<PAGE>
As filed with the Securities and Exchange Commission on , 1997
------------------------
Registration No. 333 -26209
811 -08197
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. 1
-----
Post-Effective Amendment No.
-----
and
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 1
------
PFL LIFE VARIABLE ANNUITY ACCOUNT A
-----------------------------------
(Exact Name of Registrant)
PFL LIFE INSURANCE COMPANY
--------------------------
(Name of Depositor)
4333 Edgewood Road N.E., Cedar Rapids, Iowa 52499-0001
(Address of Depositor's Principal Executive Offices)
Depositor's Telephone Number, including Area Code
(319) 297-8468
Frank A. Camp, Esquire
PFL Life Insurance Company
4333 Edgewood Road, N.E.
Cedar Rapids, Iowa 52499-0001
(Name and Address of Agent for Service)
Copy to:
Frederick R. Bellamy, Esquire
Sutherland, Asbill and Brennan L.L.P.
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004-2404
<PAGE>
DECLARATION PURSUANT TO RULE 24f-2
Pursuant to Rule 24f-2 under the Investment Company Act of 1940, the Registrant
declares that an indefinite number of Securities is being registered under the
Securities Act of 1933. The Securities Act registration filing fee of $500 has
been paid.
----------------------
Approximate date of proposed public offering:
As soon as practicable after effectiveness of the Registration Statement, as the
Commission, acting pursuant to said Section 8(a), shall determine.
----------------------
<PAGE>
CROSS REFERENCE SHEET
Pursuant to Rule 495
Showing Location in Part A (Prospectus) and
Part B (Statement of Additional Information)
of Registration Statement of Information Required by Form N-4
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PART A
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<TABLE>
<CAPTION>
Item of Form N-4 Prospectus Caption
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<S> <C> <C>
1. Cover Page............................... Cover Page
2. Definitions.............................. Definitions
3. Synopsis................................. Summary; Historical
Performance Data
4. Condensed Financial Information.......... Condensed Financial Information;
................................... Financial Statements
5. General Description of Registrant,
Depositor and Portfolio Companies
(a) Depositor.......................... PFL Life Insurance Company
(b) Registrant......................... The Atlas Portfolio Builder
Accounts
(c) Portfolio Company.................. The Mutual Fund Account
(d) Fund Prospectus.................... Underlying Funds
(e) Voting Rights...................... Voting Rights
6. Deductions and Expenses
(a) General............................ Charges and Deductions
(b) Sales Load %....................... Surrender Charge
(c) Special Purchase Plan.............. N/A
(d) Commissions........................ Distribution of the Policies
(e) Expenses - Registrant.............. N/A
(f) Fund Expenses...................... Other Expenses including
................................... Investment
................................... Advisory Fees
(g) Organizational Expenses............ N/A
7. Policies
(a) Persons with Rights................ The Policy; Election of Payment
................................... Option; Annuity Payments; Annuity
................................... Commencement Date; Voting Rights
(b) (i) Allocation of Premium
Payments...................... Allocation of Premium Payments
(ii) Transfers..................... Transfers
(iii)Exchanges..................... N/A
(c) Changes............................ The Policy; Amendments; Annuity
................................... Payment Options; Premium
................................... Payments; Possible changes in
................................... taxation; Addition, Deletion, or
................................... Substitution of Investments
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
(d) Inquiries.......................... Summary
8. Annuity Period.......................... Annuity Payment Options;
................................... Annuity Commencement Date
9. Death Benefit........................... Death Benefit
10. Purchases and Contract Value
(a) Purchases.......................... Policy Application and Issuance
................................... of Policies; Premium Payments
(b) Valuation.......................... Policy Value; The Mutual Fund
................................... Policy Value
(c) Daily Calculation.................. The Mutual Fund Policy Value
(d) Underwriter........................ Distribution of the Policies
11. Redemptions
(a) By Owners.......................... Surrenders
By Annuitant....................... N/A
(b) Texas ORP.......................... Restrictions Under the Texas
................................... Optional Retirement Program
(c) Check Delay........................ Payment Not Honored by Bank
(d) Lapse.............................. N/A
(e) Free Look.......................... Summary
12. Taxes................................... Certain Federal Income Tax
................................... Consequences
13. Legal Proceedings....................... Legal Proceedings
14. Table of Contents for the
Statement of
Additional Information.................. Statement of Additional
Information
PART B
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<CAPTION>
Item of Form N-4 Statement of Additional
- ---------------- Information Caption
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<S> <C> <C>
15. Cover Page.............................. Cover Page
16. Table of Contents....................... Table of Contents
17. General Information
and History............................. (Prospectus) PFL Life Insurance
................................... Company
18. Services
(a) Fees and Expenses
of Registrant...................... N/A
(b) Management Policies................ N/A
(c) Custodian.......................... Custody of Assets
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Independent
Auditors........................... Independent Auditors
(d) Assets of Registrant............... Custody of Assets
(e) Affiliated Person.................. N/A
(f) Principal Underwriter.............. Distribution of the Policies
19. Purchase of Securities
Being Offered........................... Distribution of the Policies
Offering Sales Load..................... N/A
20. Underwriters............................ Distribution of the Policies;
................................... (also Prospectus)
21. Calculation of Performance
Data.................................... Historical Performance Data
22. Annuity Payments........................ (Prospectus) Annuity Payment
Options
23. Financial Statements.................... Financial Statements
PART C -- OTHER INFORMATION
---------------------------
<CAPTION>
Item of Form N-4 Part C Caption
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<S> <C> <C>
24. Financial Statements
and Exhibits
(a) Financial Statements............... Financial Statements
(b) Exhibits........................... Exhibits
25. Directors and Officers of
the Depositor........................... Directors and Officers of the
Depositor
26. Persons Controlled By or Under
Common Control with the
Depositor or Registrant................. Persons Controlled By or Under
Common........................................ Control with the Depositor or
Registrant
27. Number of Contractowners................ Number of Contractowners
28. Indemnification......................... Indemnification
29. Principal Underwriters.................. Principal Underwriters
30. Location of Accounts
and Records............................. Location of Accounts and Records
31. Management Services..................... Management Services
32. Undertakings............................ Undertakings
Signature Page.......................... Signature Page
</TABLE>
<PAGE>
PROSPECTUS
, 1997
THE ATLAS PORTFOLIO BUILDER VARIABLE ANNUITY
Issued Through
PFL LIFE VARIABLE ANNUITY ACCOUNT A
by
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
Growth & Income Income
Quality Bond T. Rowe Price Growth
Small Cap Stock
Value Equity (OpCap Advisors)
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.
ATVAPO597
<PAGE>
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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<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
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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<PAGE>
<TABLE>
<CAPTION>
PAGE
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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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<PAGE>
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
- 5 -
<PAGE>
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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<PAGE>
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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<PAGE>
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)
- 8 -
<PAGE>
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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<PAGE>
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:
. 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.
. 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).
- 10 -
<PAGE>
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.
- 11 -
<PAGE>
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:
<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>
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.
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.
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.
- 21 -
<PAGE>
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
- 22 -
<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).
- 23 -
<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.
- 24 -
<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
- 25 -
<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.)
- 26 -
<PAGE>
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.
.. 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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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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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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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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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. Cumulative Free percentage withdrawals previously taken
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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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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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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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.
- 38 -
<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.
- 40 -
<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
- 41 -
<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.
- 42 -
<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,
- 43 -
<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
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<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.
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<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
surrender = $50,000* (1.055) R 2.5 = $57,161.18
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) R 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;
Rrepresents 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) R 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) R 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 , 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: , 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 =
---------
Z = 1.0148741898
11.40
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
(c) is the investment result adjustment factor for the valuation period.
-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
13
<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.
20
<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.
27
<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>
29
<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>
36
<PAGE>
PART C OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements
All required financial statements are included in Part B of this
Registration Statement. Note 4.
(b) Exhibits:
(1) (a) Resolution of the Board of Directors of PFL Life Insurance
Company authorizing establishment of the Mutual Fund
Account. Note 1.
(2) Not Applicable.
(3) (a) Form of Principal Distribution Agreement by and between PFL
Life Insurance Company on its own behalf and on the behalf
of the Mutual Fund Account, and AEGON USA Securities, Inc.
Note 1.
(b) Form of Broker/Dealer Supervision and Sales Agreement by and
between AEGON USA Securities, Inc. and the Broker/Dealer.
Note 4.
(4) Form of Policy for the Atlas Portfolio Builder Variable
Annuity. Note 4.
(5) Form of Application for the Atlas Portfolio Builder Variable
Annuity. Note 4.
(6) (a) Articles of Incorporation of PFL Life
Insurance Company. Note 1.
(b) ByLaws of PFL Life Insurance Company. Note 1.
(7) Not Applicable.
(8) (a) Form of Participation Agreement by and between PFL
Life Insurance Company and Atlas Insurance
Trust. Note 4.
(8) (b) Participation Agreement by and between PFL
Life Insurance Company and Dreyfus Variable
Investment Fund. Note 1.
<PAGE>
<TABLE>
<S> <C>
(8) (c) (1) Participation Agreement by and between PFL
Life Insurance Company and the Endeavor
Series Trust.
Note 2.
(c) (2) Amended Schedule A to Participation Agreement.
Note 4.
(8) (d) Participation Agreement by and between PFL
Life Insurance Company and Federated
Insurance Series.
Note 4.
(8) (e) (1) Participation Agreement by and between PFL
Life Insurance Company and WRL Series Funds,
Inc.
Note 3.
(e) (2) Amended Schedule A to Participation Agreement.
Note 4.
(9) Opinion and Consent of Counsel. Note 4.
(10) (a) Consent of Independent Auditors. Note 4.
(b) Opinion and Consent of Actuary. Note 4.
(11) Not applicable.
(12) Not applicable.
(13) Performance Data Calculations. Note 4.
(14) Powers of Attorney. Note 1. (Patrick S. Baird, Craig D.
Vermie, William L. Busler, Patrick E. Falconio, Douglas C.
Kolsrud, Robert J. Kontz, Brenda K. Clancy.)
</TABLE>
------------------------
Note 1. Previously Filed
Note 2. Incorporated by reference to Post-Effective Amendment #2
filed on April 1, 1991, to the PFL Endeavor Variable Annuity
Account.
Note 3. Incorporated by reference to Post-Effective Amendment #5
filed on April 30, 1993, to the PFL Endeavor Variable
Annuity Account.
Note 4. Filed herewith.
<PAGE>
Item 25. Directors and Officers of the Depositor
Principal Positions
Name and and Offices with
Business Address Depositor
- ---------------- ---------
William L. Busler Director, Chairman of the Board and
4333 Edgewood Road N.E. President
Cedar Rapids, Iowa
52499-0001
Patrick S. Baird Director, Senior Vice President and
4333 Edgewood Road N.E. Chief Financial Officer
Cedar Rapids, Iowa
52499-0001
Craig D. Vermie Director, Vice President, Secretary
4333 Edgewood Road N.E. and Corporate Counsel
Cedar Rapids, Iowa
52499-0001
Douglas C. Kolsrud Director, Vice President and
4333 Edgewood Road N.E. Corporate Actuary
Cedar Rapids, Iowa
52499-0001
Patrick E. Falconio Director, Senior Vice President and
4333 Edgewood Road N.E. Chief Investment Officer
Cedar Rapids, Iowa
52499-0001
Robert J. Kontz Vice President and
4333 Edgewood Road N.E. Controller
Cedar Rapids, Iowa
52499-0001
Brenda K. Clancy Vice President, Treasurer and
4333 Edgewood Road N.E. Chief Financial Officer
Cedar Rapids, Iowa
52499-0001
Item 26. Persons Controlled by or Under Common Control with the Depositor
or Registrant
<PAGE>
<TABLE>
<CAPTION>
-------------------------
VERENIGING AEGON
NETHERLANDS MEMBERSHIP
ASSOCIATION
-------------------------
53.63%
-------------------------
AEGON N.V.
NETHERLANDS CORPORATION
-------------------------
<S> <C> <C> <C>
100% 100% 100% 100%
------------------------- ------------------------- ------------------------- -----------------------------
AEGON Nederland N.V. AEGON INTERNATIONAL N.V. AEGON NEVAK HOLDING B.V. GRONINGER FINANCIERINGEN B.V.
Netherlands Corporation Netherlands Corporation Netherlands Corporation Netherlands Corporation
------------------------- ------------------------- ------------------------- -----------------------------
DE
-------------------------
VOTING TRUST
Trustees: K.J. Storm
Donald J. Sheperd
H.B. Van Wijk
Dennis Hersch
-------------------------
DE 100%
-------------------------
AEGON U.S. HOLDING
CORPORATION
-------------------------
IA 100%(1)
-------------------------
AEGON USA, INC.
-------------------------
MD 100% MD 100%
----------------------------- -----------------------------
FIRST AUSA LIFE AUSA HOLDING
INSURANCE COMPANY COMPANY
----------------------------- -----------------------------
NJ 100% NY 100% MD 100%
- ----------------------------- --------------------------- ---------------------------
SHORT HILLS AUSA LIFE INSURANCE MONUMENTAL LIFE
MANAGEMENT COMPANY COMPANY, INC. INSURANCE COMPANY
- ----------------------------- --------------------------- ---------------------------
NY 100% IA 100% MD 100%
- ----------------------------- --------------------------- ---------------------------
CORPA REINSURANCE LIFE INVESTORS MONUMENTAL GENERAL
COMPANY INSURANCE COMPANY CASUALTY COMPANY
- ----------------------------- OF AMERICA ---------------------------
---------------------------
IN 100% MD 100%
- ----------------------------- IA 100% ---------------------------
AEGON MANAGEMENT --------------------------- UNITED FINANCIAL
COMPANY BANKERS UNITED LIFE SERVICES, INC.
- ----------------------------- ASSURANCE COMPANY ---------------------------
---------------------------
DE 100%(8) AZ (8)
- ----------------------------- IA 100% ---------------------------
RCC NORTH AMERICA --------------------------- BANKERS FINANCIAL LIFE
INC. PFL LIFE INSURANCE COMPANY
- ----------------------------- INSURANCE COMPANY ---------------------------
---------------------------
IA 100%
AZ 100% Voting Common (2) ---------------------------
--------------------------- THE WHITESTONE
SOUTHWEST EQUITY LIFE CORPORATION
INSURANCE COMPANY ---------------------------
---------------------------
IA 100%
AZ 100% Voting Common ---------------------------
--------------------------- CADET HOLDING CORP.
IOWA FIDELITY LIFE ---------------------------
INSURANCE COMPANY
---------------------------
OH 100%
---------------------------
WESTERN RESERVE LIFE
ASSURANCE CO. OF OHIO
---------------------------
(3)
MD
----------------------
WRL SERIES FUND
INC.
----------------------
FL
----------------------
WRL INVESTMENT
SERVICES, INC.
----------------------
FL
----------------------
WRL INVESTMENT
MANAGEMENT, INC.
----------------------
MD 100%
----------------------
AUSA HOLDING
COMPANY
----------------------
MD 100% IA 100% DE 100%
----------------------------- --------------------------- ---------------------------
MONUMENTAL GENERAL AUSA FINANCIAL DIVERSIFIED INVESTMENT
INSURANCE GROUP, INC. MARKETS, INC. ADVISORS, INC.
----------------------------- --------------------------- ---------------------------
MD 100% IA 100% DE 100%
----------------------------- --------------------------- ---------------------------
MONUMENTAL GENERAL UNIVERSAL BENEFITS DIVERSIFIED INVESTORS
ADMINISTRATORS, INC. CORPORATION SECURITIES CORP.
----------------------------- --------------------------- ---------------------------
MD 100% IA 100% IA 100%
----------------------------- --------------------------- ---------------------------
EXECUTIVE MANAGEMENT INVESTORS WARRANTY AEGON USA
AND CONSULTANT OF AMERICA, INC. SECURITIES, INC.
SERVICES, INC. --------------------------- ---------------------------
----------------------------- (3)
IA 100% MD
MD 100% --------------------------- ---------------------------
----------------------------- MASSACHUSETTS FIDELITY AEGON USA MANAGED
MONUMENTAL GENERAL TRUST COMPANY PORTFOLIOS, INC.
MASS MARKETING, INC. --------------------------- ---------------------------
-----------------------------
DE 100% IA 100%
--------------------------- ---------------------------
MONEY SERVICES, INC. AMERICAN FORUM FOR
--------------------------- FISCAL FITNESS, INC.
---------------------------
CA 100%
--------------------------- TN 100%
ZAHORIK COMPANY, INC. ---------------------------
--------------------------- SUPPLEMENTAL
INSURANCE
AL 100% DIVISION, INC.
---------------------- ---------------------------
ZCI, INC.
---------------------- MI 100%
---------------------------
DE 100% MN 100% CREDITOR RESOURCES,
(3) ----------------------------- --------------------------- INC.
INTERSECURITIES, AUSA INSTITUTIONAL ---------------------------
INC. MARKETING GROUP, INC.
----------------------------- --------------------------- CN 100%
---------------------------
MA CA 100%(8) MN 100% CRC CREDITOR
--------------- ----------------------------- --------------------------- RESOURCES CANADIAN
INDEX FUND ISI INSURANCE AEGON ASSET MANAGEMENT DEALER NETWORK, INC.
--------------- AGENCY, INC. AND SERVICES, INC. ---------------------------
ITS SUBSIDIARIES ---------------------------
----------------------------- IA 100%
MA ---------------------------
--------------- MI 100% AEGON USA INVESTMENT
IDEX II ----------------------------- MANAGEMENT, INC.
SERIES FUND ASSOCIATED MARINER ---------------------------
--------------- FINANCIAL GROUP, INC.
----------------------------- IA 100%(12)
MA ---------------------------
--------------- MI 100% AEGON USA REALTY (3)
INDEX FUND 3 ----------------------------- ADVISORS, INC.
--------------- MARINER FINANCIAL ---------------------------
SERVICES, INC.
----------------------------- DE 100%
---------------------------
MI 100% QUANTRA
----------------------------- CORPORATION
MARINER PLANNING ---------------------------
CORPORATION
----------------------------- DE 100%
---------------------------
MI 100%(10) QUANTRA SOFTWARE
----------------------------- CORPORATION
ASSOCIATED MARINER ---------------------------
AGENCY, INC. AND ITS
SUBSIDIARIES IA 100%
----------------------------- ---------------------------
LANDAUER REALTY
MI 100% ADVISORS, INC.
----------------------------- ---------------------------
MARINER MORTGAGE
CORP. IA 100%
----------------------------- ---------------------------
LANDAUER
FL 100% ASSOCIATES, INC.
----------------------------- ---------------------------
IDEX INVESTOR
SERVICES, INC. IA 100%
----------------------------- ---------------------------
AEGON USA REALTY
DE 50%(7) MANAGEMENT, INC.
----------------------------- ---------------------------
IDEX MANAGEMENT,
INC. IA 100%(11)
----------------------------- ---------------------------
REALTY INFORMATION
SYSTEMS, INC.
---------------------------
IA (4)
---------------------------
USP REAL ESTATE
INVESTMENT TRUST
---------------------------
IA (5)
---------------------------
CEDAR INCOME FUND
LTD.
---------------------------
</TABLE>
See Footnotes Page 2
Effective May 1, 1997
<PAGE>
Page 2
Footnotes
(1) 150,000 shares of Class B Non-Voting Common Stock owned by Ennia
Reinsurance Antilles N.V.
(2) Ordinary common stock is allowed 60% of total cumulative vote.
Participating common stock is allowed 40% of total cumulative vote.
(3) Denotes relationships as advisor, administrator, sponsor, underwriter or
general partner.
(4) First AUSA Life Insurance Company owns 12.89%. PFL Life Insurance Company
owns 13.11%. Bankers United Life Assurance Company owns 4.86%.
(5) PFL Life Insurance Company owns 16.73%. Bankers United Life Assurance
Company owns 3.77%. Life Investors Insurance Company of America owns
3.38%. AEGON USA Realty Advisors, Inc. owns 1.97%. First AUSA Life
Insurance Company owns .18%.
(6) Class B Common stock is allocated 75% of total cumulative vote. Class A
Common stock is allocated 25% of total cumulative vote.
(7) 50% of Idex Management, Inc. is owned by Janus Capital Corporation, a
Colorado corporation.
(8) RCC Group: FGH Realty Credit Corp., FGH USA, Inc., RCC North America,
Inc., FGH USA Realty, Inc., FGH Eastern Region, Inc., FGH Appraisal
Services, Inc., FGH Western Region, Inc., ALH Properties, Inc., First FGP,
Inc., Second FGP, Inc., Third FGP, Inc., Fourth FGP, Inc., Fifth FGP, Inc.,
Sixth FGP, Inc., Seventh FGP, Inc., FGP Midwood, Inc., FGP Parsippany,
Inc., ALH Properties Two, Inc., ALH Properties Three, Inc., ALH Properties
Four, Inc., ALH Properties Five, Inc., ALH Properties Six, Inc., ALH
Properties Seven, Inc., ALH Properties Eight, Inc., ALH Properties Nine,
Inc., ALH Properties Ten, Inc., ALH Properties Eleven, Inc., ALH Properties
Twelve, Inc., ALH Properties Thirteen, Inc., ALH Properties Fourteen, Inc.,
ALH Properties Fifteen, Inc., ALH Properties Sixteen, Inc., ALH Properties
Seventeen, Inc., FGP Keene, Inc., FGP Broadway, Inc., FGP West Street,
Inc., FGP West Street Two, Inc., FGP 90 West Street, Inc., FGP Branford,
Inc., FGP Franklin, Inc., FGP Bala, Inc., FGP Twenty-One, Inc., FGP Twenty-
Two, Inc., FGP Twenty-Five, Inc., FGP Schenectady, Inc., FGP Country
Estates, Inc., FGP Eleventh Street, Inc., FGP 109th Street, Inc., FGP
Seventy-Second Street, Inc., FGP Gaithersburg, Inc., FGP West 32nd Street,
Inc., FGP Beekman, Inc., Dutch Hotel Management, Inc., FGP Landmark, Inc.,
FGP Islandia, Inc., FGP Bridgeport, Inc., FGP Varick, Inc., The RCC Group,
Inc., FGP Union Gardens, Inc., FGP Burkewood, Inc., FGP Stamford, Inc., FGP
Meadow Lane, Inc., FGP Main Street, Inc., FGP Property Services, Inc., FGP
Merrick, Inc., FGP West 14th Street, Inc., FGP 106 Fulton, Inc., FGP Bush
Terminal, Inc., FGP Northern Boulevard, Inc., FGP Seventh Avenue, Inc., FGP
Parsons, Inc., FGP City Hall, Inc., FGP West 88th Street, Inc., FGP
Lincoln, Inc., FGP Emerson, Inc., FGP Brooke, Inc., FGP 86th Street, Inc.,
FGP Edison, Inc., FGP Rider Avenue, Inc., FGP Remsen, Inc., FGP Rockbeach,
Inc., FGP Carter Drive,
<PAGE>
Inc., FGP Centereach, Inc., FGP Colonial Plaza, Inc., FGP Coram, Inc., FGP
Herald Center, Inc., Eighty Six Yorkville, Inc.
(9) Subsidiaries of ISI Insurance Agency, Inc. are: ISI Insurance Agency of
Ohio, Inc., ISI Insurance Agency of Massachusetts, Inc., and ISI Insurance
Agency of Texas, Inc.
(10) Subsidiaries of Associated Mariner Agency, Inc. are Associated Mariner
Agency of Hawaii, Inc., Associated Mariner Insurance Agency of
Massachusetts, Inc., Associated Mariner Agency Ohio, Inc., Associated
Mariner Agency Texas, Inc., and Associated Mariner Agency New Mexico, Inc.
(11) Owns 50% interest in DJA Partners (a.k.a. "Teleres"), a Delaware general
partnership. Also owns 10% interest in Datalytics, Inc., an Ohio
corporation.
(12) Owns 49% of Quantra Consulting, Inc., a Delaware corporation.
*Includes qualifying shares for Directors.
<TABLE>
<CAPTION>
Percent of
Jurisdiction of Voting
Name Incorporation Securities Owned Business
- ---- ------------- ---------------- --------
<S> <C> <C> <C>
AEGON USA, Inc. Iowa 100% AEGON U.S. Holding company
Holding Corporation
AUSA Holding Company Maryland 100% AEGON USA, Holding company
Inc.
Monumental General Maryland 100% AUSA Holding Co. Holding company
Insurance Group, Inc.
Monumental General Maryland 100% Monumental General Provides management srvcs.
Administrators, Inc. Insurance Group Inc. to unaffiliated third party
administrator
Executive Management and Maryland 100% Monumental General Provides actuarial consulting
Consultant Services, Inc. Administrators, Inc. services
Monumental General Mass Maryland 100% Monumental General Marketing arm for sale of
Marketing, Inc. Insurance Group, Inc. mass marketed insurance
coverages
Diversified Investment Delaware 100% AUSA Holding Co. Registered investment advisor
Advisors, Inc.
Diversified Investors Delaware 100% Diversified
Securities Corp. Investment Advsiors, Inc. Broker-Dealer
AEGON USA Securities, Inc. Iowa 100% AUSA Holding Co. Broker-Dealer
American Forum For Fiscal Iowa 100% AUSA Holding Co. Marketing
Fitness, Inc.
Supplemental Ins. Tennessee 100% AUSA Holding Co. Insurance
Division, Inc.
Creditor Resources, Inc. Michigan 100% AUSA Holding Co. Credit insurance
CRC Creditor Resources Canada 100% Creditor Resources, Insurance agency
Canadian Dealer Network Inc. Inc
AEGON USA Investment Iowa 100% AUSA Holding Co. Investment advisor
Management, Inc.
AEGON USA Realty Iowa 100% AUSA Holding Co. Provides real estate
Advisors, Inc. administrative and real
estate investment services
Quantra Corporation Delaware 100% AEGON USA Realty Real estate and financial
Advisors, Inc. software production and sales
Quantra Software Delaware 100% Quantra Manufacture and sell
Corporation Corporation mortgage loan and security
management software
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Landauer Realty Advisors, Iowa 100% AEGON USA Realty Real estate counseling
Inc. Advisors, Inc.
Landauer Associates, Inc. Delaware 100% AEGON USA Realty Real estate counseling
Advisors, Inc.
Realty Information Iowa 100% AEGON USA Realty Information Systems for
Systems, Inc. Advisors, Inc. real estate investment
management
AEGON USA Realty Iowa 100% AEGON USA Real estate management
Management, Inc Realty Advisors, Inc.
USP Real Estate Investment Iowa 21.89% First AUSA Life Real estate investment trust
Trust Ins. Co.
13.11% PFL Life Ins. Co.
4.86% Bankers United Life
Assurance Co.
Cedar Income Fund, Ltd. Iowa 16.73% PFL Life Real estate investment trust
Ins. Co.
3.77% Bankers United
Life Assurance Company
3.38% Life Investors
Co. of America
1.97% AEGON USA
Realty Advisors, Inc.
.18% First AUSA
Life Ins. Co.
AUSA Financial Markets, Iowa 100% AUSA Holding Co. Marketing
Inc.
Universal Benefits Iowa 100% AUSA Holding Co. Third party administrator
Corporation
Investors Warranty of Iowa 100% AUSA Holding Co. Provider of automobile
America, Inc. extended maintenance
contracts
Massachusetts Fidelity Iowa 100% AUSA Holding Co. Trust company
Trust Co.
Money Services, Inc. Delaware 100% AUSA Holding Co. Provides financial counseling
for employees and agents of
affiliated companies
Zahorik Company, Inc. California 100% AUSA Holding Co. Broker-Dealer
ZCI, Inc. Alabama 100% Zahorik Company, Insurance agency
Inc.
AUSA Institutional Minnesota 100% AUSA Holding Co. Insurance agency
Marketing Group, Inc.
AEGON Asset Management Delaware 100% AUSA Holding Co. Registered investment advisor
Services, Inc.
Intersecurities, Inc. Delaware 100% AUSA Holding Co. Broker-Dealer
ISI Insurance Agency, Inc. California 100% Intersecurities, Insurance agency
Inc.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
ISI Insurance Agency Ohio 100% ISI Insurance Insurance agency
of Ohio, Inc. Agency, Inc.
ISI Insurance Agency Texas 100% ISI Insurance Insurance agency
of Texas, Inc. Agency, Inc.
ISI Insurance Agency Massachusetts 100% ISI Insurance Insurance agency
of Massachusetts, Inc. Agency Inc.
Associated Mariner Michigan 100% Intersecurities, Holding co./management
Financial Group, Inc. - Inc. services
Holding company
Mariner Financial Michigan 100% Associated Broker/Dealer
Services, Inc. Mariner Financial
Group, Inc.
Mariner Planning Michigan 100% Mariner Financial Financial planning
Corporation Services, Inc.
Associated Mariner Michigan 100% Associated Insurance agency
Agency, Inc. Mariner Financial Group,
Inc.
Mariner Agency of Hawaii, Hawaii 100% Associated Insurance agency
Inc. Mariner Agency, Inc.
Associated Mariner Ins. Massachusetts 100% Associated Insurance agency
Agency of Massachusetts, Mariner Agency, Inc.
Inc.
Associated Mariner Agency Ohio 100% Associated Insurance agency
Ohio, Inc. Mariner Agency, Inc.
Associated Mariner Agency Texas 100% Associated Insurance agency
Texas, Inc. Mariner Agency, Inc.
Associated Mariner Agency New Mexico 100% Associated Insurance agency
New Mexico, Inc. Mariner Agency, Inc.
Mariner Mortgage Corp. Michigan 100% Associated Mortgage origination
Mariner Financial Group,
Inc.
Idex Investor Services, Florida 100% AUSA Holding Co. Shareholder services
Inc.
Idex Management, Inc. Delaware 50% AUSA Holding Co. Investment advisor
50% Janus Capital Corp.
IDEX II Series Fund Massachusetts Various Mutual fund
IDEX Fund Massachusetts Various Mutual fund
IDEX Fund 3 Massachusetts Various Mutual fund
First AUSA Life Insurance Maryland 100% AEGON USA, Inc. Insurance holding company
Co.
AUSA Life Insurance Co. New York 100% First AUSA Life Insurance
Inc. Insurance Company
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Life Investors Insurance Iowa 100% First AUSA Life Ins. Co. Insurance
Company of America
Bankers United Life Iowa 100% Life Investors Ins. Insurance
Assurance Company Company of America
PFL Life Insurance Company Iowa 100% First AUSA Life Ins. Co. Insurance
Southwest Equity Life Ins. Co. Arizona 100% of Common Voting Stock Insurance
First AUSA Life Ins. Co.
Iowa Fidelity Life Insurance Co. Arizona 100% of Common Voting Stock Insurance
First AUSA Life Ins. Co.
Western Reserve Life Assurance Ohio 100% First AUSA Life Ins. Co. Insurance
Co. of Ohio
WRL Series Fund, Inc. Maryland Various Mutual fund
WRL Investment Services, Inc. Florida 100% Western Reserve Life Provides administration for
Assurance Co. of Ohio affiliated mutual fund
WRL Investment Florida 100% Western Reserve Life Registered investment advisor
Management, Inc. Assurance Co. of Ohio
Monumental Life Insurance Co. Maryland 100% First AUSA Life Ins. Co. Insurance
Monumental General Casualty Co. Maryland 100% Monumental Life Ins. Co. Insurance
United Financial Services, Inc. Maryland 100% Monumental Life Ins. Co. General agency
Bankers Financial Life Ins. Co. Arizona 100% Monumental Life Insurance
Insurance Company
The Whitestone Corporation Maryland 100% Monumental Life Ins. Co. Insurance agency
Cadet Holding Corp. Iowa 100% First AUSA Life Holding company
Insurance Company
Providian Corporation Delaware 100% AEGON N.V. Holding company
Providian Series Trust Massachusetts N/A Mutual fund
Providian Agency Group, Inc. Kentucky 100% Providian Corp. Provider of services to ins.
cos.
Benefit Plans, Inc. Delaware 100% Providian Corp. TPA for Peoples Security Life
Insurance Company
Durco Agency, Inc. Virginia 100% Benefit Plans, Inc. General agent
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Providian Assignment Corp. Kentucky 100% Providian Corp. Administrator of structured
settlements
Providian Financial Services, Inc. Pennsylvania 100% Providian Corp. Financial services
Providian Securities Corporation Pennsylvania 100% Providian Financial Broker-Dealer
Services, Inc.
Wannalancit Corp. Massachusetts 100% Providian Corp. Real estate holding company
Providian Investment Delaware 100% Providian Corp. Registered investment advisor
Advisors, Inc.
Providian Capital Delaware 100% Providian Corp. Provider of investment,
Management, Inc. marketing and admin. services
to ins. cos.
Providian Capital Management Delaware 100% Providian Capital Real estate and mortgage
Real Estate Services, Inc. Management, Inc. holding company
Capital Real Estate Delaware 100% Providian Corp. Furniture and equiment lessor
Development Corporation
Capital General Development Delaware 100% Providian Corp. Holding company
Corporation
Commonwealth Life Kentucky 100% Capital General Insurance company
Insurance Company Development Corporation
Agency Holding I, Inc. Delaware 100% Commonwealth Life Investment subsidiary
Insurance Company
Agency Investments I, Inc. Delaware 100% Agency Holding I, Inc. Investment subsidiary
Commonwealth Agency, Inc. Kentucky 100% Commonwealth Life Special purpose subsidiary
Insurance Company
Camden Asset Management L.P. California 51% Commonwealth Life Investment entity
Insurance Company
Peoples Security Life North Carolina 100% Capital General Insurance company
Insurance Company Development Corporation
Ammest Realty Corporation Texas 100% Peoples Security Life Special purpose subsidiary
Insurance Company
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Agency Holding II, Inc. Delaware 100% Peoples Investment
Security Life subsidiary
Insurance
Company
Agency Investments II, Inc. Delaware 100% Agency Investment
Holding II, Inc. subsidiary
Agency Holding III, Inc. Delaware 100% Peoples Investment
Security Life subsidiary
Insurance
Company
Agency Investments III, Inc. Delaware 100% Agency Investment
Holding III, subsidiary
Inc.
JMH Operating Company, Inc. Mississippi 100% Peoples Real estate
Security Life holdings
Insurance
Company
Capital Security Life Ins. North Carolina 100% Capital Insurance company
Co. General
Development
Corporation
Independence Automobile Florida 100% Capital Automobile Club
Association, Inc. Security
Life Insurance
Company
Independence Automobile Georgia 100% Capital Automobile Club
Club, Inc. Security
Life Insurance
Company
Capital 200 Block Delaware 100% Providian Real estate
Corporation Corp. holdings
Capital Broadway Kentucky 100% Providian Real estate
Corporation Corp. holdings
Southlife, Inc. Tennessee 100% Providian Investment
Corp. subsidiary
Providian Insurance Pennsylvania 100% Providian Provider of
Agency, Inc. Corp. management
support services
National Home Life Pennsylvania 100% Providian Special-purpose
Corporation Insurance subsidiary
Agency, Inc.
