusted Annuity Purchase Value on
the Annuity Commencement Date to more than one annuity payment option (fixed
or variable), special rules govern the allocation of the Policy's entire
"Investment in the Contract" on such date to each such option, for purposes of
determining the excludable amount of each payment received under that option.
PFL makes no attempt to describe these allocation rules, because they would
prescribe a complex variety of results, depending on how the allocations were
made among the various types of options. Instead, any Owner is advised to
consult a competent tax adviser as to the potential tax effects of allocating
any amount of Adjusted Annuity Purchase Value to any particular annuity
payment option.

If, after the Annuity Commencement Date, Annuity Payments cease by reason of
the death of the Annuitant, the excess (if any) of the "Investment in the
Contract" as of the Annuity Commencement Date over the aggregate amount of
Annuity Payments received on or after the Annuity Commencement Date that was
excluded from gross income is allowable as a deduction for the last taxable
year of the Annuitant.

Taxation of Death Benefit Proceeds. Amounts may be distributed from the
Policy because of the death of an Annuitant. Generally, such amounts are
includable in the income of the recipient as follows: (1) if distributed in a
lump sum, they are taxed in the same manner as a full surrender, as described
above, or (2) if distributed under an Annuity Payment Option, they are taxed
in the same manner as Annuity Payments, as described above. For these
purposes, the "Investment in the Contract" is not affected by the Owner's or
Annuitant's death. That is, the "Investment in the Contract" remains generally
the total premium payments less amounts received which were not includable in
gross income.

Penalty Taxes. In the case of any amount received or deemed received from a
Nonqualified Policy, e.g., upon a surrender of a Policy (including systematic
payouts) or a deemed distribution under a Policy resulting from a pledge,
assignment or agreement to pledge or assign or an Annuity Payment with respect
to a Policy, there may be imposed on the recipient a federal penalty tax equal
to 10% of the amount includable in gross income. The penalty tax generally
will not apply to any distribution: (i) made on or after the date on which the
taxpayer attains age 59 1/2; (ii) made as a result of the death of the holder
(generally the Owner); (iii) attributable to the disability of the taxpayer,
or (iv) which is part of a series of substantially equal periodic payments
made (not less frequently

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<PAGE>

than annually) for the life (or life expectancy) of the taxpayer or the joint
lives (or joint life expectancies) of such taxpayer and the taxpayer's
beneficiary. Other rules may apply to Qualified Policies.

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.

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; aggregate distributions
in excess of a specified annual amount; 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.

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 an individual
retirement annuity under Section 408(b) of the Code, a Policy must contain
certain provisions: (i) the Owner must be the Annuitant; (ii) the Policy
generally is not transferable by the Owner, e.g., the Owner may not designate
a new Owner, designate a Contingent Owner or assign the Policy as collateral
security; (iii) the total Premium Payments for any calendar year on behalf of
any individual may not exceed $2,000, except in the case of a rollover amount
or contribution under Sections 402(c), 403(a)(4), 403(b)(8) or 408(d)(3) of
the Code; (iv) Annuity Payments or partial withdrawals must begin no later
than April 1 of the calendar year following the calendar year in which the
Annuitant attains age 70 1/2; (v) an Annuity Payment Option with a Period
Certain that will guarantee Annuity Payments beyond the life expectancy of the
Annuitant and the Beneficiary may not be selected; (vi) certain payments of
Death Benefits must be made in the event the Annuitant dies prior to the
distribution of the Policy Value; and (vii) the entire interest of the Owner
is non-forfeitable. Policies intended to qualify as individual retirement
annuities under Section 408(b) of the Code contain such provisions.

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.

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. 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

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<PAGE>

the last year beginning before January 1, 1989. Distributions of such amounts
will be allowed only upon the death of the employee, on or after attainment of
age 59 1/2, separation from service, disability, or financial hardship, except
that income attributable to elective contributions may not be distributed in
the case of hardship.

Corporate Pension and Profit Sharing Plans and H.R. 10 Plans. Sections
401(a) and 403(a) of the Code permit corporate employers to establish various
types of retirement plans for employees and self-employed individuals to
establish qualified plans for themselves and their employees. Such retirement
plans may permit the purchase of the Policies to accumulate retirement
savings. Adverse tax consequences to the plan, the participant or both may
result if the Policy is assigned or transferred to any individual as a means
to provide benefit payments.

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 which enjoy special treatment. 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. With respect to non-government
plans, all such investments, however, are owned by, and are subject to, the
claims of the general creditors of the sponsoring employer, and, depending on
the terms of the particular plan, the 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 the
nominal Owner of which is not a natural person but the beneficial Owner of
which is a natural person, (ii) a Policy acquired by the estate of a decedent
by reason of such decedent's death, (iii) a Qualified Policy (other than one
qualifying under Section 457) or (iv) a single-payment annuity the
Commencement Date for which is no later than one year from the date of the
single Premium Payment; such Policies are taxed as described above under the
heading "Taxation of Annuities."

Possible Changes in Taxation. In past years, legislation has been proposed
in the U.S. Congress that would have adversely modified federal taxation of
certain annuities. For example, one such proposal would have changed the tax
treatment of Nonqualified annuities that did not have "substantial life
contingencies" by taxing income as it is credited to the annuity. Although as
of the date of this Prospectus Congress was not actively considering any
legislation regarding the taxation of annuities, there is always the
possibility that the tax treatment of annuities could change because of
legislation or other means (such as IRS regulations, revenue rulings, judicial
decisions, etc.). Moreover, it is also possible that any change could be
retroactive (that is, effective prior to the date of the change).

DISTRIBUTION OF THE POLICIES

AEGON USA Securities, Inc., (the "Distributor") an affiliate of PFL, located
at 4333 Edgewood Road N.E., Cedar Rapids, Iowa, 52499-0001, is the principal
underwriter of the Policies. The

- 46 -
<PAGE>

Distributor was incorporated under the laws of the State of Iowa in 1959 and
is registered as a broker/dealer under the Securities Exchange Act of 1934. It
is a member of the National Association of Securities Dealers, Inc. ("NASD").

Policies are sold by registered representatives of Atlas Securities, Inc.
PFL has entered into a distribution agreement with the Distributor and a
companion sales agreement with Atlas through which agreements the Policies are
sold and Atlas is compensated. Atlas will generally receive sales commissions
of up to 6.58% of Premium Payments. These commissions are not deducted from
Premium Payments, they are paid by PFL. In addition, Atlas may receive
additional commissions, expense allowances, and additional annual continuing
fees based upon sales volume, agent or service training responsibilities, and
other factors. No amounts will be retained by AEGON USA Securities, Inc. for
acting as Distributor for the Policies. The offering of Policies will be made
on a continuing basis.

VOTING RIGHTS

To the extent required by law, PFL will vote the Underlying Fund shares held
by the Mutual Fund Account at regular and special shareholder meetings of the
Underlying Funds in accordance with instructions received from persons having
voting interests in the portfolios. (The Underlying Funds may not hold regular
annual meetings.) If, however, the 1940 Act or any regulation thereunder
should be amended or if the present interpretation thereof should change, and
as a result PFL determines that it is permitted to vote the Underlying Funds'
shares in its own right, it may elect to do so.

Before the Annuity Commencement Date, the Owner holds voting interest in the
selected Portfolios. The number of votes that an Owner has the right to
instruct will be calculated separately for each Subaccount. The number of
votes that an Owner has the right to instruct for a particular Subaccount will
be determined by dividing the Owner's 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 the Owner or person receiving income payments has
the right to instruct will be determined as of the date established by the
Underlying Funds for determining shareholders eligible to vote at the meeting
of the Underlying Funds. PFL will solicit voting instructions by sending
Owners or other persons entitled to vote written requests for instructions
prior to that meeting in accordance with procedures established by the
Underlying Funds. Portfolio shares as to which no timely instructions are
received and shares held by PFL in which Owners or other persons entitled to
vote have no beneficial interest will be voted in proportion to the voting
instructions that are received with respect to all Policies participating in
the same Subaccount.

Each person having a voting interest in a Subaccount will receive proxy
material, reports, and other materials relating to the appropriate Portfolio.

LEGAL PROCEEDINGS

There are no legal proceedings to which the Mutual Fund Account is a party
or to which the assets of the Account are subject. PFL is not involved in any
litigation that is of material importance in relation to its total assets or
that relate to the Mutual Fund Account.

- 47 -
<PAGE>

STATEMENT OF ADDITIONAL INFORMATION

A Statement of Additional Information is available (at no cost) which
contains more details concerning the subjects discussed in this Prospectus.
The following is the Table of Contents for that Statement:

STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
The Policy-General Provisions.............................................. 3
Owner.................................................................... 3
Entire Policy............................................................ 3
Delay of Payment and Transfers........................................... 3
Misstatement of Age or Sex............................................... 4
Reallocation of Policy Values After the Annuity Commencement Date........ 4
Assignment............................................................... 4
Evidence of Survival..................................................... 4
Non Participating........................................................ 5
Federal Tax Matters........................................................ 5
Tax Status of the Policy................................................. 5
Taxation of PFL.......................................................... 6
Investment Experience...................................................... 6
State Regulation of PFL.................................................... 10
Administration............................................................. 10
Records and Reports........................................................ 10
Distribution of the Policies............................................... 10
Custody of Assets.......................................................... 11
Historical Performance Data................................................ 11
Subaccount Yields........................................................ 11
Total Returns............................................................ 12
Other Performance Data................................................... 12
Legal Matters.............................................................. 13
Independent Auditors....................................................... 13
Other Information.......................................................... 13
Financial Statements....................................................... 13
</TABLE>

- 48 -
<PAGE>

APPENDIX A

EXCESS INTEREST ADJUSTMENT

The formula used to determine the Excess Interest Adjustment (EIA) is (1):

S* (G - C)* (M/12)

S = Gross amount being withdrawn that is subject to the EIA

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.

EXAMPLE 1 (FULL SURRENDER, RATES INCREASE BY 3%):

Assumptions:
Single Premium: $50,000
Guarantee Period: 5 Years
Guarantee Rate: 5.50% per annum
Full Surrender: Middle of Policy Year 3

POLICY VALUE ("PV") before = $50,000* (1.055)(caret) 2.5 = $57,161.18
surrender
SURRENDER CHARGE FREE AMOUNT = $50,000* .3 = $15,000.00
EIA FREE AMOUNT = $57,161.18 - $50,000 = $7,161.18
AMOUNT SUBJECT TO EIA = $57,161.18 - $7,161.18 = $50,000.00
EIA FLOOR = $50,000* (1.03)(caret) 2.5 = $53,834.80

Excess Interest Adjustment
Assumptions: "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 EIA
floor, so the adjustment is limited to:
$53,834.80 - $57,161.18 = (-$3,326.38)
ADJUSTED POLICY VALUE = PV + EIA
= $57,161.18 + (-$3,326.38) = $53,834.80

SURRENDER CHARGE = ($50,000 - $15,000.00)* .06 = $2,100.00
CASH VALUE AT MIDDLE OF POLICY
YEAR 3 = PV + EIA - Surrender Charge
= $57,161.18 + (-$3,326.38) - $2,100.00 =
$51,734.80
- --------
(1) * represents multiplication;
(caret) represents exponentiation;

A-1
<PAGE>

EXAMPLE 2 (FULL SURRENDER, RATES DECREASE BY 1%):
Assumptions:
Single Premium: $50,000
Guarantee Period: 5 Years
Guarantee Rate: 5.50% per annum
Full Surrender: Middle of Policy Year 3
POLICY VALUE before surrender = $50,000* (1.055)(caret) 2.5 = $57,161.18
SURRENDER CHARGE FREE AMOUNT = $50,000* .30 = $15,000.00
EIA FREE AMOUNT = $57,161.18 - $50,000 = $7,161.18
AMOUNT SUBJECT TO EIA = $57,161.18 - $7,161.18 = $50,000.00
EIA FLOOR = $50,000* (1.03)(caret) 2.5 = $53,834.80

Excess Interest Adjustment
Assumptions: "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 = PV + EIA
= $57,161.18 + $1,250.00 = $58,411.18

SURRENDER CHARGE = ($50,000 - $15,000.00)* .06 = $2,100.00

CASH VALUE at middle of Policy
Year 3 = PV + EIA - Surrender Charge
= $57,161.18 + ($1,250) - $2,100.00 =
$56,311.18

On a partial withdrawal, PFL will pay the Owner the full amount of withdrawal
requested (as long as the Policy Value is sufficient).

