<PAGE>
As filed with the Securities and Exchange Commission on April 29, 1998
------------------------
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.
-----
Post-Effective Amendment No. 1
-----
and
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 2
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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>
Title of Securities Being Registered:
Flexible Premium Variable Annuity Policies
It is proposed that this filing will become effective:
_______ immediately upon filing pursuant to paragraph (b) of Rule 485
X on May 1, 1998 pursuant to paragraph (b) of Rule 485
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_______ 60 days after filing pursuant to paragraph (a)(i) of Rule 485
_______ on __________ pursuant to paragraph (a)(i) of Rule 485
_______ 75 days after filing pursuant to paragraph (a)(ii)
_______ on __________ pursuant to paragraph (a)(ii) of Rule 485
If appropriate, check the following box:
[_] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
<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
-------------------
<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
MAY 1, 1998
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 several investment options to choose from. They include the
following variable investment options:
<TABLE>
<CAPTION>
ATLAS INSURANCE TRUST DREYFUS VARIABLE INVESTMENT FUND ENDEAVOR SERIES TRUST
- --------------------- -------------------------------- ---------------------
<S> <C> <C>
Balanced Growth Capital Appreciation Dreyfus Small Cap Value
Disciplined Stock T. Rowe Price Equity Income
Growth and Income T. Rowe Price Growth Stock
Quality Bond Endeavor Value Equity
Small Cap (OpCap Advisors)
</TABLE>
<TABLE>
<CAPTION>
FEDERATED INSURANCE SERIES WRL SERIES FUND, INC.
-------------------------- ---------------------
<C> <S>
High Income Bond Fund II WRL Emerging Growth
(Van Kampen American Capital Asset Management,
Inc.)
Utility Fund II WRL Global (Janus Capital Corporation)
WRL Growth (Janus Capital Corporation)
</TABLE>
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 Fixed Account is an additional investment option. If you invest in one
of the alternatives available under 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.
<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, AND 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 ("SEC") 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
Please Read This Prospectus Carefully.
Keep It For Future Reference.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO DEALER, SALESPERSON OR OTHER PERSON
IS AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS IN
CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON.
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<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
DEFINITIONS............................................................... 5
SUMMARY OF THE POLICY .................................................... 8
ANNUITY POLICY FEE TABLE.................................................. 12
CONDENSED FINANCIAL INFORMATION........................................... 18
FINANCIAL STATEMENTS...................................................... 19
HISTORICAL PERFORMANCE DATA............................................... 19
Standardized Performance Data........................................... 19
Non-Standardized Performance Data....................................... 20
PUBLISHED RATINGS......................................................... 23
PFL LIFE INSURANCE COMPANY................................................ 24
THE ATLAS PORTFOLIO BUILDER ACCOUNTS...................................... 24
The Mutual Fund Account................................................. 24
The Underlying Funds.................................................. 24
Addition, Deletion or Substitution of Investments..................... 27
The Fixed Account....................................................... 28
Guaranteed Periods.................................................... 29
One Year Fixed Option................................................. 29
Dollar Cost Averaging................................................. 29
Current Interest Rates................................................ 29
Transfers............................................................... 30
Reinstatements.......................................................... 31
Telephone Transactions.................................................. 31
Dollar Cost Averaging (DCA) ............................................ 31
Asset Rebalancing....................................................... 32
THE POLICY................................................................ 32
Policy Application and Issuance of Policies--Premium Payments........... 32
Additional Premium Payments........................................... 33
Maximum Total Premium Payments........................................ 33
Allocation of Premium Payments........................................ 33
Payment Not Honored by Bank........................................... 33
Policy Value............................................................ 33
The Mutual Fund Policy Value.......................................... 33
Amendments.............................................................. 34
Non-participating Policy................................................ 34
DISTRIBUTIONS UNDER THE POLICY............................................ 34
Surrenders.............................................................. 34
Nursing Care and Terminal Condition Withdrawal Option................... 35
Excess Interest Adjustments (EIA)....................................... 35
Systematic Payout Option................................................ 36
Minimum Required Distributions and Restrictions Under Qualified
Policies............................................................... 37
Restrictions Under the Texas Optional Retirement Program................ 37
Restrictions Under Section 403(b) Plans................................. 37
Annuity Payments........................................................ 37