Compass Rose Development Pennsylvania 100% Providian Special-purpose
Corporation Insurance subsidiary
Agency, Inc.
Association Consultants, Illinois 100% Providian TPA
Inc. Insurance license-holder
Agency, Inc.
Valley Forge Associates, Pennsylvania 100% Providian Furniture &
Inc. Insurance equipment lessor
Agency, Inc.
Veterans Benefits Plans, Pennsylvania 100% Providian Administator of
Inc. Insurance group
Agency, Inc. insurance
programs
Veterans Insurance Delaware 100% Providian Special-purpose
Services, Inc. Insurance subsidiary
Agency, Inc.
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Financial Planning Dist. Columbia 100% Providian Special-purpose
Services, Inc. Insurance subsidiary
Agency, Inc.
Providian Auto and Home Missouri 100% Providian Insurance company
Insurance Company Corp.
Academy Insurance Group, Delaware 100% Providian Holding company
Inc. Auto and
Home Insurance
Company
Academy Life Insurance Co. Missouri 100% Academy Insurance company
Insurance
Group, Inc.
Pension Life Insurance New Jersey 100% Academy Insurance company
Company of America Insurance
Group, Inc.
Academy Services, Inc. Delaware 100% Academy Special-purpose
Insurance subsidiary
Group, Inc.
Ammest Development Corp. Kansas 100% Academy Special-purpose
Inc. Insurance subsidiary
Group, Inc.
Ammest Insurance Agency, California 100% Academy General agent
Inc. Insurance
Group, Inc.
Ammest Massachusetts Massachusetts 100% Academy Special-purpose
Insurance Agency, Inc. Insurance subsidiary
Group, Inc.
Ammest Realty, Inc. Pennsylvania 100% Academy Special-purpose
Insurance subsidiary
Group, Inc.
AMPAC, Inc. Texas 100% Academy Managing general
Insurance agent
Group, Inc.
AMPAC Insurance Agency, Inc. Pennsylvania 100% Academy Special-purpose
Insurance subsidiary
Group, Inc.
Data/Mark Services, Inc. Delaware 100% Academy Provider of
Insurance mgmt. services
Group, Inc.
Force Financial Group, Inc. Delaware 100% Academy Special-purpose
Insurance subsidiary
Group, Inc.
Force Financial Services, Massachusetts 100% Force Fin. Special-purpose
Inc. Group, Inc. subsidiary
Military Associates, Inc. Pennsylvania 100% Academy Special-purpose
Insurance subsidiary
Group, Inc.
NCOA Motor Club, Inc. Georgia 100% Academy Automobile club
Insurance
Group, Inc.
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
NCOAA Management Company Texas 100% Academy Special-purpose
Insurance subsidiary
Group, Inc.
Unicom Administrative Pennsylvania 100% Academy Provider of
Services, Inc. Insurance admin. services
Group, Inc.
Unicom Administrative Germany 100% Unicom Provider of
Services, GmbH Administrative admin. servcies
Services, Inc.
Providian Property and Kentucky 100% Providian Insurance company
Casualty Insurance Auto and
Company Home Insurance
Company
Providian Fire Insurance Kentucky 100% Providian Insurance company
Co. Property
and Casualty
Insurance Co.
Capital Liberty, L.P. Delaware 78% Holding Company
Commonwealth
Life
Insurance
Company
19% Peoples
Security Life
Insurance
Company
3% Providian
Corp.
Providian LLC Turks & 100% Providian Special-purpose
Caicos Islands Corp. subsidiary
Providian Life and Health Missouri 4% Providian Insurance company
Insurance Company Corp.
15% Peoples
Security Life
Insurance
Company
20% Capital
Liberty, L.P.
61%
Commonwealth
Life
Insurance
Company
Veterans Life Insurance Co. Illinois 100% Providian Insurance company
Life and
Health
Insurance
Company
Providian Services, Inc. Pennsylvania 100% Veterans Special-purpose
Life Ins. Co. subsidiary
First Providian Life and New York 100% Veterans Insurance Company
Health Insurance Company Life Ins. Co.
</TABLE>
<PAGE>
Item 28. Indemnification
The Iowa Code (Sections 490.850 et. seq.) provides for permissive
--------
indemnification in certain situations, mandatory indemnification in other
situations, and prohibits indemnification in certain situations. The Code also
specifies procedures for determining when indemnification payments can be made.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Depositor pursuant to the foregoing provisions, or otherwise, the Depositor has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Depositor of expenses incurred
or paid by a director, officer or controlling person in connection with the
securities being registered), the Depositor will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
Item 29. Principal Underwriters
AEGON USA Securities, Inc.
4333 Edgewood Road, N.E.
Cedar Rapids, Iowa 52499-0001
The directors and officers of
AEGON USA Securities, Inc.
are as follows:
Patrick E. Falconio Linda Gilmer
Director Vice President and Treasurer
William L. Busler Lisa Wachendorf
Director Vice President
Brenda K. Clancy Donna M. Craft
Director Vice President
Robert A. Thelen Frank A. Camp
Senior Vice President Secretary
Lorri E. Mehaffey Shelley Davenport
President Assistant Vice President
Billy J. Berger
Vice President and Assistant Treasurer
- --------------------
The principal business address of each person listed is AEGON USA Securities,
Inc., 4333 Edgewood Road, N.E., Cedar Rapids, Iowa 52499-0001.
<PAGE>
Commissions and Other Compensation Received by Principal Underwriter.
- --------------------------------------------------------------------
AEGON USA Securities, Inc. and/or the broker-dealers received $0 from the
Registrant during the last fiscal year for its services in distributing the
Policies. No other commission or compensation was received by the principal
underwriter, directly or indirectly, from the Registrant during the fiscal year.
AEGON USA Securities, Inc. also serves as the principal underwriter for the PFL
Endeavor Variable Annuity Account, the PFL Endeavor Platinum Variable Annuity
Account, and the AUSA Endeavor Variable Annuity Account. These accounts are
separate accounts of PFL Life Insurance Company or AUSA Life Insurance Company,
Inc., life insurance company affiliates of AEGON USA Securities, Inc.
Item 30. Location of Accounts and Records
The records required to be maintained by Section 31(a) of the Investment Company
Act of 1940 and Rules 31a-1 to 31a-3 promulgated thereunder, are maintained by
PFL Life Insurance Company at 4333 Edgewood Road, N.E., Cedar Rapids, Iowa
52499-0001.
Item 31. Management Services.
All management Contracts are discussed in Part A or Part B.
Item 32. Undertakings
(a) Registrant undertakes that it will file a post-effective amendment to this
registration statement as frequently as necessary to ensure that the
audited financial statements in the registration statement are never more
than 16 months old for so long as Premiums under the Policy may be
accepted.
(b) Registrant undertakes that it will include either (i) a postcard or similar
written communication affixed to or included in the Prospectus that the
applicant can remove to send for a Statement of Additional Information or
(ii) a space in the Policy application that an applicant can check to
request a Statement of Additional Information.
(c) Registrant undertakes to deliver any Statement of Additional Information
and any financial statements required to be made available under this Form
promptly upon written or oral request to PFL at the address or phone number
listed in the Prospectus.
(d) PFL Life Insurance Company hereby represents that the fees and changes
deducted under the policies, in the aggregate, are reasonable in relation
to the services rendered, the expenses expected to be incurred, and the
risks assumed by PFL Life Insurance Company.
Section 403(b) Representations
- ------------------------------
PFL represents that it is relying on a no-action letter dated November 28, 1988,
to the American Council of Life Insurance (Ref. No. IP-6-88), regarding Sections
22(e), 27(c)(1), and 27(d) of the Investment Company Act of 1940, in connection
with redeemability restrictions on Section 403(b) Policies, and that paragraphs
numbered (1) through (4) of that letter will be complied with.
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant has caused this Registration Statement to be signed on its
behalf, in the City of Cedar Rapids and State of Iowa, on this 25th day of
July, 1997.
PFL LIFE VARIABLE
ANNUITY ACCOUNT A
PFL LIFE INSURANCE COMPANY
Depositor
/s/ William L. Busler
----------------------
William L. Busler
President
As required by the Securities Act of 1933, this Registration Statement has been
signed by the following persons in the capacities and on the duties indicated.
<TABLE>
<CAPTION>
Signatures Title Date
- ---------- ----- ----
<S> <C> <C>
/s/ Patrick S. Baird * Director July 25, 1997
- --------------------------
Patrick S. Baird
/s/ Craig D. Vermie Director July 25, 1997
- --------------------------
Craig D. Vermie
/s/ William L. Busler Director July 25, 1997
- --------------------------
William L. Busler (Principal Executive Officer)
/s/ Patrick E. Falconio * Director July 25, 1997
- --------------------------
Patrick E. Falconio
/s/ Douglas C. Kolsrud * Director July 25, 1997
- --------------------------
Douglas C. Kolsrud
/s/ Robert J. Kontz * Vice President and July 25, 1997
- --------------------------
Robert J. Kontz Corporate Controller
/s/ Brenda K. Clancy Treasurer July 25, 1997
- --------------------------
Brenda K. Clancy
</TABLE>
* By: Craig D. Vermie and Brenda K. Clancy, attorneys-in-fact
<PAGE>
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit Page No.*
- ----------- ---------------------- -----------
<S> <C> <C>
(3)(b) Form of Broker/Dealer Supervision and
Sales Agreement by and between AEGON
USA Securities, Inc. and the
Broker/Dealer.
(4) Form of Policy for the Atlas
Portfolio Builder Variable Annuity.
(5) Form of Application for the Atlas
Portfolio Builder Variable Annuity.
(8)(a) Form of Participation Agreement by
and between PFL Life Insurance
Company and Atlas Insurance Trust.
(8)(c)(1) Participation Agreement by and
between PFL Life Insurance Company
and the Endeavor Series Trust.
(8)(c)(2) Amended Schedule A to Participation
Agreement.
(8)(d) Participation Agreement by and
between PFL Life Insurance Company
and Federated Insurance Series.
(8)(e)(1) Participation Agreement by and
between PFL Life Insurance Company
and WRL Series Funds, Inc.
(8)(e)(2) Amended Schedule A to Participation
Agreement.
(9) Opinion and Consent of Counsel.
(10)(a) Consent of Independent Auditors.
(10)(b) Opinion and Consent of Actuary.
(13) Performance Data Calculations.
</TABLE>
- -------------------------
*Page numbers included only in manually executed original.
<PAGE>
Registration No.
333 - 26209
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
EXHIBITS
TO
FORM N-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
FOR
PFL LIFE VARIABLE ANNUITY ACCOUNT A
---------------
<PAGE>
EXHIBIT (3)(b)
--------------
FORM OF BROKER/DEALER SUPERVISION
AND SALES AGREEMENT
BY AND BETWEEN AEGON USA SECURITIES, INC.
AND THE BROKER/DEALER
<PAGE>
SELECTED BROKER AGREEMENT
AGREEMENT dated__________________________,19____, by and between AEGON USA
Securities, Inc. (Distributor), an Iowa corporation
and________________________________________________________________
(Broker), a __________________________________corporation. This Agreement
supersedes and replaces any prior Selected Broker Agreement regarding the
subject matter between the parties hereto.
WITNESSETH:
In consideration of the mutual promises contained herein, the parties hereto
agree as follows:
A. Definitions
-----------
(1) Contracts--Variable life insurance contracts and/or variable annuity
contracts described in Schedule A attached hereto and issued by PFL
Life Insurance Company ("Company") and for which Distributor has been
appointed the principal underwriter pursuant to Distribution
Agreements, copies of which have been furnished to Broker.
(2) Accounts--Separate accounts established and maintained by Company
pursuant to the laws of Iowa, as applicable, to fund the benefits under
the Contracts.
(3) The Funds-- open-end management investment companies registered under
the 1940 Act, shares of which are sold to the Accounts in connection
with the sale of the Contracts, as described in the Prospectus for the
Contracts.
(4) Registration Statement--The registration statements and amendments
thereto relating to the Contracts, the Accounts, and the Funds,
including financial statements and all exhibits.
(5) Prospectus--The prospectuses included within the Registration
Statements.
(6) 1933 Act--The Securities Act of 1933, as amended.
(7) 1934 Act--The Securities Exchange Act of 1934, as amended.
(8) 1940 Act--The Investment Company Act of 1940, as amended.
(9) SEC--The Securities and Exchange Commission.
(10) NASD--The National Association of Securities Dealers, Inc.
B. Agreements of Distributor
-------------------------
(1) Pursuant to the authority delegated to it by Company, Distributor
hereby authorizes Broker during the term of this Agreement to solicit
applications for Contracts from eligible persons provided that there is
an effective Registration Statement relating to such Contracts and
provided further that Broker has been notified by Distributor that the
Contracts are qualified for sale under all applicable securities and
insurance laws of the state or jurisdiction in which the application
will be solicited. In connection with the solicitation of applications
for Contracts, Broker is hereby authorized to offer riders that are
available with the Contracts in accordance with instructions furnished
by Distributor or Company.
(2) Distributor, during the term of this Agreement, will notify Broker of
the issuance by the SEC of any stop order with respect to the
Registration Statement or any amendments thereto or the initiation of
any proceedings for that purpose or for any other purpose relating to
the registration and/or offering of the Contracts and of any other
action or circumstance that may prevent the lawful sale of the
Contracts in any state or jurisdiction.
(3) During the term of this Agreement, Distributor shall advise Broker of
any amendment to the Registration Statement or any amendment or
supplement to any Prospectus.
C. Agreements of Broker
--------------------
(1) It is understood and agreed that Broker is a registered broker/dealer
under the 1934 Act and a member of the NASD and that the agents or
representatives of Broker who will be soliciting applications for the
Contracts also will be duly registered representative of Broker.
(2) Commencing at such time as Distributor and Broker shall agree upon,
Broker agrees to use commercially reasonable efforts to find purchasers
for the Contracts acceptable to Company. In meeting its obligation to
use its commercially reasonable efforts to solicit applications for
Contracts, Broker shall, during the term of this Agreement, engage in
the following activities:
(a) Regularly utilize only training, sales and promotional materials
relating to the Contracts which have been approved by Company.
(b) Establish and implement reasonable procedures for periodic
inspection and supervision of sales practices of its agents or
representatives and submit periodic reports to Distributor as may be
requested on the results of such inspections and the compliance with
such procedures.
(c) Broker shall take reasonable steps to ensure that the various
representatives appointed by it shall not make recommendations to an
applicant to purchase a Contract in the absence of reasonable grounds
to believe that
<PAGE>
the purchase of the Contract is suitable for such applicant. While not
limited to the following, a determination of suitability shall be based
on information furnished to a representative after reasonable inquiry
of such applicant concerning the applicant's insurance and investment
objectives, financial situation and needs, and, if applicable, the
likelihood that the applicant will make the premium payments
contemplated by the Contract.
(3) All payments for Contracts collected by agents or representatives of
Broker shall be held at all times in a fiduciary capacity and shall be
remitted promptly in full together with such applications, forms and
other required documentation to an office of the Company designated by
Distributor. Checks or money orders in payment of initial premiums
shall be drawn to the order of "PFL Life Insurance Company." Broker
acknowledges that the Company retains the ultimate right to control the
sale of the Contracts and that the Distributor or Company shall have
the unconditional right to reject, in whole or part, any application
for the Contract. In the event Company or Distributor rejects an
application, Company immediately will return all payments directly to
the purchaser and Broker will be notified of such action. In the event
that any purchaser of an Contract elects to return such Contract
pursuant to the free look right, the purchaser will receive a refund of
the greater of premium payments or the value of the invested portion of
such premiums. The Broker will be notified of any such action.
(4) Broker shall act as an independent contractor, and nothing herein
contained shall constitute Broker, its agents or representatives, or
any employees thereof as employees of Company or Distributor in
connection with solicitation of applications for Contracts. Broker, its
agents or representatives, and its employees shall not hold themselves
out to be employees of Company or Distributor in this connection or in
any dealings with the public.
(5) Broker agrees that any material, including material it develops,
approves or uses for sales, training, explanatory or other purposes in
connection with the solicitation of applications for Contracts
hereunder (other than generic advertising materials which do not make
specific reference to the Company or the Contracts) will only be used
after receiving the written consent of Distributor to such material
and, where appropriate, the endorsement of Company to be obtained by
Distributor.
(6) Solicitation and other activities by Broker shall be undertaken only in
accordance with applicable laws and regulations. No agent or
representative of Broker shall solicit applications for the contracts
until duly licensed and appointed by Company (such appointment not to
be unreasonably withheld by the Company) as a life insurance and
variable contract broker or agent of Company in the appropriate states
or other jurisdictions. Broker shall ensure that such agents or
representatives fulfill any training requirements necessary to be
licensed and that such agents or representatives are properly
supervised and controlled pursuant to the rules and regulations of the
SEC and the NASD. Broker shall certify agents' and representatives'
qualifications to the satisfaction of Distributor, including certifying
a General Letter of Recommendation set forth in Exhibit A hereto.
Broker understands and acknowledges that neither it nor its agents or
representatives is authorized by Distributor or Company to give any
information or make any representation in connection with this
Agreement or the offering of the Contracts other than those contained
in the Prospectus or other solicitation material authorized in writing
by Distributor or Company.
(7) Broker shall not have authority on behalf of Distributor or Company to:
make, alter or discharge any Contract or other form; waive any
forfeiture, extend the time of paying any premium; receive any monies
or premiums due, or to become due, to Company, except as set forth in
Section C(3) of this Agreement. Broker shall not expend, nor contract
for the expenditure of the funds of Distributor, nor shall Broker
possess or exercise any authority on behalf of Broker by this
Agreement.
(8) Broker shall have the responsibility for maintaining the records of its
representatives licensed, registered and otherwise qualified to sell
the Contracts. Broker shall maintain such other records as are required
of it by applicable laws and regulations. The books, accounts and
records of the Company, the Account, Distributor and Broker relating to
the sale of the Contracts shall be maintained so as to clearly and
accurately disclose the nature and details of the transactions. All
records maintained by the Broker in connection with this Agreement
shall be the property of the Company and shall be returned to the
Company upon termination of this Agreement, free from any claims or
retention of rights by the Broker. Nothing in this Section C(8) shall
be interpreted to prevent the Broker from retaining copies of any such
records which the Broker, in its discretion, deems necessary or
desirable to keep.
D. Compensation
------------
(1) Pursuant to the Distribution Agreement between Distributor and Company,
Distributor shall cause Company to arrange for the payment of
commissions to Broker as compensation for the sale of each contract
sold by an agent or representative of Broker. Such amounts shall be
paid to Broker or its affiliated insurance agency, whichever is
authorized to receive insurance commissions under applicable insurance
laws, in accordance with the schedules attached hereto, any General
Agent Agreement between Company and Broker or its affiliated insurance
agency, and the commission schedules attached thereto. Company shall
identify to Broker with each such payment the name of the agent or
representative of Broker who solicited each Contract covered by the
payment.
<PAGE>
(2) Neither Broker nor any of its agents or representatives shall have any
right to withhold or deduct any part of any premium it shall receive
for purposes of payment of commission or otherwise. Neither Broker nor
any of its agents or representatives shall have an interest in any
compensation paid by Company to Distributor, now or hereafter, in
connection with the sale of any Contracts hereunder.
E. Complaints and Investigations
-----------------------------
(1) Broker and Distributor jointly agree to cooperate fully in any
insurance or securities regulatory investigation or proceeding or
judicial proceeding arising in connection with the Contracts marketed
under this Agreement. Broker, upon receipt, will notify Distributor of
any customer complaint or notice of any regulatory investigation or
proceeding or judicial proceeding in connection with the Contracts.
Broker and Distributor further agree to cooperate fully in any
securities regulatory investigation or proceeding or judicial
proceeding with respect to Broker, Distributor, their affiliates and
their agents or representatives to the extent that such investigation
or proceeding is in connection with Contracts marketed under this
Agreement. Broker shall furnish applicable federal and state regulatory
authorities with any information or reports in connection with its
services under this Agreement which such authorities may request in
order to ascertain whether the Company's operations are being conducted
in a manner consistent with any applicable law or regulation. Each
party shall bear its own costs and expenses of complying with any
regulatory requests, subject to any right of indemnification that may
be available pursuant to Section H of this Agreement.
F. Term of Agreement
-----------------
(1) This Agreement shall continue in force for one year from its effective
date and thereafter shall automatically be renewed every year for a
further one year period; provided that either party may unilaterally
terminate this Agreement upon thirty (30) days' written notice to the
other party of its intention to do so.
(2) Upon termination of this Agreement, all authorizations, rights and
obligations shall cease except (a) the agreements contained in Section
E hereof; (b) the indemnity set forth in Section H hereof; and (c) the
obligations to settle accounts hereunder, including commission payments
on premiums subsequently received for Contracts in effect at the time
of termination or issued pursuant to applications received by Broker
prior to termination.
(3) Distributor and Company reserve the right, upon five days written
notice to Broker, unless a shorter period is necessary due to
applicable law, regulation, order or other regulatory action, to
suspend, withdraw or modify the offering of the Contracts or to change
the conditions of their offering.
G. Confidentiality
---------------
(1) The Distributor, Company and Broker each agree that all information,
including but not limited to customer information that is proprietary
in nature, communicated to it by the other, whether before the
effective date or during the term of this Agreement, shall be received
in strict confidence, shall be used only for the purposes of this
Agreement and that no such information shall be disclosed to a third
party by the recipient party, its agents, or employees without the
prior written consent of the other party. Except as may be necessary by
reason of legal or regulatory requirements, each party hereto agrees to
take all reasonable precautions to prevent the disclosure to outside
parties of such information including without limitation, the terms of
this Agreement.
(2) Distributor and Company expressly acknowledge that the names,
addresses, telephone numbers and other information identifying
policyowners and prospective policyowners established under this
Agreement is proprietary information of the Broker. The Distributor and
Company agree that they will not cross-sell or otherwise solicit
customers of the Broker without the Broker's prior written consent. The
Company reserves the right, however, to contact policyowners for policy
service purposes, and will attempt, to the extent practicable, to
notify the Broker in advance of any proposed mass mailing or other
group communication to customers of the Broker. The Company reserves
the right to contact policyowners for purposes of conservation of
existing policies in the event the Company reasonably determines a
systematic replacement of policies is being conducted or attempted and
such replacement does not reasonably appear to be in the best interest
of the policyowners as provided in the General Agent Agreement between
the Company and the Broker or its affiliated insurance agency.
H. Indemnity
---------
(1) Broker shall be held to the exercise of reasonable care in carrying out
the provisions of this Agreement.
(2) Distributor agrees to indemnify and hold harmless Broker and each
officer or director of Broker against any losses, claims, damages or
liability, joint or several, to which Broker or such officer or
director become subject, under the 1933 Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of a material fact, required to be stated therein or
necessary to make the statements therein not misleading, contained in
any Registration Statement or any post-effective amendment thereto or
in the Prospectus or any amendment or supplement to the Prospectus, or
any sales literature provided by the Company or by the Distributor.
Company and Distributor will reimburse Broker and any director or
officer or controlling person of either for any legal or other expenses
reasonably incurred by Broker, or such director, officer or controlling
person in connection with
<PAGE>
investigating or defending any such loss, claims, damage, liability or
action. This indemnity agreement will be in addition to any liability
which Company or Distributor may otherwise have.
(3) Broker agrees to indemnify and hold harmless Company and Distributor
and each of their current and former directors and officers and each
person, if any, who controls or has controlled Company or Distributor
within the meaning of the 1933 Act or the 1934 Act, against any losses,
claims, damages or liabilities to which Company or Distributor and any
such director or officer or controlling person may become subject,
under the 1933 Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or
are based upon:
(a) Any unauthorized use of sales materials or any verbal or written
misrepresentations or any unlawful sales practices concerning the
Contracts by Brokers, its agents, employees or representatives; or
(b) Claims by agents or representatives or employees of Broker for
commissions, service fees, development allowances or other compensation
or remuneration of any type;
(c) The failure of Broker, its officers, employees, or agents to comply
with the provisions of this Agreement; and Broker will reimburse
Company and Distributor and any director or officer or controlling
person of either for any legal or other expenses reasonably incurred by
Company, Distributor, or such director, officer or controlling person
in connection with investigating or defending any such loss, claims,
damage, liability or action. This indemnity agreement will be in
addition to any liability which Broker may otherwise have.
I. Assignability
-------------
This Agreement shall not be assigned by either party without the
written consent of the other.
J. Governing Law
-------------
This Agreement shall be governed by and construed in accordance with
the laws of the State of Iowa.
K. Notices
-------
All communications under the Agreement shall be in writing and shall be
deemed delivered when mailed by certified mail, postage prepaid.
Alternatively, communications shall be deemed delivered by timely
transmission of the writing, delivery charges prepaid, to a third party
company or governmental entity providing delivery services in the
ordinary course of business, which guarantees delivery to the other
party on the next business day. Notices shall be sent to the following
addresses unless and until the addressee notifies the other party of a
change in address according to the terms of this Section:
<TABLE>
<S> <C>
(1) if to Broker, to: (2) if to the Distributor, to:
AEGON USA Securities, Inc.
_______________________________________ 4333 Edgewood Road NE
_______________________(street address) Cedar Rapids, Iowa 52499-0001
_______________________(telephone no.) (319) 369-2345 (telephone no.)
_______________________(fax no.) (319) 369-2591 (fax no.)
Attention:_____________ Attention: Lorri E Mehaffey,
___________ President
</TABLE>
In Witness Whereof, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
------------------------------------
(Broker Name)
By:
---------------------------------
Title:
------------------------------
AEGON USA SECURITIES, INC.
(Distributor)
By:
---------------------------------
President
<PAGE>
EXHIBIT A
General Letter of Recommendation
BROKER hereby certifies to the Distributor and the Company that all the
following requirements will be fulfilled in conjunction with the submission of
licensing/appointment papers for all applicants as agents of the Company
submitted by BROKER. BROKER will, upon request, forward proof of compliance
with same to the Company in a timely manner.
1. We have made a thorough and diligent inquiry and investigation relative to
each applicant's identity, residence and business reputation and declare
that each applicant is personally known to us, has been examined by us, is
known to be of good moral character, has a good business reputation, is
reliable, is financially responsible and is worthy of a license. Each
individual is trustworthy, competent and qualified to act as an agent for
the Company to hold himself out in good faith to the general public.
2. We have on file a U-4 form which was completed (and has been amended, as
required) by each applicant. We have fulfilled all the necessary
investigative requirements for the registration of each applicant as a
registered representative through our NASD member firm, including but not
limited to: (i) checking for and investigating criminal arrest and
conviction records available to Broker-Dealer on the CRD system; and (ii)
communicating with each employer of the applicant for 3 years prior to the
applicant's registration with our firm. Each applicant is presently
registered as an NASD registered representative.
The above information in our files indicates no fact or condition which
would disqualify the applicant from receiving a license and all the findings of
all investigative information is favorable.
At the time of application, in those states required by the Company, we
shall provide the Company with a copy of the entire U-4 form, or designated
pages, thereof, completed by each applicant, including any amendments or
updates thereto, and we certify those items are true copies of the
original.
3. We certify that all educational requirements have been met for the
specified state each applicant is requesting a license in, and that all
such persons have fulfilled the appropriate examination, education and
training requirements.
4. If the applicant is required to submit his picture, his signature, and
securities registration in the state in which he is applying for a license,
we certify that those items forwarded to the Company are those of the
applicant and the securities registration is a true copy of the original.
5. We hereby warrant that the applicant is not applying for a license with the
Company in order to place insurance chiefly and solely on his life or
property, or lives or property of his relatives, or property or liability
of his associates.
6. We will not permit any applicant to transact insurance in a state as an
agent until duly licensed and appointed therefor with the appropriate State
Insurance Department. No applicants have been given a contract or furnished
supplies, nor have any applicants been permitted to write, solicit
business, or act as an agent in any capacity, and they will not be so
permitted until the certificate of authority or license applied for is
received.
<PAGE>
EXHIBIT (4)
-----------
FORM OF POLICY FOR THE
ATLAS PORTFOLIO BUILDER VARIABLE ANNUITY
<PAGE>
[LETTERHEAD OF PFL LIFE INSURANCE COMPANY APPEARS HERE]
ANNUITANT: JOHN DOE
OWNER(S): JOHN DOE
POLICY NUMBER: CO - 000021
POLICY DATE: January 10, 1995
WE AGREE
..To provide annuity payments as set forth in this policy;
..Or to pay withdrawal benefits in accordance with Section 5 of this policy;
..Or to pay death proceeds in accordance with Section 9 of this policy.
Withdrawals may be subject to an Excess Interest Adjustment reflecting changes
in interest rates in accordance with Section 5 of this policy.
These agreements are subject to the provisions of this policy. This policy is
issued in consideration of any application and payment of the initial premium.
This policy may be applied for and issued to qualify as a tax-qualified annuity
under the applicable sections of the Internal Revenue Code.
20 DAY RIGHT TO CANCEL
You may cancel this policy by returning it to us or to your agent You must
return the policy before midnight of the twentieth day after the day you receive
it. Notice given by mail and return of the policy by mail are effective on being
postmarked, properly addressed and postage prepaid.
We will pay you an amount equal to:
..the Premium Payments made;
..plus accumulated gains, less accumulated losses, if any, in the Separate
Account on the date of cancellation; and
..less prior withdrawals, if any.
Signed for us at our home office.
/s/ Craig D. Vermie /s/ William L. Busler
SECRETARY PRESIDENT
This policy is a legal contract between the policyowner and the company.
READ YOUR POLICY CAREFULLY
Flexible Premium Variable Annuity
Income Payable At Annuity Commencement Date
Benefits Based On The Performance Of The Separate Account
Are Variable And Are Not Guaranteed As To Dollar Amount (See Sections 6 and 10C)
Non-Participating
AV337 101 100 397
<PAGE>
SECTION 1
DEFINITIONS
ACCUMULATION PHASE
The period of time this policy is in force prior to the Annuity Commencement
Date.
ANNUITANT
The person to whom annuity payments will be made, unless another Payee is named.
ANNUITY COMMENCEMENT DATE
Date the annuitant will begin receiving payments from this policy. In no event
may this date be later than the last day of the month following the month in
which the Annuitant attains age 95.
ADJUSTED POLICY VALUE
Amount, defined in Section 4, that can be used to fund one of the Payment
Options.
CASH VALUE
Amount, defined in Section 5, that can be withdrawn if the annuity is
surrendered.
CUMULATIVE FREE PERCENTAGE
A percentage (applied to cumulative Premium Payments) which is available to be
withdrawn free from any Surrender Charge. The Cumulative Free Percentage is 10%
as of the Policy Date and accumulates at 10% on each successive Policy
Anniversary. The unused portion of the Cumulative Free Percentage in any Policy
Year will be carried forward at each successive Policy Anniversary. Any portion
of the Cumulative Free Percentage previously taken will reduce the Cumulative
Free Percentage currently available. Excess Interest Adjustments may apply as
described in Section 5.
DISTRIBUTION
A withdrawal or disbursement of funds from the Policy Value or Cash Value.
INVESTMENT OPTIONS
The One Year Fixed Option or any of the Guaranteed Period Options of the Fixed
Account and any of the Subaccounts of the Separate Account.
PAYEE
The person to whom annuity payments will be made.
PAYMENT OPTIONS
Options through which the distribution of the Adjusted Policy Value can be
directed.
PAYOUT PHASE
The period of time during which Annuity Payments are being made following the
Annuity Commencement Date.
POLICY ANNIVERSARY
The anniversary of the Policy Date for each year the policy remains in force.
POLICY DATE
The date shown on page 3 of this policy and the date on which this policy
becomes effective.
POLICY VALUE
The amount, defined in Section 4, that is used when calculating the Adjusted
Policy Value and/or Cash Value.
POLICY YEAR
A twelve month period which begins on the Policy Date shown on the page 3 of
this policy, and on each Policy Anniversary thereafter.
SUBACCOUNT
A division of the Separate Account, as described in Section 6.
SURRENDER
A withdrawal of the policy's entire Cash Value or Policy Value.
WITHDRAWAL
A distribution of funds from the Policy Value or Cash Value.
YIELD
The effective annual interest rate(s) applicable to the option(s) of the Fixed
Account.
YOU, YOUR
The owner of this policy. Unless otherwise specified on the Policy Data page,
the annuitant and the owner shall be one and the same person.
PAGE 2
AVB337
<PAGE>
SECTION 2 - POLICY DATA
POLICY NUMBER: 07- 000021 ANNUITANT: JOHN DOE
INITIAL PREMIUM
PAYMENT- $5,000.00 ISSUE AGE/SEX: 35 / MALE
POLICY DATE: January 10, 1995 OWNER(S): JOHN DOE
ANNUITY
COMMENCEMENT
DATE*: March 9, 2018
*This date may be changed as described in Section 11.
Mortality and Expense Risk Fee and Administrative Charge: 1.40%
Page 3
AV337 101 100 397 SP
<PAGE>
SECTION 3 - PREMIUM PAYMENTS
PAYMENT OF PREMIUMS
Premium Payments may be made any time while this policy is in force before the
Annuity Commencement Date. You may start or stop, increase or decrease, or skip
any Premium Payments.
MAXIMUM AND MINIMUM PREMIUM PAYMENT
The minimum initial Premium Payment is $5,000. If this policy is being used as
a tax-qualified annuity, the minimum initial Premium Payment is $2,000. The
Premium Payments may not be more than the amount permitted by law if this is a
tax-qualified annuity. For 403(b) annuities, we must receive the initial
Premium Payment within ninety (90) days following the Policy Date or this policy
will be cancelled.
The minimum subsequent Premium Payment we will accept is $500. The maximum
total Premium Payments which we will accept without prior Company approval is
$1,000,000.
PREMIUM PAYMENT DATE
The Premium Payment date is the date on which the Premium Payment is credited to
the policy. The initial Premium Payment, less any applicable premium taxes, will
be credited to the policy within two business days of receipt in our Home Office
of the Premium Payment and the information needed. Subsequent additional Premium
Payments will be credited to the policy as of the business day when the Premium
Payment and required information are received. A business day is any day that
the New York Stock Exchange is open for trading.
ALLOCATION OF PREMIUM PAYMENTS
Premium Payments may be applied to various Investment Options which we make
available. You must indicate what percentage of the Premium Payment to allocate
to the various Investment Options (making a total of 100%). Each percentage
may be either zero or any whole number.
We will use the allocation percentages indicated on the application for all
Premium Payments until you change the allocation percentages.
CHANGE OF ALLOCATION
You may change the allocation of Premium Payments to various Investment Options.
You must tell us in a notice you sign which gives us the facts that we need.
Premium payments received after the date on which we receive your notice will be
applied on the basis of the new allocation.
PREMIUM TAXES
Your state may impose a premium tax. It may be imposed when a Premium Payment
is made, on the Annuity Commencement Date, on the date of death, or on the date
of surrender. When permitted by state law, we will not deduct the tax until the
Annuity Commencement Date, date of death, or date of Surrender.