EXAMPLE 3 (PARTIAL WITHDRAWAL, RATES INCREASE BY 1%):
Assumptions:
Single Premium: $50,000
Guarantee Period: 5 Years
Guarantee Rate: 5.50% per annum
Partial Withdrawal: $30,000; Middle of Policy Year 3
POLICY VALUE before withdrawal = $50,000* (1.055)(caret) 2.5 = $57,161.18
SURRENDER CHARGE FREE AMOUNT = $50,000.00* .30 = $15,000.00
EIA FREE AMOUNT = $57,161.18 - $50,000 = $7,161.18

"S" = $30,000 - $7,161.18 = $22,838.82

EXCESS INTEREST ADJUSTMENT = $22,838.82* (.055 - .065)* (30/12) = -
$570.97
SURRENDER CHARGE = [($30,000.00 - $15,000.00) -
(-$570.97)]* (.06) = $934.26
GROSS PARTIAL WITHDRAWAL: = $30,000.00 - (-$570.97) + $934.26 =
$31,505.23

POLICY VALUE after withdrawal = $57,161.18 - [$30,000.00 - (-$570.97) +
($934.26)]
= $57,161.18 - $31,505.23 = $25,655.95

A-2
<PAGE>

EXAMPLE 4 (PARTIAL WITHDRAWAL, RATES DECREASE BY 1%):

Assumptions:
Single Premium: $50,000
Guarantee Period: 5 Years
Guaranteed Rate: 5.50% per annum
Partial Surrender: $30,000; Middle of Policy Year 3

POLICY VALUE before withdrawal = $50,000* (1.055)(caret) 2.5 = $57,161.18
SURRENDER CHARGE FREE AMOUNT = $50,000.00* .30 = $15,000.00
EIA FREE AMOUNT = $57,161.18 - $50,000 = $7,161.18
"S" = $30,000.00 - $7,161.18 = $22,838.82
EXCESS INTEREST ADJUSTMENT = $22,838.82* (.055 - .045)* (30/12) =
$570.97
SURRENDER CHARGE = [($30,000.00 - $15,000.00) - $570.97]*
(.06)= $865.74
GROSS PARTIAL WITHDRAWAL = $30,000.00 - ($570.97) + $865.74 =
$30,294.77
POLICY VALUE after withdrawal = $57,161.18 - [$30,000.00 - ($570.97) +
$865.74]
= $57,161.18 - $30,294.77 = $26,866.41

A-3
<PAGE>

STATEMENT OF ADDITIONAL INFORMATION

THE ATLAS PORTFOLIO BUILDER VARIABLE ANNUITY

ISSUED THROUGH

PFL LIFE VARIABLE ANNUITY ACCOUNT A

OFFERED BY

PFL LIFE INSURANCE COMPANY

4333 EDGEWOOD ROAD, N.E.
CEDAR RAPIDS, IOWA 52499-0001

This Statement of Additional Information expands upon subjects discussed in
the current Prospectus for the Atlas Portfolio Builder Variable Annuity (the
"Policy") offered by PFL Life Insurance Company. You may obtain a copy of the
Prospectus dated August 7, 1997 by calling Atlas at 1-800-933-2852, or by
writing to Atlas Securities, Inc., 794 Davis Street, P.O. Box 1894, San
Leandro, CA, 94577. You may also contact PFL Life Insurance Company at 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 IS NOT A PROSPECTUS AND SHOULD BE
READ ONLY IN CONJUNCTION WITH THE PROSPECTUS FOR THE POLICY AND THE PFL LIFE
VARIABLE ANNUITY ACCOUNT A.

Dated: August 7, 1997
<PAGE>

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
The Policy--General Provisions............................................. 3
Owner.................................................................... 3
Entire Policy............................................................ 3
Delay of Payment and Transfers........................................... 3
Misstatement of Age or Sex............................................... 4
Reallocation of Policy Values After the Annuity Commencement Date........ 4
Assignment............................................................... 4
Evidence of Survival..................................................... 4
Non Participating........................................................ 4
Federal Tax Matters........................................................ 4
Tax Status of the Policy................................................. 4
Taxation of PFL.......................................................... 6
Investment Experience...................................................... 6
State Regulation of PFL.................................................... 9
Administration............................................................. 9
Records and Reports........................................................ 10
Distribution of the Policies............................................... 10
Custody of Assets.......................................................... 10
Historical Performance Data................................................ 10
Subaccount Yields........................................................ 10
Total Returns............................................................ 11
Other Performance Data................................................... 11
Legal Matters.............................................................. 12
Independent Auditors....................................................... 12
Other Information.......................................................... 12
Financial Statements....................................................... 12
</TABLE>

(Numbers in parenthesis indicate corresponding pages of the Prospectus).

-2-
<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.

A Successor Owner can be named in the Policy application or in a Written
Notice. The Successor Owner will become the new Owner upon the Owner's death,
if the Owner predeceases the Annuitant. If no Successor Owner survives the
Owner and the Owner predeceases the Annuitant, the Owner's estate will become
the Owner.

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 adverse tax consequences.

When there is a change of Owner or Successor Owner, the change will take
effect as of the date the Owner signs the Written Notice, subject to any
payment PFL has made or action PFL has taken before recording the change.
Changing the Owner or naming a new Successor Owner cancels any prior choice of
Successor Owner, but does not change the designation of the Beneficiary or the
Annuitant.

If ownership is transferred (except to the Owner's spouse) because the Owner
dies before the Annuitant, the 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 and any endorsements thereon and the Policy application
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.

DELAY OF PAYMENT AND TRANSFERS

Payment of any amount due from the Mutual Fund Account in respect of a
surrender, the Death Benefit or the death of the Owner generally will occur
within seven business days from the date the Written Notice (and any other
required documentation or information) is received, except that PFL may be
permitted to defer such payment from the Mutual Fund Account if: (1) the New
York Stock Exchange is closed for other than usual weekends or holidays or
trading on the Exchange is otherwise restricted; or (2) an emergency exists as
defined by the SEC or the SEC requires that trading be restricted; or (3) the
SEC permits a delay for the protection of Owners. In addition, transfers of
amounts from the Subaccounts may be deferred under these circumstances.

Certain delays and restrictions apply to transfers of amounts out of the
Fixed Account. See p. 33 of the Policy Prospectus.

-3-
<PAGE>

MISSTATEMENT OF AGE OR SEX

If the age or sex of the Annuitant has been misstated, PFL will change the
annuity benefit payable to that which the Premium Payments would have
purchased for the correct age or sex. The dollar amount of any underpayment
made by PFL shall be paid in full with the next payment due such person or the
Beneficiary. The dollar amount of any overpayment made by PFL due to any
misstatement shall be deducted from payments subsequently accruing to such
person or Beneficiary. Any underpayment or overpayment will include interest
at 5% per year, from the date of the wrong payment to the date of the
adjustment. The age of the Annuitant may be established at any time by the
submission of proof satisfactory to PFL.

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 Mutual Fund Account
then credited to a Policy into an equal value of Annuity Units of one or more
other Subaccounts of the Mutual Fund Account, or the Fixed Account. The
reallocation shall be based on the relative value of the Annuity Units of the
Account(s) or Subaccount(s) at the end of the Business Day on the next payment
date. The minimum amount which may be reallocated is the lesser of (1) $10 of
monthly income or (2) the entire monthly income of the Annuity Units in the
Account or Subaccount from which the transfer is being made. If the monthly
income of the Annuity Units remaining in an Account or Subaccount after a
reallocation is less than $10, PFL reserves the right to include the value of
those Annuity Units as part of the transfer. The request must be in writing to
PFL's Administrative and Service Office. There is no charge assessed in
connection with such reallocation. PFL reserves the right to limit the number
of times a reallocation of Policy Value may be made in any given Policy Year.

After the Annuity Commencement Date, no transfers may be made from the Fixed
Account to the Mutual Fund Account.

ASSIGNMENT

During the lifetime of the Annuitant the Owner may assign any rights or
benefits provided by 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 adverse
tax consequences.

Unless the Owner so directs by filing Written Notice with PFL, no
Beneficiary may assign any payments under the Policy before they are due. To
the extent permitted by law, no payments will be subject to the claims of any
Beneficiary's creditors.

Ownership under Qualified Policies is restricted to comply with the Internal
Revenue 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.

FEDERAL TAX MATTERS

TAX STATUS OF THE POLICY

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

-4-
<PAGE>

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 Mutual Fund Account. The Mutual Fund
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 Atlas Portfolio Builder Variable
Annuity that require the Underlying Funds and their Portfolios to be operated
in compliance with the Treasury regulations.

Owner Control. In certain circumstances, owners of variable annuity
contracts may be considered the owners, for Federal income tax purposes, of
the assets of the separate account used to support their contracts. In those
circumstances, income and gains from the separate account assets would be
includable in the variable annuity contractowner's gross income. Several years
ago, the IRS stated in published rulings that a variable contract owner will
be considered the owner of separate account assets if the contractowner
possesses incidents of ownership in those assets, such as the ability to
exercise investment control over the assets. More recently, the Treasury
Department announced, in connection 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
Mutual Fund 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 Mutual Fund
Account.

Distribution Requirements. The Code also requires that Nonqualified Policies
contain specific provisions for distribution of Policy proceeds upon the death
of any Owner. In order to be treated as an annuity contract for federal income
tax purposes, the Code requires that such Policies provide that if any Owner
dies on or after the Annuity Commencement Date and before the entire interest
in the Policy has been distributed, the remaining portion must be distributed
at least as rapidly as under the method in effect on such Owners death. If any
Owner dies before the Annuity Commencement Date, the entire interest in the
Policy must generally be distributed within 5 years after such Owner's date of
death or be applied to provide an immediate annuity under which payments will
begin within one year of such Owner's death and will be made for the life of
the Beneficiary or for a period not extending beyond the life expectancy of
the Beneficiary. However, if such Owner's death occurs prior to the Annuity
Commencement Death, and such Owner's surviving spouse is named beneficiary,
then the Policy may be continued with the surviving spouse as the new Owner
receiving the one-time adjustment to the Policy Value. See "DISTRIBUTIONS
UNDER THE POLICY--Death Benefit," p.38 of the Prospectus.) 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 the Owner.

The Nonqualified 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.