Annuity Commencement Date............................................. 37
Election of Payment Option............................................ 37
Premium Tax........................................................... 38
Supplementary Contract................................................ 38
Annuity Payment Options................................................. 38
Guaranteed Values..................................................... 39
Variable Payment Options.............................................. 39
Determination of First Variable Payment............................... 40
Determination of Additional Variable Payments......................... 40
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Transfers.............................................................. 40
Tax Withholding........................................................ 40
Adjustment of Annuity Payments......................................... 41
Death Benefit............................................................ 41
Death of Annuitant Prior to Annuity Commencement Date.................. 41
Death On or After Annuity Commencement Date............................ 42
Beneficiary............................................................ 42
Death of Owner........................................................... 42
CHARGES AND DEDUCTIONS..................................................... 43
Surrender Charge......................................................... 43
Mortality and Expense Risk Fee........................................... 43
Administrative Charge.................................................... 44
Premium Taxes............................................................ 44
Federal, State and Local Taxes........................................... 44
Transfer Fee............................................................. 44
Other Expenses Including Investment Advisory Fees........................ 44
CERTAIN FEDERAL INCOME TAX CONSEQUENCES.................................... 45
Tax Status of Policy..................................................... 45
Taxation of Annuities.................................................... 46
DISTRIBUTION OF THE POLICIES............................................... 50
VOTING RIGHTS.............................................................. 51
YEAR 2000 MATTERS.......................................................... 51
LEGAL PROCEEDINGS.......................................................... 52
STATEMENT OF ADDITIONAL INFORMATION........................................ 53
APPENDIX A................................................................. 54
</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. This date may be any date at least thirty days after the Policy Date
and may not be later than the last day of the policy month starting after the
Annuitant attains age 85, except as expressly allowed by PFL. In no event will
this date be later than the last day of the month following the month in which
the Annuitant attains age 95.
Annuity Payment Option 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
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<PAGE>
amounts applied to Annuity Payment Options. The adjustment reflects changes in
the interest rates declared by PFL since the date any payment was received by
or an amount was transferred to the Guaranteed Period Option. The Excess
Interest Adjustment can either decrease or increase the amount to be received
by the Owner upon 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, (the "1940 Act"), as amended, 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>
SUMMARY OF THE POLICY
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 has dedicated a number of subaccounts to the Policy that invest
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 and 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:
.WRL Global
.WRL Growth
Managed by OpCap Advisors:
.Endeavor Value Equity
Managed by T. Rowe Price Associates, Inc.:
.Equity Income (Endeavor)
.Growth Stock (Endeavor)
Managed by Van Kampen American Capital Asset Management, Inc.:
.WRL Emerging Growth
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
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<PAGE>
amounts transferred to, the Mutual Fund Account. (See "THE ATLAS PORTFOLIO
BUILDER ACCOUNTS--The Mutual Fund Account" p. 24.)
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, although certain Dollar Cost
Averaging programs may run for shorter periods. 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. 28.)
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 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. 43 and "CHARGES AND
DEDUCTIONS--Premium Taxes," p. 44.)
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. 32.)
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. 30, and
"DISTRIBUTIONS UNDER THE POLICY--Excess Interest Adjustment," p. 35.)
Transfers currently may be made either by telephone or by sending Written
Notice to Atlas. (See "THE ATLAS PORTFOLIO BUILDER ACCOUNTS--Telephone
Transactions," p. 31.)
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. 30.)
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. 43.) 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. 34). 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. 35).
- 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, (although in some states, a
premium tax charge may be deducted). 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. A Surrender Charge will only be applied to withdrawals that
exceed the amount available under certain listed exceptions. 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. 43.)
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. 34.) 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. 35.)
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. 43.)
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. 44.)
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. 44.)
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. 44.)
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.