SECTION 4 - POLICY VALUE
POLICY VALUE
On or before the Annuity Commencement Date, the Policy Value is equal to your:
(a) Premium Payments; minus
(b) Gross Partial Withdrawals (the term defined in Section 5); plus
(c) interest credited in the Fixed Account (see Section 7); plus
(d) accumulated gains in the Separate Account (see Section 6); minus
(e) accumulated losses in the Separate Account; minus
(f) premium taxes and transfer fees, if any.
ADJUSTED POLICY VALUE
The Adjusted Policy Value is the Policy Value increased or decreased by any
Excess Interest Adjustment.
The Adjusted Policy Value will be used on the Annuity Commencement Date to
provide lifetime income or income for a period of no less than 60 months under
the Payment Options in Section 10.
SECTION 5 - CASH VALUE AND PARTIAL WITHDRAWALS
CASH VALUE
On or before the Annuity Commencement Date, the Cash Value is equal to the
Adjusted Policy Value less any Surrender Charges. The current amount of your
policy's Cash Value is available upon request. The Cash Value may be partially
withdrawn or will be paid in the event of a Surrender of the policy. We must
receive your written Partial Withdrawal request or Surrender request before the
Annuity Commencement Date.
There is no Cash Value once an Annuity Payment Option has been selected.
PAGE 4
M777
<PAGE>
SECTION 5 - CASH VALUE AND PARTIAL WITHDRAWALS - CONT
EXCESS INTEREST ADJUSTMENT
An Excess Interest Adjustment applies in the following situations:
1) When you withdraw all or any portion of your Cash Value,
2) When you exercise 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 (see Section 7) and is based on
any change in interest rates from the time the affected Guaranteed Period(s)
started until the time the Excess Interest Adjustment occurs. The Excess
Interest Adjustment is applied as follows:
1) The Excess Interest Adjustment is only applied when the transactions occur
prior to the end of any Guaranteed Period Option;
2) Transfers to the Guaranteed Period Options of the Fixed Account are
considered Premium Payments for purposes of determining the Excess Interest
Adjustment;
3) The Excess Interest Adjustment is distinct from, and is applied prior to, the
Surrender Charge;
4) The Excess Interest Adjustment may affect the death proceeds defined in
Section 9;
5) If interest rates 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 you;
6) If interest rates have increased from the time the affected Guaranteed
Period(s) started until the time the transaction occurs, the Excess Interest
Adjustment will result in a decrease in the funds available to you.
7) 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.
8) Certain amounts are not subject to the Excess Interest Adjustment as provided
in Sections 5, 7 and 8.
The formula for determining the amount of the Excess Interest Adjustment is as
follows:
Excess Interest Adjustment = S x (G-C) x (M/ 12)
where: S is the gross (that is, before surrender charges and premium taxes, if
any) amount being surrendered, partially withdrawn or applied to a
Payment Option that is subject to the Excess Interest Adjustment.
G is the guaranteed interest rate for the Guaranteed Period associated
with S.
M is the number of months remaining in the Guaranteed Period associated
with S, rounded up to the next higher whole number of months.
C is the current interest rate (at the time the Excess Interest
Adjustment occurs) being offered on new Premium Payments for the next
longer Guaranteed Period than "M". If this policy form or such a
Guaranteed Period Option 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%.
The Excess Interest Adjustment for each Guaranteed Period Option will not reduce
the portion of the Adjusted Policy Value attributed to that Guaranteed Period
Option below the amount paid into, less any prior Partial Withdrawals and
transfers from that Guaranteed Period Option, plus interest at the 3% guaranteed
effective annual interest rate.
PARTIAL WITHDRAWALS
We will pay you a portion of the Cash Value as a Partial Withdrawal provided we
receive your written request while the policy is in effect and before the
Annuity Commencement Date. When you request a Partial Withdrawal you must tell
us how it is to be allocated among the various Investment Options. If your
request for a Partial Withdrawal from any Investment Option is less than or
equal to that Option's Cash Value, we will pay you the amount of your request.
However, if your request for a Partial Withdrawal from any Investment Option is
greater than that Option's Cash Value, we will pay you the Cash Value of that
Investment Option.
The Gross Partial Withdrawal is the total amount which will be deducted from
your Policy Value as a result of each Partial Withdrawal. The Gross Partial
Withdrawal may be more or less than your requested Partial Withdrawal amount,
depending on whether Surrender Charges and/or Excess Interest Adjustments apply
at the time you request the Partial Withdrawal. The Excess Partial Withdrawal
amount is the portion of the requested Partial Withdrawal that is subject to
Surrender Charge.
PAGE 5
U777
<PAGE>
SECTION 5 - CASH VALUE AND PARTIAL WITHDRAWALS - CONT
The formula for determining the Gross Partial Withdrawal is as follows:
Gross Partial Withdrawal = R - E + SC
where: R is the requested Partial Withdrawal;
E is the Excess Interest Adjustment; and
SC is the Surrender Charge on (EPW - E);
where
EPW is the Excess Partial Withdrawal amount.
If any Partial Withdrawal reduces the Cash Value below $500, we reserve the
right to pay the full Cash Value and terminate this policy.
We may delay payment of the Cash Value from the Fixed Account for up to 6 months
after we receive your request If the owner dies after we receive the request,
but before the request is processed, the request will be processed before the
death proceeds are determined.
A. EFFECT OF SURRENDER CHARGES ON PARTIAL WITHDRAWALS
Each Partial Withdrawal consists of a portion that is free from Surrender
Charge (that is, the Surrender Charge-free amount) and a remaining portion
that is subject to Surrender Charge (that is, the Excess Partial
Withdrawal). Either portion may be zero (0) depending on the Partial
Withdrawal requested and prior amounts withdrawn.
Any Partial Withdrawals, as described in 1, 2 and 3 below, will reduce the
Cumulative Free Percentage by the ratio of the requested Partial Withdrawal
amount to the cumulative Premium Payments at the time of, but prior to, the
Partial Withdrawal.
Partial Withdrawals may be made free from Surrender Charges in the
following ways:
1. LUMP SUM - At any time, you may withdraw free from Surrender Charges an
amount ($250 minimum) up to the Cumulative Free Percentage times the
cumulative Premium Payments at the time of, but prior to, the
withdrawal. On the Policy Date the Cumulative Free Percentage is 10%.
During the first 5 Policy Years, 10% will be added to the Cumulative
Free Percentage on each Policy Anniversary.
2. SYSTEMATIC PAYOUT OPTION - During any Policy Year, including the first,
a Systematic Payout Option is available on a monthly, quarterly, semi-
annual or annual basis. Systematic Payout Options payouts must be at
least $50 and may not exceed 10% of the cumulative Premium Payments at
the time a Systematic Payout Option payout is made divided by the number
of payouts made per year (for example, 12 for monthly). Monthly and
quarterly payouts must be sent through electronic funds transfer
directly to your checking or savings account. You may start or stop
Systematic Payout Option payouts at any time; however, 30 days' written
notice is required to stop Systematic Payout Option payouts.
Once you have elected to receive a Systematic Payout Option payout, you
must wait a minimum time before the first Systematic Payout Option
payout: one month for a monthly payout, three months for a quarterly
payout, six months for a semi-annual payout, or twelve months for an
annual payout.
3. MINIMUM REQUIRED DISTRIBUTION
For tax-qualified plans, Partial Withdrawals taken to satisfy minimum
distribution requirements under Section 401(a)(9) of the Internal
Revenue Code are available free from Surrender Charges. Since we waive
all Surrender Charges on minimum distributions to comply with the
Internal Revenue Code, the Surrender Charge is waived only for the
dollar amount that represents the minimum for this policy.
The owner must be at least 70 1/2 years old in the calendar year of
distribution, must submit a written request to us and must make an
election to take the distribution before year end. If the owner attains
age 70 1/2 in the calendar year of distribution, a written request which
is postmarked no later than the end of the current calendar year must be
submitted to us.
Systematic minimum distributions must be at least $50 or a lump sum
distribution is available if minimum required distributions are less
than $50.
Any amount requested in excess of the minimum required distribution
under the Internal Revenue Code will have the appropriate Surrender
Charges applied, unless this excess qualifies as free from Surrender
Charges under A.1. or A.2. above.
PAGE 6
P913
<PAGE>
SECTION 5 - CASH VALUE AND PARTIAL WITHDRAWALS - CONT
B. EFFECT OF EXCESS INTEREST ADJUSTMENTS ON PARTIAL WITHDRAWALS FROM THE FIXED
ACCOUNT
Each Partial Withdrawal from a Guaranteed Period Option of the Fixed
Account consists of a portion that is free from Excess Interest Adjustment
(that is, the Excess Interest Adjustment-free amount) and a remaining
portion that is subject to Excess Interest Adjustment. Either portion may
be zero (0) depending on the Partial Withdrawal requested and prior amounts
withdrawn.
Partial Withdrawals from the One Year Fixed Option of the Fixed Account
and/or from any Subaccount(s) of the Separate Account will be free from
Excess Interest Adjustments.
Partial Withdrawals from the Guaranteed Period Options of the Fixed Account
may be made free from Excess Interest Adjustments in the following ways:
1. LUMP SUM - Lump Sum withdrawals which do not exceed the amount of
cumulative interest credited to the Guaranteed Period Options of the
Fixed Account (less any prior withdrawal of interest) at the time of the
withdrawal;
2. SYSTEMATIC PAYOUT OPTION - Systematic Payout Option payouts which do not
exceed the amount of cumulative interest credited to the Guaranteed
Period Options of the Fixed Account (less any prior withdrawal of
interest) at the time of the payout;
3. MINIMUM REQUIRED DISTRIBUTION - Partial Withdrawals taken to satisfy
minimum distribution requirements for tax-qualified plans, as described
in A.3. above.
Any amount requested in excess of the minimum required distribution
under the Internal Revenue Code will have an Excess Interest Adjustment
applied, unless this excess qualifies as free from Excess Interest
Adjustment under B.1. or B.2. above.
For any Partial Withdrawal, the portion that is free from Surrender
Charge will generally differ from the portion that is free from Excess
Interest Adjustment, except by coincidence.
SURRENDER CHARGES
Amounts withdrawn in excess of the Surrender Charge-free withdrawal
amounts described in the Partial Withdrawal provision above are subject
to a Surrender Charge. The amount of this charge, if any, will be a
percentage, as shown in the table below, of the amount of premium
withdrawn:
<TABLE>
<CAPTION>
Policy Year Percentage of
Premium Withdrawn
<S> <C>
1 7%
2 7%
3 6%
4 5%
5 4%
6 or later 0%
</TABLE>
The applicable Surrender Charge percentage will depend upon the number
of Policy Years that have elapsed since the Policy Date.
For purposes of calculating Surrender Charges, Premium Payments are
deemed to be withdrawn before earnings. After all Premium Payments are
considered withdrawn, the remaining Adjusted Policy Value may be
withdrawn free from any Surrender Charges.
Premium Payments withdrawn after the fifth policy year are not subject
to Surrender Charges.
GUARANTEED RETURN OF FIXED ACCOUNT PREMIUM PAYMENTS
Upon Surrender of the policy, you will always receive at least the
Premium Payments made to, less prior Partial Withdrawals and transfers
from, the Fixed Account.
PAGE 7
PB913
<PAGE>
SECTION 6 - SEPARATE ACCOUNT
SEPARATE ACCOUNT
We have established and will maintain a Separate Account under the laws of the
state of Iowa. Any realized or unrealized income, net gains and losses from the
assets of the Separate Account are credited to or charged against it without
regard to our other income, gains or losses. Assets are put in the Separate
Account for this policy, as well as for other variable life insurance and
annuity policies. The Separate Account may invest assets in shares of one or
more mutual funds. Fund shares are purchased, redeemed and valued on behalf of
the Separate Account.
The Separate Account is divided into Subaccounts. Each Subaccount invests
exclusively in shares of one of the portfolios of an underlying mutual fund. We
reserve the right to add or remove any Subaccount of the Separate Account.
The assets of the Separate Account are our property. These assets will equal or
exceed the reserves and other contract liabilities of the Separate Account.
These assets will not be chargeable with liabilities arising out of any other
business we conduct. We reserve the right to transfer assets of a Subaccount,
in excess of the reserves and other contract liabilities with respect to that
Subaccount, to another Subaccount or to our general account.
We will determine the fair market value of the assets of the Separate Account in
accordance with a method of valuation which we establish in good faith.
Valuation Period means the period of time from one determination of the value of
each Subaccount to the next. Such determinations are made when the value of the
assets and liabilities of each Subaccount is calculated. This is generally each
day on which the New York Stock Exchange is open for trading.
We also reserve the right to transfer assets of the Separate Account, which we
determine to be associated with the class of policies to which this policy
belongs, to another separate account. If this type of transfer is made, the
term "Separate Account", as used in this policy, shall then mean the separate
account to which the assets were transferred.
We also reserve the right, when permitted by law, to:
(a) deregister the Separate Account under the Investment Company Act of 1940;
(b) manage the Separate Account under the direction of a committee at any time;
(c) restrict or eliminate any voting rights of policyowners or other persons who
have voting rights as to the Separate Account;
(d) combine the Separate Account with one or more other separate accounts;
(e) create new Separate Accounts;
(f) add new Subaccounts to or remove existing Subaccounts from the Separate
Account, or combine Subaccounts; and
(g) add new underlying mutual funds or other investment options, remove
existing mutual funds, or substitute a new fund for an existing fund.
CHANGE IN INVESTMENT OBJECTIVE OR POLICY OF A MUTUAL FUND
If required by law or regulation, an investment policy of the Separate Account
will only be changed if approved by the appropriate insurance official of the
state of Iowa or deemed approved in accordance with such law or regulation. If
so required, the process for obtaining such approval is filed with the insurance
official of the state or district in which this policy is delivered.
CHARGES AND DEDUCTIONS
The Mortality and Expense Risk Fee and the Administrative Charge are each
deducted before and after the Annuity Commencement Date to compensate us for
bearing certain mortality and expense risks in connection with your policy. If
the Mortality and Expense Risk Fee(s) is more than sufficient, the Company will
retain the balance as profit.
PAGE 7(A)
P915
<PAGE>
SECTION 6 - SEPARATE ACCOUNT - CONT
ACCUMULATION UNITS
The Policy Value in the Separate Account before the Annuity Commencement Date is
represented by accumulation units. The dollar value of accumulation units for
each Subaccount may change from day to day reflecting the investment experience
of the Subaccount.
Premium Payments allocated to and any amounts transferred to the Subaccounts
will be applied to provide accumulation units in those Subaccounts. The number
of accumulation units purchased on behalf of a policy in a Subaccount will be
determined by dividing the Premium Payment allocated to or any amount
transferred to that Subaccount, by the value of an accumulation unit for that
Subaccount on the Premium Payment or transfer date.
The number of accumulation units withdrawn or transferred on behalf of a policy
from the Subaccounts will be determined by dividing the amount withdrawn or
transferred by the value of an accumulation unit for that Subaccount on the
withdrawal or transfer date.
The value of an accumulation unit on any business day is determined by
multiplying the value of that unit at the end of the immediately preceding
valuation period by the net investment factor for the valuation period.
The net investment factor used to calculate the value of an accumulation unit in
each Subaccount for the Valuation Period is determined by dividing (a) by (b)
and subtracting (c) from the result, where:
(a) is the result of:
(1) the net asset value of a fund share held in that Subaccount determined
as of 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 credit or charge for any taxes reserved for, which we
determine to have resulted from the investment operations of that
Subaccount.
(b) is the net asset value of a fund share held in that Subaccount determined as
of the end of the immediately preceding valuation period.
(c) is a factor representing the Mortality and Expense Risk Fee and
Administrative Charge. This factor is less than or equal to, on an annual
basis, the percentage shown on page 3 of the daily net asset value of a fund
share held in that Subaccount.
Since the net investment factor may be greater or less than one, the
accumulation unit value may increase or decrease.
PAGE 7(B)
PB915
<PAGE>
SECTION 7 - FIXED ACCOUNT
FIXED ACCOUNT
Premium Payments applied to, and any amounts transferred to the Fixed Account,
will reflect a fixed interest rate. The interest rates we set 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%.
GUARANTEED PERIOD OPTIONS
We may offer optional Guaranteed Periods into which Premium Payments may be paid
or amounts may be transferred. The current interest rate we set for funds
entering each Guaranteed Period Option is guaranteed until that Guaranteed
Period ends. At the end of the Guaranteed Period, the Premium Payment made or
amount transferred into the Guaranteed Period Option less any Partial
Withdrawals or transfers from that Guaranteed Period Option, plus accrued
interest, will be rolled into a now Guaranteed Period Option or may be
transferred to the One Year Fixed Option or to one or more Subaccounts within
the Separate Account.
You may choose which Investment Options to roll the amounts into; however, you
must give us notice of that choice within 30 days before the end of the expiring
Guaranteed Period. Any Guaranteed Period elected may not extend beyond the
maximum Annuity Commencement Date defined in Section 11. If you fail to make an
election, we will roll the funds into a new Guaranteed Period Option with the
same time period as the expiring Guaranteed Period Option. If that Guaranteed
Period Option is no longer offered, the next shorter Guaranteed Period Option
offered will be used. If there is no shorter Guaranteed Period Option available
in which to roll the funds, we will roll the funds into the One Year Fixed
Option. We reserve the right to offer or not to offer any Guaranteed Period
Option for new Premium Payments, transfers or rollovers.
For purposes of crediting interest when funds are withdrawn from or transferred
into a Guaranteed Period Option, the amount of the oldest Premium Payment or
rollover into that Guaranteed Period Option is considered to be withdrawn first.
If the amount withdrawn exceeds this amount, the next oldest Premium Payment or
rollover is considered to be withdrawn next, and so on until the most recent
Premium Payment or rollover is considered to be withdrawn (this is a "First-In,
First-Out" or FIFO procedure). Premium Payment(s) or rollover(s) are deemed to
be withdrawn first, then any interest credited will be considered to be
withdrawn.
Surrenders, Partial Withdrawals, and amounts applied to a Payment Option from a
Guaranteed Period Option which occur prior to the end of that Option's
Guaranteed Period are subject to an Excess Interest Adjustment as described in
Section 5.
ONE YEAR FIXED OPTION
We will always offer the One Year Fixed Option, into which Premium Payments may
be paid or amounts transferred. The current interest rate we set for funds
entering each 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 as described in Section 8, is
only available from the One Year Fixed Option. Dollar Cost Averaging transfers
will only be allowed to one or more Subaccounts of the Separate Account.
The interest rate we credit may differ for the portion of the One Year Fixed
Option that is currently making Dollar Cost Averaging transfers than for the
portion of this account which is not making Dollar Cost Averaging transfers.
PAGE 8
V942
<PAGE>
SECTION 8 - TRANSFERS
A. TRANSFERS BEFORE THE ANNUITY COMMENCEMENT DATE
Prior to the Annuity Commencement Date, you may transfer funds from any one of
the Investment Options to any of the other Investment Options, subject to the
constraints listed below. If you want to transfer, you must tell us in a notice
you sign or through an electronic notice which gives us the facts that we need.
Transfers from any of the Guaranteed Period Options of the Fixed Account to any
of the other Investment Options are only allowed as follows:
1) Prior to the end of any Guaranteed Period, a maximum amount equal to the
interest credited to any of the Guaranteed Period Options may be
transferred. No Excess Interest Adjustment will apply to such transfers of
interest Each transfer of interest is subject to a minimum amount of $50.
2) At the end of any Guaranteed Period, Policy Values in that Guaranteed Period
Option may be transferred to any of the other Investment Options. No Excess
Interest Adjustment will apply to these transfers.
Dollar Cost Averaging and Non-Dollar Cost Averaging transfers from the One Year
Fixed Option may be made to one or more Subaccounts of the Separate Account, or
to the Guaranteed Period Options of the Fixed Account Transfers other than
Dollar Cost Averaging transfers must be at least $500.
The minimum amount which may be transferred from a Subaccount of the Separate
Account is the lesser of $500 or the entire Subaccount value. However, if the
remaining Subaccount value is less than $500, we have the right to include that
amount as part of the transfer.
We reserve the right to limit transfers to no more than 12 in any one Policy
Year. Any transfers in excess of 12 per Policy Year may be charged a fee of $10
per transfer.
DOLLAR COST AVERAGING
Any time prior to the Annuity Commencement Date, you may instruct us to
automatically transfer a specified amount from the One Year Fixed Option to one
or more Subaccounts of the Separate Account. This is referred to as Dollar Cost
Averaging. You can decide whether to make the automatic transfers occur monthly
or quarterly. If the Dollar Cost Averaging 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 Dollar Cost Averaging 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.
You may elect Dollar Cost Averaging at any time. Dollar Cost Averaging
transfers will continue until the Policy Value in the One Year Fixed Option is
depleted. You may start, stop, increase or decrease the amount of the Dollar
Cost Averaging transfers by sending us either a new Dollar Cost Averaging form
or a written notice which gives us the facts that we need.
Transfers from the One Year Fixed Option will not be subject to an Excess
Interest Adjustment.
ASSET REBALANCING
Prior to the Annuity Commencement Date, you may instruct us to automatically
transfer 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 the One Year Fixed Option and the various Subaccounts offered.
Rebalancing will occur monthly, quarterly, semi-annually or annually, beginning
on a date you select. You must select the percentage of the One Year Fixed
Option Policy Value and the Separate Account Policy Value you desire in each of
the various Subaccounts offered (totaling 100%). Any amounts in the Guaranteed
Period Options of the Fixed Account are ignored for the purposes of asset
rebalancing. Rebalancing can be started, stopped or changed at any time, except
that rebalancing will not be available when:
1) Dollar Cost Averaging transfers are being made, or
2) any other transfer is requested.
B. TRANSFERS AFTER THE ANNUITY COMMENCEMENT DATE
After the Annuity Commencement Date, you may transfer the value of the variable
annuity units from one Subaccount to another within the Separate Account, or to
the Fixed Account. If you want to transfer the value of the variable annuity
units, you must tell us in a notice you sign or through an electronic notice
which gives us the facts that we need.
The minimum amount which 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, we have the right to include the value
of those variable annuity units as part of the transfer.
After the Annuity Commencement Date, no transfers may be made from the Fixed
Account to the Separate Account.
We reserve the right to limit transfers between the Subaccounts or from the
Subaccounts to the Fixed Account to once per Policy Year.
PAGE 9
VB942
<PAGE>
SECTION 9 - DEATH PROCEEDS
A. DEATH PROCEEDS PRIOR TO ANNUITY COMMENCEMENT DATE
The amount of death proceeds will be the greatest of (1), (2) and (3) where:
(1) is the Policy Value on the date we receive due proof of death and an
election of a method of settlement;
(2) is the Cash Value on the date we receive due proof of death and an election
of a method of settlement, and;
(3) is the Guaranteed Minimum Death Benefit, plus any additional Premium
Payments received, less any Gross Partial Withdrawals from the date of death
to the date of payment of death proceeds.
If you have not selected a payment option by the date of death, the beneficiary
may make such election within one year of the date we receive due proof of the
owner's or annuitant's death as described in C. below. The beneficiary may
elect to receive the death proceeds as a lump sum payment or may use the death
proceeds to provide any of the annuity payment options described in Section 10.
Interest on death proceeds will be paid as required by law.
B. GUARANTEED MINIMUM DEATH BENEFIT
The definition of the Guaranteed Minimum Death Benefit is determined on the
Policy Date and is based on the age(s) of the annuitant(s) at that time.
If the annuitant(s) as shown on page 3 of this policy are all less than age 75
on the Policy Date, the Guaranteed Minimum Death Benefit is the greater of (1)
and (2) where:
(1) is a 5% Annually Compounding Death Benefit, equal to:
a) the total Premium Payments; minus
b) Adjusted Partial Withdrawals, (as described below); plus
c) interest accumulated at 5% per annum from the payment or withdrawal date
to the earlier of the annuitant's date of death or the annuitants 76th
birthday.
(2) is a Step-Up Death Benefit, 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 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.
If the annuitant(s) as shown on page 3 of this policy is/are age 75 or more on
the Policy Date, the Guaranteed Minimum Death Benefit is a Return of Premium
Death Benefit, equal to (1) - (2) where:
(1) is the total Premium Payments; and
(2) is Adjusted Partial Withdrawals (as described below).
A Partial Withdrawal taken as provided in Section 5 will reduce the Guaranteed
Minimum Death Benefit by an amount referred to as the "Adjusted Partial
Withdrawal". The Adjusted Partial Withdrawal may be a different amount than the
Gross Partial Withdrawal described in Section 5. Each Adjusted Partial
Withdrawal is equal to the Gross Partial Withdrawal multiplied by an Adjustment
Factor. The Adjustment Factor is equal to 1) divided by 2), where:
(1) is the amount of the death proceeds prior to the Partial Withdrawal; and
(2) is the Policy Value prior to the Partial Withdrawal.
C. DEATH PRIOR TO ANNUITY COMMENCEMENT DATE
Death proceeds are payable contingent upon the relationships between the owner,
annuitant, successor owner and beneficiary as outlined below. The policy must
be surrendered upon settlement or on proof of death.
1. Annuitant and owner are the same.
When we have due proof that the owner died before the Annuity Commencement
Date, we will provide the death proceeds to the beneficiary.
a) Beneficiary is the deceased owner's surviving spouse. The beneficiary may
elect to continue this policy rather than receiving the death proceeds.
If the policy is continued, 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.
If this beneficiary elects to have the death proceeds paid, the death
proceeds must be distributed:
(1) by the end of 5 years after the date of the deceased owner's death,
or
(2) payments must begin no later than one year after the deceased owner's
death and must be made for a period certain or for this beneficiary's
lifetime, so long as any period certain does not exceed this
beneficiary's life expectancy.
PAGE 10
S894
<PAGE>
SECTION 9 - CONT
b) Beneficiary is not the deceased owner's surviving spouse. The death
proceeds must be distributed as provided in C.I.a)(1) or C.I.a)(2)
above.
c) Death proceeds which are not paid to or for the benefit of a natural
person must be distributed by the end of 5 years after the date of the
deceased owner's death.
II. Annuitant and owner are different and the annuitant dies.
When we have due proof that the annuitant died prior to the Annuity
Commencement Date, the owner will become the new annuitant and no death
proceeds are payable. If the owner is also the deceased annuitant's
surviving spouse, 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.
However, the owner may elect to have the death proceeds paid upon the
annuitant's death if the election is made prior to the annuitant's death
and we agree to such an election. In such case, when we have due proof that
the annuitant died prior to the Annuity Commencement Date, we will provide
the death proceeds to the beneficiary.
a) If the owner has elected to have the death proceeds paid as a lump sum,
the beneficiary must, within 60 days of our receipt of due proof of the
annuitant's death, either:
1) receive the lump sum proceeds; or
2) elect to receive annuity payments. Such payments must begin within
one year of our receipt of due proof of the annuitant's death and
must be made for a period certain or for this beneficiary's lifetime,
so long as any period certain does not exceed this beneficiary's
life expectancy.
b) Death proceeds which are not paid to or for the benefit of a natural
person must be distributed by the and of 5 years after the date of the
annuitant's death.
III. Annuitant and owner are different and the owner dies.
If the owner dies prior to the Annuity Commencement Date and before the
entire interest in the policy is distributed, the successor owner will
become the new owner. The remaining portion of any interest in the policy
must be distributed to the extent provided below in C.III.a), C.III.b),
C.III.c) or C-III.d).
a) Successor owner is the deceased owner's surviving spouse. The successor
owner may elect to continue this policy rather than receive the Adjusted
Policy Value. If the successor owner elects to receive the Adjusted
Policy Value, the Adjusted Policy Value must be distributed:
(1) by the end of 5 years after the date of the deceased owner's death,
or
(2) payments must begin no later than one year after the deceased
owner's death and must be made for a period certain or for the
successor owner's lifetime, so long as any period certain does not
exceed the successor owner's life expectancy.
b) Successor owner is not the deceased owner's surviving spouse. The
Adjusted Policy Value must be distributed as provided in C.III.a)(1) or
C.III.a)(2) above.
c) Successor owner is not a natural person. The Adjusted Policy Value must
be distributed as provided in C.III.a)(1) above.
d) No successor owner survives the deceased owner. The deceased owner's
estate will become the new owner (or the estate may name a new owner).
The executor or Administrator must be named in a form acceptable to us.
The Adjusted Policy Value must be distributed by the end of 5 years
after the date of the deceased owner's death.
IV. More than one Owner.
If there is more than one owner, then the death of any owner will be
treated the same as the death of the owner.
D. DEATH ON OR AFTER THE ANNUITY COMMENCEMENT DATE
The death proceeds on or after the Annuity Commencement Date depend 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 to the beneficiary at
least as rapidly as under the method of distribution being used as of the date
of that owner's death.
E. AN OWNER IS NOT AN INDIVIDUAL
In the case of a non tax-qualified annuity, if any owner or beneficial owner, is
not an individual, then for purposes of the federal income tax mandatory
distribution provisions in subsection C or D above, (1) the primary annuitant
will be treated as the owner of the policy, and (2) if there is any change in
the primary annuitant, such a change will be treated as the death of the owner.
PAGE 11
SB894
<PAGE>
SECTION 10 - ANNUITY PAYMENTS
A. GENERAL PAYMENT PROVISIONS
Payment
If this policy is in force on the Annuity Commencement Date, we will use the
Fixed Account portion and/or the Separate Account portion of the Adjusted Policy
Value to make annuity payments to the Payee under Option 3 and/or 3-V,
respectively, with 10 years certain, or if elected, under one or more of the
other options described in this section. However, the option(s) elected must
provide for lifetime income or income for a period of at least 60 months. You
will become the annuitant at the Annuity Commencement Date. Payments will be
made at 1, 3, 6 or 12 month intervals. We reserve the right to change the
frequency of payments to avoid making payments of less than $50.00.
Before the Annuity Commencement Date, if the death proceeds become payable or if
you surrender this policy, we will pay any proceeds in one sum, or if elected,
all or part of these proceeds may be placed under one or more of the options
described in this section. If we agree, the proceeds may be placed under some
other method of payment instead.
Election of Optional Method of Payment
Before the Annuity Commencement Date you can elect or change a payment option.
You may elect, in a notice you sign which gives us the facts that we need,
annuity payments that may be either variable, fixed, or a combination of both.
If you elect a combination, you must also tell us what part of the policy
proceeds on the Annuity Commencement Date and which Subaccounts are to be
applied to provide each type of payment The amount of a combined payment will be
the sum of the variable and fixed payments. Payments under a variable payment
option will reflect the investment performance of the selected Subaccount of the
Separate Account.
Payee
Unless you specify otherwise, the payee shall be the annuitant, if living, or
the beneficiary as specified in the Beneficiary provision.
Proof of Age
We may require proof of the age of any person who has an annuity purchased under
Fixed Account Payment Options 3 and 5 or Variable Account Payment Options 3-V
and 5-V of this section before we make the first payment.
Minimum Proceeds
If the proceeds are less than $2,000, we reserve the right to pay them out as a
lump sum instead of applying them to a payment option.
Premium Tax
We may be required by law to pay premium tax on the amount applied to a payment
option. If so, we will deduct the premium tax before applying the proceeds.
Supplementary Contract
Once proceeds become payable and a payment option has been selected, this policy
will terminate and we will issue a supplementary contract to reflect the terms
of the selected option. The contract will name the payees and will describe the
payment schedule.
B. FIXED ACCOUNT PAYMENTS
Guaranteed Payment Options
The fixed account payment is determined by multiplying each $ 1,000 of policy
proceeds allocated to a fixed payment option by the amounts shown on page 12 for
the option you select Options 1, 2 and 4 are based on a guaranteed interest rate
of 3%. Options 3 and 5 are based on a guaranteed interest rate of 3% 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.)
Option 1 - Interest Payments
The policy proceeds may be left with us for any term agreed to. We will pay the
interest in periodic payments or it may be left to accumulate. Withdrawal
rights will be agreed upon by you and us when the option is elected. The
interest rate we declare for this option may be different than the interest
rate(s) credited prior to the Annuity Commencement Date.
Option 2 - Income for a Specified Period
Payments are made for the fixed period elected. In the event of the death of
the person receiving payments prior to the end of that fixed period, payments
will be continued to that person's beneficiary or the present value of remaining
annuity payments may be paid in a single sum.
Option 3 - Life Income
An election may be made between "No Period Certain", "10 Years Certain" or
"Guaranteed Return of Policy Proceeds". In the event of the death of the person
receiving payments prior to the end of the period certain or period determined
for Return of Policy rroceeds, payments will be continued to that person's
ideneficiary or the present value of remaining annuity payments may be paid in a
single sum.
Option 4 - Income of a Specified Amount
Payments are made for any specified amount until the proceeds with interest are
exhausted. In the event of the death of the person receiving payments prior to
the time proceeds with interest are exhausted, payments will be continued to
that person's beneficiary or the present value of remaining annuity payments may
be paid in a single sum.
Option 5 - Joint and Survivor Annuity
Payments are made during the joint lifetime of the payee and a nominee of your
selection. Payments will be made as long as either person is living.
PAGE 11(A)
S895
<PAGE>
SECTION 10 - CONT
Current Payment Options
The amounts shown in the tables on page 12 are the guaranteed amounts. Current
amounts may be obtained from us.
C. VARIABLE ACCOUNT PAYMENT OPTIONS
Variable Annuity Units
The policy proceeds you tell us to apply to a variable payment option will be
used to purchase variable annuity units in your chosen Subaccounts. The dollar
value of variable annuity units in your chosen Subaccounts will increase or
decrease reflecting the investment experience of your chosen Subaccounts. The
value of a variable annuity unit in a particular Subaccount on any business day
is equal to (a) multiplied by (b) multiplied by (c), where:
(a) is the variable annuity unit value for that Subaccount on the immediately
preceding business day;
(b) is the net investment factor for that Subaccount for the Valuation Period;
and
(c) is the Assumed Investment Return adjustment factor for the Valuation
Period.
The Assumed Investment Return adjustment factor for the valuation period is the
product of discount factors of .99986634 per day to recognize the 5.0% effective
annual Assumed Investment Return.
The net investment factor used to calculate the value of a variable annuity unit
in each Subaccount for the Valuation Period is determined by dividing (a) by (b)
and subtracting (c) from the result, where:
(a) is the net result of:
(1) the net asset value of a fund share held in that Subaccount determined
as of 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 credit or charge for any taxes reserved for, which we
determine to have resulted from the investment operations of the
Subaccount.
(b) is the net asset value of a fund share held in that Subaccount determined
as of the end of the immediately preceding Valuation Period.
(c) is a factor representing the Mortality and Expense Risk Fee and
Administrative Charge. This factor is less than or equal to, on an annual
basis, the percentage shown on page 3 of the daily net asset value of a
fund share held in the Separate Account for that Subaccount.