-5-
<PAGE>

TAXATION OF PFL

PFL at present is taxed as a life insurance company under part I of
Subchapter L of the Code. The Mutual Fund 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 Mutual Fund 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 Mutual Fund Account for federal
income taxes. If, in future years, any federal income taxes are incurred by
PFL with respect to the Mutual Fund Account, PFL may make a charge to the
Mutual Fund 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

Upon allocation to the selected Subaccount of the Mutual Fund 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 Policy application is completed, whichever
is later. The value of an Accumulation Unit was arbitrarily established at
$1.000000 at the inception of each Subaccount. Thereafter, the value of an
Accumulation Unit is determined as of the close of trading on each day the New
York Stock Exchange and PFL's Administrative and Service Office are 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:

(1) the net asset value per share of the shares held in the Subaccount
determined at the end of the current Valuation Period, plus

(2) the per share amount of any dividend or capital gain distribution
made with respect to the shares held in the Subaccount if the ex-dividend
date occurs during the current Valuation Period, plus or minus

(3) a per share charge or credit 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 to an annual rate of 1.25%) of the daily net asset value of the
Subaccount) plus the .15% administrative charge.

-6-
<PAGE>

ILLUSTRATION OF ACCUMULATION UNIT VALUE CALCULATIONS

FORMULA AND ILLUSTRATION FOR DETERMINING
THE NET INVESTMENT FACTOR

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

D = The Net Asset Value of an Underlying Fund share at the end of the
immediately preceding Valuation Period.
Assume............ D = $11.40

E = The daily deduction for the Mortality and Expense Risk Fee and
Administrative Charge, which totals 1.40% on an annual basis.
On a daily
basis............. = .0000380909

Then, the Investment Experience Factor = 11.57 + 0 - 0 - .0000380909 =
---------
11.40
Z = 1.0148741898

FORMULA AND ILLUSTRATION FOR DETERMINING ACCUMULATION UNIT VALUE

Accumulation Unit Value = A X 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

-7-
<PAGE>

The investment result adjustment factor for the valuation period is the
product of discount factors of .99986634 per day to recognize the 5% effective
annual Assumed Investment Return. The valuation period is the period from the
close of the immediately preceding Business Day to the close of the current
Business Day.

The net investment factor for the Policy used to calculate the value of a
variable Annuity Unit in each Subaccount for the valuation period is
determined by dividing (i) by (ii) and subtracting (iii) from the result,
where:

(i) is the result of:

(1) the net asset value of a fund share held in that Subaccount
determined at the end of the current valuation period; plus

(2) the per share amount of any dividend or capital gain distributions
made by the fund for shares held in that Subaccount if the ex-dividend date
occurs during the valuation period; plus or minus

(3) a per share charge or credit for any taxes reserved for, which PFL
determines to have resulted from the investment operations of the
Subaccount.

(ii) is the net asset value of a fund share held in that Subaccount
determined as of the end of the immediately preceding valuation period.

(iii) is a factor representing the Mortality and Expense Risk Fee and
Administrative Charge. This factor is equal, on an annual basis, to 1.40% of
the net asset value of that Subaccount.

The dollar amount of subsequent Variable Annuity Payments will depend upon
changes in applicable Annuity Unit Values.

The annuity payment rates vary according to the Annuity Option elected and
the sex and adjusted age of the Annuitant at the Annuity Commencement Date.
The Policy also contains a table for determining the adjusted age of the
Annuitant.

ILLUSTRATION OF CALCULATIONS FOR ANNUITY UNIT VALUE
AND VARIABLE ANNUITY PAYMENTS

FORMULA AND ILLUSTRATION FOR DETERMINING ANNUITY UNIT VALUE

Annuity Unit Value = A X B X 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

-8-
<PAGE>

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

STATE REGULATION OF PFL

PFL is subject to the laws of Iowa governing insurance companies and to
regulation by the Iowa Division of Insurance. An annual statement in a
prescribed form is filed with the Division of Insurance each year covering the
operation of PFL for the preceding year and its financial condition as of the
end of such year. Regulation by the Division of Insurance includes periodic
examination to determine PFL's contract liabilities and reserves so that the
Division may determine the items are correct. PFL's books and accounts are
subject to review by the Division of Insurance at all times and a full
examination of its operations is conducted periodically by the National
Association of Insurance Commissioners. In addition, PFL is subject to
regulation under the insurance laws of other jurisdictions in which it may
operate.

ADMINISTRATION

PFL performs administrative services for the Policies. These services
include issuance of the Policies, maintenance of records concerning the
Policies, and certain valuation services.

-9-
<PAGE>

RECORDS AND REPORTS

All records and accounts relating to the Mutual Fund 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 Policy 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. Policy 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 Atlas Securities, Inc., a
licensed broker-dealer under the federal securities laws and a licensed agent
under state insurance laws. The offering of the Policies is continuous and PFL
and Atlas do not anticipate discontinuing the offering of the Policies.
However, PFL and Atlas reserve the right to discontinue the offering of the
Policies.

AEGON USA Securities, Inc., an affiliate of PFL, will be the principal
underwriter of the Policies. AEGON USA Securities, Inc. has entered into an
agreement with Atlas Securities, Inc. for the exclusive distribution of the
Policies.

CUSTODY OF ASSETS

The assets of each of the Subaccounts of the Mutual Fund Account are held by
PFL. The assets of each of the Subaccounts of the Mutual Fund 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 Mutual Fund
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.

HISTORICAL PERFORMANCE DATA

SUBACCOUNT YIELDS

PFL may from time to time advertise or disclose the current annualized yield
of one or more of the Subaccounts of the Mutual Fund Account for 30-day
periods. The annualized yield of a Subaccount refers to income generated by
the Subaccount over a specific 30-day period. Because the yield is annualized,
the yield generated by a Subaccount during the 30-day period is assumed to be
generated each 30-day period over a 12-month period. The yield is computed by:
(i) dividing the net investment income of the subaccount less Subaccount
expenses for the period, by (ii) the maximum offering price per unit on the
last day of the period times the daily average number of units outstanding for
the period, compounding that yield for a 6-month period, and (iv) multiplying
that result by 2. Expenses attributable to the Subaccount include (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 X ((((NI-ES)/(U X UV)) + 1)/6/-1)

Where:

NI = Net investment income of the Subaccount for the 30-day period
attributable to the Subaccount's unit.

ES = Expenses of the Subaccount for the 30-day period.

U = The average number of units outstanding.

UV = The unit value at the close (highest) of the last day in the 30-day
period.

-10-
<PAGE>

Because of the charges and deductions imposed by the Mutual Fund Account,
the yield for a Subaccount of the Mutual Fund 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 7% to 0% of the amount of
Premium Payments withdrawn based on the number of years since the Policy Date.
However, Surrender Charges will not be assessed after the fifth Policy Year.

The yield on amounts held in the Subaccounts of the Mutual Fund Account
normally will fluctuate over time. Therefore, the disclosed yield for any
given past period is not an indication or representation of future yields or
rates of return. A Subaccount's actual yield is affected by the types and
quality of its investments and its operating expenses.

TOTAL RETURNS

PFL may from time to time also advertise or disclose total returns for one
or more of the Subaccounts of the Mutual Fund 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 Charge. Standard total return calculations will
reflect the effect of Surrender Charges that may be applicable to a particular
period. The total return will then be calculated according to the following
formula:

P(1 + T)/N/ = ERV

Where:

T = The average annual total return net of Subaccount recurring charges.

ERV = The ending redeemable value of the hypothetical account at the end of
the period.

P = A hypothetical initial payment of $1,000.

N = The number of years in the period.

OTHER PERFORMANCE DATA

PFL may from time to time also disclose average annual total returns in a
non-standard format in conjunction with the standard format described above.
The non-standard format will be identical to the standard format except that
the Surrender Charge percentage will be assumed to be 0%.

PFL may from time to time also disclose cumulative total returns in
conjunction with the standard format described above. The cumulative returns
will be calculated using the following formula assuming that the Surrender
Charge percentage will be 0%.

-11-
<PAGE>

CTR=(ERV/P) - 1

Where:

CTR = The cumulative total return net of Subaccount recurring charges for
the period.

ERV = The ending redeemable value of the hypothetical investment at the end
of the period.

P = A hypothetical initial payment of $1,000.

All non-standard performance data will only be advertised if the standard
performance data for the same period, as well as for the required period, is
also disclosed.

HYPOTHETICAL PERFORMANCE DATA

From time to time, sales literature or advertisements may quote average
annual total returns for periods prior to the date the Mutual Fund 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.

LEGAL MATTERS

Legal advice relating to certain matters under the federal securities laws
applicable to the issue and sale of the Policies has been provided to PFL by
Sutherland, Asbill & Brennan L.L.P., of Washington D.C.

INDEPENDENT AUDITORS

The Financial Statements of PFL as of December 31, 1996 and 1995, and for
each of the three years in the period ended December 31, 1996, included in
this Statement of Additional Information have been audited by Ernst & Young
LLP, Independent Auditors, Suite 3400, 801 Grand Avenue, Des Moines, Iowa
50309.

OTHER INFORMATION

A Registration Statement has been filed with the Securities and Exchange
Commission, under the Securities Act of 1933 as amended, with respect to the
Policies discussed in this Statement of Additional Information. Not all of the
information set forth in the Registration Statement, amendments and exhibits
thereto has been included in the Prospectus or this Statement of Additional
Information. Statements contained in the Prospectus and this Statement of
Additional Information concerning the content of the Policies and other legal
instruments are intended to be summaries. For a complete statement of the
terms of these documents, reference should be made to the instruments filed
with the Securities and Exchange Commission.

FINANCIAL STATEMENTS

The values of the interest of Owners in the Mutual Fund Account will be
affected solely by the investment results of the selected Subaccount(s). The
Financial Statements of PFL, which are included in this Statement of
Additional Information, should be considered only as bearing on the ability of
PFL to meet its obligations under the Policies. They should not be considered
as bearing on the investment performance of the assets held in the Mutual Fund
Account.

-12-
<PAGE>

REPORT OF INDEPENDENT AUDITORS

The Board of Directors
PFL Life Insurance Company

We have audited the accompanying statutory-basis balance sheets of PFL Life
Insurance Company as of December 31, 1996 and 1995, and the related statutory-
basis statements of operations, changes in capital and surplus, and cash flows
for each of the three years in the period ended December 31, 1996. Our audits
also included the accompanying statutory-basis financial statement schedules
required by Article 7 of Regulation S-X. These financial statements and
schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

As described in Note 1 to the financial statements, the Company presents its
financial statements in conformity with accounting practices prescribed or
permitted by the Insurance Division, Department of Commerce, of the State of
Iowa, which practices differ from generally accepted accounting principles.
The variances between such practices and generally accepted accounting
principles also are described in Note 1. The effects on the financial
statements of these variances are not reasonably determinable but are presumed
to be material.

In our opinion, because of the effects of the matters described in the
preceding paragraph, the financial statements referred to above do not present
fairly, in conformity with generally accepted accounting principles, the
financial position of PFL Life Insurance Company at December 31, 1996 and
1995, or the results of its operations or its cash flows for each of the three
years in the period ended December 31, 1996.

Also, in our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of PFL Life Insurance
Company at December 31, 1996 and 1995, and the results of its operations and
its cash flows for each of the three years in the period ended December 31,
1996 in conformity with accounting practices prescribed or permitted by the
Insurance Division, Department of Commerce, of the State of Iowa. Also, in our
opinion, the related financial statement schedules, when considered in
relation to the basic statutory-basis financial statements taken as a whole,
present fairly in all material respects the information set forth therein.