ANNUITY POLICY FEE TABLE
<TABLE>
<S> <C>
POLICY OWNER TRANSACTION
EXPENSES
Sales Load On Purchase
Payments................ 0
Maximum Surrender Charge
(as a % of Premium
Payment
Surrendered)(/1/)....... 7%
Surrender Fees........... 0
Service Charge........... None
Transfer Fee(/2/)........ Currently No Fee
</TABLE>
<TABLE>
<S> <C>
SEPARATE ACCOUNT ANNUAL EXPENSES
(AS A PERCENTAGE OF ACCOUNT VALUE)
Mortality and Expense Risk Fees.... 1.25%
Administrative Charge.............. 0.15%
-----
TOTAL SEPARATE ACCOUNT ANNUAL
EXPENSES.......................... 1.40%
</TABLE>
PORTFOLIO ANNUAL EXPENSES(/3/)(/4/)
(as a percentage of average net assets, after waivers and reimbursements)
<TABLE>
<CAPTION>
TOTAL PORTFOLIO
MANAGEMENT/ OTHER RULE 12B-1 ANNUAL
ADMINISTRATIVE FEES EXPENSES FEES EXPENSES
------------------- -------- ---------- ---------------
<S> <C> <C> <C> <C>
ATLAS
Balanced Growth(/5/)... 0.10% 0.40% -- 0.50%
THE DREYFUS CORPORATION
Capital Appreciation... 0.75% 0.05% -- 0.80%
Disciplined Stock...... 0.75% 0.27% -- 1.02%
Growth & Income........ 0.75% 0.05% -- 0.80%
Quality Bond........... 0.65% 0.10% -- 0.75%
Small Cap.............. 0.75% 0.03% -- 0.78%
Small Cap Value
(End.)(/6/)........... 0.80% 0.11% -- 0.91%
FEDERATED ADVISERS
High Income Bond
Fund II............... 0.51% 0.29% -- 0.80%
Utility Fund II........ 0.48% 0.37% -- 0.85%
JANUS CAPITAL CORP.
WRL Global(/7/)........ 0.80% 0.20% -- 1.00%
WRL Growth(/7/)........ 0.80% 0.07% -- 0.87%
OPCAP ADVISORS
End. Value Equi-
ty(/6/)............... 0.80% 0.09% -- 0.89%
T. ROWE PRICE ASSOCI-
ATES, INC.
Equity Income
(End.)(/6/)........... 0.80% 0.14% -- 0.94%
Growth Stock
(End.)(/6/)........... 0.80% 0.16% -- 0.96%
VAN KAMPEN AMERICAN CAP-
ITAL
WRL Emerging
Growth(/7/)........... 0.80% 0.13% -- 0.93%
</TABLE>
- -------------------------
(1) 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. If applicable, a Surrender Charge will only be applied to
withdrawals that exceed the amount available under certain listed
exceptions. (See "DISTRIBUTIONS UNDER THE POLICIES--Surrenders," p. 34.)
(2) 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.
(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, 1997,
and PFL has not independently verified such information. (See "CHARGES AND
DEDUCTIONS--Other Expenses Including Investment Advisory Fees," p. 44.)
- 12 -
<PAGE>
(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,
1997, 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 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%. 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 1.62% to 1.74%. A range is provided since the average assets of the
Portfolio invested in each of the underlying Atlas Funds will fluctuate.
Without fee reductions and expense absorptions by Atlas Advisers, during
the fiscal period ended December 31, 1997, the Portfolio's ratio of
expenses to average net assets (annualized) would have been 2.82%.
(6) Endeavor Investment Advisers has agreed, until terminated by it, to assume
expenses of the Portfolios that exceed the following rates: Endeavor Value
Equity--1.30%; Dreyfus Small Cap Value--1.30%; T. Rowe Price Equity
Income--1.30%; T. Rowe Price Growth Stock--1.30%. The fee table
information relating to the Underlying Funds was provided to PFL by the
Underlying Funds, and PFL has not independently verified such information.