Determination of the First Variable Payment
The amount of the first variable payment is determined by multiplying each
$1,000 of policy proceeds allocated to a variable payment option by the amounts
shown on page 13 for the variable option you select. 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 amount of the first payment depends upon the adjusted age of the annuitant
The adjusted age is the annuitant's actual age on the annuitant's nearest
birthday, at 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
</TABLE>
After 2040 as determined by us.
Option 3-V - Life Income
An election may be made between:
1. "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 10 years.
Option 5-V - Joint and Survivor Annuity
Payments are made as long as either the annuitant or the joint annuitant is
living.
Determination of Subsequent Variable Payments
The amount of each variable annuity payment after the first will increase or
decrease according to the value of the variable annuity units which ref lect the
investment experience of the selected Subaccounts. Each variable annuity
payment after the first will be equal to the number of variable annuity units in
the selected Subaccounts multiplied by the variable annuity unit value on the
date the payment is made. The number of variable annuity units in each selected
Subaccount is determined by dividing the first variable annuity payment
allocated to the Subaccount by the variable annuity unit value of that
Subaccount on the Annuity Commencement Date.
PAGE 11(B)
SB895
<PAGE>
GUARANTEED FIXED ACCOUNT PAYMENT OPTIONS
The amounts shown in these tables are the guaranteed amounts for each $1,000 of
the policy proceeds. Higher current amounts may be available at the time of
settlement.
<TABLE>
<CAPTION>
- -------------------------------------------- ------------------------------------------------------------------------------------
Option 2, Table 1 Option 3, Table II Option 3, Table III Option 3, Table IV
- -------------------------------------------- ------------------------------------------------------------------------------------
Number Amount Monthly Installment Monthly Installment for Life Monthly Installment For Life
of Years of Monthly For Life Guaranteed Return Of
Payable Installment No Period Certain 10 Years Certain Policy Proceeds
------------------------------------------------------------------------------------
Age Male Female Unisex Male Female Unisex Male Female Unisex
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
50 $3.87 $3.55 $3.71 $3.84 $3.54 $3.70 $3.73 $3.49 $3.61
51 3.93 3.60 3.77 3.90 3.59 3.75 3.79 3.53 3.66
52 4.00 3.65 3.83 3.97 3.64 3.81 3.84 3.58 3.71
53 4.07 3.71 3.90 4.04 3.70 3.87 3.90 3.63 3.76
5 $17.91 54 4.15 3.77 3.97 4.11 3.75 3.94 3.96 3.68 3.82
6 15.14 55 4.23 3.83 4.04 4.19 3.82 4.01 4.03 3.73 3.88
7 13.16 56 4.32 3.90 4.11 4.27 3.88 4.08 4.10 3.79 3.94
8 11.68 57 4.41 3.97 4.19 4.35 3.95 4.15 4.17 3.85 4.00
9 10.53 58 4.50 4.05 4.28 4.44 4.02 4.24 4.24 3.91 4.07
10 9.61 59 4.61 4.13 4.37 4.53 4.10 4.32 4.32 3.97 4.14
11 8.86 60 4.72 4.21 4.47 4.63 4.18 4.41 4.40 4.04 4.22
12 8.24 61 4.84 4.30 4.57 4.74 4.26 4.51 4.49 4.12 4.30
13 7.71 62 4.96 4.40 4.68 4.85 4.35 4.61 4.58 4.19 4.38
14 7.26 63 5.10 4.50 4.80 4.97 4.45 4.71 4.68 4.28 4.47
15 6.87 64 5.24 4.61 4.93 5.09 4.55 4.83 4.78 4.36 4.56
16 6.53 65 5.40 4.73 5.06 5.22 4.66 4.95 4.88 4.45 4.66
17 6.23 66 5.56 4.85 5.21 5.36 4.77 5.07 4.99 4.55 4.76
18 5.96 67 5.74 4.99 5.36 5.50 4.89 5.20 5.11 4.65 4.87
19 5.73 68 5.93 5.13 5.53 5.65 5.02 5.34 5.24 4.76 4.98
20 5.51 69 6.13 5.29 5.71 5.80 5.15 5.49 5.37 4.87 5.10
70 6.34 5.45 5.90 5.96 5.30 5.64 5.51 4.99 5.23
</TABLE>
- --------------------------------------------------------------------------------
Option 5, Table V
- --------------------------------------------------------------------------------
Monthly Installment For Joint and Full Survivor
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Age of Age of Female Annuitant
------------------------------------------------------
Male 15 12 9 6 3 3
Years Years Years Years Years Same Years
Annuitant* Less Less Less Less Less As More
Than Than Than Than Than Male Than
Male Male Male Male Male Male
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
50 $2.99 $3.05 $3.11 $3.18 $3.25 $3.32 $3.39
55 3.11 3.19 3.27 3.35 3.44 3.53 3.63
60 3.27 3.37 3.47 3.58 3.70 3.82 3.95
65 3.47 3.60 3.74 3.89 4.05 4.22 4.39
70 3.74 3.91 4.10 4.31 4.53 4.77 5.02
- --------------------------------------------------------------------------------
Monthly Installment for Unisex Joint and Full Survivor
- --------------------------------------------------------------------------------
Age of Age of Joint Annuitant*
------------------------------------------------------
First 15 12 9 6 3 3
Years Years Years Years Years Same Years
Annuitant* Less Less Less Less Less As More
Than Than Than Than Than First Than
First First First First First First
- --------------------------------------------------------------------------------
50 $3.04 $3.09 $3.15 $3.21 $3.27 $3.33 $3.39
55 3.17 3.24 3.32 3.40 3.48 3.56 3.63
60 3.34 3.44 3.54 3.64 3.75 3.85 3.95
65 3.57 3.70 3.83 3.97 4.11 4.26 4.39
70 3.87 4.04 4.22 4.42 4.62 4.82 5.01
- --------------------------------------------------------------------------------
</TABLE>
* Age nearest birthday
- --------------------------------------------------------------------------------
The annual, semi-annual or quarterly installments under Option 2 shall be the
monthly installment shown multiplied by 11.84, 5.96 or 2.99 respectively, and
for Options 3 and 5 the monthly installment shown multiplied by 11.80, 5.95 or
2.99 respectively.
- --------------------------------------------------------------------------------
Dollar amounts of monthly installments not shown in the above tables will be
calculated on the same basis as those shown and may be obtained from the
Company.
PAGE 12
T819
<PAGE>
VARIABLE PAYMENT OPTIONS
BASED ON ASSUMED INVESTMENT RETURN
The amounts shown in these tables are the initial payment amounts based on a
5.0% Assumed Investment Return for each $1,000 of the policy proceeds.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Option 3-V, Table II Option 3-V, Table III
- ----------- ----------------------------------------------------------------
Monthly Installment for Life Monthly Installment For Life
No Period Certain 10 Years Certain
--------------------------------------------------------------------
Age Male Female Unisex Male Female Unisex
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
50 $5.11 $4.81 $4.96 $5.07 $4.79 $4.94
51 5.17 4.85 5.02 5.13 4.83 4.99
52 5.24 4.90 5.07 5.19 4.88 5.04
53 5.31 4.95 5.13 5.25 4.93 5.10
54 5.38 5.01 5.20 5.32 4.98 5.16
55 5.46 5.06 5.26 5.39 5.04 5.22
56 5.54 5.12 5.34 5.47 5.09 5.28
57 5.63 5.19 5.41 5.54 5.16 5.36
58 5.72 5.26 5.49 5.63 5.22 5.43
59 5.82 5.34 5.58 5.72 5.29 5.51
60 5.93 5.42 5.68 5.81 5.37 5.60
61 6.04 5.50 5.78 5.91 5.44 5.69
62 6.17 5.60 5.89 6.02 5.53 5.78
63 6.30 5.69 6.00 6.13 5.62 5.88
64 6.44 5.80 6.13 6.25 5.71 5.99
65 6.60 5.91 6.26 6.37 5.82 6.10
66 6.76 6.04 6.40 6.50 5.92 6.22
67 6.94 6.17 6.56 6.63 6.04 6.35
68 7.13 6.31 6.72 6.77 6.16 6.48
69 7.33 6.46 6.90 6.92 6.29 6.62
70 7.55 6.63 7.09 7.07 6.43 6.76
-----------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Option 5V, Table V
- --------------------------------------------------------------------------------
Monthly Installment For Joint and Full Survivor
- --------------------------------------------------------------------------------
Age of Female Annuitant
- --------------------------------------------------------------------------------
Age of 15 12 9 6 3 3
Years Years Years Years Years Same Years
Male Less Less Less Less Less As More
Than Than Than Than Than Male Than
Annuitant* Male Male Male Male Male Male
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
50 $4.32 $4.36 $4.41 $4.46 $4.51 $4.57 $4.62
55 4.42 4.47 4.53 4.60 4.67 4.75 4.83
60 4.54 4.62 4.70 4.80 4.90 5.01 5.12
65 4.71 4.82 4.94 5.07 5.22 5.37 5.53
70 4.95 5.10 5.27 5.46 5.67 5.89 6.13
- --------------------------------------------------------------------------------
Monthly Installment for Unisex Joint and Full Survivor
- --------------------------------------------------------------------------------
Age of Age of Joint Annuitant *
------------------------------------------------------
First 15 12 9 6 3 3
Years Years Years Years Years Same Years
Annuitant* Less Less Less Less Less As More
Than Than Than Than Than First Than
First First First First First First
- --------------------------------------------------------------------------------
50 $4.40 $4.45 $4.50 $4.55 $4.61 $4.67 $4.72
55 4.52 4.59 4.66 4.73 4.81 4.89 4.96
60 4.69 4.78 4.87 4.97 5.08 5.19 5.29
65 4.91 5.04 5.17 5.31 5.46 5.62 5.77
70 5.22 5.40 5.59 5.79 6.02 6.24 6.47
- --------------------------------------------------------------------------------
</TABLE>
*Age nearest birthday
- --------------------------------------------------------------------------------
The annual, semi-annual or quarterly installments shall be the monthly
installment shown for Options 3-V and 5-V multiplied by 11.70, 5.93 or 2.99
respectively.
- --------------------------------------------------------------------------------
Dollar amounts of monthly installments not shown in the above tables will be
calculated on the same basis as those shown and may be obtained from the
Company.
PAGE 13
TB819
<PAGE>
SECTION 11 - GENERAL PROVISIONS
THE CONTRACT
The entire contract consists of this policy, endorsements, if any, and any
application signed by you.
MODIFICATION OF POLICY
No change in this policy is valid unless made in writing by us and approved by
one of our officers. No Registered Representative has authority to change or
waive any provision of your policy.
TAX QUALIFICATION
This policy is intended to qualify as an annuity contract for federal income
tax purposes. The provisions of this policy are to be interpreted to maintain
such qualification, notwithstanding any other provisions to the contrary. To
maintain such tax qualification, we reserve the right to amend this policy to
reflect any clarifications that may be needed or are appropriate to maintain
such tax qualification or to conform this policy to any applicable changes in
the tax qualification requirements. We will send you a copy in the event of
any such amendment. If you refuse such an amendment it must be by giving us
written notice, and your refusal may result in adverse tax consequences.
NON-PARTICIPATING
This policy will not share in our surplus earnings.
AGE OR SEX CORRECTIONS
If the age or sex of the annuitant has been misstated, the benefits will be
those which the premiums paid would have purchased for the correct age and sex.
If required by law to ignore differences in the sex of the annuitant, the
payment options will be determined using the unisex factors in Section 10.
Any underpayment made by us will be paid with the next payment. Any overpayment
made by us will be deducted from future payments. Any underpayment or
overpayment, will include interest at 5% per year, from the date of the wrong
payment to the date of the adjustment.
INCONTESTABILITY
This policy shall be incontestable from the policy date.
EVIDENCE OF SURVIVAL
We have the right to require satisfactory evidence that a person was alive if a
payment is based on that person being alive. No payment will be made until we
receive the evidence.
SETTLEMENT
Any payment by us under this policy is payable at our Home Office.
RIGHTS OF OWNER
The owner may, while the annuitant is living:
1. Assign this policy.
2. Surrender the policy to us.
3. Amend or modify the policy with our consent.
4. Receive annuity payments or name a Payee to receive the payments.
5. Exercise, receive and enjoy every other right and benefit contained in the
policy.
The use of these rights may be subject to the consent of any assignee or
irrevocable beneficiary; and of the spouse in a community or marital property
state.
SUCCESSOR OWNER
A successor owner can be named in any application, or in a notice you sign
which gives us the facts that we need. The successor owner will become the new
owner when you die, if you die before the annuitant. If no successor owner
survives you and you die before the annuitant, your estate will become the new
owner.
CHANGE OF OWNERSHIP
In the case of a non-tax qualified annuity, you can change the owner of this
policy, from yourself to a new owner, in a notice you sign which gives us the
facts that we need. When this change takes effect, all rights of ownership in
this policy will pass to the new owner.
A change of owner or successor owner will not be effective until it is recorded
in our records. After it has been so recorded, the change will take effect as
of the date you signed the notice. However, if the annuitant dies before the
notice has been so recorded, it will not be effective as to those proceeds we
have paid before the change was recorded in our records. We may require that
the change be endorsed in the policy. Changing the owner or naming a new
successor owner cancels any prior choice of successor owner, but does not
change the beneficiary or the annuitant.
A change in ownership may result in adverse tax consequences.
ANNUITY COMMENCEMENT DATE
The Annuity Commencement Date is the date annuity payments begin. This date is
generally no later than the last day of the policy month starting after the
Annuitant attains age 85. In no event can this date be later than the last day
of the policy month following the month in which the Annuitant attains age 95.
You may change the Annuity Commencement Date at any time before the Annuity
Commencement Date by giving us 30 days' written notice.
PAGE 14
J579
<PAGE>
SECTION 11 - CONT
ASSIGNMENT
(a) In the case of a non-tax qualified annuity, this policy may be assigned.
The assignment must be in writing and filed with us.
(b) We assume no responsibility for the validity of any assignment. Any claim
made under an assignment shall be subject to proof of interest and the
extent of the assignment.
(c) This policy may be applied for and issued to qualify as a tax-qualified
annuity under certain sections of the Internal Revenue Code. Ownership of
this policy then is restricted so that it will comply with provisions of
the Internal Revenue Code.
Assignment of this policy may result in adverse tax consequences.
BENEFICIARY
Death proceeds, when payable in accordance with Section 9, are payable to the
designated beneficiary or beneficiaries. Such beneficiary(ies) must be named in
any application and may be changed without the named beneficiary's consent
(unless the beneficiary has been irrevocably designated or required by law) by
notifying us in writing on a form acceptable to us. The change will take effect
upon the date you sign it, whether or not you are living when we receive it. The
notice must have been postmarked (or show other evidence of delivery that is
acceptable to us) on or before the date of death. Your most recent change of
beneficiary notice will replace any prior beneficiary designations. No change
will apply to any payment we made before the written notice was received. If an
irrevocable beneficiary dies, you may designate a new beneficiary.
You may direct that the beneficiary shall not have the right to withdraw, assign
or commute any sum payable under an option. In the absence of such election or
direction, the beneficiary may change the manner of payment or make an election
of any option.
If any primary or contingent beneficiary dies before the annuitant, that
beneficiary's interest in this policy ends with that beneficiary's death. Only
those beneficiaries living at the time of the annuitant's death will be eligible
to receive their share of the Death Proceeds. In the event no contingent
beneficiaries have been named and all primary beneficiaries have died before the
death proceeds become payable, the owner(s) will become the beneficiary(ies)
unless elected otherwise in accordance with Section 9. If both primary and
contingent beneficiaries have been named, payment will be made to the named
primary beneficiaries living at the time the death proceeds become payable. If
there is more than one beneficiary and you failed to specify their interest,
they will share equally. Payment will be made to the named contingent
beneficiary(ies) only if all primary beneficiaries have died before the death
proceeds become payable. If any primary beneficiary is alive at the time the
death proceeds become payable, but dies before making a payment election to us
in writing, their share will be paid to their estate.
In cases where the annuitant dies and the owner (who is not the annuitant)
elected to receive the death benefit in accordance with Section 9, if a
beneficiary or no beneficiaries survive the annuitant, then payment will be made
to the owner.
PROTECTION OF PROCEEDS
Unless you so direct by filing written notice with us, no beneficiary may assign
any payments under this policy before the same are due. To the extent permitted
by law, no payments under this policy will be subject to the claims of creditors
of any beneficiary.
DEFERMENT
We will pay any partial withdrawals or surrender proceeds within 7 days after we
receive all requirements that we need. However, it may happen that the New York
Stock Exchange is closed for trading (other than the usual weekend or holiday
closings), or the Securities and Exchange Commission restricts trading or
determines that an emergency exists. If so, it may not be practical for us to
determine the investment experience of the Separate Account. In that case, we
may defer transfers among the Subaccounts and to the Fixed Account, and
determination or payment of Partial Withdrawals or surrender proceeds.
When permitted by law, we may defer paying any Partial Withdrawals or surrender
proceeds from the Fixed Account for up to 6 months from date we receive your
request. If the Owner dies after the request is received, but before the
request is processed, the request will be processed before the death proceeds
are determined. Interest will be paid on any amount deferred for 30 days or
more. This rate will be 3% per year unless otherwise required by law.
REPORTS TO OWNER
We will give you an annual report at least once each Policy Year. This report
will show the number and value of the accumulation units held in each of the
Subaccounts as well as the value of the Fixed Account. It will also give you any
other facts required by law or regulation.
MINIMUM VALUES
Benefits available under this policy are not less than those required by any
statute of the state in which the policy is delivered.
PAGE 15
J579
<PAGE>
[LOGO OF PFL LIFE INSURANCE COMPANY APPEARS HERE]
PFL Life Insurance Company
A Stock Company
Home Office located at 4333 Edgewood Road N.E., Cedar
Rapids, Iowa 52499
(Hereafter called the Company, we, our or us)
AMENDATORY ENDORSEMENT
The Policy to which this Amendatory Endorsement is attached is amended by the
addition of the following language:
DEFINITIONS
Custodial Care - Care designed essentially to help a person with the activities
of daily living which does not require the continuous attention of trained
medical or paramedical personnel.
Hospital - An institution which 1) is operated pursuant to the laws of the
jurisdiction in which it is located, 2) operates primarily for the care and
treatment of sick and injured persons on an inpatient basis, 3) provides 24-
hour a day nursing service by or under the supervision of registered graduate
professional nurses, 4) is supervised by a staff of one or more licensed
physicians, and 5) has medical, surgical and diagnostic facilities or access to
such facilities.
Nursing Facility - A facility which 1) is operated pursuant to the laws of the
jurisdiction in which it is located, 2) provides Nursing Care or Custodial
Care, 3) primarily provides nursing care under the direction of a licensed
physician, registered graduate professional nurse, or licensed vocational
nurse, except when receiving custodial care, and 4), is not other than
incidentally a hospital, a home for the aged, a retirement home, a rest home, a
community living center or a place mainly for the treatment of alcoholism,
mental illness or drug abuse.
Nursing Care - Nursing care prescribed by a physician and performed or
supervised by a registered graduate nurse. Such care includes nursing and
rehabilitation services available 24 hours a day.
Physician - Doctor of Medicine or Doctor of Osteopathy who is licensed as such
and operating within the scope of the license.
Terminal Condition - A condition resulting from an accident or illness which,
as determined by a physician, has reduced life expectancy to not more than 12
months, despite appropriate medical care.
NURSING CARE AND TERMINAL CONDITION WITHDRAWAL OPTION
If the annuitant, owner, annuitant's spouse, or owner's spouse has been 1)
confined in a Hospital or Nursing Facility for 30 consecutive days or 2)
diagnosed as having a Terminal Condition, you may elect to withdraw all or a
portion of the Policy Value without Surrender Charges or Excess Interest
Adjustments.
For Nursing Care, we must receive each withdrawal request and proof of
eligibility with each request no later than 90 days following the date that
confinement has ceased, unless it can be shown that it was not reasonably
possible to provide the notice and proof within the above time period and that
the notice and proof were given as soon as reasonably possible. However, in no
event, except the absence of legal capacity, shall the notice and proof be
provided later than one year following the date that confinement has ceased.
For a Terminal Condition, we must receive each withdrawal request and the
applicable proof of eligibility following diagnosis of the Terminal Condition.
Proof of a Terminal Condition is required only with the initial withdrawal
request and must be furnished by the annuitant's, owner's, annuitant's
spouse's, or owner's spouse's physician. Proof of confinement may be a
physician's statement or a statement from a hospital or nursing facility
administrator.
The minimum withdrawal under this option is $1000. The withdrawal will reduce
the Policy Value by the amount withdrawn. The determination of Excess Interest
Adjustment-free amounts available under the Cash Value and Partial Withdrawals
Section of the policy to which this Amendatory Endorsement is attached will not
be affected by any withdrawals taken in accordance with the provisions of this
Amendatory Endorsement. In addition, such withdrawals will not be limited by
the Cumulative Free Percentage, but will reduce the Cumulative Free Percentage
as described in Section 5 of the policy.
We may terminate the Policy and pay you the full Cash Value if the withdrawal
reduces the Cash Value below $500.
This Amendatory Endorsement takes effect and expires concurrently with the
Policy to which it is attached and is subject to all the terms and conditions
of the Policy not inconsistent herewith.
Signed for us at our home office.
/s/ Craig D. Vermie /s/ William L. Busler
SECRETARY PRESIDENT
20
AE 955 397
<PAGE>
PFL Life Insurance Company
Home Office located at 4333 Edgewood Road N.E., Cedar Rapids, Iowa 52499
[LOGO OF PFL LIFE INSURANCE COMPANY APPEARS HERE]
Flexible Premium Variable Annuity
Income Payable At Annuity Commencement Date
Benefits Based On The Performance Of The Separate Account
Are Variable And Are Not Guaranteed As To Dollar Amount (See Sections 6 and
IOC.)
Non-Participating
INDEX
<TABLE>
<CAPTION>
Page
<S> <C>
Accumulation Units........................................................ 7(B)
Age or Sex Corrections...................................................... 14
Annuity Commencement Date................................................... 14
Annuity Payments......................................................... 11(A)
Adjusted Policy Value........................................................ 4
Assignment.................................................................. 15
Beneficiary................................................................. 15
Cash Value................................................................... 4
Contract.................................................................... 14
Death Proceeds.............................................................. 10
Definitions.................................................................. 2
Dollar Cost Averaging........................................................ 9
Evidence of Survival........................................................ 14
Excess Interest Adjustment................................................... 5
Fixed Account................................................................ 8
Guaranteed Minimum Death Benefit............................................ 10
Guaranteed Periods........................................................... 8
<CAPTION>
Page
<S>
Guaranteed Return of Fixed Account
Premium Payments............................................................. 7
Incontestability............................................................ 14
Modification of Policy...................................................... 14
Nonparticipation............................................................ 14
Owner....................................................................... 14
Partial Withdrawals....................................................... 5, 6
Payee.................................................................... 11(A)
Payment Option Tables.................................................... 12,13
Policy Data Page............................................................. 3
Policy Value................................................................. 4
Premium Payments............................................................. 4
Proof of Age............................................................. 11(A)
Protection of Proceeds...................................................... 15
Right to Cancel.............................................................. 1
Separate Account.......................................................... 7(A)
Service Charge.............................................................. 14
Settlement.................................................................. 14
Transfers.................................................................... 9
</TABLE>
Y507
<PAGE>
EXHIBIT (5)
-----------
FORM OF APPLICATION FOR
THE ATLAS PORTFOLIO BUILDER VARIABLE ANNUITY
<PAGE>
[LOGO OF PFL PFL Life Insurance Company
APPEARS HERE] 4333 EDGEWOOD ROAD NE
CEDAR RAPIDS, IOWA 52499
APPLICATION FOR
INDIVIDUAL VARIABLE ANNUITY PRODUCT NAME:
--------------------------------
1. ANNUITANT (Must be a natural person)
- --------------------------------------------------------------------------------
NAME:
------------------------------------------------------------------------
ADDRESS:
---------------------------------------------------------------------
CITY, STATE:
-----------------------------------------------------------------
ZIP: - TELEPHONE: ( ) -
----- ---- ---------------------------------------------------
DATE OF BIRTH: AGE: SEX: [_] FEMALE [_] MALE
-------------- ----------------
SS#: CITIZENSHIP: [_] U.S. [_] OTHER
-------------------------------------
- --------------------------------------------------------------------------------
2. POLICY OWNER (If other than annuitant)
- --------------------------------------------------------------------------------
If the owner is a trust, please provide verification of trustees.
NAME:
------------------------------------------------------------------------
ADDRESS:
---------------------------------------------------------------------
CITY, STATE:
-----------------------------------------------------------------
ZIP: - TELEPHONE: ( ) -
----- ---- ---------------------------------------------------
DATE OF BIRTH: AGE: SEX: [_] FEMALE [_] MALE
-------------- ----------------
SS#: CITIZENSHIP: [_] U.S. [_] OTHER
-------------------------------------
- --------------------------------------------------------------------------------
3. [_] JOINT POLICY OWNER [_] CONTINGENT POLICY OWNER
- --------------------------------------------------------------------------------
IF the owner is a trust, please provide verification of trustees.
NAME:
------------------------------------------------------------------------
ADDRESS:
---------------------------------------------------------------------
CITY, STATE:
-----------------------------------------------------------------
ZIP: - TELEPHONE: ( ) -
----- ---- ---------------------------------------------------
DATE OF BIRTH: AGE: SEX: [_] FEMALE [_] MALE
-------------- ----------------
SS#: CITIZENSHIP: [_] U.S. [_] OTHER
-------------------------------------
- --------------------------------------------------------------------------------
4. BENEFICIARY DESIGNATION (Include Relationship to Annuitant)
- --------------------------------------------------------------------------------
PRIMARY: /
------------------------------------------- ----------------------
Relationship
PRIMARY: /
------------------------------------------- ----------------------
Relationship
PRIMARY: /
------------------------------------------- ----------------------
Relationship
PRIMARY: /
------------------------------------------- ----------------------
Relationship
CONTINGENT: /
---------------------------------------- ----------------------
Relationship
CONTINGENT: /
---------------------------------------- ----------------------
Relationship
CONTINGENT: /
---------------------------------------- ----------------------
Relationship
CONTINGENT: /
---------------------------------------- ----------------------
Relationship
- --------------------------------------------------------------------------------
5. TYPE OF ANNUITY
- --------------------------------------------------------------------------------
[_] NON-QUALIFIED [_] IRA (Also complete Box 6)
[_] OTHER _________________ [_] SEP (Also complete Box 6)
- --------------------------------------------------------------------------------
6. IRA/SEP INFORMATION
- --------------------------------------------------------------------------------
$ CONTRIBUTION FOR TAX YEAR
---------- -------------------------
$ TRUSTEE TO TRUSTEE TRANSFER
----------
$ ROLLOVER FROM: (Check one) [_] 403(b) [_] Pension
----------
[_] Other Qualified Plan (specify):
---------------------------------------
- --------------------------------------------------------------------------------
7. PURCHASE PAYMENT (Make check payable to PFL Life Insurance Company)
- --------------------------------------------------------------------------------
INITIAL PREMIUM AMOUNT $
-----------------------------------------------------
- --------------------------------------------------------------------------------
8. ALLOCATION OF PREMIUM PAYMENTS (Whole percentages only)
- --------------------------------------------------------------------------------
Atlas Advisers, Inc.
BALANCED GROWTH .0%
-------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The Dreyfus Corporation
CAPITAL APPRECIATION .0%
-------------
DISCIPLINED STOCK .0%
-------------
GROWTH & INCOME .0%
-------------
QUALITY BOND .0%
-------------
SMALL CAP .0%
-------------
SMALL CAP VALUE (ENDEAVOR) .0%
-------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Federated Advisers
HIGH INCOME BOND .0%
-------------
UTILITY .0%
-------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Janus Capital Corporation
GLOBAL (WRL) .0%
-------------
GROWTH (WRL) .0%
-------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Op Cap Advisors
VALUE EQUITY PORTFOLIO .0%
-------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
T. Rowe Price Associates, Inc.
EQUITY INCOME (ENDEAVOR) .0%
-------------
GROWTH STOCK (ENDEAVOR) .0%
-------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Van Kampen American Capital Asset Management, Inc.
EMERGING GROWTH (WRL) .0%
-------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PFL Life - Fixed Account Options
One Year Fixed Option: .0%
-------------
------------------------------------------------------------------------------
Guaranteed Period Options (with Excess Interest Adjustment):
5 YEARS .0%
-------------
7 YEARS .0%
-------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Additional: .0%
-------------------------------------------------------------------
.0%
------------------------------------------------------------------------------
.0%
------------------------------------------------------------------------------
.0%
------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
INVESTMENT ALLOCATIONS MUST TOTAL 100%
- --------------------------------------------------------------------------------
9. TELEPHONE TRANSFER/REALLOCATION AUTHORIZATION
- --------------------------------------------------------------------------------
[_] I authorize changing the allocation of any purchase payments and/or to
transfer funds among my investment choices based on my telephone
instructions.
I am aware that telephone instructions will be recorded to protect me and
the company and will be put into effect when proper identification is
provided.
- --------------------------------------------------------------------------------
10. WILL THIS ANNUITY REPLACE ANY EXISTING ANNUITY OR LIFE INSURANCE POLICY?
- --------------------------------------------------------------------------------
[_] NO [_] YES - Please state Policy No. and Company
Name:
------------------------------------------------------------------------
- --------------------------------------------------------------------------------
11. If the annuitant is not the owner. You, the owner may elect the following
regarding payment of the death benefit. If this election is not made, the
owner will become the annuitant and the death benefit will not be payable
until the death of the owner.
- --------------------------------------------------------------------------------
[_] At the Annuitant's death, I wish to
have the death benefit paid to the
named beneficiary. (Policy Owner --------------------------
Initials required for this option) Policy Owner(s) Initials
- --------------------------------------------------------------------------------
ATVA-APP 397
<PAGE>
APPLICATION FOR VARIABLE ANNUITY POLICY
12. DOLLAR COST AVERAGING
- --------------------------------------------------------------------------------
By signing below I authorize the Company to transfer funds from the One Year
Fixed Option to invest in the portfolio(s), indicated below. Transfers will be
made monthly, unless indicated differently below. I understand that the
transfers will continue until I terminate the program in writing. I also
understand that the Dollar Cost Averaging program is subject to the rules and
restrictions associated with the PFL Life policy.
<TABLE>
<CAPTION>
Please Please Invest in Following Accounts for Each Transfer
Invest: $ (Allocation Must Total 100%):
------------
<S> <C> <C>
--------- Atlas Balanced Growth .0% Federated Utility .0%
Monthly Dreyfus Capital Janus Global .0%
------- Transfers Appreciation .0% Janus Growth .0%
--------- Dreyfus Disciplined Stock .0% Op Cap Value Equity .0%
--------- Dreyfus Growth & Income .0% T. Rowe Price Equity Income .0%
Quarterly Dreyfus Quality Bond .0% T. Rowe Price Growth Stock .0%
------- Transfers Dreyfus Small Cap .0% Van Kampen Emerging Growth .0%
--------- Dreyfus Small Cap Value .0% Additional: .0%
Federated High Income Bond .0% -----------------------
</TABLE>
- --------------------------------------------------------------------------------
13. ASSET REBALANCING...Not available when Dollar Cost Averaging is in effect
or when any other transfer is requested.
- --------------------------------------------------------------------------------
By signing below, I am authorizing the Company to automatically transfer
amounts among the One Year Fixed Option and the sub-accounts (as indicated
below) on a regular basis to maintain a desired allocation. Asset Rebalancing
is not available for any amounts in the Guaranteed Period Options of the Fixed
Account nor when Dollar Cost Averaging is in effect.
<TABLE>
<CAPTION>
Rebalance: Rebalance in Following Accounts (Allocation must equal 100%)
<S> <C> <C> <C> <C> <C> <C>
[_] Monthly Atlas Balanced Growth .0% Dreyfus Small Cap Value .0% Op Cap Value Equity .0%
----- ---- ------
[_] Quarterly Dreyfus Capital Appreciation .0% Federated High Income Bond .0% T. Rowe Price Equity Income .0%
----- ---- ------
[_] Semi-Annual Dreyfus Disciplined Stock .0% Federated Utility .0% T. Rowe Price Growth Stock .0%
----- ---- ------
[_] Annual Dreyfus Growth & Income .0% Janus Global .0% Van Kampen Emerging Growth .0%
----- ---- ------
Date to Begin: Dreyfus Quality Bond .0% Janus Growth .0% Additional: .0%
----- ---- ----------------- ------
/ / Dreyfus Small Cap .0% One Year Fixed Option .0%
---- ---- --- ----- ----
TOTAL 100.0%
</TABLE>
- --------------------------------------------------------------------------------
To the best of my knowledge and belief, my answers to the questions on this
application are correct and true, and I agree that this application shall be a
part of any annuity policy issued to me. I also understand that the Company
reserves the right to reject any application or purchase payment. If this
application is declined, there shall be not liability on the part of the Company
and any purchase payments submitted shall be returned.
I UNDERSTAND THAT ANNUITY PAYMENTS AND TERMINATION VALUES, WHEN BASED ON
INVESTMENT EXPERIENCE OF A SEPARATE ACCOUNT OF THE COMPANY, ARE VARIABLE AND ARE
NOT GUARANTEED AS TO A FIXED DOLLAR AMOUNT.
Receipt of a current prospectus of the Atlas Portfolio Builder Variable
Annuity and underlying funds is hereby acknowledged.
[_] Please check if you wish to receive the Statement of Additional
Information.
I HAVE REVIEWED MY EXISTING ANNUITY COVERAGE AND FIND THIS POLICY IS
SUITABLE FOR MY NEEDS.
When funds are allocated to the Guaranteed Periods of the Fixed Account, cash
values under the policy may increase or decrease in accordance with the Excess
Interest Adjustment prior to the end of any Guaranteed Period.
- --------------------------------------------------------------------------------
--------------------------------------------------
14a. BE SURE TO COMPLETE Under penalties of perjury, I hereby certify (1)
THIS SECTION that the Social Security or Tax ID Number listed
above is correct and (2) that I am currently not
subject to backup withholding [cross out (2) if
not correct] (see below). The Internal Revenue
Service does not require your consent to any
provision of this application other than the
certifications required to avoid backup
withholding.
--------------------------------------------------
Signed at this day of , 19
---------------------------------- ----- ----------- ----
(City, State)
- -------------------------- ------------------------ -----------------------
Annuitant Signature Owner Signature (if Joint Owner (successor
different from Annuitant) owner signature)
- --------------------------------------------------------------------------------
14b. Spousal consent is required when spouse is not designated a Policy Owner
and/or a Primary Beneficiary if the policy is purchased in or the Owner(s)
reside in a community property or marital property state (AZ, CA,
TX). By signing below, I (consenting spouse) hereby
give my consent to the designation of any person or entity as primary
beneficiary or owner of the policy being applied for. I understand that
such designation may change the community property or marital property
rights I may have in the policy.