Des Moines, Iowa Ernst & Young L.L.P.
February 21, 1997

<PAGE>

PFL LIFE INSURANCE COMPANY

STATEMENTS OF OPERATIONS--STATUTORY BASIS
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Premiums and other considerations, net
of reinsurance:
Life.................................. $ 204,872 $ 114,704 $ 148,954
Annuity............................... 725,966 921,452 1,067,406
Accident and health................... 227,862 232,738 230,889
Net investment income................... 428,337 392,685 343,880
Amortization of interest maintenance
reserve................................ 2,434 4,341 2,871
Commissions and expense allowances on
reinsurance ceded...................... 73,931 77,071 94,635
---------- ---------- ----------
1,663,402 1,742,991 1,888,635
Benefits and expenses:
Benefits paid or provided for:
Life and accident and health
benefits............................. 147,024 146,346 141,632
Surrender benefits.................... 512,810 498,626 392,064
Other benefits........................ 101,288 88,607 73,306
Increase in aggregate reserves for
policies and contracts:
Life................................ 140,126 50,071 82,062
Annuity............................. 188,002 528,330 569,341
Accident and health................. 26,790 17,694 22,144
Other............................... 19,969 16,017 11,223
---------- ---------- ----------
1,136,009 1,345,691 1,291,772
Insurance expenses:
Commissions........................... 177,466 200,706 215,635
General insurance expenses............ 57,282 57,623 52,166
Taxes, licenses and fees.............. 13,889 15,700 15,368
Transfer to separate account.......... 171,785 42,981 243,806
Other expenses........................ 526 760 1,014
---------- ---------- ----------
420,948 317,770 527,989
---------- ---------- ----------
1,556,957 1,663,461 1,819,761
---------- ---------- ----------
Gain from operations before federal income
taxes and net realized capital losses on
investments.............................. 106,445 79,530 68,874
Federal income tax expense................ 41,177 33,335 23,858
---------- ---------- ----------
Gain from operations before net realized
capital losses on investments............ 65,268 46,195 45,016
Net realized capital losses on investments
(net of related federal income taxes and
amounts transferred to interest
maintenance reserve)..................... (3,503) (18,096) (3,624)
---------- ---------- ----------
Net income................................ $ 61,765 $ 28,099 $ 41,392
========== ========== ==========
</TABLE>

See accompanying notes.

14
<PAGE>

PFL LIFE INSURANCE COMPANY

BALANCE SHEETS--STATUTORY BASIS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
DECEMBER 31
---------------------
1996 1995
---------- ----------
<S> <C> <C>
ADMITTED ASSETS
Cash and invested assets:
Cash and short-term investments........................ $ 50,737 $ 79,852
Bonds.................................................. 4,773,433 4,613,334
Stocks:
Preferred............................................ 3,097 9,336
Common (cost: 1996--$23,212; 1995--$19,061).......... 32,038 24,866
Affiliated entities (cost: 1996--$14,893; 1995--
$14,661)............................................ 6,934 6,794
Mortgage loans on real estate.......................... 911,705 680,414
Real estate, at cost less accumulated depreciation
($11,338 in 1996; $12,493 in 1995):
Home office properties............................... 10,372 20,403
Properties acquired in satisfaction of debt.......... 12,260 2,648
Investment properties................................ 35,922 40,453
Policy loans........................................... 54,214 52,675
Other invested assets.................................. 16,343 13,557
---------- ----------
Total cash and invested assets......................... 5,907,055 5,544,332
Premiums deferred and uncollected........................ 16,345 17,026
Accrued investment income................................ 70,401 68,065
Receivable from affiliates............................... 53,900 79,913
Federal income taxes recoverable......................... 4,018 9,776
Transfers from separate accounts......................... 38,528 --
Other assets............................................. 31,215 32,803
Separate account assets.................................. 1,844,515 1,418,157
---------- ----------
Total admitted assets.................................. $7,965,977 $7,170,072
========== ==========
LIABILITIES AND CAPITAL AND SURPLUS
Liabilities:
Aggregate reserves for policies and contracts:
Life................................................. $ 736,100 $ 596,039
Annuity.............................................. 4,408,419 4,220,274
Accident and health.................................. 139,269 114,884
Policy and contract claim reserves:
Life................................................. 7,369 6,225
Accident and health.................................. 66,988 70,517
Other policyholders' funds............................. 126,672 105,371
Remittances and items not allocated.................... 64,064 123,710
Asset valuation reserve................................ 54,851 43,921
Interest maintenance reserve........................... 23,745 26,376
Other liabilities...................................... 70,663 67,070
Payable to affiliates.................................. 4,975 --
Separate account liabilities........................... 1,844,515 1,418,157
---------- ----------
Total liabilities...................................... 7,547,630 6,792,544
Commitments and contingencies
Capital and surplus:
Common stock, $10 par value, 500 shares authorized, 266
issued and outstanding................................ 2,660 2,660
Paid-in surplus........................................ 154,129 154,129
Unassigned surplus..................................... 261,558 220,739
---------- ----------
Total capital and surplus.............................. 418,347 377,528
---------- ----------
Total liabilities and capital and surplus.............. $7,965,977 $7,170,072
========== ==========
</TABLE>

See accompanying notes.

15
<PAGE>

PFL LIFE INSURANCE COMPANY

STATEMENTS OF CHANGES IN CAPITAL AND SURPLUS--STATUTORY BASIS
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
TOTAL
COMMON PAID-IN UNASSIGNED CAPITAL AND
STOCK SURPLUS SURPLUS SURPLUS
------ -------- ---------- -----------
<S> <C> <C> <C> <C>
Balance at January 1, 1994.............. $2,660 $ 99,129 $212,982 $314,771
Capital contribution.................. -- 15,000 -- 15,000
Net income for 1994................... -- -- 41,392 41,392
Net unrealized capital losses......... -- -- (25,350) (25,350)
Increase in non-admitted assets....... -- -- (248) (248)
Decrease in asset valuation reserve... -- -- 6,040 6,040
Dividend to stockholder............... -- -- (20,900) (20,900)
Surplus effect of ceding commissions
associated with the sale of a
division............................. -- -- 184 184
Amendment of reinsurance agreement.... -- -- 391 391
Decrease in liability for reinsurance
in unauthorized companies............ -- -- 505 505
Prior period adjustment............... -- -- (3,444) (3,444)
------ -------- -------- --------
Balance at December 31, 1994............ 2,660 114,129 211,552 328,341
Capital contribution.................. -- 40,000 -- 40,000
Net income for 1995................... -- -- 28,099 28,099
Net unrealized capital losses......... -- -- (7,574) (7,574)
Decrease in non-admitted assets....... -- -- 50 50
Increase in asset valuation reserve... -- -- (5,946) (5,946)
Surplus effect of ceding commissions
associated with the sale of a
division............................. -- -- 35 35
Cancellation of reinsurance
agreement............................ -- -- 585 585
Amendment of reinsurance agreement.... -- -- 419 419
Transfer of subsidiary investment to
stockholder.......................... -- -- (3,250) (3,250)
Change in reserve valuation
methodology.......................... -- -- (501) (501)
Increase in liability for reinsurance
in unauthorized companies............ -- -- (2,730) (2,730)
------ -------- -------- --------
Balance at December 31, 1995............ 2,660 154,129 220,739 377,528
Net income for 1996................... -- -- 61,765 61,765
Net unrealized capital gains.......... -- -- 2,351 2,351
Increase in non-admitted assets....... -- -- (148) (148)
Increase in asset valuation reserve... -- -- (10,930) (10,930)
Dividend to stockholder............... -- -- (20,000) (20,000)
Prior period adjustment............... -- -- 5,025 5,025
Surplus effect of sale of a division.. -- -- (384) (384)
Surplus effect of ceding commissions
associated with the sale of a
division............................. -- -- 29 29
Amendment of reinsurance agreement.... -- -- 421 421
Decrease in liability for reinsurance
in unauthorized companies............ -- -- 2,690 2,690
------ -------- -------- --------
Balance at December 31, 1996............ $2,660 $154,129 $261,558 $418,347
====== ======== ======== ========
</TABLE>

See accompanying notes.

16
<PAGE>

PFL LIFE INSURANCE COMPANY

STATEMENTS OF CASH FLOWS--STATUTORY BASIS
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
SOURCES OF CASH
Premiums and other considerations, net of
reinsurance.............................. $1,240,748 $1,353,407 $1,548,030
Net investment income..................... 431,456 398,051 339,856
---------- ---------- ----------
1,672,204 1,751,458 1,887,886
Life and accident and health claims....... (147,556) (140,798) (137,602)
Surrender benefits and other fund
withdrawals.............................. (512,810) (498,626) (392,064)
Other benefits to policyholders........... (101,254) (88,519) (73,237)
Commissions, other expenses and other
taxes.................................... (248,321) (278,241) (288,384)
Net transfers to separate accounts........ (210,312) (42,981) (243,806)
Dividends to policyholders................ (844) (940) (1,155)
Federal income taxes, excluding tax on
capital gains and IRS settlements........ (35,551) (32,905) (39,864)
---------- ---------- ----------
Net cash provided by operations........... 415,556 668,448 711,774
Proceeds from investments sold, matured or
repaid:
Bonds and preferred stocks.............. 2,112,831 1,757,229 1,430,339
Common stocks........................... 27,214 20,338 12,941
Mortgage loans on real estate........... 74,351 36,550 43,495
Real estate............................. 18,077 23,203 9,536
Other proceeds.......................... 22,567 381 189
---------- ---------- ----------
Total cash from investments............... 2,255,040 1,837,701 1,496,500
Capital contribution...................... -- 40,000 15,000
Dividend from subsidiary.................. -- -- 10,000
Cash received from ceding commissions
associated with the sale of a division... 45 55 284
Increase in remittances and items not
allocated................................ -- 88,295 16,177
Other sources............................. 19,381 12,758 24,855
---------- ---------- ----------
Total sources of cash..................... 2,690,022 2,647,257 2,274,590
APPLICATIONS OF CASH
Cost of investments acquired:
Bonds and preferred stocks.............. $2,270,105 $2,294,195 $2,043,615
Common stocks........................... 29,799 23,284 11,228
Mortgage loans on real estate........... 324,381 192,292 160,068
Net increase in policy loans............ 1,539 877 3,202
Real estate............................. 222 10,188 14,801
Other invested assets................... 5,169 2,670 664
---------- ---------- ----------
Total investments acquired................ 2,631,215 2,523,506 2,233,578
Dividends to stockholder.................. 20,000 -- 20,900
Cash paid associated with the sale of a
division................................. 539 -- --
Repayment of intercompany notes and
receivables, net......................... -- 48,070 365
Cash paid in conjunction with an amendment
of a reinsurance agreement............... 5,812 -- --
Decrease in remittances and items not
allocated................................ 59,646 -- --
Cash paid in conjunction with sales of a
division................................. 123 -- --
Other applications, net................... 1,802 29,887 3,820
---------- ---------- ----------
Total applications of cash................ 2,719,137 2,601,463 2,258,663
---------- ---------- ----------
Net change in cash and short-term
investments.............................. (29,115) 45,790 15,927
Cash and short-term investments at
beginning of year........................ 79,852 34,062 18,135
---------- ---------- ----------
Cash and short-term investments at end of
year..................................... $ 50,737 $ 79,852 $ 34,062
========== ========== ==========
</TABLE>

See accompanying notes.