(7) Effective January 1, 1997, the WRL Series Fund, Inc. adopted a Plan of
Distribution pursuant to Rule 12b-1 under 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 WRL Growth Portfolio, the WRL
Global Portfolio and the WRL 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 would not seek payment by the WRL Series Fund, Inc. of
distribution expenses with respect to any portfolio (including the WRL
Growth, WRL Global and WRL Emerging Growth Portfolios) during the fiscal
year ending December 31, 1998. Owners will be notified in advance prior to
ISI's seeking such reimbursement in the future.
- 13 -
<PAGE>
Examples
1. If the Policy is surrendered at the end of the applicable time period:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Atlas Advisers, Inc.
Balanced Growth
Subaccount (1)......... $82 $102 $123 $222
The Dreyfus Corporation
Capital Appreciation
Subaccount............. $86 $112 $140 $257
Disciplined Stock
Subaccount............. $87 $114 $144 $266
Growth and Income
Subaccount............. $85 $110 $136 $250
Quality Bond
Subaccount............. $84 $108 $133 $244
Small Cap Subaccount.... $85 $110 $137 $251
Small Cap Value
Subaccount (Endeavor).. $86 $114 $144 $265
Federated Advisers
High Income Bond Fund II
Subaccount............. $85 $111 $138 $253
Utility Fund II
Subaccount............. $86 $112 $140 $258
Janus Capital Corporation
WRL Global Subaccount... $87 $117 $148 $274
WRL Growth Subaccount... $86 $113 $142 $261
OpCap Advisors
Endeavor Value Equity
Subaccount............. $86 $114 $143 $263
T. Rowe Price Associates,
Inc.
Equity Income Subaccount
(Endeavor)............. $87 $115 $145 $268
Growth Stock Subaccount
(Endeavor)............. $87 $116 $146 $270
Van Kampen American
Capital Asset
Management, Inc.
WRL Emerging Growth
Subaccount............. $87 $115 $145 $267
</TABLE>
2. If the Policy is annuitized at the end of the applicable time period:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Atlas Advisers, Inc.
Balanced Growth
Subaccount (1)......... $19 $60 $103 $222
The Dreyfus Corporation
Capital Appreciation
Subaccount............. $23 $70 $120 $257
Disciplined Stock
Subaccount............. $24 $72 $124 $266
Growth and Income
Subaccount............. $22 $68 $116 $250
Quality Bond
Subaccount............. $21 $66 $113 $244
Small Cap Subaccount.... $22 $68 $117 $251
Small Cap Value
Subaccount (Endeavor).. $23 $72 $124 $265
Federated Advisers
High Income Bond Fund II
Subaccount............. $22 $69 $118 $253
Utility Fund II
Subaccount............. $23 $70 $120 $258
Janus Capital Corporation
WRL Global Subaccount... $24 $75 $128 $274
WRL Growth Subaccount... $23 $71 $122 $261
OpCap Advisors
Endeavor Value Equity
Subaccount............. $23 $72 $123 $263
T. Rowe Price Associates,
Inc.
Equity Income Subaccount
(Endeavor)............. $24 $73 $125 $268
Growth Stock Subaccount
(Endeavor)............. $24 $74 $126 $270
Van Kampen American
Capital Asset
Management, Inc.
WRL Emerging Growth
Subaccount............. $24 $73 $125 $267
</TABLE>
- 14 -
<PAGE>
3. If the Policy is not surrendered or annuitized:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Atlas Advisers, Inc.
Balanced Growth
Subaccount (1)......... $19 $60 $103 $222
The Dreyfus Corporation
Capital Appreciation
Subaccount............. $23 $70 $120 $257
Disciplined Stock
Subaccount............. $24 $72 $124 $266
Growth and Income
Subaccount............. $22 $68 $116 $250
Quality Bond
Subaccount............. $21 $66 $113 $244
Small Cap Subaccount.... $22 $68 $117 $251
Small Cap Value
Subaccount (Endeavor).. $23 $72 $124 $265
Federated Advisers
High Income Bond Fund II
Subaccount............. $22 $69 $118 $253
Utility Fund II
Subaccount............. $23 $70 $120 $258
Janus Capital Corporation
WRL Global Subaccount... $24 $75 $128 $274
WRL Growth Subaccount... $23 $71 $122 $261
OpCap Advisors
Endeavor Value Equity
Subaccount............. $23 $72 $123 $263
T. Rowe Price Associates,
Inc.