If there is no spouse, please
indicate marital status by , 19
checking applicable box. ----------------------- --------- --
[_] Never married; or Signature of Spouse Date Signed
[_] Spouse deceased; or
[_] I am divorced
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
15a. SELLING AGENT USE ONLY - NOT TO BE FILLED IN BY APPLICANT
I HAVE REVIEWED THE APPLICANT'S EXISTING ANNUITY COVERAGE AND FIND THIS POLICY
IS SUITABLE FOR HIS/HER NEEDS.
( ) - / /
- -------------------------- ------------------ ------------------- ---------
Agent Name (Please Print) Agent Telephone Licensed Agent Date
Signature
- --------------------------------------------------------- -------------------
Agent Address Agent Number/Branch
15b. Do you have reason to believe the policy applied for is to replace any
existing annuity or insurance owned by applicant?
[_] No [_] Yes, Company Name
-------------------------------------
- --------------------------------------------------------------------------------
Please make check payable to PFL LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
** Purpose of Statement. This statement is for the payer (Insurance Company)
of interest, dividends, and certain other payments so that you will not be
subject to the 31% backup withholding that became effective January 1, 1984.
This statement is used to report and certify your taxpayer identification
number (TIN) to the payer, to certify that you are not subject to backup
withholding because of underreporting interest and dividends on your tax return,
and to claim exemption from backup withholding if you are an exempt payee.
If you do not certify your TIN, the payer may be required to withhold 20%
of payments made to you.
What is Backup Withholding. The Interest and Dividend Tax Compliance Act of
1983 required payers to withhold and pay to IRS 31% of payments of interest,
dividends, and certain other payments under certain conditions. This is called
"backup withholding." If you give your correct TIN, certify your TIN when
required, and report all of your taxable interest and dividends on your tax
return, your payments will not be subject to backup withholding.
Payments you receive will be subject to backup withholding if:
1) You do no furnish your TIN to the payer, or; (2) IRS notifies the payer
that you furnished an incorrect TIN, or; (3) You are notified by IRS that
you are subject to backup withholding because you failed to report all your
interest and dividends on your tax return (for interest and dividend
accounts only), or; (4) You fail to certify to the payer that you are not
subject to backup withholding under (3) above (for interest and dividend
accounts opened after 1983 only), or; (5) You fail to certify your TIN.
This applies only to interest, dividend broker, or barter exchange accounts
opened after 1983, or broker accounts considered inactive in 1983.
For other payments, you are subject to backup withholding only if (1) or (2)
above applies.
- --------------------------------------------------------------------------------
PLEASE FILL OUT THE FRONT PAGE
----------------------------------
ATVA-APP 397 B
<PAGE>
EXHIBIT (8)(a)
--------------
FORM OF PARTICIPATION AGREEMENT BY AND BETWEEN
PFL LIFE INSURANCE COMPANY
AND
ATLAS INSURANCE TRUST
<PAGE>
PARTICIPATION AGREEMENT
Among
ATLAS INSURANCE TRUST,
ATLAS SECURITIES, INC.
and
PFL LIFE INSURANCE COMPANY
THIS AGREEMENT, made and entered into as of the _________ day of
______________, 1997 by and among PFL LIFE INSURANCE COMPANY, (hereinafter the
"Company"), an Iowa corporation, on its own behalf and on behalf of each
segregated asset account of the Company set forth on Schedule A hereto as may be
amended from time to time (each such account hereinafter referred to as the
"Account"), and the ATLAS INSURANCE TRUST, a business trust organized under the
laws of Delaware (hereinafter the "Trust") and ATLAS SECURITIES, INC.
(hereinafter the "Underwriter"), a California corporation.
WHEREAS, the Trust engages in business as an open-end management
investment company and is available to act as the investment vehicle for
separate accounts established for variable life insurance policies and variable
annuity contracts (collectively, the "Variable Insurance Products") to be
offered by PFL Life Insurance Company; and
WHEREAS, the beneficial interest in the Trust is divided into several
series of shares, each representing the interest in a particular managed
portfolio of securities and other assets, any one or more of which may be made
available under this Agreement, as may be amended from time to time by mutual
agreement of the parties hereto (each such series hereinafter referred to as a
"Portfolio"); and
WHEREAS, the Trust is registered as an open-end management investment
company under the Investment Company Act of 1940 (the "1940 Act") and its shares
are registered under the Securities Act of 1933, as amended (the "1933 Act");
and
WHEREAS, ATLAS ADVISERS, INC. (the "Adviser") is duly registered as an
investment adviser under the federal Investment Advisers Act of 1940 (the
"Advisers Act") and any applicable state securities law; and
WHEREAS, the Company has registered or will register certain variable
life insurance and variable annuity contracts under the 1933 Act; and
WHEREAS, each Account is a duly organized, validly existing segregated
asset account, established by resolution of the Board of Directors of the
Company, on the date shown for such Account on Schedule A hereto, to set aside
and invest assets attributable to the aforesaid variable annuity contracts; and
WHEREAS, the Company has registered or will register each Account as a
unit investment trust under the 1940 Act; and
<PAGE>
WHEREAS, the Underwriter is registered as a broker dealer with the
Securities and Exchange Commission ("SEC") under the Securities Exchange Act of
1934, as amended, (hereinafter the "1934 Act"), and is a member in good standing
of the National Association of Securities Dealers, Inc. (hereinafter "NASD");
and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios on behalf
of each Account to fund certain of the aforesaid variable life and variable
annuity contracts and the Underwriter is authorized to sell such shares to unit
investment trusts such as each Account at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the
Company, the Trust and the Underwriter agree as follows:
ARTICLE I. Sale of Trust Shares
1.1. The Underwriter agrees to sell to the Company those shares of
the Trust which each Account orders, executing such orders on a daily basis at
the net asset value next computed after receipt by the Trust or its designee of
the order for the shares of the Trust. For purposes of this Section 1.1, the
Company shall be the designee of the Trust for receipt of such orders from each
Account and receipt by such designee shall constitute receipt by the Trust;
provided that the Trust receives notice of such order by 9:00 a.m. central time
on the next following Business Day. "Business Day" shall mean any day on which
the New York Stock Exchange is open for trading and on which the Trust
calculates its net asset value pursuant to the rules of the Securities and
Exchange Commission.
1.2. The Trust agrees to make its shares available indefinitely for
purchase at the applicable net asset value per share by the Company and its
Accounts on those days on which the Trust calculates its net asset value
pursuant to rules of the Securities and Exchange Commission and the Trust shall
use reasonable efforts to calculate such net asset value on each day which the
New York Stock Exchange is open for trading. Notwithstanding the foregoing, the
Board of Trustees of the Trust (hereinafter the "Board") may refuse to sell
shares of any Portfolio to any person, or suspend or terminate the offering of
shares of any Portfolio if such action is required by law or by regulatory
authorities having jurisdiction or is, in the sole discretion of the Board
acting in good faith and in light of their fiduciary duties under federal and
any applicable state laws, necessary in the best interests of the shareholders
of such Portfolio.
1.3. The Trust and the Underwriter agree that shares of the Trust
will be sold only to the Company and its separate accounts or (subject to the
other terms of this Agreement) to other life insurance companies that offer
variable annuity and/or variable life insurance contracts to the public and
which have entered into an agreement with the Trust. No shares of any Portfolio
will be sold to the general public.
1.4. The Trust agrees to redeem for cash, on the Company's request,
any full or fractional shares of the Trust held by the Company, executing such
requests on a daily basis at the net asset value next computed after receipt by
the Trust or its designee of the request for redemption. For purposes of this
Section 1.4, the Company shall be the designee of the Trust for receipt of
requests for redemption from each Account and receipt by such designee shall
constitute receipt
<PAGE>
by the Trust; provided that the Trust receives notice of such request for
redemption on the next following Business Day.
1.5. The Company agrees that purchases and redemptions of Portfolio
shares offered by the then current prospectus of the Trust shall be made in
accordance with the provisions of such prospectus. The Company agrees that all
net amounts available under the variable annuity contracts with the form
number(s) which are listed on Schedule A attached hereto and incorporated herein
by this reference, as such Schedule A may be amended from time to time hereafter
by mutual written agreement of all the parties hereto, (the "Contracts") shall
be invested in the Trust, in such other Trusts advised by the Adviser as may be
mutually agreed to in writing by the parties hereto, or in the Company's general
account, provided that such amounts may also be invested in an investment
company other than the Trust if (a) such other investment company, or series
thereof, has investment objectives or policies that are substantially different
from the investment objectives and policies of all the Portfolios of the Trust;
or (b) the Company gives the Trust and the Underwriter 45 days written notice of
its intention to make such other investment company available as a funding
vehicle for the Contracts; or (c) such other investment company was available as
a funding vehicle for the Contracts prior to the date of this Agreement and the
Company so informs the Trust and Underwriter prior to their signing this
Agreement (a list of such funds appearing on Schedule C to this Agreement); or
(d) the Trust or Underwriter consents to the use of such other investment
company.
1.6. The Company shall pay for Trust shares on the next Business Day
after an order to purchase Trust shares is made in accordance with the
provisions of Section 1.1 hereof. Payment shall be in federal funds transmitted
by wire. For purpose of Section 2.10 and 2.11, upon receipt by the Trust of the
federal funds so wired, such funds shall cease to be the responsibility of the
Company and shall become the responsibility of the Trust.
1.7. Issuance and transfer of the Trust's shares will be by book
entry only. Stock certificates will not be issued to the Company or any
Account. Shares ordered from the Trust will be recorded in an appropriate title
for each Account or the appropriate subaccount of each Account.
1.8. The Trust shall furnish same day notice (by wire or telephone,
followed by written confirmation) to the Company of any income, dividends or
capital gain distributions payable on the Trust's shares. The Company hereby
elects to receive all such income dividends and capital gain distributions as
are payable on the Portfolio shares in additional shares of that Portfolio. The
Company reserves the right to revoke this election and to receive all such
income dividends and capital gain distributions in cash. The Trust shall notify
the Company of the number of shares so issued as payment of such dividends and
distributions.
1.9. The Trust shall make the net asset value per share for each
Portfolio available to the Company on a daily basis as soon as reasonably
practical after the net asset value per share is calculated (normally by 5:30
p.m. central time) and shall use its best efforts to make such net asset value
per share available by 5:00 p.m. central time.
<PAGE>
ARTICLE II. Representations and Warranties
2.1. The Company represents and warrants that the Contracts are or
will be registered under the 1933 Act; that the Contracts will be issued and
sold in compliance in all material respects with all applicable Federal and
State laws and that the sale of the Contracts shall comply in all material
respects with state insurance suitability requirements. The Company further
represents and warrants that it is an insurance company duly organized and in
good standing under applicable law and that it has legally and validly
established each Account prior to any issuance or sale thereof as a segregated
asset account under Section 508A.1 of the Iowa Insurance Code and has registered
or, prior to any issuance or sale of the Contracts, will register each Account
as a unit investment trust in accordance with the provisions of the 1940 Act to
serve as a segregated investment account for the Contracts.
2.2. The Trust represents and warrants that Trust shares sold
pursuant to this Agreement shall be registered under the 1933 Act, duly
authorized for issuance and sold in compliance with the laws of the state of
Delaware and all applicable federal and state securities laws and that the Trust
is and shall remain registered under the 1940 Act. The Trust shall amend the
Registration Statement for its shares under the 1933 Act and the 1940 Act from
time to time as required in order to effect the continuous offering of its
shares. The Trust shall register and qualify the shares for sale in accordance
with the laws of the various states only if and to the extent deemed advisable
by the Trust or the Underwriter.
2.3. The Trust represents that it intends to qualify as a Regulated
Investment Company under Subchapter M of the Internal Revenue Code of 1986, as
amended, (the "Code") and that it will make every effort to maintain such
qualification (under Subchapter M or any successor or similar provision) and
that it will notify the Company immediately upon having a reasonable basis for
believing that it has ceased to so qualify or that it might not so qualify in
the future.
2.4. The Company represents that the Contracts are currently treated
as endowment or annuity insurance contracts, under applicable provisions of the
Code and that it will make every effort to maintain such treatment and that it
will notify the Trust and the Underwriter immediately upon having a reasonable
basis for believing that the Contracts have ceased to be so treated or that they
might not be so treated in the future.
2.5. The Trust currently does not intend to make any payments to
finance distribution expenses pursuant to Rule 12b-1 under the 1940 Act or
otherwise, although it may make such payments in the future. To the extent that
it decides to finance distribution expenses pursuant to Rule 12b-1, the Trust
undertakes to have a board of trustees, a majority of whom are not interested
persons of the Trust, formulate and approve any plan under Rule 12b-1 to finance
distribution expenses.
2.6. The Trust makes no representation as to whether any aspect of
its operations (including, but not limited to, fees and expenses and investment
policies) complies with the insurance laws or regulations of the various states
except that the Trust represents that the Trust's investment policies, fees and
expenses are and shall at all times remain in compliance with the laws of the
state of Delaware and the Trust and the Underwriter represent that their
respective operations are and shall at all times remain in material compliance
with the laws of the state of Iowa to the extent required to perform this
Agreement.
<PAGE>
2.7. The Underwriter represents and warrants that it is a member in
good standing of the NASD and is registered as a broker-dealer with the SEC.
The Underwriter further represents that it will sell and distribute the Trust
shares in accordance with the laws of the State of Delaware and all applicable
state and federal securities laws, including without limitation the 1933 Act,
the 1934 Act, and the 1940 Act.
2.8. The Trust represents that it is lawfully organized and validly
existing under the laws of Delaware and that it does and will comply in all
material respects with the 1940 Act.
2.9. The Underwriter represents and warrants that the Adviser is and
shall remain duly registered in all material respects under all applicable
federal and state securities laws and that the Adviser shall perform its
obligations for the Trust in compliance in all material respects with the laws
of the State of California and any applicable state and federal securities laws.
2.10. The Trust and Underwriter represent and warrant that all of
their directors, officers, employees, investment advisers, and other
individuals/entities dealing with the money and/or securities of the Trust are
and shall continue to be at all times covered by a blanket fidelity bond or
similar coverage for the benefit of the Trust in an amount not less than the
minimal coverage as required currently by Rule 17g-(1) of the 1940 Act or
related provisions as may be promulgated from time to time. The aforesaid Bond
shall include coverage for larceny and embezzlement and shall be issued by a
reputable bonding company.
2.11. The Company represents and warrants that all of its directors,
officers, employees, investment advisers, and other individuals/entities dealing
with the money and/or securities of the Trust are covered by a blanket fidelity
bond or similar coverage for the benefit of the Trust, and that said bond is
issued by a reputable bonding company, includes coverage for larceny and
embezzlement, and is in an amount not less than $5 million. The Company agrees
to make all reasonable efforts to see that this bond or another bond containing
these provisions is always in effect, and agrees to notify the Trust and the
Underwriter in the event that such coverage no longer applies.
ARTICLE III. Prospectuses and Proxy Statements; Voting
3.1. The Underwriter shall provide the Company with as many printed
copies of the Trust's current prospectus and Statement of Additional Information
as the Company may reasonably request. If requested by the Company in lieu
thereof, the Trust shall provide camera-ready film containing the Trust's
prospectus and Statement of Additional Information, and such other assistance as
is reasonably necessary in order for the Company once each year (or more
frequently if the prospectus and/or Statement of Additional Information for the
Trust is amended during the year) to have the prospectus for the Contracts and
the Trust's prospectus printed together in one document, and to have the
Statement of Additional Information for the Trust and the Statement of
Additional Information for the Contracts printed together in one document.
Alternatively, the Company may print the Trust's prospectus and/or its Statement
of Additional Information in combination with other fund companies' prospectuses
and statements of additional information. Except as provided in the following
three sentences, all expenses of printing and distributing Trust prospectuses
and Statements of Additional Information shall be the expense of the Company.
For prospectuses and Statements of Additional Information provided by the
<PAGE>
Company to its existing owners of Contracts in order to update disclosure
annually as required by the 1933 Act and/or the 1940 Act, the cost of printing
shall be borne by the Trust. If the Company chooses to receive camera-ready
film in lieu of receiving printed copies of the Trust's prospectus, the Trust
will reimburse the Company in an amount equal to the product of A and B where A
is the number of such prospectuses distributed to owners of the Contracts, and B
is the Trust's per unit cost of typesetting and printing the Trust's prospectus.
The same procedures shall be followed with respect to the Trust's Statement of
Additional Information.
The Company agrees to provide the Trust or its designee with such
information as may be reasonably requested by the Trust to assure that the
Trust's expenses do not include the cost of printing any prospectuses or
Statements of Additional Information other than those actually distributed to
existing owners of the Contracts.
3.2. The Trust's prospectus shall state that the Statement of
Additional Information for the Trust is available from the Underwriter or the
Company (or in the Trust's discretion, the Prospectus shall state that such
Statement is available from the Trust).
3.3. The Trust, at its expense, shall provide the Company with copies
of its proxy statements, reports to shareholders, and other communications
(except for prospectuses and Statements of Additional Information, which are
covered in Section 3.1) to shareholders in such quantity as the Company shall
reasonably require for distributing to Contract owners.
3.4. If and to the extent required by law the Company shall:
(i) solicit voting instructions from Contract owners;
(ii) vote the Trust shares in accordance with instructions received
from Contract owners; and
(iii) vote Trust shares for which no instructions have been received
in a particular separate account in the same proportion as Trust shares of such
portfolio for which instructions have been received in that separate account,
so long as and to the extent that the Securities and Exchange Commission
continues to interpret the 1940 Act to require pass-through voting privileges
for variable contract owners. The Company reserves the right to vote Trust
shares held in any segregated asset account in its own right, to the extent
permitted by law. The Company shall be responsible for assuring that each of
its separate accounts participating in the Trust calculates voting privileges in
a manner consistent with the standards set forth on Schedule B attached hereto
and incorporated herein by this reference.
3.5. The Trust will comply with all provisions of the 1940 Act
requiring voting by shareholders, and in particular the Trust will either
provide for annual meetings or comply with Section 16(c) of the 1940 Act
(although the Trust is not one of the trusts described in Section 16(c) of that
Act) as well as with Sections 16(a) and, if and when applicable, 16(b).
Further, the Trust will act in accordance with the Securities and Exchange
Commission's interpretation of the requirements of Section 16(a) with respect to
periodic elections of trustees and with whatever rules the Commission may
promulgate with respect thereto.
<PAGE>
ARTICLE IV. Sales Material and Information
4.1. The Company shall furnish, or shall cause to be furnished, to
the Trust or its designee, each piece of sales literature or other promotional
material in which the Trust or its investment adviser or the Underwriter is
named, at least fifteen Business Days prior to its use. No such material shall
be used if the Trust or its designee reasonably objects to such use within
fifteen Business Days after receipt of such material.
4.2. The Company shall not give any information or make any
representations or statements on behalf of the Trust or concerning the Trust in
connection with the sale of the Contracts other than the information or
representations contained in the registration statement or prospectus for the
Trust shares, as such registration statement and prospectus may be amended or
supplemented from time to time, or in reports or proxy statements for the Trust,
or in sales literature or other promotional material approved by the Trust or
its designee or by the Underwriter, except with the permission of the Trust or
the Underwriter or the designee of either.
4.3. The Trust, Underwriter, or its designee shall furnish, or shall
cause to be furnished, to the Company or its designee, each piece of sales
literature or other promotional material in which the Company and/or its
separate account(s), is named at least fifteen Business Days prior to its use.
No such material shall be used if the Company or its designee reasonably objects
to such use within fifteen Business Days after receipt of such material.
4.4. The Trust and the Underwriter shall not give any information or
make any representations on behalf of the Company or concerning the Company,
each Account, or the Contracts other than the information or representations
contained in a registration statement or prospectus for the Contracts, as such
registration statement and prospectus may be amended or supplemented from time
to time, or in published reports for each Account which are in the public domain
or approved by the Company for distribution to Contract owners, or in sales
literature or other promotional material approved by the Company or its
designee, except with the permission of the Company.
4.5. The Trust will provide to the Company at least one complete copy
of all registration statements, prospectuses, Statements of Additional
Information, reports, proxy statements, sales literature and other promotional
materials, applications for exemptions, requests for no-action letters, and all
amendments to any of the above, that relate to the Trust or its shares,
contemporaneously with the filing of such document with the Securities and
Exchange Commission or other regulatory authorities.
4.6. The Company will provide to the Trust at least one complete copy
of all registration statements, prospectuses, Statements of Additional
Information, reports, solicitations for voting instructions, sales literature
and other promotional materials, applications for exemptions, requests for no
action letters, and all amendments to any of the above, that relate to the
Contracts or each Account, contemporaneously with the filing of such document
with the SEC or other regulatory authorities.
4.7. For purposes of this Article IV, the phrase "sales literature or
other promotional material" includes, but is not limited to, any of the
following that refer to the Trust or any affiliate of the Trust: advertisements
(such as material published, or designed for use in, a newspaper, magazine, or
other periodical, radio, television, telephone or tape recording,
<PAGE>
videotape display, signs or billboards, motion pictures, or other public media),
sales literature (i.e., any written communication distributed or made generally
available to customers or the public, including brochures, circulars, research
reports, market letters, form letters, seminar texts, reprints or excerpts of
any other advertisement, sales literature, or published article), educational or
training materials or other communications distributed or made generally
available to some or all agents or employees, and registration statements,
prospectuses, Statements of Additional Information, shareholder reports, and
proxy materials.
ARTICLE V. Fees and Expenses
5.1. The Trust and Underwriter shall pay no fee or other compensation
to the Company under this agreement, except that if the Trust or any Portfolio
adopts and implements a plan pursuant to Rule 12b-1 to finance distribution
expenses, then the Underwriter may make payments to the Company or to the
underwriter for the Contracts if and in amounts agreed to by the Underwriter in
writing and such payments will be made out of existing fees otherwise payable to
the Underwriter, past profits of the Underwriter or other resources available to
the Underwriter. No such payments shall be made directly by the Trust.
5.2. All expenses incident to performance by the Trust under this
Agreement shall be paid by the Trust. The Trust shall see to it that all its
shares are registered and authorized for issuance in accordance with applicable
federal law and, if and to the extent deemed advisable by the Trust, in
accordance with applicable state laws prior to their sale. The Trust shall bear
the expenses for the cost of registration and qualification of the Trust's
shares, preparation and filing of the Trust's prospectus and registration
statement, proxy materials and reports, setting the prospectus in type, setting
in type and printing the proxy materials and reports to shareholders (including
the costs of printing a prospectus that constitutes an annual report), the
preparation of all statements and notices required by any federal or state law,
and all taxes on the issuance or transfer of the Trust's shares.
5.3. The Company shall bear the expenses of distributing the Trust's
prospectus, proxy materials and reports to owners of Contracts issued by the
Company.
ARTICLE VI. Diversification
6.1. The Trust will at all times invest money from the Contracts in
such a manner as to ensure that the Contracts will be treated as variable
contracts under the Code and the regulations issued thereunder. Without
limiting the scope of the foregoing, the Trust will at all times comply with
Section 817(h) of the Code and Treasury Regulation 1.817-5, relating to the
diversification requirements for variable annuity, endowment, or life insurance
contracts and any amendments or other modifications to such Section or
Regulations. In the event of a breach of this Article VI by the Trust, it will
take all reasonable steps (a) to notify Company of such breach and (b) to
adequately diversify the Trust so as to achieve compliance within the grace
period afforded by Regulation 1.817-5.
<PAGE>
ARTICLE VII. Potential Conflicts
7.1. The Trust, if it determines to offer its shares to any other
insurance company, separate account or to a qualified plan shall furnish the
Company with a copy of its application for an order of the Securities and
Exchange Commission under Section 6(c) of the 1940 Act for mixed and shared
funding relief, and the notice of such application and order when issued by the
SEC. The Company agrees to comply with the conditions on which such order is
issued, including reporting any potential or existing conflicts promptly to the
Board of Directors of the Trust ("Board"), and in particular whenever contract
owner voting instructions are disregarded, to the extent such conditions are not
materially different from the conditions of the mixed and shared funding relief
that the Company has agreed to be bound by in similar participation agreements
with other fund providers, and recognizes that it shall be responsible for
assisting the Board in carrying out is responsibilities in connection with such
order. The Company agrees to carry out such responsibilities with a view to the
interests of existing contract owners.
7.2 The Board will monitor the Trust for the existence of any
material irreconcilable conflict between the interests of the contract owners of
all separate accounts investing in the Trust. An irreconcilable material
conflict may arise for a variety of reasons, including: (a) an action by any
state insurance regulatory authority; (b) a change in applicable federal or
state insurance, tax, or securities laws or regulations, or a public ruling,
private letter ruling, no-action or interpretative letter, or any similar action
by insurance, tax, or securities regulatory authorities; (c) an administrative
or judicial decision in any relevant proceeding; (d) the manner in which the
investments of any Portfolio are being managed; (e) a difference in voting
instructions given by variable annuity contract and variable life insurance
contract owners; or (f) a decision by an insurer to disregard the voting
instructions of contract owners. The Board shall promptly inform the Company if
it determines that an irreconcilable material conflict exists and the
implications thereof.
7.3. The Company will report any potential or existing conflicts of
which it is aware to the Board. The Company will assist the Board in carrying
out its responsibilities by providing the Board with all information reasonably
necessary for the Board to consider any issues raised. This includes, but is
not limited to, an obligation by the Company to inform the Board whenever
contract owner voting instructions are disregarded.
7.4. If it is determined by a majority of the Board, or a majority of
its disinterested trustees, that a material irreconcilable conflict exists, the
Company shall, at its expense and to the extent reasonably practicable (as
determined by a majority of the disinterested trustees), take whatever steps are
necessary to remedy or eliminate the irreconcilable material conflict, up to and
including: (1), withdrawing the assets allocable to some or all of the separate
accounts from the Trust or any Portfolio and reinvesting such assets in a
different investment medium, including (but not limited to) another Portfolio of
the Trust, or submitting the question whether such segregation should be
implemented to a vote of all affected Contract owners and, as appropriate,
segregating the assets of any appropriate group (i.e., annuity contract owners,
life insurance contract owners, or variable contract owners of the Company) that
votes in favor of such segregation, or offering to the affected contract owners
the option of making such a change; and (2), establishing a new registered
management investment company or managed separate account.
<PAGE>
7.5. If a material irreconcilable conflict arises because of a
decision by the Company to disregard contract owner voting instructions and that
decision represents a minority position or would preclude a majority vote, the
Company may be required, at the Trust's election, to withdraw the affected
Account's investment in the Trust and terminate this Agreement with respect to
such Account; provided, however that such withdrawal and termination shall be
limited to the extent required by the foregoing material irreconcilable conflict
as determined by a majority of the disinterested members of the Board. Any such
withdrawal and termination must take place within six (6) months after the Trust
gives written notice that this provision is being implemented, and until the end
of that six month period the Underwriter and Trust shall continue to accept and
implement orders by the Company for the purchase (and redemption) of shares of
the Trust.
7.6. If a material irreconcilable conflict arises because a
particular state insurance regulator's decision applicable to the Company
conflicts with the majority of other state regulators, then the Company will
withdraw the affected Account's investment in the Trust and terminate this
Agreement with respect to such Account within six months after the Board informs
the Company in writing that it has determined that such decision has created an
irreconcilable material conflict; provided, however, that such withdrawal and
termination shall be limited to the extent required by the foregoing material
irreconcilable conflict as determined by a majority of the disinterested members
of the Board. Until the end of the foregoing six month period, the Underwriter
and Trust shall continue to accept and implement orders by the Company for the
purchase (and redemption) of shares of the Trust.
7.7. For purposes of Sections 7.4 through 7.7 of this Agreement, a
majority of the disinterested members of the Board shall determine whether any
proposed action adequately remedies any irreconcilable material conflict, but in
no event will the Trust be required to establish a new funding medium for the
Contracts. The Company shall not be required by Section 7.4 to establish a new
funding medium for the Contracts if an offer to do so has been declined by vote
of a majority of Contract owners materially adversely affected by the
irreconcilable material conflict. In the event that the Board determines that
any proposed action does not adequately remedy any irreconcilable material
conflict, then the Company will withdraw the Account's investment in the Trust
and terminate this Agreement within six (6) months after the Board informs the
Company in writing of the foregoing determination, provided, however, that such
withdrawal and termination shall be limited to the extent required by any such
material irreconcilable conflict as determined by a majority of the
disinterested members of the Board.
ARTICLE VIII. Indemnification
8.1. Indemnification By The Company
8.1(a). The Company agrees to indemnify and hold harmless the
Underwriter and the Trust and each trustee of the Board and officers and each
person, if any, who controls the Trust within the meaning of Section 15 of the
1933 Act (collectively, the "Indemnified Parties" for purposes of this Section
8.1) against any and all losses, claims, damages, liabilities (including amounts
paid in settlement with the written consent of the Company) or litigation
(including
<PAGE>
legal and other expenses), to which the Indemnified Parties may become subject
under any statute, regulation, at common law or otherwise, insofar as such
losses, claims, damages, liabilities or expenses (or actions in respect thereof)
or settlements are related to the sale or acquisition of the Trust's shares or
the Contracts and:
(i) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in the Registration
Statement or prospectus for the Contracts or contained in the Contracts or sales
literature for the Contracts (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, provided that this
agreement to indemnify shall not apply as to any Indemnified Party if such
statement or omission or such alleged statement or omission was made in reliance
upon and in conformity with information furnished to the Company by or on behalf
of the Trust for use in the Registration Statement or prospectus for the
Contracts or in the Contracts or sales literature (or any amendment or
supplement) or otherwise for use in connection with the sale of the Contracts or
Trust shares; or
(ii) arise out of or as a result of statements or
representations (other than statements or representations contained in the
Registration Statement, prospectus or sales literature of the Trust not supplied
by the Company, or persons under its control) or wrongful conduct of the Company
or persons under its control, with respect to the sale or distribution of the
Contracts or Trust Shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a Registration Statement, prospectus,
or sales literature of the Trust or any amendment thereof or supplement thereto
or the omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading if
such a statement or omission was made in reliance upon information furnished to
the Trust by or on behalf of the Company; or
(iv) arise as a result of any failure by the Company to
provide the services and furnish the materials under the terms of this
Agreement; or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this Agreement or arise
out of or result from any other material breach of this Agreement by the
Company, as limited by and in accordance with the provisions of Sections 8.1(b)
and 8.1(c) hereof.
8.1(b). The Company shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
incurred or assessed against an Indemnified Party as such may arise from such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations or duties under this Agreement or to
the Trust, whichever is applicable.
8.1(c). The Company shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Company in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
<PAGE>
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Company of any
such claim shall not relieve the Company from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Company shall be entitled to participate,
at its own expense, in the defense of such action. The Company also shall be
entitled to assume the defense thereof, with counsel satisfactory to the party
named in the action. After notice from the Company to such party of the
Company's election to assume the defense thereof, the Indemnified Party shall
bear the fees and expenses of any additional counsel retained by it, and the
Company will not be liable to such party under this Agreement for any legal or
other expenses subsequently incurred by such party independently in connection
with the defense thereof other than reasonable costs of investigation.
8.1(d). The Indemnified Parties will promptly notify the Company of
the commencement of any litigation or proceedings against them in connection
with the issuance or sale of the Trust Shares or the Contracts or the operation
of the Trust.
8.2. Indemnification by the Underwriter
8.2(a). The Underwriter agrees to indemnify and hold harmless the
Company and each of its directors and officers and each person, if any, who
controls the Company within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 8.2)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of the Underwriter) or litigation
(including legal and other expenses) to which the Indemnified Parties may become
subject under any statute, at common law or otherwise, insofar as such losses,
claims, damages, liabilities or expenses (or actions in respect thereof) or
settlements are related to the sale or acquisition of the Trust's shares or the
Contracts and:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the Registration
Statement or prospectus or sales literature of the Trust (or any amendment or
supplement to any of the foregoing), or arise out of or are based upon the
omission or the alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading,
provided that this agreement to indemnify shall not apply as to any Indemnified
Party if such statement or omission or such alleged statement or omission was
made in reliance upon and in conformity with information furnished to the
Underwriter or Trust by or on behalf of the Company for use in the Registration
Statement or prospectus for the Trust or in sales literature (or any amendment
or supplement) or otherwise for use in connection with the sale of the Contracts
or Trust shares; or
(ii) arise out of or as a result of statements or
representations (other than statements or representations contained in the
Registration Statement, prospectus or sales literature for the Contracts not
supplied by the Underwriter or persons under its control) or wrongful conduct of
the Trust, Adviser or Underwriter or persons under their control, with respect
to the sale or distribution of the Contracts or Trust shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a Registration Statement, prospectus,
or sales literature covering the Contracts,
<PAGE>
or any amendment thereof or supplement thereto, or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statement or statements therein not misleading, if such
statement or omission was made in reliance upon information furnished to the
Company by or on behalf of the Trust; or
(iv) arise as a result of any failure by the Trust to provide the
services and furnish the materials under the terms of this Agreement (including
a failure, whether unintentional or in good faith or otherwise, to comply with
the diversification requirements specified in Article VI of this Agreement); or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Underwriter in this Agreement or
arise out of or result from any other material breach of this Agreement by the
Underwriter; as limited by and in accordance with the provisions of Sections
8.2(b) and 8.2(c) hereof.
8.2(b). The Underwriter shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
to which an Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this Agreement or to
each Company or the Account, whichever is applicable.
8.2(c). The Underwriter shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Underwriter in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Underwriter of
any such claim shall not relieve the Underwriter from any liability which it may
have to the Indemnified Party against whom such action is brought otherwise than
on account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Underwriter will be entitled to
participate, at its own expense, in the defense thereof. The Underwriter also
shall be entitled to assume the defense thereof, with counsel satisfactory to
the party named in the action. After notice from the Underwriter to such party
of the Underwriter's election to assume the defense thereof, the Indemnified
Party shall bear the fees and expenses of any additional counsel retained by it,
and the Underwriter will not be liable to such party under this Agreement for
any legal or other expenses subsequently incurred by such party independently in
connection with the defense thereof other than reasonable costs of
investigation.
8.2(d). The Company agrees promptly to notify the Underwriter of the
commencement of any litigation or proceedings against it or any of its officers
or directors in connection with the issuance or sale of the Contracts or the
operation of each Account.
8.3. Indemnification By the Trust
8.3(a). The Trust agrees to indemnify and hold harmless the Company, and
each of its directors and officers and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.3) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement
<PAGE>
with the written consent of the Trust) or litigation (including legal and other
expenses) to which the Indemnified Parties may become subject under any statute,
at common law or otherwise, insofar as such losses, claims, damages, liabilities
or expenses (or actions in respect thereof) or settlements result from the gross
negligence, bad faith or willful misconduct of the Board or any member thereof,
are related to the operations of the Trust and:
(i) arise as a result of any failure by the Trust to provide the
services and furnish the materials under the terms of this Agreement (including
a failure to comply with the diversification requirements specified in Article
VI of this Agreement);or
(ii) arise out of or result from any material breach of any
representation and/or warranty made by the Trust in this Agreement or arise out
of or result from any other material breach of this Agreement by the Trust;
as limited by and in accordance with the provisions of Sections 8.3(b) and
8.3(c) hereof.