17
<PAGE>

PFL LIFE INSURANCE COMPANY

NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS
(DOLLARS IN THOUSANDS)
DECEMBER 31, 1996

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization

PFL Life Insurance Company ("the Company") is a stock life insurance company
and is a wholly-owned subsidiary of First AUSA Life Insurance Company ("First
AUSA"), which, in turn, is a wholly-owned subsidiary of AEGON USA, Inc.
("AEGON"). AEGON is a wholly-owned subsidiary of AEGON nv, a holding company
organized under the laws of The Netherlands. Effective June 1, 1995, the
Company transferred the common stock of its wholly-owned subsidiary, Equity
National Life Insurance Company ("Equity National"), to its stockholder, First
AUSA. Equity National was then merged with Life Investors Insurance Company of
America, a subsidiary of First AUSA. The financial statements presented herein
are prepared on the statutory accounting principles basis for the Company
only; as such, the accounts of the Company's subsidiary, Equity National, are
not consolidated with those of the Company.

In connection with the sale of certain affiliated companies, the Company has
assumed various blocks of business from these former affiliates through
mergers. In addition, the Company has canceled or entered into several
coinsurance and reinsurance agreements with affiliates and non-affiliates. The
following is a description of those transactions:

During 1996, the Company sold its North Richland Hills, Texas health
administrative operations known as The Insurance Center. The transaction
resulted in the transfer of substantially all employees and office
facilities to United Insurance Companies, Inc. ("UICI"). All inforce
business will continue to be shared by UICI and the Company and its
affiliates through the existing coinsurance agreements. After a short
transition period, all new business produced by United Group Association,
an independent insurance agency, will be written by the insurance
subsidiaries of UICI and will not be shared with the Company and its
affiliates through coinsurance arrangements. As a result of the sale, the
Company transferred $123 in assets, substantially all of which was cash,
and $70 of liabilities. The difference between the assets and liabilities
of $(53) plus a tax credit of $19 was charged directly to unassigned
surplus.

Effective December 31, 1995, the Company canceled a coinsurance agreement
with its parent, First AUSA. As a result of the cancellation, the Company
transferred $825 of assets and $1,712 of liabilities. The difference
between the assets and liabilities, net of a tax effect of $302 was
credited directly to unassigned surplus.

On January 1, 1994, the Company entered into an agreement with a non-
affiliate reinsurer to increase the reinsurance ceded by 2 1/2% each year
(primarily group health business). As a result, the Company transferred
$3,881 in assets and $4,080 in liabilities during 1994. The difference
between the assets and liabilities of $199, plus a tax credit of $192, was
credited directly to unassigned surplus. During 1995, the Company
transferred $4,303 in assets and liabilities of $4,467. The difference
between the assets and liabilities of $164, plus a tax credit of $255, was
credited directly to unassigned surplus. During 1996, the Company
transferred $5,991 in assets, including $5,812 of cash and short-term
investments and liabilities of $6,146. The difference between the assets
and liabilities of $155, plus a tax credit of $266 was credited directly to
unassigned surplus.

During 1993, the Company sold the Oakbrook Division (primarily group
health business). The initial transfer of risk occurred through an
indemnity reinsurance agreement. The

18
<PAGE>

PFL LIFE INSURANCE COMPANY

NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)

policies will then be assumed by the reinsurer by novation as state
regulatory and policyholder approvals are received. In addition, the
Company will receive from the third party administrator a ceding commission
of one percent of the premiums collected between January 1, 1994 and
December 31, 1996. As a result of the sale, in 1994, the Company received
$284 for ceding commissions; the commissions net of the related tax effect
of $100 was credited directly to unassigned surplus. During 1995, the
Company received $55 for ceding commissions; the commissions net of the
related tax effect of $20 was credited directly to unassigned surplus.
During 1996, the Company received $45 for ceding commissions; the
commissions net of the related tax effect of $(16) was charged directly to
unassigned surplus. During 1996, the Company paid $539 in association with
this sale; the proceeds, net of a tax credit of $189, were charged directly
to unassigned surplus.

Nature of Business

The Company sells individual non-participating whole life, endowment and
term contracts, as well as a broad line of single fixed and flexible premium
annuity products. In addition, the Company offers group life, universal life,
and individual and specialty health coverages. The Company is licensed in 49
states and the District of Columbia. Sales of the Company's products are
primarily through an independent insurance agency of The Insurance Center, the
Company's agents, and financial institutions.

Basis of Presentation

The preparation of financial statements of insurance companies requires
management to make estimates and assumptions that affect amounts reported in
the financial statements and accompanying notes. Actual results could differ
from those estimates.

Significant estimates and assumptions are utilized in the calculation of
aggregate policy reserves, policy and contract claim reserves, guaranty fund
assessment accruals and valuation allowances on investments. It is reasonably
possible that actual experience could differ from the estimates and
assumptions utilized which could have a material impact on the financial
statements.

The accompanying financial statements have been prepared on the basis of
accounting practices prescribed or permitted by the Insurance Division,
Department of Commerce, of the State of Iowa, which practices differ in some
respects from generally accepted accounting principles. The more significant
of these differences are as follows: (a) bonds are generally reported at
amortized cost rather than segregating the portfolio into held-to-maturity
(reported at amortized cost), available-for-sale (reported at fair value), and
trading (reported at fair value) classifications; (b) acquisition costs of
acquiring new business are charged to current operations as incurred rather
than deferred and amortized over the life of the policies; (c) policy reserves
on traditional life products are based on statutory mortality rates and
interest which may differ from reserves based on reasonable assumptions of
expected mortality, interest, and withdrawals which include a provision for
possible unfavorable deviation from such assumptions; (d) policy reserves on
certain investment products use discounting methodologies utilizing statutory
interest rates rather than full account values; (e) reinsurance amounts are
netted against the corresponding asset or liability rather than shown as gross
amounts on the balance sheet; (f) deferred income taxes are not provided for
the difference between the financial statement and income tax bases of assets
and liabilities; (g) net realized gains or losses attributed to changes in the
level of interest

19
<PAGE>

PFL LIFE INSURANCE COMPANY

NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)

rates in the market are deferred and amortized over the remaining life of the
bond or mortgage loan, rather than recognized as gains or losses in the
statement of operations when the sale is completed; (h) declines in the
estimated realizable value of investments are provided for through the
establishment of a formula-determined statutory investment reserve (carried as
a liability) changes to which are charged directly to surplus, rather than
through recognition in the statement of operations for declines in value, when
such declines are judged to be other than temporary; (i) certain assets
designated as "non-admitted assets" have been charged to surplus rather than
being reported as assets; (j) revenues for universal life and investment
products consist of premiums received rather than policy charges for the cost
of insurance, policy administration charges, amortization of policy initiation
fees and surrender charges assessed; (k) pension expense is recorded as
amounts are paid; (l) adjustments to federal income taxes of prior years are
charged or credited directly to unassigned surplus, rather than reported as a
component of expense in the statement of operations; (m) gains or losses on
dispositions of business are charged or credited directly to unassigned
surplus rather than being reported in the statement of operations; and (n) a
liability is established for "unauthorized reinsurers" and changes in this
liability are charged or credited directly to unassigned surplus. The effects
of these variances have not been determined by the Company.

The National Association of Insurance Commissioners (NAIC) currently is in
the process of recodifying statutory accounting practices, the result of which
is expected to constitute the only source of "prescribed" statutory accounting
practices. Accordingly, that project, which is expected to be completed in
1997, will likely change, to some extent, prescribed statutory accounting
practices and may result in changes to the accounting practices that the
Company uses to prepare its statutory-basis financial statements.

Cash and Cash Equivalents

For purposes of the statements of cash flows, the Company considers all
highly liquid investments with remaining maturity of one year or less when
purchased to be cash equivalents.

Investments

Investments in bonds (except those to which the Securities Valuation Office
of the NAIC has ascribed a value), mortgage loans on real estate and short-
term investments are reported at cost adjusted for amortization of premiums
and accrual of discounts. Amortization is computed using methods which result
in a level yield over the expected life of the security. The Company reviews
its prepayment assumptions on mortgage and other asset backed securities at
regular intervals and adjusts amortization rates prospectively when such
assumptions are changed due to experience and/or expected future patterns.
Investments in preferred stocks in good standing are reported at cost.
Investments in preferred stocks not in good standing are reported at the lower
of cost or market. Common stocks of affiliated and unaffiliated companies,
which may include shares of mutual funds (money market and other), are carried
at market. Real estate is reported at cost less allowances for depreciation.
Depreciation is computed principally by the straight-line method. Policy loans
are reported at unpaid principal. Other invested assets consist principally of
investments in various joint ventures and are recorded at equity in underlying
net assets. Other "admitted assets" are valued, principally at cost, as
required or permitted by Iowa Insurance Laws.

<PAGE>

PFL LIFE INSURANCE COMPANY

NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)

Realized capital gains and losses are determined on the basis of specific
identification and are recorded net of related federal income taxes. The Asset
Valuation Reserve (AVR) is established by the Company to provide for
anticipated losses in the event of default by issuers of certain invested
assets. These amounts are determined using a formula prescribed by the NAIC
and are reported as a liability. The formula for the AVR provides for a
corresponding adjustment for realized gains and losses, net of amounts
attributed to changes in the general level of interest rates. Under a formula
prescribed by the NAIC, the Company defers, in the Interest Maintenance
Reserve (IMR), the portion of realized gains and losses on sales of fixed
income investments, principally bonds and mortgage loans, attributable to
changes in the general level of interest rates and amortizes those deferrals
over the remaining period to maturity of the security.

Interest income is recognized on an accrual basis. The Company does not
accrue income on bonds in default, mortgage loans on real estate in default
and/or foreclosure or which are delinquent more than twelve months, or real
estate where rent is in arrears for more than three months. Further, income is
not accrued when collection is uncertain. At December 31, 1996, 1995 and 1994,
the Company excluded investment income due and accrued of $1,541, $2,272 and
$4,622, respectively, with respect to such practices.

The Company entered into an interest-rate cap agreement on Five Year
Constant Maturities Treasury futures to hedge the exposure of increasing
interest rates. The cash flows from the interest rate cap will help offset
losses that might occur from disintermediation resulting from a rise in
interest rates. The Company paid a one-time premium to receive the difference
between the reference rate and the strike rate after a two-year delay. The
cost is included in interest expense ratably during the life of the agreement.
Income received as a result of the cap agreement will be recognized in
investment income as earned. Unamortized cost of the agreements is included in
other assets.

Aggregate Policy Reserves

Life, annuity and accident and health benefit reserves are developed by
actuarial methods and are determined based on published tables using
statutorily specified interest rates and valuation methods that will provide,
in the aggregate, reserves that are greater than or equal to the minimum
required by law.

The aggregate policy reserves for life insurance policies are based
principally upon the 1941, 1958 and 1980 Commissioners' Standard Ordinary
Mortality and American Experience Mortality Tables. The reserves are
calculated using interest rates ranging from 2.00 to 6.00 percent and are
computed principally on the Net Level Premium Valuation and the Commissioners'
Reserve Valuation Methods. Reserves for universal life policies are based on
account balances adjusted for the Commissioners' Reserve Valuation Method.

Deferred annuity reserves are calculated according to the Commissioners'
Annuity Reserve Valuation Method including excess interest reserves to cover
situations where the future interest guarantees plus the decrease in surrender
charges are in excess of the maximum valuation rates of interest. Reserves for
immediate annuities and supplementary contracts with and without life
contingencies are equal to the present value of future payments assuming
interest rates ranging from 2.50 to 11.25 percent and mortality rates, where
appropriate, from a variety of tables.

21
<PAGE>

PFL LIFE INSURANCE COMPANY

NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)

Accident and health policy reserves are equal to the greater of the gross
unearned premiums or any required midterminal reserves plus net unearned
premiums and the present value of amounts not yet due on both reported and
unreported claims.