Equity Income Subaccount
(Endeavor)............. $24 $73 $125 $268
Growth Stock Subaccount
(Endeavor)............. $24 $74 $126 $270
Van Kampen American
Capital Asset
Management, Inc.
WRL Emerging Growth
Subaccount............. $24 $73 $125 $267
</TABLE>
- --------
(1) These examples do not include the portion of the expenses incurred by each
of the underlying Atlas Funds which are indirectly borne by the Portfolio.
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 1997 expenses of
the Underlying Funds. (See "CHARGES AND DEDUCTIONS," p. 43, 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 BY THE UNDERLYING FUNDS FOR 1997 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
- 15 -
<PAGE>
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.
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
- 16 -
<PAGE>
otherwise. In addition, a penalty tax may apply to certain distributions or
deemed distributions under the Policy. (See "CERTAIN FEDERAL INCOME TAX
CONSEQUENCES," p. 45.)
REQUEST 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 Department
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. 28.)
- 17 -
<PAGE>
CONDENSED FINANCIAL INFORMATION
The Accumulation Unit Values and the number of Accumulation Units outstanding
for each Mutual Fund Subaccount from the date of inception are shown in the
following tables.
<TABLE>
<CAPTION>
NUMBER OF
ACCUMULATION ACCUMULATION ACCUMULATION
UNIT VALUE AT UNIT VALUE AT UNITS AT
BEGINNING OF YEAR END OF YEAR END OF YEAR
----------------- ------------- -------------
<S> <C> <C> <C>
ATLAS ADVISERS, INC.
Balanced Growth Subaccount
1997(/1/) .................... $1.000000 $0.983756 3,469,693.985
THE DREYFUS CORPORATION
Capital Appreciation
Subaccount
1997(/1/)..................... $1.000000 $1.009698 605,501.874
Disciplined Stock Subaccount
1997(/1/)..................... $1.000000 $1.019838 247,060.402
Growth and Income Subaccount
1997(/1/)..................... $1.000000 $0.993285 201,499.858
Quality Bond Subaccount
1997(/1/)..................... $1.000000 $1.024710 377,687.374
Small Cap Subaccount
1997(/1/)..................... $1.000000 $0.941704 397,321.058
Small Cap Value Subaccount
(Endeavor)
1997(/1/)..................... $1.000000 $1.851229 89,867.657
FEDERATED ADVISERS
High Income Bond Fund II
Subaccount
1997(/1/)..................... $1.000000 $1.016935 178,054.703
Utility Fund II Subaccount
1997(/1/)..................... $1.000000 $1.125700 64,830.195
JANUS CAPITAL CORPORATION
WRL Global Subaccount
1997(/1/)..................... $1.000000 $0.955350 704,269.755
WRL Growth Subaccount
1997(/1/)..................... $1.000000 $19.665157 12,277.088
OPCAP ADVISORS
Endeavor Value Equity
Subaccount
1997(/1/)..................... $1.000000 $2.086130 44,448.849
T. ROWE PRICE ASSOCIATES, INC.
Equity Income Subaccount (En-
deavor)
1997(/1/)..................... $1.000000 $1.925022 156,951.014
Growth Stock Subaccount
(Endeavor)
1997(/1/)..................... $1.000000 $2.043487 98,880.797
VAN KAMPEN AMERICAN CAPITAL
ASSET
MANAGEMENT, INC.
WRL Emerging Growth Subaccount
1997(/1/)..................... $1.000000 $0.943400 126,110.341
</TABLE>
- --------
(/1/Period)from September 30, 1997 through December 31, 1997.
- 18 -
<PAGE>
FINANCIAL STATEMENTS
The financial statements of PFL and the Mutual Fund Account, 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 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 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. In addition to the Standard data discussed above,
similar performance data for other periods may also be shown.