8.3(b). The Trust shall not be liable under this indemnification provision
with respect to any losses, claims, damages, liabilities or litigation incurred
or assessed against an Indemnified Party as such may arise from such Indemnified
Party's willful misfeasance, bad faith, or gross negligence in the performance
of such Indemnified Party's duties or by reason of such Indemnified Party's
reckless disregard of obligations and duties under this Agreement or to the
Company, the Trust, the Underwriter or each Account, whichever is applicable.
8.3(c). The Trust shall not be liable under this indemnification provision
with respect to any claim made against an Indemnified Party unless such
Indemnified Party shall have notified the Trust in writing within a reasonable
time after the summons or other first legal process giving information of the
nature of the claim shall have been served upon such Indemnified Party (or after
such Indemnified Party shall have received notice of such service on any
designated agent), but failure to notify the Trust of any such claim shall not
relieve the Trust from any liability which it may have to the Indemnified Party
against whom such action is brought otherwise than on account of this
indemnification provision. In case any such action is brought against the
Indemnified Parties, the Trust will be entitled to participate, at its own
expense, in the defense thereof. The Trust also shall be entitled to assume the
defense thereof, with counsel satisfactory to the party named in the action.
After notice from the Trust to such party of the Trust's election to assume the
defense thereof, the Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it, and the Trust will not be liable to such
party under this Agreement for any legal or other expenses subsequently incurred
by such party independently in connection with the defense thereof other than
reasonable costs of investigation.
8.3(d). The Company and the Underwriter agree promptly to notify the Trust
of the commencement of any litigation or proceedings against it or any of its
respective officers or directors in connection with this Agreement, the issuance
or sale of the Contracts, with respect to the operation of either Account, or
the sale or acquisition of shares of the Trust.
ARTICLE IX. Applicable Law
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of Delaware.
<PAGE>
9.2. This Agreement shall be subject to the provisions of the 1933,
1934 and 1940 acts, and the rules and regulations and rulings thereunder,
including such exemptions from those statutes, rules and regulations as the
Securities and Exchange Commission may grant and the terms hereof shall be
interpreted and construed in accordance therewith.
ARTICLE X. Termination
10.1. This Agreement shall continue in full force and effect until the
first to occur of:
(a) termination by any party for any reason by sixty (60) days
advance written notice delivered to the other parties; or
(b) termination by the Company by written notice to the Trust
and the Underwriter with respect to any Portfolio based upon the Company's
determination that shares of such Portfolio are not reasonably available to meet
the requirements of the Contracts; or
(c) termination by the Company by written notice to the Trust
and the Underwriter with respect to any Portfolio in the event any of the
Portfolio's shares are not registered, issued or sold in accordance with
applicable state and/or federal law or such law precludes the use of such shares
as the underlying investment media of the Contracts issued or to be issued by
the Company; or
(d) termination by the Company by written notice to the Trust
and the Underwriter with respect to any Portfolio in the event that such
Portfolio ceases to qualify as a Regulated Investment Company under Subchapter M
of the Code or under any successor or similar provision, or if the Company
reasonably believes that the Trust may fail to so qualify; or
(e) termination by the Company by written notice to the Trust
and the Underwriter with respect to any Portfolio in the event that such
Portfolio fails to meet the diversification requirements specified in Article VI
hereof; or
(f) termination by either the Trust or the Underwriter by
written notice to the Company, if either one or both of the Trust or the
Underwriter respectively, shall determine, in their sole judgment reasonably
exercised in good faith, that the Company has suffered a material adverse change
in its business or financial condition or is the subject of material adverse
publicity and such material adverse change or material adverse publicity will
have a material adverse impact upon the business and operations of either the
Trust or the Underwriter, (2) the Trust or the Underwriter shall notify the
Company in writing of such determination and its intent to terminate this
Agreement, and (3) after considering the actions taken by the Company and any
other changes in circumstances since the giving of such notice, such continue to
determination of the Trust or the Underwriter shall apply on the sixtieth (60th)
day following the giving of such notice, which sixtieth day shall be the
effective date of termination; or
(g) termination by the Company by written notice to the Trust
and the Underwriter, if the Company shall determine, in its sole judgment
reasonably exercised in good faith, that either the Trust or the Underwriter has
suffered a material adverse change in its business or financial condition or is
the subject of material adverse publicity and such material adverse change or
material adverse publicity will have a material adverse impact upon the
<PAGE>
business and operations of the Company, (2) the Company shall notify the Trust
and the Underwriter in writing of such determination and its intent to terminate
the Agreement, and (3) after considering the actions taken by the Trust and/or
the Underwriter and any other changes in circumstances since the giving of such
notice, such determination shall continue to apply on the sixtieth (60th) day
following the giving of such notice, which sixtieth day shall be the effective
date of termination; or
(h) termination by the Trust or the Underwriter by written
notice to the Company, if the Company gives the Trust and the Underwriter the
written notice specified in Section 1.5(b) hereof and at the time such notice
was given there was no notice of termination outstanding under any other
provision of this Agreement; provided, however any termination under this
Section 10.1(h) shall be effective forty five (45) days after the notice
specified in Section 1.5(b) was given.
10.2. Effect of Termination. Notwithstanding any termination of this
Agreement, the Trust and the Underwriter shall at the option of the Company,
continue to make available additional shares of the Trust pursuant to the terms
and conditions of this Agreement, for all Contracts in effect on the effective
date of termination of this Agreement (hereinafter referred to as "Existing
Contracts"). Specifically, without limitation, the owners of the Existing
Contracts shall be permitted to reallocate investments in the Trust, redeem
investments in the Trust and/or invest in the Trust upon the making of
additional purchase payments under the Existing Contracts. The parties agree
that this Section 10.2 shall not apply to any terminations under Article VII and
the effect of such Article VII terminations shall be governed by Article VII of
this Agreement.
10.3 The Company shall not redeem Trust shares attributable to the
Contracts (as opposed to Trust shares attributable to the Company's assets held
in the Account) except (i) as necessary to implement Contract Owner initiated or
approved transactions, or (ii) as required by state and/or federal laws or
regulations or judicial or other legal precedent of general application
(hereinafter referred to as a "Legally Required Redemption") or (iii) as
permitted by an order of the SEC pursuant to Section 26(b) of the 1940 Act.
Upon request, the Company will promptly furnish to the Trust and the Underwriter
the opinion of counsel for the Company (which counsel shall be reasonably
satisfactory to the Trust and the Underwriter) to the effect that any redemption
pursuant to clause (ii) above is a Legally Required Redemption. Furthermore,
except in cases where permitted under the terms of the Contracts, the Company
shall not prevent Contract Owners from allocating payments to a Portfolio that
was otherwise available under the Contracts without first giving the Trust or
the Underwriter 90 days notice of its intention to do so.
<PAGE>
ARTICLE XI. Notices
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party at the address of such party set forth below or at such
other address as such party may from time to time specify in writing to the
other party.
If to the Trust:
Atlas Insurance Trust
794 Davis Street
San Leandro, CA 94577
Attention: Chief Legal Counsel
If to the Company:
PFL Life Insurance Company
4333 Edgewood Road, N E
Cedar Rapids, Iowa 52499-0001
Attention: Financial Markets Division, Legal Department
If to the Underwriter:
Atlas Securities, Inc.
794 Davis Street
San Leandro, CA 94577
Attention: Chief Legal Counsel
ARTICLE XII. Miscellaneous
12.1 All persons dealing with the Trust must look solely to the property
of the Trust for the enforcement of any claims against the Trust as neither the
Board, officers, agents or shareholders assume any personal liability for
obligations entered into on behalf of the Trust.
12.2 Subject to the requirements of legal process and regulatory
authority, each party hereto shall treat as confidential the names and addresses
of the owners of the Contracts and all information reasonably identified as
confidential in writing by any other party hereto and, except as permitted by
this Agreement, shall not disclose, disseminate or utilize such names and
addresses and other confidential information until such time as it may come into
the public domain without the express written consent of the affected party.
12.3 The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
12.4 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
<PAGE>
12.5 If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Agreement shall
not be affected thereby.
12.6 Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
Notwithstanding the generality of the foregoing, each party hereto further
agrees to furnish the California Insurance Commissioner with any information or
reports in connection with services provided under this Agreement which such
Commissioner may request in order to ascertain whether the insurance operations
of the Company are being conducted in a manner consistent with the California
Insurance Regulations and any other applicable law or regulations.
12.7 The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
12.8 This Agreement or any of the rights and obligations hereunder may not
be assigned by any party without the prior written consent of all parties
hereto; provided, however, that the Underwriter may assign this Agreement or any
rights or obligations hereunder to any affiliate of or company under common
control with the Underwriter, if such assignee is duly licensed and registered
to perform the obligations of the Underwriter under this Agreement. The Company
shall promptly notify the Trust and the Underwriter of any change in control of
the Company.
12.9 The Company shall furnish, or shall cause to be furnished, to the
Trust or its designee copies of the following reports:
(a) the Company's annual statement (prepared under statutory
accounting principles) and annual report (prepared under generally accepted
accounting principles ("GAAP"), if any), as soon as practical and in any event
within 90 days after the end of each fiscal year;
(b) the Company's quarterly statements (statutory) (and GAAP, if
any), as soon as practical and in any event within 45 days after the end of each
quarterly period:
(c) any financial statement, proxy statement, notice or report of
the Company sent to stockholders and/or policyholders, as soon as practical
after the delivery thereof to stockholders;
(d) any registration statement (without exhibits) and financial
reports of the Company filed with the Securities and Exchange Commission or any
state insurance regulator, as soon as practical after the filing thereof;
(e) any other report submitted to the Company by independent
accountants in connection with any annual, interim or special audit made by them
of the books of the Company, as soon as practical after the receipt thereof.
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed in its name and on its behalf by its duly authorized representative
and its seal to be hereunder affixed hereto as of the date specified below.
Company:
SEAL PFL LIFE INSURANCE COMPANY
By its authorized officer,
By:
----------------------------
William L. Busler
Title: President
Date:
--------------------------
Trust:
SEAL ATLAS INSURANCE TRUST
By its authorized officer,
By:
----------------------------
Larry E. LaCasse
Title: Group Senior Vice President
Date:
--------------------------
Underwriter:
SEAL ATLAS SECURITIES INC.
By its authorized officer,
By:
----------------------------
Larry E. LaCasse
Title: Group Senior Vice President
Date:
--------------------------
<PAGE>
SCHEDULE A
SEPARATE ACCOUNTS AND ASSOCIATED CONTRACTS
<TABLE>
<CAPTION>
Name of Separate Account Policy Form Numbers of Date Established by Board of
Contracts Funded Directors
<S> <C> <C>
PFL Life Variable Annuity AF430 101 98 1096 February 17, 1997
Account A AS504 107 78 1096
AV337 101 100 397
(may vary by state)
</TABLE>
<PAGE>
SCHEDULE B
PROXY VOTING PROCEDURE
The following is a list of procedures and corresponding responsibilities for the
handling of proxies relating to the Trust by the Underwriter, the Trust and the
Company. The defined terms herein shall have the meanings assigned in the
Participation Agreement except that the term "Company" shall also include the
department or third party assigned by the Insurance Company to perform the steps
delineated below.
1. The number of proxy proposals is given to the Company by the Underwriter as
early as possible before the date set by the Trust for the shareholder meeting
to facilitate the establishment of tabulation procedures. At this time the
Underwriter will inform the Company of the Record, Mailing and Meeting dates.
This will be done verbally approximately two months before meeting.
2. Promptly after the Record Date, the Company will perform a "tape run", or
other activity, which will generate the names, addresses and number of units
which are attributed to each contractowner/policyholder (the "Customer") as of
the Record Date. Allowance should be made for account adjustments made after
this date that could affect the status of the Customers' accounts as of the
Record Date.
Note: The number of proxy statements is determined by the activities
described in Step #2. The Company will use its best efforts to call in the
number of Customers to Atlas, as soon as possible, but no later than two weeks
after the Record Date.
3. The Trust's Annual Report no longer needs to be sent to each Customer by the
Company either before or together with the Customers' receipt of a proxy
statement. Underwriter will provide the last Annual Report to the Company
pursuant to the terms of Section 3.3 of the Agreement to which this Schedule
relates.
4. The text and format for the Voting Instruction Cards ("Cards" or "Card") is
provided to the Company by the Trust. The Company, at its expense, shall
produce and personalize the Voting Instruction Cards. The Legal Department of
the Underwriter or its affiliate ("Atlas Legal") must approve the Card before it
is printed. Allow approximately 2-4 business days for printing information on
the Cards. Information commonly found on the Cards includes:
a. name (legal name as found on account registration)
b. Address
c. Trust or account number
d. coding to state number of units
e. individual Card number for use in tracking and verification of
votes (already on Cards as printed by the Trust) (This and related steps
may occur later in the chronological process due to possible uncertainties
relating to the proposals.)
5. During this time, Atlas Legal will develop, produce, and the Trust will pay
for the Notice of Proxy and the Proxy Statement (one document). Printed and
folded notices and statements will be sent to Company for insertion into
envelopes (envelopes and return envelopes are provided
<PAGE>
and paid for by the Insurance Company). Contents of envelope sent to Customers
by Company will include:
a. Voting Instruction Card(s)
b. One proxy notice and statement (one document)
c. return envelope (postage pre-paid by Company) addressed to the Company
or its tabulation agent
d. "urge buckslip" - optional, but recommended. (This is a small, single
sheet of paper that requests Customers to vote as quickly as possible and
that their vote is important. One copy will be supplied by the Trust.)
e. cover letter - optional, supplied by Company and reviewed and approved
in advance by Atlas Legal.
6. The above contents should be received by the Company approximately 3-5
business days before mail date. Individual in charge at Company reviews and
approves the contents of the mailing package to ensure correctness and
completeness. Copy of this approval sent to Atlas Legal.
7. Package mailed by the Company. The Trust must allow at least a 15-day
solicitation time to the Company as the shareowner. (A 5-week period is
recommended.) Solicitation time is calculated as calendar days from (but not
including) the meeting, counting backwards.
8. Collection and tabulation of Cards begins. Sort Cards on arrival by
proposal into vote categories of all yes, no, or mixed replies, and to begin
data entry.
Note: Postmarks are not generally needed. A need for postmark information
would be due to an insurance company's internal procedure and has not been
required by Atlas in the past.
9. Signatures on Card checked against legal name on account registration
printed on the Card.
Note: For Example, If the account registration is under "Bertram C.
Jones, Trustee," then that is the exact legal name to be printed on the Card and
is the signature needed on the Card.
10. If Cards are mutilated, or for any reason are illegible or are not signed
properly, they are sent back to Customer with an explanatory letter, a new Card
and return envelope. The mutilated or illegible Card is disregarded and
considered to be not received for purposes of vote tabulation. Any Cards that
have "kicked out" (e.g. mutilated, illegible) of the procedure are "hand
verified," i.e., examined as to why they did not complete the system. Any
questions on those Cards are usually remedied individually.
11. There are various control procedures used to ensure proper tabulation of
votes and accuracy of that tabulation. The most prevalent is to sort the Cards
as they first arrive into categories depending upon their vote; an estimate of
how the vote is progressing may then be calculated. If the initial estimates
and the actual vote do not coincide, then an internal audit of that vote should
occur. This may entail a recount.
12. The actual tabulation of votes is done in units which is then converted to
shares. (It is very important that the Trust receives the tabulations stated in
terms of a percentage and the number of shares.) Atlas Legal must review and
approve tabulation format.
<PAGE>
13. Final tabulation in shares is verbally given by the Company to Atlas Legal
on the morning of the meeting not later than 10:00 a.m. Pacific time. Atlas
Legal may request an earlier deadline if required to calculate the vote in time
for the meeting.
14. A Certification of Mailing and Authorization to Vote Shares will be
required from the Company as well as an original copy of the final vote. Atlas
Legal will provide a standard form for each Certification.
15. The Company will be required to box and archive the Cards received from the
Customers. In the event that any vote is challenged or if otherwise necessary
for legal, regulatory, or accounting purposes, Atlas Legal will be permitted
reasonable access to such Cards.
16. All approvals and "signing-off" may be done orally, but must always be
followed up in writing.
<PAGE>
SCHEDULE C
OTHER INVESTMENT COMPANIES AND FUNDS
<PAGE>
EXHIBIT (8)(c)(2)
-----------------
AMENDED SCHEDULE A TO PARTICIPATION AGREEMENT
<PAGE>
AMENDED
SCHEDULE A
EFFECTIVE MARCH 13, 1997
Account(s), Policy(ies) and Portfolio(s)
Subject to the Participation Agreement
--------------------------------------
Account PFL Endeavor Variable Annuity Account
- ------- AUSA Endeavor Variable Annuity Account
PFL Life Variable Annuity Account A
Policies The Endeavor Variable Annuity
- -------- The Endeavor Platinum Variable Annuity
The AUSA Endeavor Variable Annuity
The Atlas Portfolio Builder Variable Annuity
Portfolios TCW Managed Asset Allocation
- ---------- TCW Money Market
T. Rowe Price International Stock
Value Equity
Dreyfus Small Cap Value
Dreyfus U.S. Government
Securities
T. Rowe Price Equity Income
T. Rowe Price Growth Stock
Opportunity Value
Enhanced Index
Approved:
Endeavor Management Co. PFL Life Insurance Company
By: /s/ Vincent J. McGuinness By: /s/ William L. Busler
------------------------------ -------------------------------
Title: CEO Title: President
------------------------------ -------------------------------
Date: March 13, 1997 Date: March 13, 1997
------------------------------ -------------------------------
AUSA Life Insurance Company Endeavor Series Trust
By: /s/ William L. Busler By: /s/ James R. McInnis
------------------------------ -------------------------------
Title: Vice President Title: President
------------------------------ -------------------------------
Date: March 13, 1997 Date: March 13, 1997
------------------------------ -------------------------------
<PAGE>
EXHIBIT (8)(d)
--------------
PARTICIPATION AGREEMENT BY AND BETWEEN
PFL LIFE INSURANCE COMPANY
AND
FEDERATED INSURANCE SERIES
<PAGE>
FUND PARTICIPATION AGREEMENT
----------------------------
This AGREEMENT is made this 30th of April, 1997, by and between PFL Life
Insurance Company (the "Insurer"), a life insurance company domiciled in the
State of Iowa, on its behalf and on behalf of the segregated asset accounts of
the Insurer listed on Exhibit A to this Agreement (the "Separate Accounts");
Federated Insurance Series (the "Fund"), a Massachusetts business trust; and
Federated Securities Corp. (the "Distributor"), a Pennsylvania corporation.
W I T N E S S E T H
-------------------
WHEREAS, the Fund is registered with the Securities and Exchange Commission
("SEC") as an open-end management investment company under the Investment
Company Act of 1940, as amended ("1940 Act") and the Fund is authorized to issue
separate classes of shares of beneficial interest ("shares"), each representing
an interest in a separate portfolio of assets known as a "portfolio" and each
portfolio has its own investment objective, policies, and limitations; and
WHEREAS, the Fund is available to offer shares of one or more of its
portfolios to separate accounts of insurance companies that fund variable
annuity contracts ("Variable Contracts") and to serve as an investment medium
for Variable Contracts offered by insurance companies that have entered into
participation agreements substantially similar to this agreement ("Participating
Insurance Companies"), and the Fund will be made available in the future to
offer shares of one or more of its portfolios to separate accounts of insurance
companies that fund variable life insurance policies (at which time such
policies would also be "Variable Contracts" hereunder), and
WHEREAS, the Fund is currently comprised of eight separate portfolios, and
other portfolios may be established in the future; and
WHEREAS, the Fund has obtained an order from the SEC dated December 29,
1993 (File No. 812-8620), granting Participating Insurance Companies and
variable annuity and variable life insurance separate accounts exemptions from
the provisions of sections 9(a), 13(a), 15(a), and 15(b) of the 1940 Act and
Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, to the extent necessary to
permit shares of the Fund to be sold to and held by variable annuity and
variable life insurance separate accounts of life insurance companies that may
or may not be affiliated with one another (hereinafter the "Mixed and Shared
Funding Exemptive Order"); and
WHEREAS, the Distributor is registered as a broker-dealer with the SEC
under the Securities Exchange Act of 1934, as amended ("1934 Act"), and is a
member in good standing of the National Association of Securities Dealers, Inc.
("NASD"); and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Insurer wishes to purchase shares of one or more of the Fund's
portfolios on behalf of its Separate Accounts to serve as an investment medium
for Variable Contracts funded by
1
<PAGE>
the Separate Accounts, and the Distributor is authorized to sell shares of the
Fund's portfolios;
NOW, THEREFORE, in consideration of the foregoing and the mutual promises
and covenants hereinafter set forth, the parties hereby agree as follows:
ARTICLE I. Sale of Fund Shares
-------------------
1.1 The Distributor agrees to sell to the Insurer those shares of the
portfolios offered and made available by the Fund and identified on Exhibit B
("Portfolios") that the Insurer orders on behalf of its Separate Accounts, and
agrees to execute such orders on each day on which the Fund calculates its net
asset value pursuant to rules of the SEC ("business day") at the net asset value
next computed after receipt and acceptance by the Fund or its agent of the order
for the shares of the Fund.
1.2 The Fund agrees to make available on each business day shares of the
Portfolios for purchase at the applicable net asset value per share by the
Insurer on behalf of its Separate Accounts; provided, however, that the Board of
Trustees of the Fund may refuse to sell shares of any Portfolio to any person,
or suspend or terminate the offering of shares of any Portfolio, if such action
is required by law or by regulatory authorities having jurisdiction or is, in
the sole discretion of the Trustees, acting in good faith and in light of the
Trustees' fiduciary duties under applicable law, necessary in the best interests
of the shareholders of any Portfolio.
1.3 The Fund and the Distributor agree that shares of the Portfolios of
the Fund will be sold only to Participating Insurance Companies, their separate
accounts, and other persons consistent with each Portfolio being adequately
diversified pursuant to Section 817(h) of the Internal Revenue Code of 1986, as
amended ("Code"), and the regulations thereunder. No shares of any Portfolio
will be sold directly to the general public to the extent not permitted by
applicable tax law.
1.4 The Fund and the Distributor will not sell shares of the Portfolios to
any insurance company or separate account unless an agreement containing
provisions substantially the same as the provisions in Article IV of this
Agreement is in effect to govern such sales.
1.5 Upon receipt of a request for redemption in proper form from the
Insurer, the Fund agrees to redeem any full or fractional shares of the
Portfolios held by the Insurer, ordinarily executing such requests on each
business day at the net asset value next computed after receipt and acceptance
by the Fund or its agent of the request for redemption, except that the Fund
reserves the right to suspend the right of redemption, consistent with Section
22(e) of the 1940 Act and any rules thereunder. Such redemption shall be paid
consistent with applicable rules of the SEC and procedures and policies of the
Fund as described in the current prospectus.
2
<PAGE>
1.6 For purposes of Sections 1.2 and 1.5, the Insurer shall be the
agent of the Fund for the limited purpose of receiving and accepting purchase
and redemption orders from each Separate Account and receipt of such orders by
4:00 p.m. Eastern time by the Insurer shall be deemed to be receipt by the Fund
for purposes of Rule 22c-1 of the 1940 Act; provided that the Fund receives
notice of such orders on the next following business day prior to 4:00 p.m.
Eastern time on such day, although the Insurer will use its best efforts to
provide such notice by 12:00 noon Eastern time.
1.7 The Insurer agrees to purchase and redeem the shares of each
Portfolio in accordance with the provisions of the current prospectus for the
Fund.
1.8 The Insurer shall pay for shares of the Portfolio on the next
business day after it places an order to purchase shares of the Portfolio.
Payment shall be in federal funds transmitted by wire.
1.9 Issuance and transfer of shares of the Portfolios will be by book
entry only unless otherwise agreed by the Fund. Stock certificates will not be
issued to the Insurer or the Separate Accounts unless otherwise agreed by the
Fund. Shares ordered from the Fund will be recorded in an appropriate title for
the Separate Accounts or the appropriate subaccounts of the Separate Accounts.
1.10 The Fund shall furnish same day notice (by wire or telephone,
followed by written confirmation) to the Insurer of any income dividends or
capital gain distributions payable on the shares of the Portfolios. The Insurer
hereby elects to reinvest in the Portfolio all such dividends and distributions
as are payable on a Portfolio's shares and to receive such dividends and
distributions in additional shares of that Portfolio. The Insurer reserves the
right to revoke this election in writing and to receive all such dividends and
distributions in cash. The Fund shall notify the Insurer of the number of shares
so issued as payment of such dividends and distributions.
1.11 The Fund shall instruct its recordkeeping agent to advise the
Insurer on each business day of the net asset value per share for each Portfolio
as soon as reasonably practical after the net asset value per share is
calculated and shall use its best efforts to make such net asset value per share
available by 7:00 p.m. Eastern time.
ARTICLE II. Representations and Warranties
------------------------------
2.1 The Insurer represents and warrants that it is an insurance
company duly organized and in good standing under applicable law and that it is
taxed as an insurance company under Subchapter L of the Code.
2.2 The Insurer represents and warrants that it has legally and
validly established each of the Separate Accounts as a segregated asset account
under the Iowa Insurance Code, and that each of the Separate Accounts is a
validly existing segregated asset account under applicable federal and state
law.
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2.3 The Insurer represents and warrants that the Variable Contracts
issued by the Insurer or interests in the Separate Accounts under such Variable
Contracts (1) are or, prior to issuance, will be registered as securities under
the Securities Act of 1933 ("1933 Act") or, alternatively, (2) are not
registered because they are properly exempt from registration under the 1933 Act
or will be offered exclusively in transactions that are properly exempt from
registration under the 1933 Act.
2.4 The Insurer represents and warrants that each of the Separate
Accounts (1) has been registered as a unit investment trust in accordance with
the provisions of the 1940 Act or, alternatively, (2) has not been registered in
proper reliance upon an exclusion from registration under the 1940 Act.
2.5 The Insurer represents that it believes, in good faith, that the
Variable Contracts issued by the Insurer are currently treated as annuity
contracts or life insurance policies (which may include modified endowment
contracts), whichever is appropriate, under applicable provisions of the Code.
2.6 The Fund represents and warrants that it is duly organized as a
business trust under the laws of the Commonwealth of Massachusetts, and is in
good standing under applicable law.
2.7 The Fund represents and warrants that the shares of the
Portfolios are duly authorized for issuance in accordance with applicable law
and that the Fund is registered as an open-end management investment company
under the 1940 Act.
2.8 The Fund represents that it believes, in good faith, that the
Portfolios currently comply with the diversification provisions of Section
817(h) of the Code and the regulations issued thereunder relating to the
diversification requirements for variable life insurance policies and variable
annuity contracts.
2.9 The Distributor represents and warrants that it is a member in
good standing of the NASD and is registered as a broker-dealer with the SEC.
ARTICLE III. General Duties
--------------
3.1 The Fund shall take all such actions as are necessary to permit
the sale of the shares of each Portfolio to the Separate Accounts, including
maintaining its registration as an investment company under the 1940 Act, and
registering the shares of the Portfolios sold to the Separate Accounts under the
1933 Act for so long as required by applicable law. The Fund shall amend its
Registration Statement filed with the SEC under the 1933 Act and the 1940 Act
from time to time as required in order to effect the continuous offering of the
shares of the Portfolios. The Fund shall register and qualify the shares for
sale in accordance with the laws of the various states to the extent deemed
necessary by the Fund or the Distributor.
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3.2 The Fund shall make every effort to maintain qualification of
each Portfolio as a Regulated Investment Company under Subchapter M of the Code
(or any successor or similar provision) and shall notify the Insurer immediately
upon having a reasonable basis for believing that a Portfolio has ceased to so
qualify or that it might not so qualify in the future.
3.3 The Fund shall make every effort to enable each Portfolio to
comply with the diversification provisions of Section 817(h) of the Code and the
regulations issued thereunder relating to the diversification requirements for
variable life insurance policies and variable annuity contracts and any
prospective amendments or other modifications to Section 817 or regulations
thereunder, and shall notify the Insurer immediately upon having a reasonable
basis for believing that any Portfolio has ceased to comply.
3.4 The Insurer shall take all such actions as are necessary under
applicable federal and state law to permit the sale of the Variable Contracts
issued by the Insurer, including registering each Separate Account as an
investment company to the extent required under the 1940 Act, and registering
the Variable Contracts or interests in the Separate Accounts under the Variable
Contracts to the extent required under the 1933 Act, and obtaining all necessary
approvals to offer the Variable Contracts from state insurance commissioners.
3.5 The Insurer shall make every effort to maintain the treatment of
the Variable Contracts issued by the Insurer as annuity contracts or life
insurance policies, whichever is appropriate, under applicable provisions of the
Code, and shall notify the Fund and the Distributor immediately upon having a
reasonable basis for believing that such Variable Contracts have ceased to be so
treated or that they might not be so treated in the future.
3.6 The Insurer shall offer and sell the Variable Contracts issued by
the Insurer in accordance with applicable provisions of the 1933 Act, the 1934
Act, the 1940 Act, the NASD Rules of Fair Practice, and state law respecting the
offering of variable life insurance policies and variable annuity contracts.
3.7 The Distributor shall sell and distribute the shares of the
Portfolios of the Fund in accordance with the applicable provisions of the 1933
Act, the 1934 Act, the 1940 Act, the NASD Rules of Fair Practice, and state law.
3.8 During such time as the Fund engages in Mixed Funding or Shared
Funding, a majority of the Board of Trustees of the Fund shall consist of
persons who are not "interested persons" of the Fund ("disinterested Trustees"),
as defined by Section 2(a)(19) of the 1940 Act and the rules thereunder, and as
modified by any applicable orders of the SEC, except that if this provision of
this Section 3.8 is not met by reason of the death, disqualification, or bona
fide resignation of any Trustee or Trustees, then the operation of this
provision shall be suspended (a) for a period of 45 days if the vacancy or
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vacancies may be filled by the Fund's Board; (b) for a period of 60 days if a
vote of shareholders is required to fill the vacancy or vacancies; or (c) for
such longer period as the SEC may prescribe by order upon application.
3.9 The Insurer and its agents will not in any way recommend any
proposal or oppose or interfere with any proposal submitted by the Fund at a
meeting of owners of Variable Contracts or shareholders of the Fund, and will in
no way recommend, oppose, or interfere with the solicitation of proxies for Fund
shares held by Contract Owners, without the prior written consent of the Fund,
which consent may be withheld in the Fund's sole discretion.
3.10 Each party hereto shall cooperate with each other party
and all appropriate governmental authorities having jurisdiction (including,
without limitation, the SEC, the NASD, and state insurance regulators) and shall
permit such authorities reasonable access to its books and records in connection
with any investigation or inquiry relating to this Agreement or the transactions
contemplated hereby.
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ARTICLE IV. Potential Conflicts
-------------------
4.1 During such time as the Fund engages in Mixed Funding or Shared
Funding, the parties hereto shall comply with the conditions in this Article IV.
4.2 The Fund's Board of Trustees shall monitor the Fund for the
existence of any material irreconcilable conflict (1) between the interests of
owners of variable annuity contracts and variable life insurance policies, and
(2) between the interests of owners of Variable Contracts ("Variable Contract
Owners") issued by different Participating Life Insurance Companies that invest
in the Fund. A material irreconcilable conflict may arise for a variety of
reasons, including: (a) an action by any state insurance regulatory authority;
(b) a change in applicable federal or state insurance, tax, or securities laws
or regulations, or a public ruling, private letter ruling, no-action or
interpretive letter, or any similar action by insurance, tax, or securities
regulatory authorities; (c) an administrative or judicial decision in any
relevant proceeding; (d) the manner in which the investments of any Portfolio of
the Fund are being managed; (e) a difference in voting instructions given by
variable annuity and variable life insurance contract owners; or (f) a decision
by a Participating Insurance Company to disregard the voting instructions of
Variable Contract Owners.
4.3 The Insurer agrees that it shall report any potential or existing
conflicts of which it is aware to the Fund's Board of Trustees. The Insurer
will be responsible for assisting the Board of Trustees of the Fund in carrying
out its responsibilities under the Mixed and Shared Funding Exemptive Order, or,
if the Fund is engaged in Mixed Funding or Shared Funding in reliance on Rule
6e-2, 6e-3(T), or any other regulation under the 1940 Act, the Insurer will be
responsible for assisting the Board of Trustees of the Fund in carrying out its
responsibilities under such regulation, by providing the Board with all
information reasonably necessary for the Board to consider any issues raised.
This includes, but is not limited to, an obligation by the Insurer to inform the
Board whenever Variable Contract Owner voting instructions are disregarded. The
Insurer shall carry out its responsibility under this Section 4.3 with a view
only to the interests of the Variable Contract Owners.
4.4 The Insurer agrees that in the event that it is determined by a
majority of the Board of Trustees of the Fund or a majority of the Fund's
disinterested Trustees that a material irreconcilable conflict exists, the
Insurer shall, at its expense and to the extent reasonably practicable (as
determined by a majority of the disinterested Trustees of the Board of the
Fund), take whatever steps are necessary to remedy or eliminate the
irreconcilable material conflict, up to and including: (1) withdrawing the
assets allocable to some or all of the Separate Accounts from the Fund or any
Portfolio and reinvesting such assets in a different investment medium,
including another portfolio of the Fund, or submitting the question as to
whether such segregation should be implemented to a vote of all affected
Variable Contract Owners and, as appropriate, segregating the assets of any
appropriate group (i.e., annuity contract owners or life insurance contract
owners of contracts issued by one or more Participating Insurance Companies),
that votes in favor of
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<PAGE>
such segregation, or offering to the affected Variable Contract Owners the
option of making such a change; and (2) establishing a new registered management
investment company or managed separate account. If a material irreconcilable
conflict arises because of the Insurer's decision to disregard Variable Contract
Owners' voting instructions and that decision represents a minority position or
would preclude a majority vote, the Insurer shall be required, at the Fund's
election, to withdraw the Separate Accounts' investment in the Fund, provided,
however, that such withdrawal and termination shall be limited to the extent
required by the foregoing material irreconcilable conflict as determined by a
majority of the disinterested Trustees, and no charge or penalty will be imposed
as a result of such withdrawal. These responsibilities shall be carried out with
a view only to the interests of the Variable Contract Owners. A majority of the
disinterested Trustees of the Fund shall determine whether or not any proposed
action adequately remedies any material irreconcilable conflict, but in no event
will the Fund or its investment adviser or the Distributor be required to
establish a new funding medium for any Variable Contract. The Insurer shall not
be required by this Section 4.4 to establish a new funding medium for any
Variable Contract if any offer to do so has been declined by vote of a majority
of Variable Contract Owners materially adversely affected by the material
irreconcilable conflict.