Policy and Contract Claim Reserves

Claim reserves represent the estimated accrued liability for claims reported
to the Company and claims incurred but not yet reported through the statement
date. These reserves are estimated using either individual case-basis
valuations or statistical analysis techniques. These estimates are subject to
the effects of trends in claim severity and frequency. The estimates are
continually reviewed and adjusted as necessary as experience develops or new
information becomes available.

Separate Account

Assets held in trust for purchases of variable annuity contracts and the
Company's corresponding obligation to the contract owners are shown separately
in the balance sheets. The assets in the separate account are valued at
market. Income and gains and losses with respect to the assets in the separate
account accrue to the benefit of the policyholders. The Company received
variable contract premiums of $227,864, $133,386 and $308,305 in 1996, 1995
and 1994, respectively. All variable account contracts are subject to
discretionary withdrawal by the policyholder at the market value of the
underlying assets less the current surrender charge.

Reclassifications

Certain reclassifications have been made to the 1995 and 1994 financial
statements to conform to the 1996 presentation.

2. FAIR VALUES OF FINANCIAL INSTRUMENTS

Statement of Financial Accounting Standards No. 107, Disclosures about Fair
Value of Financial Instruments, requires disclosure of fair value information
about financial instruments, whether or not recognized in the statutory-basis
balance sheet, for which it is practicable to estimate that value. SFAS No.
119, Disclosures about Derivative Financial Instruments and Fair Value of
Financial Instruments, requires additional disclosure about derivatives. In
cases where quoted market prices are not available, fair values are based on
estimates using present value or other valuation techniques. Those techniques
are significantly affected by the assumptions used, including the discount
rate and estimates of future cash flows. In that regard, the derived fair
value estimates cannot be substantiated by comparisons to independent markets
and, in many cases, could not be realized in immediate settlement of the
instrument. Statement of Financial Accounting Standards No. 107 and No. 119
exclude certain financial instruments and all nonfinancial instruments from
their disclosure requirements and allow companies to forego the disclosures
when those estimates can only be made at excessive cost. Accordingly, the
aggregate fair value amounts presented do not represent the underlying value
of the Company.

The following methods and assumptions were used by the Company in estimating
its fair value disclosures for financial instruments:

Cash and short-term investments: The carrying amounts reported in the
balance sheet for these instruments approximate their fair values.

22
<PAGE>

PFL LIFE INSURANCE COMPANY

NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)

Investment securities: Fair values for fixed maturity securities
(including redeemable preferred stocks) are based on quoted market prices,
where available. For fixed maturity securities not actively traded, fair
values are estimated using values obtained from independent pricing
services or, in the case of private placements, are estimated by
discounting expected future cash flows using a current market rate
applicable to the yield, credit quality, and maturity of the investments.
The fair values for equity securities other than insurance subsidiaries are
based on quoted market prices. Fair value for the Company's insurance
subsidiary is the statutory net book value of that subsidiary.

Mortgage loans and policy loans: The fair values for mortgage loans are
estimated utilizing discounted cash flow analyses, using interest rates
reflective of current market conditions and the risk characteristics of the
loans. The fair value of policy loans are assumed to equal their carrying
value.

Investment contracts: Fair values for the Company's liabilities under
investment-type insurance contracts are estimated using discounted cash
flow calculations, based on interest rates currently being offered for
similar contracts with maturities consistent with those remaining for the
contracts being valued.

Interest rate cap: Estimated fair value of the interest rate cap is based
upon the latest quoted market price.

Fair values for the Company's insurance contracts other than investment
contracts are not required to be disclosed. However, the fair values of
liabilities under all insurance contracts are taken into consideration in the
Company's overall management of interest rate risk, which minimizes exposure
to changing interest rates through the matching of investment maturities with
amounts due under insurance contracts.

The following sets forth a comparison of the fair values and carrying values
of the Company's financial instruments subject to the provisions of Statement
of Financial Accounting Standards No. 107 and No. 119:

<TABLE>
<CAPTION>
DECEMBER 31
-------------------------------------------
1996 1995
--------------------- ---------------------
CARRYING CARRYING
VALUE FAIR VALUE VALUE FAIR VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
ADMITTED ASSETS
Bonds.......................... $4,773,433 $4,867,770 $4,613,334 $4,824,635
Preferred stocks............... 3,097 7,133 9,336 12,275
Common stocks.................. 32,038 32,038 24,866 24,866
Affiliated common and preferred
stock......................... 6,934 6,934 6,794 6,794
Mortgage loans on real estate.. 911,705 922,010 680,414 714,399
Policy loans................... 54,214 54,214 52,675 52,675
Cash and short-term
investments................... 50,737 50,737 79,852 79,852
Interest rate cap.............. 6,797 6,975 7,971 7,250
Separate account assets........ 1,844,515 1,844,515 1,418,157 1,418,157
LIABILITIES
Investment contract
liabilities................... 4,532,568 4,398,630 4,323,188 4,310,505
Separate account annuities..... 1,803,057 1,803,057 1,417,842 1,417,842
</TABLE>

23
<PAGE>

PFL LIFE INSURANCE COMPANY

NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)

3. INVESTMENTS

The carrying value and estimated fair value of investments in debt
securities were as follows:

<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
CARRYING UNREALIZED UNREALIZED FAIR
VALUE GAINS LOSSES VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
DECEMBER 31, 1996
Bonds:
United States Government and
agencies.................... $ 136,450 $ 3,301 $ 180 $ 139,571
State, municipal and other
government.................. 59,644 1,906 177 61,373
Public utilities............. 147,918 5,616 1,020 152,514
Industrial and
miscellaneous............... 1,958,681 64,710 8,105 2,015,286
Mortgage-backed securities... 2,470,740 43,896 15,610 2,499,026
---------- -------- ------- ----------
4,773,433 119,429 25,092 4,867,770
Preferred stocks............... 3,097 4,036 -- 7,133
---------- -------- ------- ----------
$4,776,530 $123,465 $25,092 $4,874,903
========== ======== ======= ==========
DECEMBER 31, 1995
Bonds:
United States Government and
agencies.................... $ 117,054 $ 5,808 $ 135 $ 122,727
State, municipal and other
government.................. 46,236 3,109 2 49,343
Public utilities............. 156,342 9,578 1,092 164,828
Industrial and
miscellaneous............... 1,781,149 112,074 7,146 1,886,077
Mortgage-backed securities... 2,512,553 93,420 4,313 2,601,660
---------- -------- ------- ----------
4,613,334 223,989 12,688 4,824,635
Preferred stocks............... 9,336 3,348 409 12,275
---------- -------- ------- ----------
$4,622,670 $227,337 $13,097 $4,836,910
========== ======== ======= ==========
</TABLE>

The carrying value and estimated fair value of bonds at December 31, 1996,
by contractual maturity, are shown below. Expected maturities may differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.

<TABLE>
<CAPTION>
CARRYING ESTIMATED FAIR
VALUE VALUE
---------- --------------
<S> <C> <C>
Due in one year or less............................ $ 202,775 $ 204,980
Due after one year through five years.............. 896,912 921,711
Due after five years through ten years............. 954,555 977,421
Due after ten years................................ 248,451 264,632
---------- ----------
2,302,693 2,368,744
Mortgage and other asset-backed securities......... 2,470,740 2,499,026
---------- ----------
$4,773,433 $4,867,770
========== ==========
</TABLE>

24
<PAGE>

PFL LIFE INSURANCE COMPANY

NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)

A detail of net investment income is presented below:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Interest on bonds and notes...................... $364,356 $342,182 $294,145
Dividends on equity investments.................. 1,436 1,822 12,091
Interest on mortgage loans....................... 69,418 52,702 42,385
Rental income on real estate..................... 9,526 10,443 9,360
Interest on policy loans......................... 3,273 3,112 3,182
Other investment income.......................... 1,799 1,803 282
-------- -------- --------
Gross investment income.......................... 449,808 412,064 361,445
Investment expenses.............................. 21,471 19,379 17,565
-------- -------- --------
Net investment income............................ $428,337 $392,685 $343,880
======== ======== ========
</TABLE>

Proceeds from sales and maturities of debt securities and related gross
realized gains and losses were as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Proceeds................................ $2,112,831 $1,757,229 $1,430,339
========== ========== ==========
Gross realized gains.................... $ 19,876 $ 19,721 $ 15,411
Gross realized losses................... (19,634) (34,399) (33,044)
---------- ---------- ----------
Net realized gains (losses)............. $ 242 $ (14,678) $ (17,633)
========== ========== ==========
</TABLE>

At December 31, 1996, investments with an aggregate carrying value of
$5,825,802 were on deposit with regulatory authorities or were restrictively
held in bank custodial accounts for the benefit of such regulatory authorities
as required by statute.

Realized investment gains (losses) and changes in unrealized gains (losses)
for investments are summarized below:

<TABLE>
<CAPTION>
REALIZED
---------------------------
YEAR ENDED DECEMBER 31
---------------------------
1996 1995 1994
------- -------- --------
<S> <C> <C> <C>
Debt securities................................ $ 242 $(14,678) $(17,633)
Short-term investments......................... (197) 24 (309)
Equity securities.............................. 1,798 504 1,322
Mortgage loans on real estate.................. (5,530) (1,053) (2,186)
Real estate.................................... 1,210 (1,908) (2,858)
Other invested assets.......................... 12 (970) 14
------- -------- --------
(2,465) (18,081) (21,650)
Tax effect..................................... (1,235) 7,878 7,236
Transfer to interest maintenance reserve....... 197 (7,891) 10,790
------- -------- --------
Net realized losses............................ $(3,503) $(18,096) $ (3,624)
======= ======== ========
</TABLE>

25
<PAGE>

PFL LIFE INSURANCE COMPANY

NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
CHANGE IN UNREALIZED
------------------------------
YEAR ENDED DECEMBER 31
------------------------------
1996 1995 1994
--------- -------- ---------
<S> <C> <C> <C>
Debt securities............................ $(115,867) $355,560 $(322,346)
Equity securities.......................... 2,929 (16,379) (23,202)
--------- -------- ---------
Change in unrealized appreciation
(depreciation)............................ $(112,938) $339,181 $(345,548)
========= ======== =========
</TABLE>

Gross unrealized gains and gross unrealized losses on equity securities were
as follows:

<TABLE>
<CAPTION>
DECEMBER 31
-------------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Unrealized gains.................................. $ 9,590 $ 6,833 $20,244
Unrealized losses................................. (8,723) (8,895) (5,927)
------- ------- -------
Net unrealized gains (losses)..................... $ 867 $(2,062) $14,317
======= ======= =======
</TABLE>

During 1996, the Company issued mortgage loans with interest rates ranging
from 6.83% to 8.75%. The maximum percentage of any one mortgage loan to the
value of the underlying real estate at origination was 85%. Mortgage loans
with a carrying value of $4,027 were non-income producing for the previous
twelve months. Accrued interest of $852 related to these mortgage loans was
excluded from investment income. The Company requires all mortgage loans to
carry fire insurance equal to the value of the underlying property.