4.5 The Insurer, at least annually, shall submit to the Fund's Board
of Trustees such reports, materials, or data as the Board reasonably may request
so that the Trustees of the Fund may fully carry out the obligations imposed
upon the Board by the conditions contained in the application for the Mixed and
Shared Funding Exemptive Order and said reports, materials, and data shall be
submitted more frequently if deemed appropriate by the Board.
4.6 All reports of potential or existing conflicts received by the
Fund's Board of Trustees, and all Board action with regard to determining the
existence of a conflict, notifying Participating Insurance Companies of a
conflict, and determining whether any proposed action adequately remedies a
conflict, shall be properly recorded in the minutes of the Board of Trustees of
the Fund or other appropriate records, and such minutes or other records shall
be made available to the SEC upon request.
4.7 The Board of Trustees of the Fund shall promptly notify the
Insurer in writing of its determination of the existence of an irreconcilable
material conflict and its implications.
ARTICLE V. Prospectuses and Proxy Statements; Voting
-----------------------------------------
5.1 The Insurer shall distribute such prospectuses, proxy statements
and periodic reports of the Fund to the owners of Variable Contracts issued by
the Insurer as required to be distributed to such Variable Contract Owners under
applicable federal or state law.
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5.2 The Distributor shall provide the Insurer with as many copies of
the current prospectus of the Fund as the Insurer may reasonably request. If
requested by the Insurer in lieu thereof, the Fund shall provide such
documentation (including a final copy of the Fund's prospectus as set in type or
in camera-ready copy) and other assistance as is reasonably necessary in order
for the Insurer to either print a stand-alone document or print together in one
document the current prospectus for the Variable Contracts issued by the
Insurer and the current prospectus for the Fund, or a document combining the
Fund prospectus with prospectuses of other funds in which the Variable Contracts
may be invested. The Fund shall bear the expense of printing copies of its
current prospectus that will be distributed to existing Variable Contract
Owners, and the Insurer shall bear the expense of printing copies of the Fund's
prospectus that are used in connection with offering the Variable Contracts
issued by the Insurer.
5.3 The Fund and the Distributor shall provide, at the Fund's
expense, such copies of the Fund's current Statement of Additional Information
("SAI") as may reasonably be requested, to the Insurer and to any owner of a
Variable Contract issued by the Insurer who requests such SAI.
5.4 The Fund, at its expense, shall provide the Insurer with copies
of its proxy materials, periodic reports to shareholders, and other
communications to shareholders in such quantity as the Insurer shall reasonably
require for purposes of distributing to owners of Variable Contracts issued by
the Insurer. The Fund, at the Insurer's expense, shall provide the Insurer with
copies of its periodic reports to shareholders and other communications to
shareholders in such quantity as the Insurer shall reasonably request for use in
connection with offering the Variable Contracts issued by the Insurer. If
requested by the Insurer in lieu thereof, the Fund shall provide such
documentation (including a final copy of the Fund's proxy materials, periodic
reports to shareholders, and other communications to shareholders, as set in
type or in camera-ready copy) and other assistance as reasonably necessary in
order for the Insurer to print such shareholder communications for distribution
to owners of Variable Contracts issued by the Insurer.
5.5 For so long as the SEC interprets the 1940 Act to require pass-
through voting by Participating Insurance Companies whose Separate Accounts are
registered as investment companies under the 1940 Act, the Insurer shall vote
shares of each Portfolio of the Fund held in a Separate Account or a subaccount
thereof, whether or not registered under the 1940 Act, at regular and special
meetings of the Fund in accordance with instructions timely received by the
Insurer (or its designated agent) from owners of Variable Contracts funded by
such Separate Account or subaccount thereof having a voting interest in the
Portfolio. The Insurer shall vote shares of a Portfolio of the Fund held in a
Separate Account or a subaccount thereof that are attributable to the Variable
Contracts as to which no timely instructions are received, as well as shares
held in such Separate Account or subaccount thereof that are not attributable to
the Variable Contracts and owned beneficially by the Insurer (resulting from
charges against the Variable Contracts or otherwise), in the same proportion as
the votes cast by owners of the Variable Contracts funded by that Separate
Account or subaccount thereof having a
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voting interest in the Portfolio from whom instructions have been timely
received. The Insurer shall vote shares of each Portfolio of the Fund held in
its general account, if any, in the same proportion as the votes cast with
respect to shares of the Portfolio held in all Separate Accounts of the Insurer
or subaccounts thereof, in the aggregate.
5.6 During such time as the Fund engages in Mixed Funding or Shared
Funding, the Fund shall disclose in its prospectus that (1) the Fund is intended
to be a funding vehicle for variable annuity and variable life insurance
contracts offered by various insurance companies, (2) material irreconcilable
conflicts possibly may arise, and (3) the Board of Trustees of the Fund will
monitor events in order to identify the existence of any material irreconcilable
conflicts and to determine what action, if any, should be taken in response to
any such conflict. The Fund hereby notifies the Insurer that prospectus
disclosure may be appropriate regarding potential risks of offering shares of
the Fund to separate accounts funding both variable annuity contracts and
variable life insurance policies and to separate accounts funding Variable
Contracts of unaffiliated life insurance companies.
ARTICLE VI. Sales Material and Information
------------------------------
6.1 The Insurer shall furnish, or shall cause to be furnished, to the
Fund or its designee, each piece of sales literature or other promotional
material in which the Fund (or any Portfolio thereof) or its investment adviser
or the Distributor is named at least 15 days prior to the anticipated use of
such material, and no such sales literature or other promotional material shall
be used unless the Fund and the Distributor or the designee of either approve
the material or do not respond with comments on the material within 10 days from
receipt of the material.
6.2 The Insurer agrees that neither it nor any of its affiliates or
agents shall give any information or make any representations or statements on
behalf of the Fund or concerning the Fund other than the information or
representations contained in the Registration Statement or prospectus for the
Fund shares, as such registration statement and prospectus may be amended or
supplemented from time to time, or in reports or proxy statements for the Fund,
or in sales literature or other promotional material approved by the Fund or its
designee and by the Distributor or its designee, except with the permission of
the Fund or its designee and the Distributor or its designee.
6.3 The Fund or the Distributor or the designee of either shall
furnish to the Insurer or its designee, each piece of sales literature or other
promotional material in which the Insurer or its Separate Accounts are named at
least 15 days prior to the anticipated use of such material, and no such
material shall be used unless the Insurer or its designee approves the material
or does not respond with comments on the material within 10 days from receipt of
the material.
6.4 The Fund and the Distributor agree that each and the affiliates
and agents of each shall not give any information or make any representations on
behalf of the
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Insurer or concerning the Insurer, the Separate Accounts, or the Variable
Contracts issued by the Insurer, other than the information or representations
contained in a registration statement or prospectus for such Variable Contracts,
as such registration statement and prospectus may be amended or supplemented
from time to time, or in reports for the Separate Accounts or prepared for
distribution to owners of such Variable Contracts, or in sales literature or
other promotional material approved by the Insurer or its designee, except with
the permission of the Insurer.
6.5 The Fund will provide to the Insurer at least one complete copy
of the Mixed and Shared Funding Exemptive Application and any amendments
thereto, all prospectuses, Statements of Additional Information, reports, proxy
statements and other voting solicitation materials, and all amendments and
supplements to any of the above, that relate to the Fund or its shares, promptly
after the filing of such document with the SEC or other regulatory authorities.
6.6 The Insurer will provide to the Fund all prospectuses (which
shall include an offering memorandum if the Variable Contracts issued by the
Insurer or interests therein are not registered under the 1933 Act), Statements
of Additional Information, reports, solicitations for voting instructions
relating to the Fund, and all amendments or supplements to any of the above that
relate to the Variable Contracts issued by the Insurer or the Separate Accounts
which utilize the Fund as an underlying investment medium, promptly after the
filing of such document with the SEC or other regulatory authority.
6.7 For purposes of this Article VI, the phrase "sales literature or
other promotional material" includes, but is not limited to, advertisements
(such as material published, or designed for use, in a newspaper, magazine, or
other periodical, radio, television, telephone or tape recording, videotape
display, signs or billboards, motion pictures, computerized media, or other
public media), sales literature (i.e., any written communication distributed or
made generally available to customers or the public, including brochures,
circulars, research reports, market letters, form letters, seminar texts,
reprints or excerpts of any other advertisement, sales literature, or published
article), educational or training materials or other communications distributed
or made generally available to some or all agents or employees.
ARTICLE VII. Indemnification
---------------
7.1 Indemnification by the Insurer
------------------------------
7.1(a) The Insurer agrees to indemnify and hold harmless the
Fund, each of its Trustees and officers, any affiliated person of the Fund
within the meaning of Section 2(a)(3) of the 1940 Act, and the Distributor
(collectively, the "Indemnified Parties" for purposes of this Section 7.1)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of the Insurer) or litigation expenses
(including legal and other expenses), to which the Indemnified Parties may
become subject under any statute or regulation, at common law or otherwise,
insofar
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<PAGE>
as such losses, claims, damages, liabilities or litigation expenses are
related to the sale or acquisition of the Fund's shares or the Variable
Contracts issued by the Insurer and:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the
registration statement or prospectus (which shall include an offering
memorandum) for the Variable Contracts issued by the Insurer or sales
literature for such Variable Contracts (or any amendment or supplement
to any of the foregoing), or arise out of or are based upon the
omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading, provided that this agreement to indemnify
shall not apply as to any Indemnified Party if such statement or
omission or such alleged statement or omission was made in reliance
upon and in conformity with information furnished to the Insurer by or
on behalf of the Fund for use in the registration statement or
prospectus for the Variable Contracts issued by the Insurer or sales
literature (or any amendment or supplement) or otherwise for use in
connection with the sale of such Variable Contracts or Fund shares; or
(ii) arise out of or as a result of any statement or
representation (other than statements or representations contained in
the registration statement, prospectus or sales literature of the Fund
not supplied by the Insurer or persons under its control) or wrongful
conduct of the Insurer or any of its affiliates, employees or agents
with respect to the sale or distribution of the Variable Contracts
issued by the Insurer or the Fund shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a registration statement,
prospectus, or sales literature of the Fund or any amendment thereof
or supplement thereto or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to
make the statements therein not misleading if such a statement or
omission was made in reliance upon information furnished to the Fund
by or on behalf of the Insurer; or
(iv) arise out of or result from any material breach of any
representation and/or warranty made by the Insurer in this Agreement
or arise out of or result from any other material breach of this
Agreement by the Insurer;
except to the extent provided in Sections 7.1(b) and 7.1(c) hereof.
7.1(b) The Insurer shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
expenses to which an Indemnified Party would otherwise be subject by reason of
willful misfeasance, bad faith, or gross negligence in the performance of the
Indemnified Party's duties or by
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reason of the Indemnified Party's reckless disregard of obligations or duties
under this Agreement or to the Fund.
7.1(c) The Insurer shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Party shall have notified the Insurer in writing within a reasonable time
after the summons or other first legal process giving information of the nature
of the claim shall have been served upon such Indemnified Party (or after such
Party shall have received notice of such service on any designated agent), but
failure to notify the Insurer of any such claim shall not relieve the Insurer
from any liability which it may have to the Indemnified Party against whom such
action is brought otherwise than on account of this indemnification provision.
In case any such action is brought against the Indemnified Parties, the Insurer
shall be entitled to participate, at its own expense, in the defense of such
action. The Insurer also shall be entitled to assume the defense thereof, with
counsel satisfactory to the party named in the action. After notice from the
Insurer to such party of the Insurer's election to assume the defense thereof,
the Indemnified Party shall bear the fees and expenses of any additional counsel
retained by it, and the Insurer will not be liable to such party under this
Agreement for any legal or other expenses subsequently incurred by such party
independently in connection with the defense thereof other than reasonable costs
of investigation.
7.1(d) The Indemnified Parties shall promptly notify the Insurer of
the commencement of any litigation or proceedings against them in connection
with the issuance or sale of the Fund shares or the Variable Contracts issued by
the Insurer or the operation of the Fund.
7.2 Indemnification By the Distributor
----------------------------------
7.2(a) The Distributor agrees to indemnify and hold harmless the
Insurer, its affiliated principal underwriter of the Variable Contracts, and
each of their directors and officers and any affiliated person of the Insurer
within the meaning of Section 2(a)(3) of the 1940 Act (collectively, the
"Indemnified Parties" for purposes of this Section 7.2) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Distributor) or litigation expenses (including legal
and other expenses) to which the Indemnified Parties may become subject under
any statute or regulation, at common law or otherwise, insofar as such losses,
claims, damages, liabilities or litigation expenses are related to the sale or
acquisition of the Fund's shares or the Variable Contracts issued by the Insurer
and:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the
registration statement or prospectus or sales literature of the Fund
(or any amendment or supplement to any of the foregoing), or arise out
of or are based upon the omission or the alleged omission to state
therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, provided that this
agreement to indemnify shall not apply
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as to any Indemnified Party if such statement or omission or such
alleged statement or omission was made in reliance upon and in
conformity with information furnished to the Distributor or the Fund
or the designee of either by or on behalf of the Insurer for use in
the registration statement or prospectus for the Fund or in sales
literature (or any amendment or supplement) or otherwise for use in
the registration statement or prospectus for the Fund or in sales
literature (or any amendment or supplement) or otherwise for use in
connection with the sale of the Variable Contracts issued by the
Insurer or Fund shares; or
(ii) arise out of or as a result of any statement or
representations (other than statements or representations contained in
the registration statement, prospectus or sales literature for the
Variable Contracts not supplied by the Distributor or any employees or
agents thereof) or wrongful conduct of the Fund or Distributor, or the
affiliates, employees, or agents of the Fund or the Distributor with
respect to the sale or distribution of the Variable Contracts issued
by the Insurer or Fund shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a registration statement,
prospectus, or sales literature covering the Variable Contracts issued
by the Insurer, or any amendment thereof or supplement thereto, or the
omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statement or statements
therein not misleading, if such statement or omission was made in
reliance upon information furnished to the Insurer by or on behalf of
the Fund; or
(iv) arise out of or result from any material breach of any
representation and/or warranty made by the Distributor in this
Agreement or arise out of or result from any other material breach of
this Agreement by the Distributor;
except to the extent provided in Sections 7.2(b) and 7.2(c) hereof.
7.2(b) The Distributor shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
expenses to which an Indemnified Party would otherwise be subject by reason of
willful misfeasance, bad faith, or gross negligence in the performance of the
Indemnified Party's duties or by reason of the Indemnified Party's reckless
disregard of obligations or duties under this Agreement or to the Insurer or the
Separate Accounts.
7.2(c) The Distributor shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Party shall have notified the Distributor in writing within a reasonable
time after the summons or other first legal process giving information of the
nature of the claim shall have been
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<PAGE>
served upon such Indemnified Party (or after such Party shall have received
notice of such service on any designated agent), but failure to notify the
Distributor of any such claim shall not relieve the Distributor from any
liability which it may have to the Indemnified Party against whom such action is
brought otherwise than on account of this indemnification provision. In case any
such action is brought against the Indemnified Parties, the Distributor will be
entitled to participate, at is own expense, in the defense thereof. The
Distributor also shall be entitled to assume the defense thereof, with counsel
satisfactory to the party named in the action. After notice from the Distributor
to such party of the Distributor's election to assume the defense thereof, the
Indemnified Party shall bear the fees and expenses of any additional counsel
retained by it, and the Distributor will not be liable to such party under this
Agreement for any legal or other expense subsequently incurred by such party
independently in connection with the defense thereof other than reasonable costs
of investigation.
7.2(d) The Insurer shall promptly notify the Distributor of the
commencement of any litigation or proceedings against it or any of its officers
or directors in connection with the issuance or sale of the Variable Contracts
issued by the Insurer or the operation of the Separate Accounts.
7.3 Indemnification by the Fund
---------------------------
7.3(a) The Fund agrees to indemnify and hold harmless the Insurer,
its affiliated principal underwriter of the Variable Contracts, and each of
their directors and officers and any affiliated person of the Insurer within the
meaning of Section 2(a)(3) of the 1940 Act (collectively, the "Indemnified
Parties" for purposes of this Section 7.3) against any and all losses, claims,
damages, liabilities (including amounts paid in settlement with the written
consent of the Fund) or litigation expenses (including legal and other expenses)
to which the Indemnified Parties may become subject under any statute or
regulation, at common law or otherwise, insofar as such losses, claims, damages,
liabilities or litigation expenses are related to the sale or acquisition of the
Fund's shares or the Variable Contracts issued by the Insurer and:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the
registration statement or prospectus or sales literature of the Fund
(or any amendment or supplement to any of the foregoing), or arise out
of or are based upon the omission or the alleged omission to state
therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, provided that this
agreement to indemnify shall not apply as to any Indemnified Party if
such statement or omission or such alleged statement or omission was
made in reliance upon and in conformity with information furnished to
the Distributor or the Fund or the designee of either by or on behalf
of the Insurer for use in the registration statement or prospectus for
the Fund or in sales literature (or any amendment or supplement) or
otherwise for use in connection with the sale of the Variable
Contracts issued by the Insurer or Fund shares; or
15
<PAGE>
(ii) arise out of or as a result of any statement or
representation (other than statements or representations contained in
the registration statement, prospectus or sales literature for the
Variable Contracts not supplied by the Distributor or any employees or
agents thereof) or wrongful conduct of the Fund, or the affiliates,
employees, or agents of the Fund, with respect to the sale or
distribution of the Variable Contracts issued by the Insurer or Fund
shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a registration statement,
prospectus or sales literature covering the Variable Contracts issued
by the Insurer, or any amendment thereof or supplement thereto, or the
omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statement or statements
therein not misleading, if such statement or omission was made in
reliance upon information furnished to the Insurer by or on behalf of
the Fund; or
(iv) arise out of or result from any material breach of any
representation and/or warranty made by the Fund in this Agreement or
arise out of or result from any other material breach of this
Agreement by the Fund;
except to the extent provided in Sections 7.3(b) and 7.3(c) hereof.
7.3(b) The Fund shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
expenses to which an Indemnified Party would otherwise be subject by reason of
willful misfeasance, bad faith, or gross negligence in the performance of the
Indemnified Party's duties or by reason of the Indemnified Party's reckless
disregard of obligations or duties under this Agreement or to the Insurer or the
Separate Accounts.
7.3(c) The Fund shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such party shall have notified the Fund in writing within a reasonable time
after the summons or other first legal process giving information of the nature
of the claim shall have been served upon such Indemnified Party (or after such
Party shall have received notice of such service on any designated agent), but
failure to notify the Fund of any such claim shall not relieve the Fund from any
liability which it may have to the Indemnified Party against whom such action is
brought otherwise than on account of this indemnification provision. In case
any such action is brought against the Indemnified Parties, the Fund will be
entitled to participate, at its own expense, in the defense thereof. The Fund
also shall be entitled to assume the defense thereof, with counsel satisfactory
to the party named in the action. After notice from the Fund to such party of
the Fund's election to assume the defense thereof, the Indemnified Party shall
bear the fees and expenses of any additional counsel retained by it, and the
Fund will not be liable to such party under this Agreement for any
16
<PAGE>
legal or other expenses subsequently incurred by such party independently in
connection with the defense thereof other than reasonable costs of
investigation.
7.3(d) The Insurer shall promptly notify the Fund of the com-
mencement of any litigation or proceedings against it or any of its officers or
directors in connection with the issuance or sale of the Variable Contracts
issued by the Insurer or the sale of the Fund's shares.
ARTICLE VIII. Applicable Law
--------------
8.1 This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of Pennsylvania.
8.2 This Agreement shall be subject to the provisions of the 1933, 1934,
and 1940 Acts, and the rules and regulations and rulings thereunder, including
such exemptions from those statutes, rules and regulations as the SEC may grant
(including, but not limited to, the Mixed and Shared Funding Exemptive Order),
and the terms hereof shall be interpreted and construed in accordance therewith.
ARTICLE IX. Termination
-----------
9.1 This Agreement shall terminate:
(a) at the option of any party upon 180 days advance written notice
to the other parties; or
(b) at the option of the Insurer if shares of the Portfolios are not
reasonably available to meet the requirements of the Variable Contracts issued
by the Insurer, as determined by the Insurer, and upon prompt notice by the
Insurer to the other parties; or
(c) at the option of the Fund or the Distributor upon institution of
formal proceedings against the Insurer or its agent by the NASD, the SEC, or any
state securities or insurance department or any other regulatory body regarding
the Insurer's duties under this Agreement or related to the sale of the Variable
Contracts issued by the Insurer, the operation of the Separate Accounts, or the
purchase of the Fund shares; or
(d) at the option of the Insurer upon institution of formal
proceedings against the Fund or the Distributor by the NASD, the SEC, or any
state securities or insurance department or any other regulatory body; or
(e) upon requisite vote of the Variable Contract Owners having an
interest in the Separate Accounts (or any subaccounts thereof) to substitute the
shares of another investment company for the corresponding shares of the Fund or
a Portfolio in accordance with the terms of the Variable Contracts for which
those shares had been selected or serve as the underlying investment media; or
17
<PAGE>
(f) in the event any of the shares of a Portfolio are not registered,
issued or sold in accordance with applicable state and/or federal law, or such
law precludes the use of such shares as the underlying investment media of the
Variable Contracts issued or to be issued by the Insurer; or
(g) by any party to the Agreement upon a determination by a majority
of the Trustees of the Fund, or a majority of its disinterested Trustees, that
an irreconcilable conflict, as described in Article IV hereof, exists; or
(h) at the option of the Insurer if the Fund or a Portfolio fails to
meet the requirements under Subchapter M of the Code for qualification as a
Regulated Investment Company specified in Section 3.2 hereof or the diversi-
fication requirements specified in Section 3.3 hereof.
9.2 Each party to this Agreement shall promptly notify the other parties
to the Agreement of the institution against such party of any such formal
proceedings as described in Sections 9.1(c) and (d) hereof. The Insurer shall
give 60 days prior written notice to the Fund of the date of any proposed vote
of Variable Contract Owners to replace the Fund's shares as described in Section
9.1(e) hereof.
9.3 Except as necessary to implement Variable Contract Owner initiated
transactions, or as required by state insurance laws or regulations, the Insurer
shall not redeem Fund shares attributable to the Variable Contracts issued by
the Insurer (as opposed to Fund shares attributable to the Insurer's assets held
in the Separate Accounts), and the Insurer shall not prevent Variable Contract
Owners from allocating payments to a Portfolio, until 60 days after the Insurer
shall have notified the Fund or Distributor of its intention to do so.
9.4 Notwithstanding any termination of this Agreement, the Fund and the
Distributor shall at the option of the Insurer continue to make available
additional shares of the Fund pursuant to the terms and conditions of this
Agreement, for all Variable Contracts in effect on the effective date of
termination of this Agreement (hereinafter referred to as "Existing Contracts").
Specifically, without limitation, based upon instructions from the owners of the
Existing Contracts, the Separate Accounts shall be permitted to reallocate
investments in the Portfolios of the Fund and redeem investments in the
Portfolios, and shall be permitted to invest in the Portfolios in the event that
owners of the Existing Contracts make additional purchase payments under the
Existing Contracts. If this Agreement terminates, the parties agree that
Sections 3.10, 7.1, 7.2, 7.3, 8.1, and 8.2, and, to the extent that all or a
portion of the assets of the Separate Accounts continue to be invested in the
Fund or any Portfolio of the Fund, Articles I, II, and IV and Sections 5.5 and
5.6 will remain in effect after termination.
ARTICLE X. Notices
-------
18
<PAGE>
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party at the address of such party set forth below or at such
other address as such party may from time to time specify in writing to the
other party.
If to the Fund:
Federated Insurance Series
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, Pennsylvania 15222-3779
Attn.: John W. McGonigle
If to the Distributor:
Federated Securities Corp.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, Pennsylvania 15222-3779
Attn.: John W. McGonigle
If to the Insurer:
PFL Life Insurance Company
4333 Edgewood Road N.E.
Cedar Rapids, Iowa 52499-0001
Attn: Financial Markets Division, Legal Department
19
<PAGE>
ARTICLE XI: Miscellaneous
-------------
11.1 The Fund and the Insurer agree that if and to the extent Rule 6e-2 or
Rule 6e-3(T) under the 1940 Act is amended or if Rule 6e-3 is adopted in final
form, to the extent applicable, the Fund and the Insurer shall each take such
steps as may be necessary to comply with the Rule as amended or adopted in final
form.
11.2 A copy of the Fund's Agreement and Declaration of Trust is on file
with the Secretary of the Commonwealth of Massachusetts and notice is hereby
given that any agreements that are executed on behalf of the Fund by any Trustee
or officer of the Fund are executed in his or her capacity as Trustee or officer
and not individually. The obligations of this Agreement shall only be binding
upon the assets and property of the Fund and shall not be binding upon any
Trustee, officer or shareholder of the Fund individually.
11.3 Nothing in this Agreement shall impede the Fund's Trustees or
shareholders of the shares of the Fund's Portfolios from exercising any of the
rights provided to such Trustees or shareholders in the Fund's Agreement and
Declaration of Trust, as amended, a copy of which will be provided to the
Insurer upon request.
11.4 Administrative services to Variable Contract Owners shall be the
responsibility of Insurer. Insurer, on behalf of its separate accounts will be
the sole shareholder of record of Fund shares. Fund and Distributor recognize
that they will derive a substantial savings in administrative expense by virtue
of having a sole shareholder rather than multiple shareholders. In
consideration of the administrative savings resulting from having a sole
shareholder rather than multiple shareholders, Distributor agrees to pay to
Insurer an amount computed at an annual rate of .25 of 1% of the average daily
net asset value of shares held in subaccounts for which Insurer provides
administrative services. Distributor's payments to Insurer are for
administrative services only and do not constitute payment in any manner for
investment advisory services.
11.5 It is understood that the name "Federated" or any derivative thereof
or logo associated with that name is the valuable property of the Distributor
and its affiliates, and that the Insurer has the right to use such name (or
derivative or logo) only so long as this Agreement is in effect. Upon
termination of this Agreement the Insurer shall forthwith cease to use such name
(or derivative or logo).
11.6 The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
11.7 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
20
<PAGE>
11.8 If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Agreement shall
not be affected thereby.
11.9 This Agreement may not be assigned by any party to the Agreement
except with the written consent of the other parties to the Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the day and year first above written.
FEDERATED INSURANCE SERIES
ATTEST: /s/ Matthew S. Hardin BY: /s/ J. Christopher Donahue
--------------------------- --------------------------------
Name: Matthew S. Hardin Name: J. Christopher Donahue
----------------------------- ------------------------------
Title: Assistant Secretary Title: President
---------------------------- -----------------------------
FEDERATED SECURITIES CORP.
ATTEST: /s/ Leslie K. Platt BY: /s/ Byron F. Bowman
--------------------------- --------------------------------
Name: Leslie K. Platt Name: Byron F. Bowman
----------------------------- ------------------------------
Title: Assistant Secretary Title: Vice President
---------------------------- -----------------------------
PFL LIFE INSURANCE
COMPANY
ATTEST: /s/ Dawn L. Krousie BY: /s/ William L. Busler
--------------------------- --------------------------------
Name: Dawn L. Krousie Name: William L. Busler
----------------------------- ------------------------------
Title: Paralegal Title: President
---------------------------- -----------------------------
21
<PAGE>
Exhibit A
---------
Contracts Accounts Insurer
--------- -------- -------
Atlas Portfolio Builder PFL Life Variable Annuity PFL Life Insurance
Variable Annuity Account A Company
Date of Board Resolution
Establishing the Separate
Account: February 17, 1997
22
<PAGE>
Exhibit B
---------
. Federated Utility Fund II
. Federated High Income Bond Fund II
23
<PAGE>
EXHIBIT (8)(e)(2)
-----------------
AMENDED SCHEDULE A TO PARTICIPATION AGREEMENT
<PAGE>
AMENDMENT NO. 3 TO
PARTICIPATION AGREEMENT
AMONG
WRL SERIES FUND, INC.,
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO,
PFL LIFE INSURANCE COMPANY
AND
AUSA LIFE INSURANCE COMPANY, INC.
Amendment No. 3 to the Participation Agreement ("Agreement"), dated July 1,
1992, as amended, among WRL Series Fund, Inc. (the "Fund"), Western Reserve Life
Assurance Co. of Ohio ("WRL"), PFL Life Insurance Company (the "PFL") and AUSA
Life Insurance Company, Inc. ("AUSA Life").
WHEREAS, PFL has, by resolution of its Board of Directors, duly organized
and established the Mutual Fund Account (the "Account") as a segregated asset
account to receive, set aside and invest assets attributable to net premiums and
payments received under certain variable annuity contracts and/or variable life
insurance policies (both the contracts and policies, collectively, "Policies");
and
WHEREAS, PFL has registered or will register the Account as a unit
investment trust under the Investment Company Act of 1940; and
WHEREAS, to the extent permitted by applicable insurance law and
regulation, PFL intends to purchase shares in one or more of the Portfolios of
the Fund to fund the Policies on behalf of the Account, as specified in Schedule
A attached to the Agreement, as such Schedule A is amended by this Amendment No.
3, and as Schedule A may be amended from time to time; and
WHEREAS, the Fund intends to sell shares of the Portfolio(s) to the Account
at net asset value; and
NOW, THEREFORE, IT IS HEREBY AGREED that PFL, for its Mutual Fund Account,
is authorized to acquire shares issued by the Fund, subject to the terms and
conditions of this Agreement, and that Schedule A to the Participation Agreement
is hereby amended to add the Mutual Fund Account as an additional "Account"; to
add the Atlas Portfolio Builder Variable Annuity issued by PFL to the list of
"Policies"; and to add the C.A.S.E. Growth Portfolio, the Value Equity
Portfolio, the Global Sector Portfolio, the International Equity Portfolio and
the U.S. Equity Portfolio of the WRL Series Fund, Inc.
IN WITNESS WHEREOF, each of the parties has caused this Amendment to be
executed in its name and on its behalf by its duly authorized representative,
effective as of May 1, 1997.
PFL LIFE INSURANCE COMPANY WRL SERIES FUND, INC.
By its authorized officer, By its authorized officer,
By: /s/ William L. Busler By: /s/ John R. Kenney
----------------------- ---------------------------------
Title: President Title: President
-------------------- ------------------------------
AUSA LIFE INSURANCE WESTERN RESERVE LIFE
COMPANY, INC. ASSURANCE CO. OF OHIO
By its authorized officer, By its authorized officer,
By: /s/ William L. Busler By: /s/ Alan M. Yaeger
----------------------- ---------------------------------
Title: Vice President Title: Executive Vice President
-------------------- ------------------------------
<PAGE>
AMENDED
-------
SCHEDULE A
----------
Effective May 1, 1997
Account(s), Policy(ies) and Portfolio(s) Subject
to the Participation Agreement
------------------------------
<TABLE>
<S> <C>
Accounts: PFL Endeavor Variable Annuity Account
- -------- AUSA Life Endeavor Separate Account
Mutual Fund Account
PFL Variable Annuity Account A (Mutual Fund Account)
Policies: The Endeavor ML Variable Annuity
- -------- The Endeavor FI Variable Annuity
The PFL Endeavor Platinum Variable Annuity
The AUSA Life Endeavor Variable Annuity
The Atlas Portfolio Builder Variable Annuity
Portfolios: WRL Series Fund, Inc. - Growth Portfolio
- ---------- WRL Series Fund, Inc. - Bond Portfolio
WRL Series Fund, Inc. - Money Market Portfolio
WRL Series Fund, Inc. - Global Portfolio
WRL Series Fund, Inc. - Short-to-Intermediate Government Portfolio
WRL Series Fund, Inc. - Strategic Total Return Portfolio
WRL Series Fund, Inc. - Emerging Growth Portfolio
WRL Series Fund, Inc. - Aggressive Growth Portfolio
WRL Series Fund, Inc. - Balanced Portfolio
WRL Series Fund, Inc. - Growth & Income Portfolio
WRL Series Fund, Inc. - C.A.S.E. Growth Portfolio
WRL Series Fund, Inc. - Value Equity Portfolio
WRL Series Fund, Inc. - Global Sector Portfolio
WRL Series Fund, Inc. - International Equity Portfolio
WRL Series Fund, Inc. - U.S. Equity Portfolio
</TABLE>
<PAGE>
EXHIBIT (9)
-----------
OPINION AND CONSENT OF COUNSEL
<PAGE>
[LETTERHEAD OF PFL LIFE INSURANCE COMPANY APPEARS HERE]
July 25, 1997
PFL Life Insurance Company
4333 Edgewood Road N.E.
Cedar Rapids, Iowa 52499-0001
Dear Sir/Madam:
With reference to the Registration Statement on Form N-4 by PFL Life Insurance
Company and PFL Life Variable Annuity Account A with the Securities and Exchange
Commission covering individual variable annuity contracts, I have examined such
documents and such law as I considered necessary and appropriate, and on the
basis of such examination, it is my opinion that:
1. PFL Life Insurance Company is duly organized and validly existing under the
laws of the State of Iowa and has been duly authorized to issue individual
variable annuity contracts by the Department of Insurance of the State of
Iowa.
2. PFL Variable Annuity Account A is a duly authorized and existing separate
account established pursuant to the provisions of Section 508A.1 of the
Iowa Insurance Code.
3. The Individual Variable Annuity Contracts, when issued as contemplated by
said Form N-4 Registration Statement, will constitute legal, validly issued
and binding obligations of PFL Life Insurance Company.
I hereby consent to the filing of this opinion as an exhibit to said N-4
Registration Statement.
Very truly yours,
PFL LIFE INSURANCE COMPANY
/s/ Frank A. Camp
Frank A. Camp
Division General Counsel
Financial Markets Division
<PAGE>
EXHIBIT (10)(a)
---------------
Consent of Independent Auditors
<PAGE>
[LETTERHEAD OF ERNST & YOUNG LLP APPEARS HERE]
Consent of Independent Auditors
We consent to the reference to our firm under the captions "Financial
Statements" in the Prospectus and "Independent Auditors" in the Statement of
Additional Information, and to the use of our report dated February 21, 1997
with respect to the statutory-basis financial statements and schedules of PFL
Life Insurance Company, included in Pre-Effective Amendment No. 1 to the
Registration Statement (Form N-4 No. 333-26209) and related Prospectus of PFL
Life Variable Annuity Account A.
/s/ Ernst & Young LLP
Des Moines, Iowa
July 28, 1997
<PAGE>
EXHIBIT (10)(b)
---------------
OPINION AND CONSENT OF ACTUARY
<PAGE>
PFL Life Insurance Company
July 25, 1997
Page 2
In the process of determining the reasonable ROI, each individual charge is also
established within the reasonable range of industry practice. For example, in
conjunction with the pricing process the company has analyzed publicly available
information pertaining to similar industry products, taking into consideration
such factors as current charge levels, the existence of charge level guarantees,
guaranteed death benefits, and guaranteed annuity rates. The methodology and
results of the comparative surveys included in this analysis are maintained at
the company's administrative offices.