During 1996, 1995 and 1994, mortgage loans of $13,163, $1,644 and $799,
respectively, were foreclosed and transferred to real estate. At December 31,
1996 and 1995, the Company held a mortgage loan loss reserve in the asset
valuation reserve of $5,432 and $6,168, respectively. The mortgage loan
portfolio is diversified by geographic region and specific collateral property
type as follows:

<TABLE>
<CAPTION>
GEOGRAPHIC DISTRIBUTION
- -------------------------------------
DECEMBER 31
------------
1996 1995
----- -----
<S> <C> <C>
South Atlantic.......... 26% 26%
Mountain................ 10 12
W. South Central........ 12 14
Pacific................. 13 17
E. North Central........ 15 13
E. South Central........ 9 5
W. North Central........ 6 6
Middle Atlantic......... 6 3
New England............. 3 4
</TABLE>
<TABLE>
<CAPTION>
PROPERTY TYPE DISTRIBUTION
- -------------------------------------
DECEMBER 31
------------
1996 1995
----- -----
<S> <C> <C>
Retail.................. 37% 31%
Apartment............... 14 20
Office.................. 34 29
Industrial.............. 3 4
Other................... 12 16
</TABLE>

26
<PAGE>

PFL LIFE INSURANCE COMPANY

NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)

At December 31, 1996, the Company had the following investments (excluding
U. S. Government guaranteed or insured issues) which individually represented
more than ten percent of capital and surplus and the asset valuation reserve:

<TABLE>
<CAPTION>
DESCRIPTION OF SECURITY OR ISSUER CARRYING VALUE
--------------------------------- --------------
<S> <C>
Bonds:
Citibank.................................................... 70,661
</TABLE>

4. REINSURANCE

The Company reinsures portions of risk on certain insurance policies which
exceed its established limits, thereby providing a greater diversification of
risk and minimizing exposure on larger risks. The Company remains contingently
liable with respect to any insurance ceded, and this would become an actual
liability in the event that the assuming insurance company became unable to
meet its obligation under the reinsurance treaty.

Reinsurance assumption and cession treaties are transacted primarily with
affiliates. Premiums earned reflect the following reinsurance assumed and
ceded amounts:

<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Direct premiums.......................... $1,457,450 $1,591,531 $1,857,446
Reinsurance assumed...................... 1,796 2,356 1,832
Reinsurance ceded........................ (300,546) (324,993) (412,029)
---------- ---------- ----------
Net premiums earned...................... $1,158,700 $1,268,894 $1,447,249
========== ========== ==========
</TABLE>

The Company received reinsurance recoveries in the amount of $168,155,
$167,287 and $148,414 during 1996, 1995 and 1994, respectively. At December
31, 1996 and 1995, estimated amounts recoverable from reinsurers that have
been deducted from policy and contract claim reserves totaled $63,226 and
$65,503, respectively. The aggregate reserves for policies and contracts were
reduced for reserve credits for reinsurance ceded at December 31, 1996 and
1995 of $2,737,441 and $2,920,034, respectively.

At December 31, 1996, amounts recoverable from unauthorized reinsurers of
$73,434 (1995--$70,516) and reserve credits for reinsurance ceded of $55,035
(1995--$48,992) were associated with a single reinsurer and its affiliates.
The Company holds collateral under these reinsurance agreements in the form of
trust agreements totaling $120,477 at December 31, 1996 that can be drawn on
for amounts that remain unpaid for more than 120 days.

5. INCOME TAXES

For federal income tax purposes, the Company joins in a consolidated tax
return filing with certain affiliated companies. Under the terms of a tax-
sharing agreement between the Company and its affiliates, the Company computes
federal income tax expense as if it were filing a separate income tax return,
except that tax credits and net operating loss carryforwards are determined on
the basis of the consolidated group. Additionally, the alternative minimum tax
is computed for the consolidated group and the resulting tax, if any, is
allocated back to the separate companies on the basis of the separate
companies' alternative minimum taxable income.

<PAGE>

PFL LIFE INSURANCE COMPANY

NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)

Federal income tax expense differs from the amount computed by applying the
statutory federal income tax rate to gain from operations before taxes and
realized capital losses for the following reasons:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Computed tax at federal statutory rate (35%)..... $37,256 $27,835 $24,106
Tax reserve adjustment........................... 2,211 2,405 1,150
Excess tax depreciation.......................... (384) (365) (406)
Deferred acquisition costs--tax basis............ 5,583 4,581 7,378
Prior year over accrual.......................... (499) (306) (644)
Dividend received deduction...................... (454) (56) (3,513)
Charitable contribution.......................... -- -- (3,935)
Other items--net................................. (2,536) (759) (278)
------- ------- -------
Federal income tax expense....................... $41,177 $33,335 $23,858
======= ======= =======
</TABLE>

Prior to 1984, as provided for under the Life Insurance Company Tax Act of
1959, a portion of statutory income was not subject to current taxation but
was accumulated for income tax purposes in a memorandum account referred to as
the policyholders' surplus account. No federal income taxes have been provided
for in the financial statements on income deferred in the policyholders'
surplus account ($20,387 at December 31, 1996). To the extent dividends are
paid from the amount accumulated in the policyholders' surplus account, net
earnings would be reduced by the amount of tax required to be paid. Should the
entire amount in the policyholders' surplus account become taxable, the tax
thereon computed at current rates would amount to approximately $7,135.

The Company's federal income tax returns have been examined and closing
agreements have been executed with the Internal Revenue Service through 1987.
During 1996, there was a $5,025 prior period adjustment to the tax accrual.
This included a $2,100 writeoff of an intangible asset for tax purposes, and a
federal income tax refund of $1,829 for tax years 1984-1986 and related
interest of $1,686, net of a tax effect of $590. An examination is underway
for years 1988 through 1995.

6. POLICY AND CONTRACT ATTRIBUTES

Participating life insurance policies are issued by the Company which
entitle policyholders to a share in the earnings of the participating
policies, provided that a dividend distribution, which is determined annually
based on mortality and persistency experience of the participating policies,
is authorized by the Company. Participating insurance constituted
approximately 1.0% and 1.2% of ordinary life insurance in force at December
31, 1996 and 1995, respectively.

A portion of the Company's policy reserves and other policyholders' funds
(including separate account liabilities) relate to liabilities established on
a variety of the Company's products that are not subject to significant
mortality or morbidity risk; however, there may be certain restrictions placed
upon the amount of funds that can be withdrawn without penalty. The amount of
reserves on these products, by withdrawal characteristics are summarized as
follows:

28
<PAGE>

PFL LIFE INSURANCE COMPANY

NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
DECEMBER 31
---------------------------------------
1996 1995
------------------- -------------------
PERCENT PERCENT
AMOUNT OF TOTAL AMOUNT OF TOTAL
---------- -------- ---------- --------
<S> <C> <C> <C> <C>
Subject to discretionary withdrawal
with market value adjustment....... $ 20,800 0% $ 699 --%
Subject to discretionary withdrawal
at book value less surrender
charge............................. 794,881 9 733,796 8%
Subject to discretionary withdrawal
at market value.................... 1,803,057 20 1,390,156 16%
Subject to discretionary withdrawal
at book value (minimal or no
charges or adjustments)............ 6,284,876 69 6,395,719 74%
Not subject to discretionary
withdrawal provision............... 174,416 2 139,330 2%
---------- --- ---------- ---
9,078,030 100 8,659,700 100%
Less reinsurance ceded.............. 2,677,432 2,866,160
---------- ----------
Total policy reserves on annuities
and deposit fund liabilities....... $6,400,598 $5,793,540
========== ==========
</TABLE>

A reconciliation of the amounts transferred to and from the separate
accounts is presented below:

<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Transfers as reported in the summary of
operations of the separate accounts statement:
Transfers to separate accounts................. $227,864 $133,386 $308,305
Transfers from separate accounts............... 75,172 104,219 76,133
-------- -------- --------
Net transfers to separate accounts............... 152,692 29,167 232,172
Reconciling adjustments--charges for investment
management, administration fees and contract
guarantees...................................... 19,093 13,814 11,634
-------- -------- --------
Transfers as reported in the summary of
operations of the life, accident and health
annual statement................................ $171,785 $ 42,981 $243,806
======== ======== ========
</TABLE>

<PAGE>

PFL LIFE INSURANCE COMPANY

NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)

Reserves on the Company's traditional life products are computed using mean
reserving methodologies. These methodologies result in the establishment of
assets for the amount of the net valuation premiums that are anticipated to be
received between the policy's paid-through date to the policy's next
anniversary date. At December 31, 1996 and 1995, these assets (which are
reported as premiums deferred and uncollected) and the amounts of the related
gross premiums and loadings, are as follows:

<TABLE>
<CAPTION>
GROSS LOADING NET
------- ------- -------
<S> <C> <C> <C>
DECEMBER 31, 1996
Life and annuity:
Ordinary direct first year business............. $ 2,657 $ 1,865 $ 792
Ordinary direct renewal business................ 23,307 7,180 16,127
Group life direct business...................... 1,788 1,195 593
Reinsurance ceded............................... (1,706) (438) (1,268)
------- ------- -------
26,046 9,802 16,244
Accident and health:
Direct.......................................... 104 -- 104
Reinsurance ceded............................... (3) -- (3)
------- ------- -------
Total accident and health......................... 101 -- 101
------- ------- -------
$26,147 $ 9,802 $16,345
======= ======= =======
DECEMBER 31, 1995
Life and annuity:
Ordinary direct first year business............. $ 3,151 $ 2,223 $ 928
Ordinary direct renewal business................ 24,250 7,792 16,458
Group life direct business...................... 1,537 779 758
Reinsurance ceded............................... (1,362) (141) (1,221)
------- ------- -------
27,576 10,653 16,923
Accident and health:
Direct.......................................... 1,296 -- 1,296
Reinsurance ceded............................... (1,193) -- (1,193)
------- ------- -------
Total accident and health......................... 103 -- 103
------- ------- -------
$27,679 $10,653 $17,026
======= ======= =======
</TABLE>

At December 31, 1996 and 1995, the Company had insurance in force
aggregating $69,251 and $87,010, respectively, in which the gross premiums are
less than the net premiums required by the standard valuation standards
established by the Insurance Division, Department of Commerce, of the State of
Iowa. The Company established policy reserves of $1,252 and $1,417 to cover
these deficiencies at December 31, 1996 and 1995, respectively.

In 1994, the NAIC enacted a guideline to clarify reserving methodologies for
contracts that require immediate payment of claims upon proof of death of the
insured. Companies were allowed to grade the effects of the change in
reserving methodologies over five years. A direct charge to surplus of $501
was made for the year ended December 31, 1995, related to the change in
reserve methodology.

30
<PAGE>

PFL LIFE INSURANCE COMPANY

NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)

7. DIVIDEND RESTRICTIONS

Generally, an insurance company's ability to pay dividends is limited to the
amount that their net assets, as determined in accordance with statutory
accounting practices, exceed minimum statutory capital requirements. However,
payment of such amounts as dividends may be subject to approval by regulatory
authorities.

The Company paid dividends to its parent of $20,000 and $20,900 in 1996 and
1994, respectively. No dividends were paid in 1995.

8. RETIREMENT AND COMPENSATION PLANS

The Company's employees participate in a qualified benefit pension plan
sponsored by AEGON. The Company has no legal obligation for the plan. The
Company recognizes pension expense equal to its allocation from AEGON. The
pension expense is allocated among the participating companies based on the
FASB No. 87 expense as a percent of salaries. The benefits are based on years
of service and the employee's compensation during the highest five consecutive
years of employment. Pension expense aggregated $1,056, $942 and $966 for the
years ended December 31, 1996, 1995 and 1994, respectively. The plan is
subject to the reporting and disclosure requirements of the Employee
Retirement and Income Security Act of 1974.

The Company's employees also participate in a contributory defined
contribution plan sponsored by AEGON which is qualified under Section 401(k)
of the Internal Revenue Service Code. Employees of the Company who customarily
work at least 1,000 hours during each calendar year and meet the other
eligibility requirements, are participants of the plan. Participants may elect
to contribute up to fifteen percent of their salary to the plan. The Company
will match an amount up to three percent of the participant's salary.
Participants may direct all of their contributions and plan balances to be
invested in a variety of investment options. The plan is subject to the
reporting and disclosure requirements of the Employee Retirement and Income
Security Act of 1974. Expense related to this plan was $297, $465 and $411 for
the years ended December 31, 1996, 1995 and 1994, respectively.

AEGON sponsors supplemental retirement plans to provide the Company's senior
management with benefits in excess of normal pension benefits. The plans are
noncontributory and benefits are based on years of service and the employee's
compensation level. The plans are unfunded and nonqualified under the Internal
Revenue Service Code. In addition, AEGON has established incentive deferred
compensation plans for certain key employees of the Company. AEGON also
sponsors an employee stock option plan for individuals employed at least three
years and a stock purchase plan for its producers, with the participating
affiliated companies establishing their own eligibility criteria, producer
contribution limits and company matching formula. These plans have been
accrued or funded as deemed appropriate by management of AEGON and the
Company.

In addition to pension benefits, the Company participates in plans sponsored
by AEGON that provide postretirement medical, dental and life insurance
benefits to employees meeting certain eligibility requirements. Portions of
the medical and dental plans are contributory. The expenses of the
postretirement plans calculated on the pay-as-you-go basis are charged to
affiliates in accordance with an intercompany cost sharing arrangement. The
Company expensed $184, $164 and $169 for the years ended December 31, 1996,
1995 and 1994, respectively.

31
<PAGE>

PFL LIFE INSURANCE COMPANY

NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)

9. RELATED PARTY TRANSACTIONS

The Company shares certain offices, employees and general expenses with
affiliated companies.

The Company receives data processing, investment advisory and management,
marketing and administration services from certain affiliates. During 1996,
1995 and 1994, the Company paid $17,028, $14,214 and $11,820, respectively,
for these services, which approximates their costs to the affiliates.

Payable to affiliates and intercompany borrowings bear interest at the
thirty-day commercial paper rate of 5.5% at December 31, 1996. During 1996,
1995 and 1994, the Company paid net interest of $174, $71 and $23,
respectively, to affiliates.

During 1995 and 1994, the Company received capital contributions of $40,000
and $15,000, respectively, in cash from its parent and during 1994 received a
dividend of $10,000 from its subsidiary, Equity National, which was included
in net investment income.

During 1995, the Company sold real estate with a book value of approximately
$13,270 to an affiliated entity in exchange for a short-term note receivable.
No gain was recognized on this sale. This note accrued interest at 5.65% and
matured during 1996.

During the year ended December 31, 1995, the Company restructured demand
notes and accrued interest of $13,250 and $745, respectively, related to an
affiliate. The Company received 9,750 shares of preferred stock from the
affiliate for satisfaction of debt. The Company realized a loss of $8,695
related to this transaction. At December 31, 1996 and 1995, the preferred
stock related to this affiliate was deemed to have no value and an unrealized
loss of $4,555 was recognized in 1995.

10. COMMITMENTS AND CONTINGENCIES

The Company is a party to legal proceedings incidental to its business.
Although such litigation sometimes includes substantial demands for
compensatory and punitive damages, in addition to contract liability, it is
management's opinion, after consultation with counsel and a review of
available facts, that damages arising from such demands will not be material
to the Company's financial position.

The Company is subject to insurance guaranty laws in the states in which it
writes business. These laws provide for assessments against insurance
companies for the benefit of policyholders and claimants in the event of
insolvency of other insurance companies. Assessments are charged to operations
when received by the Company except where right of offset against other taxes
paid is allowed by law; amounts available for future offsets are recorded as
an asset on the Company's balance sheet. Potential future obligations for
unknown insolvencies are not determinable by the Company. The future
obligation has been based on the most recent information available from the
National Organization of Life and Health Insurance Guaranty Associations
(NOLHGA). The Company has established a reserve of $21,774 and $21,747 and an
offsetting premium tax benefit of $8,752 and $9,457 at December 31, 1996 and
1995, respectively, for its estimated share of future guaranty fund
assessments related to several major insurer insolvencies. During 1994, $3,444
was charged to surplus as prior period adjustments to provide for this net
reserve plus certain assessments paid that related to several major insurer
insolvencies prior to 1992. The guaranty fund expense was $2,617, $5,859 and
$4,054 for December 31, 1996, 1995 and 1994, respectively.

32
<PAGE>

SCHEDULE I

PFL LIFE INSURANCE COMPANY

SUMMARY OF INVESTMENTS--OTHER THAN INVESTMENTS IN RELATED PARTIES
DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
AMOUNT AT WHICH
MARKET SHOWN IN THE
TYPE OF INVESTMENT COST (1) VALUE BALANCE SHEET (2)
------------------ ---------- ---------- -----------------
<S> <C> <C> <C>
FIXED MATURITIES
Bonds:
United States Government and
government agencies and
authorities......................... $1,533,581 $1,554,339 $1,533,510
States, municipalities and political
subdivisions........................ 4,918 5,360 4,919
Foreign governments.................. 55,633 56,013 54,725
Public utilities..................... 150,346 152,514 147,918
All other corporate bonds............ 3,046,090 3,099,544 3,032,361
Redeemable preferred stock............. 3,097 7,133 3,097
---------- ---------- ----------
Total fixed maturities................. 4,793,665 4,874,903 4,776,530
EQUITY SECURITIES
Common stocks:
Banks, trust and insurance........... 7,120 9,777 9,777
Industrial, miscellaneous and all
other............................... 16,092 22,261 22,261
---------- ---------- ----------
Total equity securities................ 23,212 32,038 32,038
Mortgage loans on real estate.......... 911,705 911,705
Real estate............................ 46,294 46,294
Real estate acquired in satisfaction of
debt.................................. 12,260 12,260
Policy loans........................... 54,214 54,214
Other long-term investments............ 9,546 9,546
Cash and short-term investments........ 50,737 50,737
---------- ----------
Total investments...................... $5,901,633 $5,893,324
========== ==========
</TABLE>
- --------
(1) Original cost of equity securities and, as to fixed maturities, original
cost reduced by repayments.
(2) Amount differs from cost as certain bonds have been adjusted to reflect
other than temporary decline in value charged to surplus, as prescribed by
the NAIC.

33
<PAGE>

SCHEDULE III

PFL LIFE INSURANCE COMPANY

SUPPLEMENTARY INSURANCE INFORMATION
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
FUTURE POLICY POLICY AND
BENEFITS AND UNEARNED CONTRACT
EXPENSES PREMIUMS LIABILITIES
------------- -------- -----------
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1996
Individual life.............................. $ 734,350 $ -- $ 7,240
Individual health............................ 39,219 8,680 13,631
Group life and health........................ 78,418 14,702 53,486
Annuity...................................... 4,408,419 -- --
---------- ------- -------
$5,260,406 $23,382 $74,357
========== ======= =======
YEAR ENDED DECEMBER 31, 1995
Individual life.............................. $ 594,274 $ -- $ 6,066
Individual health............................ 24,225 7,768 11,863
Group life and health........................ 67,994 16,662 58,813
Annuity...................................... 4,220,274 -- --
---------- ------- -------
$4,906,767 $24,430 $76,742
========== ======= =======
YEAR ENDED DECEMBER 31, 1994
Individual life.............................. $ 544,087 $ -- $ 7,298
Individual health............................ 16,649 6,487 8,643
Group life and health........................ 60,207 17,680 57,959
Annuity...................................... 3,693,388 -- --
---------- ------- -------
$4,314,331 $24,167 $73,900
========== ======= =======
</TABLE>

34
<PAGE>

<TABLE>
<CAPTION>
NET INVESTMENT BENEFITS, CLAIMS LOSSES OTHER OPERATING
PREMIUM REVENUE INCOME* AND SETTLEMENT EXPENSES EXPENSES* PREMIUMS WRITTEN
- --------------- -------------- ----------------------- --------------- ----------------
<S> <C> <C> <C> <C>
$ 202,082 $ 66,538 $ 197,526 $ 38,067 --
55,871 5,263 32,903 29,511 $ 55,678
174,781 12,877 105,459 122,953 171,320
725,966 343,659 800,121 230,417 --
- ---------- -------- ---------- --------
$1,158,700 $428,337 $1,136,009 $420,948
========== ======== ========== ========
$111,918 $ 49,929 $ 97,065 $ 37,933 --
47,692 4,091 25,793 26,033 $ 47,690
187,832 11,665 106,065 139,640 184,545
921,452 327,000 1,116,768 114,164 --
- ---------- -------- ---------- --------
$1,268,894 $392,685 $1,345,691 $317,770
========== ======== ========== ========
$146,328 $ 43,025 $ 124,736 $ 42,309 --
38,811 3,983 22,323 22,707 $ 38,797
194,704 10,531 108,400 143,645 192,034
1,067,406 286,341 1,036,313 319,328 --
- ---------- -------- ---------- --------
$1,447,249 $343,880 $1,291,772 $527,989
========== ======== ========== ========
</TABLE>
- --------
* Allocations of net investment income and other operating expenses are based
on a number of assumptions and estimates, and the results would change if
different methods were applied.

35
<PAGE>

SCHEDULE IV

PFL LIFE INSURANCE COMPANY

REINSURANCE
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
ASSUMED PERCENTAGE
CEDED TO FROM OF AMOUNT
GROSS OTHER OTHER NET ASSUMED
AMOUNT COMPANIES COMPANIES AMOUNT TO NET
---------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31,
1996
Life insurance in force.. $4,863,416 $477,112 $ 30,685 $4,416,989 .7%
========== ======== ======== ========== ===
Premiums:
Individual life........ $ 204,144 $ 3,858 $ 1,796 $ 202,082 .9%
Individual health...... 68,699 12,828 -- 55,871 --
Group life and health.. 390,296 215,515 -- 174,781 --
Annuity................ 794,311 68,345 -- 725,966 --
---------- -------- -------- ---------- ---
$1,457,450 $300,546 $ 1,796 $1,158,700 .2%
========== ======== ======== ========== ===
YEAR ENDED DECEMBER 31,
1995
Life insurance in force.. $4,594,434 $468,811 $ 22,936 $4,148,559 .6%
========== ======== ======== ========== ===
Premiums:
Individual life........ $ 113,934 $ 3,841 $ 1,825 $ 111,918 1.6%
Individual health...... 60,309 12,617 -- 47,692 --
Group life and health.. 408,097 220,265 -- 187,832 --
Annuity................ 1,009,191 88,270 531 921,452 .05%
---------- -------- -------- ---------- ---
$1,591,531 $324,993 $ 2,356 $1,268,894 .2%
========== ======== ======== ========== ===
YEAR ENDED DECEMBER 31,
1994
Life insurance in force.. $4,713,817 $468,811 $112,054 $4,357,060 2.6%
========== ======== ======== ========== ===
Premiums:
Individual life........ $ 148,702 $ 3,639 $ 1,265 $ 146,328 .9%
Individual health...... 50,303 11,492 -- 38,811 --
Group life and health.. 412,200 217,496 -- 194,704 --
Annuity................ 1,246,241 179,402 567 1,067,406 .05%
---------- -------- -------- ---------- ---
$1,857,446 $412,029 $ 1,832 $1,447,249 .1%
========== ======== ======== ========== ===
</TABLE>