Except by coincidence, it is not expected that actual charges assessed in a
given year would exactly offset actual expenses incurred. Acquisition expenses
(as well as major product and/or systems development expenses) are incurred "up
front" and recovered, with a reasonable profit margin, through future years'
charges. In addition, the company cannot increase certain charges under the
Policies in the pricing process.
Therefore, in my opinion, the fees and charges deducted under the Policies, in
the aggregate, are reasonable in relation to the services rendered, the expenses
expected to be incurred, and the risks assumed by the company.
I hereby consent to the use of this opinion, which is included as an Exhibit to
the Registration Statement.
/s/ Calvin R. Birkey
- -------------------------------
Calvin R. Birkey, FSA, MAAA
Managing Actuary
PFL Life Insurance Company
<PAGE>
EXHIBIT (13)
------------
PERFORMANCE DATA CALCULATIONS
<PAGE>
EXHIBIT 13
THE ATLAS PORTFOLIO BUILDER VARIABLE ANNUITY
CAPITAL APPRECIATION ACCOUNT
ADJUSTED HISTORICAL PERFORMANCE CALCULATIONS
<TABLE>
<CAPTION>
----------------------------
SURRENDER PROVISIONS:
Year Rate % Free
---- ---- ------
<S> <C> <C> <C> <C>
1 7.00% 10%
2 7.00% 20%
3 6.00% 30%
4 5.00% 40%
5 4.00% 50%
Mortality & Expense 1.40% 6 0.00% 60%
7 0.00% 70%
8 0.00% 80%
9 0.00% 90%
10 0.00% 100%
----------------------------
<CAPTION>
RETURNS OF COMPARABLE MUTUAL FUND PORTFOLIO:
<S> <C>
1 YEAR ANNUAL RETURN 25.56%
5 YEAR ANNUAL RETURN 0.00%
ANNUAL RETURN SINCE INCEPTION 17.76%
<CAPTION>
Acct Value Insurance
Before Ins Charges Insurance Adjusted Surrender W/D ERV Avg Ann Avg Ann
Year Expenses Factor Charges Acct Value Charge Available W/ Surr n W/ Surr W/O Surr
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
05-Apr-93 1,000.00 0.00 1,000.00
31-Dec-93 1,131.38 0.014 14.92 1,116.46
31-Dec-94 1,314.74 0.014 17.12 1,297.62
31-Dec-95 1,528.08 0.014 19.90 1,508.18
31-Dec-96 1,776.77 0.014 23.13 1,753.64 5.00% 40.00% 1,738.71 3.74 15.93% 16.19%
31-Dec-96 1,753.64
<CAPTION>
Acct Value Insurance
Before Ins Charges Insurance Adjusted Surrender W/D ERV Avg Ann Avg Ann
Year Expenses Factor Charges Acct Value Charge Available W/ Surr n W/ Surr W/O Surr
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1,000.00 0.00 1,000.00
1 1,255.60 0.014 15.79 1,239.81 7.00% 20.00% 1,187.17 1 18.72% 23.98%
1,239.81
</TABLE>
Page 1
<PAGE>
EXHIBIT 13
THE ATLAS PORTFOLIO BUILDER VARIABLE ANNUITY
DISCIPLINED STOCK ACCOUNT
ADJUSTED HISTORICAL PERFORMANCE CALCULATIONS
<TABLE>
<CAPTION>
-------------------------
SURRENDER PROVISIONS:
Year Rate % Free
---- ---- ------
<S> <C> <C>
1 7.00% 10%
2 7.00% 20%
3 6.00% 30%
4 5.00% 40%
5 4.00% 50%
6 0.00% 60%
7 0.00% 70%
8 0.00% 80%
9 0.00% 90%
10 0.00% 100%
-------------------------
</TABLE>
Mortality & Expense 1.40%
RETURNS OF COMPARABLE MUTUAL FUND PORTFOLIO:
1 YEAR ANNUAL RETURN 0.00%
5 YEAR ANNUAL RETURN 0.00%
ANNUAL RETURN SINCE INCEPTION 18.86%
<TABLE>
<CAPTION>
Acct Value Insurance
Before Ins Charges Insurance Adjusted
Year Expenses Factor Charges Acct Value
<S> <C> <C> <C> <C>
30-Apr-96 1,000.00 0.00 1,000.00
31-Dec-96 1,188.60 0.014 15.32 1,173.28
31-Dec-96 1,173.28
<CAPTION>
Surrender W/D ERV Avg Ann Avg Ann
Charge Available W/ Surr n W/ Surr W/O Surr
<S> <C> <C> <C> <C> <C>
7.00% 10.00% 1,111.49 0.67 11.15% 17.33%
</TABLE>
Page 1
<PAGE>
EXHIBIT 13
THE ATLAS PORTFOLIO BUILDER VARIABLE ANNUITY
GROWTH & INCOME ACCOUNT
ADJUSTED HISTORICAL PERFORMANCE CALCULATIONS
<TABLE>
<CAPTION>
SURRENDER PROVISIONS:
-----------------------------
Year Rate % Free
---- ---- ------
<S> <C> <C> <C> <C> <C>
1 7.00% 10%
2 7.00% 20%
3 6.00% 30%
4 5.00% 40%
5 4.00% 50%
Mortality & Expense 1.40% 6 0.00% 60%
7 0.00% 70%
8 0.00% 80%
9 0.00% 90%
10 0.00% 100%
-----------------------------
RETURNS OF COMPARABLE MUTUAL FUND PORTFOLIO:
1 YEAR ANNUAL RETURN 20.75%
5 YEAR ANNUAL RETURN 0.00%
ANNUAL RETURN SINCE INCEPTION 27.97%
</TABLE>
<TABLE>
<CAPTION>
Acct Value Insurance
Before Ins Charges Insurance Adjusted Surrender W/D ERV Avg Ann Avg Ann
Year Expenses Factor Charges Acct Value Charge Available W/ Surr n W/ Surr W/O Surr
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
02-May-94 1,000.00 0.00 1,000.00
31-Dec-94 1,186.21 0.014 15.30 1,170.91
31-Dec-95 1,498.41 0.014 18.79 1,479.62
31-Dec-96 1,894.60 0.014 23.75 1,870.85 6.00% 30.00% 1,844.53 2.67 25.79% 26.46%
31-Dec-96 1,870.85
<CAPTION>
Acct Value Insurance
Before Ins Charges Insurance Adjusted Surrender W/D ERV Avg Ann Avg Ann
Year Expenses Factor Charges Acct Value Charge Available W/ Surr n W/ Surr W/O Surr
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1,000.00 0.00 1,000.00
1 1,207.50 0.014 15.45 1,192.05 7.00% 20.00% 1,138.74 1 13.87% 19.21%
1,192.05
</TABLE>
Page 1
<PAGE>
EXHIBIT 13
THE ATLAS PORTFOLIO BUILDER VARIABLE ANNUITY
QUALITY BOND ACCOUNT
ADJUSTED HISTORICAL PERFORMANCE CALCULATIONS
<TABLE>
<CAPTION>
--------------------------
SURRENDER PROVISIONS:
Year Rate % Free
---- ---- ------
<S> <C> <C>
1 7.00% 10%
2 7.00% 20%
3 6.00% 30%
4 5.00% 40%
5 4.00% 50%
6 0.00% 60%
7 0.00% 70%
8 0.00% 80%
9 0.00% 90%
10 0.00% 100%
--------------------------
</TABLE>
Mortality & Expense 1.40%
RETURNS OF COMPARABLE MUTUAL FUND PORTFOLIO:
1 YEAR ANNUAL RETURN 3.13%
5 YEAR ANNUAL RETURN 8.90%
ANNUAL RETURN SINCE INCEPTION 9.63%
<TABLE>
<CAPTION>
Acct Value Insurance
Before Ins Charges Insurance Adjusted
Year Expenses Factor Charges Acct Value
<S> <C> <C> <C> <C>
31-Aug-90 1,000.00 0.00 1,000.00
31-Dec-90 1,032.19 0.014 14.23 1,017.96
31-Dec-91 1,115.99 0.014 15.04 1,100.95
31-Dec-92 1,207.26 0.014 16.26 1,191.00
31-Dec-93 1,305.69 0.014 17.59 1,288.10
31-Dec-94 1,412.14 0.014 19.02 1,393.12
31-Dec-95 1,527.28 0.014 20.58 1,506.70
31-Dec-96 1,652.19 0.014 22.26 1,629.93
31-Dec-96 1,629.93
<CAPTION>
Surrender W/D ERV Avg Ann Avg Ann
Charge Available W/ Surr n W/ Surr W/O Surr
<S> <C> <C> <C> <C> <C>
0.00% 70.00% 1,629.93 6.34 8.01% 8.01%
</TABLE>
Page 1
<PAGE>
- --------------------------------------------------------------------------------
EXHIBIT 13
THE ATLAS PORTFOLIO BUILDER VARIABLE ANNUITY
QUALITY BOND ACCOUNT
ADJUSTED HISTORICAL PERFORMANCE CALCULATIONS
<TABLE>
<CAPTION>
------------------------------
SURRENDER PROVISIONS:
Year Rate % Free
---- ---- ------
<S> <C> <C> <C> <C>
1 7.00% 10%
2 7.00% 20%
3 6.00% 30%
4 5.00% 40%
5 4.00% 50%
Mortality & Expense 1.40% 6 0.00% 60%
7 0.00% 70%
8 0.00% 80%
9 0.00% 90%
10 0.00% 100%
------------------------------
<CAPTION>
Acct Value Insurance
Before Ins Charges Insurance Adjusted Surrender W/D ERV Avg Ann Avg Ann
Year Expenses Factor Charges Acct Value Charge Available W/ Surr n W/ Surr W/O Surr
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
31-Dec-91 1,000.00 0.00 1,000.00
31-Dec-92 1,089.24 0.014 14.62 1,074.62
31-Dec-93 1,170.26 0.014 15.82 1,154.44
31-Dec-94 1,257.19 0.014 16.99 1,240.20
31-Dec-95 1,350.58 0.014 18.25 1,332.33
31-Dec-96 1,451.23 0.014 19.61 1,431.62 0.00% 60.00% 1,629.93 5.01 10.25% 10.25%
31-Dec-96 1,431.62
<CAPTION>
Acct Value Insurance
Before Ins Charges Insurance Adjusted Surrender W/D ERV Avg Ann Avg Ann
Year Expenses Factor Charges Acct Value Charge Available W/ Surr n W/ Surr W/O Surr
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1,000.00 0.00 1,000.00
1 1,031.30 0.014 14.22 1,017.08 7.00% 20.00% 961.32 1 -3.87% 1.71%
1,017.08
</TABLE>
Page 2
<PAGE>
EXHIBIT 13
THE ATLAS PORTFOLIO BUILDER VARIABLE ANNUITY
SMALL CAP ACCOUNT
ADJUSTED HISTORICAL PERFORMANCE CALCULATIONS
<TABLE>
<CAPTION>
--------------------------
SURRENDER PROVISIONS:
Year Rate % Free
---- ---- ------
<S> <C> <C> <C> <C>
1 7.00% 10%
2 7.00% 20%
3 6.00% 30%
4 5.00% 40%
5 4.00% 50%
Mortality & Expense 1.40% 6 0.00% 60%
7 0.00% 70%
8 0.00% 80%
9 0.00% 90%
10 0.00% 100%
--------------------------
</TABLE>
RETURNS OF COMPARABLE MUTUAL FUND PORTFOLIO:
1 YEAR ANNUAL RETURN 16.60%
5 YEAR ANNUAL RETURN 36.19%
ANNUAL RETURN SINCE INCEPTION 48.86%
<TABLE>
<CAPTION>
Acct Value Insurance
Before Ins Charges Insurance Adjusted Surrender W/D ERV Avg Ann Avg Ann
Year Expenses Factor Charges Acct Value Charge Available W/ Surr n W/ Surr W/O Surr
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
31-Aug-90 1,000.00 0.00 1,000.00
31-Dec-90 1,163.31 0.014 15.14 1,148.17
31-Dec-91 1,709.17 0.014 20.11 1,689.06
31-Dec-92 2,516.60 0.014 29.58 2,487.02
31-Dec-93 3,702.18 0.014 43.53 3,658.65
31-Dec-94 5,446.27 0.014 64.04 5,382.23
31-Dec-95 8,011.99 0.014 94.21 7,917.78
31-Dec-96 11,797.01 0.014 138.66 11,658.35 0.00% 70.00% 11,658.35 6.34 47.31% 47.31%
31-Dec-96 11,658.35
</TABLE>
Page 1
<PAGE>
EXHIBIT 13
THE ATLAS PORTFOLIO BUILDER VARIABLE ANNUITY
SMALL CAP ACCOUNT
ADJUSTED HISTORICAL PERFORMANCE CALCULATIONS
<TABLE>
<CAPTION>
----------------------------
SURRENDER PROVISIONS:
Year Rate % Free
---- ---- ------
<S> <C> <C> <C> <C>
1 7.00% 10%
2 7.00% 20%
3 6.00% 30%
4 5.00% 40%
5 4.00% 50%
Mortality & Expense 1.40% 6 0.00% 60%
7 0.00% 70%
8 0.00% 80%
9 0.00% 90%
10 0.00% 100%
----------------------------
<CAPTION>
Acct Value Insurance
Before Ins Charges Insurance Adjusted Surrender W/D ERV Avg Ann Avg Ann
Year Expenses Factor Charges Acct Value Charge Available W/ Surr n W/ Surr W/O Surr
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
31-Dec-91 1,000.00 0.00 1,000.00
31-Dec-92 1,362.69 0.014 16.54 1,346.35
31-Dec-93 1,633.59 0.014 22.38 1,811.21
31-Dec-94 2,456.69 0.014 30.10 2,436.59
31-Dec-95 3,318.39 0.014 40.50 3,277.89
31-Dec-96 4,467.41 0.014 54.50 4,412.91 0.00% 60.00% 4,412.91 5.01 34.53% 34.53%
31-Dec-96 4,412.91
<CAPTION>
Acct Value Insurance
Before Ins Charges Insurance Adjusted Surrender W/D ERV Avg Ann Avg Ann
Year Expenses Factor Charges Acct Value Charge Available W/ Surr n W/ Surr W/O Surr
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1,000.00 0.00 1,000.00
1 1,166.60 0.014 15.16 1,150.84 7.00% 20.00% 1,096.95 1 9.70% 15.06%
1,150.84
</TABLE>
Page 2
<PAGE>
EXHIBIT 13
THE ATLAS PORTFOLIO BUILDER VARIABLE ANNUITY
EQUITY INCOME ACCOUNT
ADJUSTED HISTORICAL PERFORMANCE CALCULATIONS
<TABLE>
<CAPTION>
--------------------------------------------
SURRENDER PROVISIONS:
Year Rate % Free
---- ---- ------
<S> <C> <C> <C> <C>
1 7.00% 10%
2 7.00% 20%
3 6.00% 30%
4 5.00% 40%
5 4.00% 50%
Mortality & Expense 1.40% 6 0.00% 60%
7 0.00% 70%
8 0.00% 80%
9 0.00% 90%
10 0.00% 100%
--------------------------------------------
<CAPTION>
RETURNS OF COMPARABLE MUTUAL FUND PORTFOLIO:
<S> <C>
1 YEAR ANNUAL RETURN 19.88%
5 YEAR ANNUAL RETURN 0.00%
ANNUAL RETURN SINCE INCEPTION 25.19%
<CAPTION>
Acct Value Insurance
Before Ins Charges Insurance Adjusted Surrender W/D ERV Avg Ann Avg Ann
Year Expenses Factor Charges Acct Value Charge Available W/ Surr n W/ Surr W/O Surr
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
03-Jan-95 1,000.00 0.00 1,000.00
31-Dec-95 1,249.83 0.014 15.75 1,234.08
31-Dec-96 1,545.80 0.014 19.57 1,526.23 7.00% 20.00% 1,477.60 1.99 21.62% 23.61%
31-Dec-96 1,526.23
<CAPTION>
Acct Value Insurance
Before Ins Charges Insurance Adjusted Surrender W/D ERV Avg Ann Avg Ann
Year Expenses Factor Charges Acct Value Charge Available W/ Surr n W/ Surr W/O Surr
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1,000.00 0.00 1,000.00
1 1,198.80 0.014 15.39 1,183.41 7.00% 20.00% 1,129.98 1 13.00% 18.34%
1,183.41
</TABLE>
Page 1
<PAGE>
EXHIBIT 13
THE ATLAS PORTFOLIO BUILDER VARIABLE ANNUITY
VALUE EQUITY ACCOUNT
ADJUSTED HISTORICAL PERFORMANCE CALCULATIONS
<TABLE>
<CAPTION>
----------------------------
SURRENDER PROVISIONS:
Year Rate % Free
---- ---- ------
<S> <C> <C> <C> <C>
1 7.00% 10%
2 7.00% 20%
3 6.00% 30%
4 5.00% 40%
5 4.00% 50%
Mortality & Expense 1.40% 6 0.00% 60%
7 0.00% 70%
8 0.00% 80%
9 0.00% 90%
10 0.00% 100%
----------------------------
<CAPTION>
RETURNS OF COMPARABLE MUTUAL FUND PORTFOLIO:
<S> <C>
1 YEAR ANNUAL RETURN 23.84%
5 YEAR ANNUAL RETURN 0.00%
ANNUAL RETURN SINCE INCEPTION 17.46%
<CAPTION>
Acct Value Insurance
Before Ins Charges Insurance Adjusted Surrender W/D ERV Avg Ann Avg Ann
Year Expenses Factor Charges Acct Value Charge Available W/ Surr n W/ Surr W/O Surr
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
27-May-93 1,000.00 0.00 1,000.00
31-Dec-93 1,104.28 0.014 14.73 1,089.55
31-Dec-94 1,279.79 0.014 16.69 1,263.10
31-Dec-95 1,483.64 0.014 19.34 1,464.30
31-Dec-96 1,720.67 0.014 22.43 1,698.24 5.00% 40.00% 1,682.20 3.60 15.54% 15.85%
31-Dec-96 1,698.24
<CAPTION>
Acct Value Insurance
Before Ins Charges Insurance Adjusted Surrender W/D ERV Avg Ann Avg Ann
Year Expenses Factor Charges Acct Value Charge Available W/ Surr n W/ Surr W/O Surr
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1,000.00 0.00 1,000.00
1 1,238.40 0.014 15.67 1,222.73 7.00% 20.00% 1,169.85 1 16.98% 22.27%
1,222.73
</TABLE>
Page 1
<PAGE>
EXHIBIT 13
THE ATLAS PORTFOLIO BUILDER VARIABLE ANNUITY
SMALL CAP VALUE ACCOUNT
ADJUSTED HISTORICAL PERFORMANCE CALCULATIONS
<TABLE>
<CAPTION>
----------------------------
SURRENDER PROVISIONS:
Year Rate % Free
---- ---- ------
<S> <C> <C> <C> <C>
1 7.00% 10%
2 7.00% 20%
3 6.00% 30%
4 5.00% 40%
5 4.00% 50%
Mortality & Expense 1.40% 6 0.00% 60%
7 0.00% 70%
8 0.00% 80%
9 0.00% 90%
10 0.00% 100%
----------------------------
<CAPTION>
RETURNS OF COMPARABLE MUTUAL FUND PORTFOLIO:
<S> <C>
1 YEAR ANNUAL RETURN 25.63%
5 YEAR ANNUAL RETURN 0.00%
ANNUAL RETURN SINCE INCEPTION 13.19%
<CAPTION>
Acct Value Insurance
Before Ins Charges Insurance Adjusted Surrender W/D ERV Avg Ann Avg Ann
Year Expenses Factor Charges Acct Value Charge Available W/ Surr n W/ Surr W/O Surr
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
04-May-93 1,000.00 0.00 1,000.00
31-Dec-93 1,087.09 0.014 14.61 1,072.48
31-Dec-94 1,213.94 0.014 16.11 1,197.83
31-Dec-95 1,355.82 0.014 17.99 1,337.83
31-Dec-96 1,514.77 0.014 20.09 1,494.68 5.00% 40.00% 1,474.57 3.66 11.18% 11.60%
31-Dec-96 1,494.68
<CAPTION>
Acct Value Insurance
Before Ins Charges Insurance Adjusted Surrender W/D ERV Avg Ann Avg Ann
Year Expenses Factor Charges Acct Value Charge Available W/ Surr n W/ Surr W/O Surr
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1,000.00 0.00 1,000.00
1 1,256.30 0.014 15.79 1,240.51 7.00% 20.00% 1,187.88 1 18.79% 24.05%
1,240.51
</TABLE>
Page 1
<PAGE>
EXHIBIT 13
THE ATLAS PORTFOLIO BUILDER VARIABLE ANNUITY
GROWTH STOCK ACCOUNT
ADJUSTED HISTORICAL PERFORMANCE CALCULATIONS
<TABLE>
<CAPTION>
-----------------------------------
SURRENDER PROVISIONS:
Year Rate % Free
---- ---- ------
<S> <C> <C> <C> <C>
1 7.00% 10%
2 7.00% 20%
3 6.00% 30%
4 5.00% 40%
5 4.00% 50%
Mortality & Expense 1.40% 6 0.00% 60%
7 0.00% 70%
8 0.00% 80%
9 0.00% 90%
10 0.00% 100%
-----------------------------------
<CAPTION>
RETURNS OF COMPARABLE MUTUAL FUND PORTFOLIO:
<S> <C>
1 YEAR ANNUAL RETURN 20.77%
5 YEAR ANNUAL RETURN 0.00%
ANNUAL RETURN SINCE INCEPTION 28.85%
<CAPTION>
Acct Value Insurance
Before Ins Charges Insurance Adjusted Surrender W/D ERV Avg Ann Avg Ann
Year Expenses Factor Charges Acct Value Charge Available W/ Surr n W/ Surr W/O Surr
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
03-Jan-95 1,000.00 0.00 1,000.00
31-Dec-95 1,286.13 0.014 16.00 1,270.13
31-Dec-96 1,637.57 0.014 20.47 1,617.10 7.00% 20.00% 1,569.74 1.99 25.37% 27.25%
31-Dec-96 1,617.10
<CAPTION>
Acct Value Insurance
Before Ins Charges Insurance Adjusted Surrender W/D ERV Avg Ann Avg Ann
Year Expenses Factor Charges Acct Value Charge Available W/ Surr n W/ Surr W/O Surr
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1,000.00 0.00 1,000.00
1 1,207.70 0.014 15.45 1,192.25 7.00% 20.00% 1,138.94 1 13.89% 19.23%
1,192.25
</TABLE>
Page 1
<PAGE>
EXHIBIT 13
THE ATLAS PORTFOLIO BUILDER VARIABLE ANNUITY
HIGH INCOME ACCOUNT
ADJUSTED HISTORICAL PERFORMANCE CALCULATIONS
<TABLE>
<CAPTION>
----------------------------
SURRENDER PROVISIONS:
Year Rate % Free
---- ---- ------
<S> <C> <C> <C> <C>
1 7.00% 10%
2 7.00% 20%
3 6.00% 30%
4 5.00% 40%
5 4.00% 50%
Mortality & Expense 1.40% 6 0.00% 60%
7 0.00% 70%
8 0.00% 80%
9 0.00% 90%
10 0.00% 100%
----------------------------
<CAPTION>
RETURNS OF COMPARABLE MUTUAL FUND PORTFOLIO:
<S> <C>
1 YEAR ANNUAL RETURN 14.31%
5 YEAR ANNUAL RETURN 0.00%
ANNUAL RETURN SINCE INCEPTION 10.48%
<CAPTION>
Acct Value Insurance
Before Ins Charges Insurance Adjusted Surrender W/D ERV Avg Ann Avg Ann
Year Expenses Factor Charges Acct Value Charge Available W/ Surr n W/ Surr W/O Surr
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
02-Feb-94 1,000.00 0.00 1,000.00
31-Dec-94 1,095.32 0.014 14.67 1,080.65
31-Dec-95 1,193.90 0.014 16.02 1,177.88
31-Dec-96 1,301.66 0.014 17.47 1,284.19 6.00% 30.00% 1,247.31 2.91 7.88% 8.97%
31-Dec-96 1,284.19
<CAPTION>
Acct Value Insurance
Before Ins Charges Insurance Adjusted Surrender W/D ERV Avg Ann Avg Ann
Year Expenses Factor Charges Acct Value Charge Available W/ Surr n W/ Surr W/O Surr
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1,000.00 0.00 1,000.00
1 1,143.10 0.014 15.00 1,128.10 7.00% 20.00% 1,073.89 1 7.39% 12.81%
1,128.10
</TABLE>
Page 1
<PAGE>
EXHIBIT 13
THE ATLAS PORTFOLIO BUILDER VARIABLE ANNUITY
UTILITY ACCOUNT
ADJUSTED HISTORICAL PERFORMANCE CALCULATIONS
<TABLE>
<CAPTION>
----------------------------
SURRENDER PROVISIONS:
Year Rate % Free
---- ---- ------
<S> <C> <C> <C> <C>
1 7.00% 10%
2 7.00% 20%
3 6.00% 30%
4 5.00% 40%
5 4.00% 50%
Mortality & Expense 1.40% 6 0.00% 60%
7 0.00% 70%
8 0.00% 80%
9 0.00% 90%
10 0.00% 100%
----------------------------
<CAPTION>
RETURNS OF COMPARABLE MUTUAL FUND PORTFOLIO:
<S> <C>
1 YEAR ANNUAL RETURN 11.56%
5 YEAR ANNUAL RETURN 0.00%
ANNUAL RETURN SINCE INCEPTION 10.63%
<CAPTION>
Acct Value Insurance
Before Ins Charges Insurance Adjusted Surrender W/D ERV Avg Ann Avg Ann
Year Expenses Factor Charges Acct Value Charge Available W/ Surr n W/ Surr W/O Surr
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
14-Apr-94 1,000.00 0.00 1,000.00
31-Dec-94 1,076.01 0.014 14.53 1,061.48
31-Dec-95 1,174.32 0.014 15.75 1,158.57
31-Dec-96 1,282.06 0.014 17.19 1,264.87 6.00% 30.00% 1,227.64 2.72 7.84% 9.03%
31-Dec-96 1,264.87
<CAPTION>
Acct Value Insurance
Before Ins Charges Insurance Adjusted Surrender W/D ERV Avg Ann Avg Ann
Year Expenses Factor Charges Acct Value Charge Available W/ Surr n W/ Surr W/O Surr
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1,000.00 0.00 1,000.00
1 1,115.60 0.014 14.81 1,100.79 7.00% 20.00% 1,046.20 1 4.62% 10.08%
1,100.79
</TABLE>
Page 1
<PAGE>
EXHIBIT 13
THE ATLAS PORTFOLIO BUILDER VARIABLE ANNUITY
GLOBAL ACCOUNT
ADJUSTED HISTORICAL PERFORMANCE CALCULATIONS
<TABLE>
<CAPTION>
----------------------------
SURRENDER PROVISIONS:
Year Rate % Free
---- ---- ------
<S> <C> <C> <C> <C>
1 7.00% 10%
2 7.00% 20%
3 6.00% 30%
4 5.00% 40%
5 4.00% 50%
Mortality & Expense 1.40% 6 0.00% 60%
7 0.00% 70%
8 0.00% 80%
9 0.00% 90%
10 0.00% 100%
----------------------------
<CAPTION>
RETURNS OF COMPARABLE MUTUAL FUND PORTFOLIO:
<S> <C>
1 YEAR ANNUAL RETURN 27.74%
5 YEAR ANNUAL RETURN 0.00%
ANNUAL RETURN SINCE INCEPTION 20.82%
<CAPTION>
Acct Value Insurance
Before Ins Charges Insurance Adjusted Surrender W/D ERV Avg Ann Avg Ann
Year Expenses Factor Charges Acct Value Charge Available W/ Surr n W/ Surr W/O Surr
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
03-Dec-92 1,000.00 0.00 1,000.00
31-Dec-92 1,015.97 0.014 14.11 1,001.86
31-Dec-93 1,210.45 0.014 15.58 1,194.87
31-Dec-94 1,443.65 0.014 18.58 1,425.06
31-Dec-95 1,721.76 0.014 22.16 1,699.60
31-Dec-96 2,054.43 0.014 26.43 2,028.00 4.00% 50.00% 2,028.00 4.06 18.92% 18.92%
31-Dec-96 2,028.00
<CAPTION>
Acct Value Insurance
Before Ins Charges Insurance Adjusted Surrender W/D ERV Avg Ann Avg Ann
Year Expenses Factor Charges Acct Value Charge Available W/ Surr n W/ Surr W/O Surr
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1,000.00 0.00 1,000.00
1 1,277.40 0.014 15.94 1,261.46 7.00% 20.00% 1,209.12 1 20.91% 26.15%
1,261.46
</TABLE>
Page 1
<PAGE>
EXHIBIT 13
THE ATLAS PORTFOLIO BUILDER VARIABLE ANNUITY
GROWTH ACCOUNT
ADJUSTED HISTORICAL PERFORMANCE CALCULATIONS
<TABLE>
<CAPTION>
----------------------------
SURRENDER PROVISIONS:
----------------------------
Year Rate % Free
---- ---- ------
<S> <C> <C> <C> <C>
1 7.00% 10%
2 7.00% 20%
3 6.00% 30%
4 5.00% 40%
5 4.00% 50%
Mortality & Expense 1.40% 6 0.00% 60%
7 0.00% 70%
8 0.00% 80%
9 0.00% 90%
10 0.00% 100%
----------------------------
<CAPTION>
RETURNS OF COMPARABLE MUTUAL FUND PORTFOLIO:
<S> <C>
1 YEAR ANNUAL RETURN 17.96%
5 YEAR ANNUAL RETURN 11.11%
10 YEAR ANNUAL RETURN 17.98%
<CAPTION>
Acct Value Insurance
Before Ins Charges Insurance Adjusted Surrender W/D ERV Avg Ann Avg Ann
Year Expenses Factor Charges Acct Value Charge Available W/ Surr n W/ Surr W/O Surr
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
31-Dec-86 0.014 1,000.00
31-Dec-87 1,179.80 0.014 8.26 1,171.54
31-Dec-88 1,382.76 0.014 17.94 1,364.82
31-Dec-89 1,610.21 0.014 20.95 1,589.26
31-Dec-90 1,875.01 0.014 24.40 1,850.61
31-Dec-91 2,183.35 0.014 28.41 2,154.94
31-Dec-92 2,543.46 0.014 33.09 2,510.37
31-Dec-93 2,961.73 0.014 38.54 2,923.19
31-Dec-94 3,448.78 0.014 44.87 3,403.91
31-Dec-95 4,015.93 0.014 52.25 3,963.68
31-Dec-96 4,678.30 0.014 60.86 4,617.44 0.00% 100.00% 4,617.44 10.01 16.52% 16.52%
31-Dec-96 4,617.44
</TABLE>
Page 1
<PAGE>
EXHIBIT 13
THE ATLAS PORTFOLIO BUILDER VARIABLE ANNUITY
GROWTH ACCOUNT
ADJUSTED HISTORICAL PERFORMANCE CALCULATIONS
<TABLE>
<CAPTION>
----------------------------
SURRENDER PROVISIONS:
----------------------------
Year Rate % Free
---- ---- ------
<S> <C> <C> <C> <C>
1 7.00% 10%
2 7.00% 20%
3 6.00% 30%
4 5.00% 40%
5 4.00% 50%
Mortality & Expense 1.40% 6 0.00% 60%
7 0.00% 70%
8 0.00% 80%
9 0.00% 90%
10 0.00% 100%
----------------------------
<CAPTION>
Acct Value Insurance
Before Ins Charges Insurance Adjusted Surrender W/D ERV Avg Ann Avg Ann
Year Expenses Factor Charges Acct Value Charge Available W/ Surr n W/ Surr W/O Surr
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
31-Dec-91 1,000.00 0.00 1,000.00
31-Dec-92 1,111.40 0.014 14.78 1,096.62
31-Dec-93 1,218.45 0.014 16.31 1,202.14
31-Dec-94 1,335.70 0.014 17.88 1,317.82
31-Dec-95 1,464.23 0.014 19.60 1,444.63
31-Dec-96 1,605.57 0.014 21.49 1,584.08 0.00% 60.00% 1,584.08 5.01 9.63% 9.63%
31-Dec-96 1,584.08
<CAPTION>
Acct Value Insurance
Before Ins Charges Insurance Adjusted Surrender W/D ERV Avg Ann Avg Ann
Year Expenses Factor Charges Acct Value Charge Available W/ Surr n W/ Surr W/O Surr
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1,000.00 0.00 1,000.00
1 1,179.60 0.014 15.26 1,164.34 7.00% 20.00% 1,110.64 1 11.06% 16.43%
1,164.34
</TABLE>
Page 2
<PAGE>
EXHIBIT 13
THE ATLAS PORTFOLIO BUILDER VARIABLE ANNUITY
EMERGING GROWTH ACCOUNT
ADJUSTED HISTORICAL PERFORMANCE CALCULATIONS
<TABLE>
<CAPTION>
----------------------------
SURRENDER PROVISIONS:
Year Rate % Free
---- ---- ------
<S> <C> <C> <C> <C>
1 7.00% 10%
2 7.00% 20%
3 6.00% 30%
4 5.00% 40%
5 4.00% 50%
Mortality & Expense 1.40% 6 0.00% 60%
7 0.00% 70%
8 0.00% 80%
9 0.00% 90%
10 0.00% 100%
----------------------------
<CAPTION>
RETURNS OF COMPARABLE MUTUAL FUND PORTFOLIO:
<S> <C>
1 YEAR ANNUAL RETURN 18.88%
5 YEAR ANNUAL RETURN 0.00%
ANNUAL RETURN SINCE INCEPTION 20.04%
<CAPTION>
Acct Value Insurance
Before Ins Charges Insurance Adjusted Surrender W/D ERV Avg Ann Avg Ann
Year Expenses Factor Charges Acct Value Charge Available W/ Surr n W/ Surr W/O Surr
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
01-Mar-93 1,000.00 0.00 1,000.00
31-Dec-93 1,167.46 0.014 15.17 1,152.29
31-Dec-94 1,383.21 0.014 17.85 1,365.36
31-Dec-95 1,638.98 0.014 21.16 1,617.82
31-Dec-96 1,942.92 0.014 25.07 1,917.85 5.00% 40.00% 1,906.21 3.84 18.30% 18.49%
31-Dec-96 1,917.85
<CAPTION>
Acct Value Insurance
Before Ins Charges Insurance Adjusted Surrender W/D ERV Avg Ann Avg Ann
Year Expenses Factor Charges Acct Value Charge Available W/ Surr n W/ Surr W/O Surr
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1,000.00 0.00 1,000.00
1 1,188.60 0.014 15.32 1,173.48 7.00% 20.00% 1,119.91 1 11.99% 17.35%
1,173.48
</TABLE>
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