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.
- 19 -
<PAGE>
Based on the method of calculation described in the Statement of Additional
Information, the average annual total returns for periods from inception of
the Subaccounts, September 30, 1997, to December 31, 1997, and for the one and
five year periods ended December 31, 1997 are shown below. Total returns shown
reflect deductions for the Mortality and Expense Risk Fee and Administrative
Charges. Total return calculations will reflect the effect of surrender
charges that may be applicable to a particular period.
AVERAGE ANNUAL TOTAL RETURNS (1)
<TABLE>
<CAPTION>
INCEPTION
ONE YEAR FIVE YEAR OF THE SUBACCOUNT
ENDED ENDED SUBACCOUNT INCEPTION
SUBACCOUNT 12/31/97 12/31/97 TO 12/31/97 DATE
- ---------- -------- --------- ----------- ------------------
<S> <C> <C> <C> <C>
Atlas Advisers, Inc.
Balanced Growth
Subaccount................ N/A N/A (7.94%) September 30, 1997
The Dreyfus Corporation
Capital Appreciation
Subaccount................ N/A N/A (5.32%) September 30, 1997
Disciplined Stock
Subaccount................ N/A N/A (4.30%) September 30, 1997
Growth and Income
Subaccount................ N/A N/A (6.98%) September 30, 1997
Quality Bond Subaccount.... N/A N/A (3.81%) September 30, 1997
Small Cap Subaccount....... N/A N/A (12.17%) September 30, 1997
Small Cap Value Subaccount
(Endeavor)................ N/A N/A (12.31%) September 30, 1997
Federated Advisers
High Income Bond Fund II
Subaccount................ N/A N/A (4.59%) September 30, 1997
Utility Fund II
Subaccount................ N/A N/A 6.36% September 30, 1997
Janus Capital Corporation
WRL Global Subaccount...... N/A N/A (10.80%) September 30, 1997
WRL Growth Subaccount...... N/A N/A (10.41%) September 30, 1997
OpCap Advisors
Endeavor Value Equity
Subaccount................ N/A N/A (4.47%) September 30, 1997
T. Rowe Price Associates,
Inc.
Equity Income Subaccount
(Endeavor)................ N/A N/A (2.66%) September 30, 1997
Growth Stock Subaccount
(Endeavor)................ N/A N/A (3.62%) September 30, 1997
Van Kampen American Capital
Asset Management, Inc.
WRL Emerging Growth
Subaccount................ N/A N/A (12.00%) September 30, 1997
</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.
NON-STANDARDIZED PERFORMANCE DATA
PFL may from time to time also advertise or disclose average annual total
return or other performance data in non-standard formats for a Subaccount of
the Mutual Fund Account. The non-standard performance data may assume that no
Surrender Charge is applicable, and may also make other assumptions such as
the amount invested in a Subaccount, differences in time periods to be shown,
or the effect of partial withdrawals or annuity payments.
All non-standard performance data will be advertised only if the standard
performance data is also disclosed. For additional information regarding the
calculation of other performance data, please refer to the Statement of
Additional Information, a copy of which may be obtained from the
Administrative and Service Office upon request.
- 20 -
<PAGE>
The following non-standardized average annual total return figures are based
on the assumption that the Policy is not surrendered, and therefore the
Surrender Charge is not imposed.
AVERAGE ANNUAL TOTAL RETURNS (1)
(ASSUMING NO SURRENDER CHARGE)
<TABLE>
<CAPTION>
INCEPTION
ONE YEAR FIVE YEAR OF THE SUBACCOUNT
ENDED ENDED SUBACCOUNT INCEPTION
SUBACCOUNT 12/31/97 12/31/97 TO 12/31/97 DATE
- ---------- -------- --------- ----------- ------------------
<S> <C> <C> <C> <C>
Atlas Advisers, Inc.
Balanced Growth
Subaccount................ N/A N/A (1.62%) September 30, 1997
The Dreyfus Corporation
Capital Appreciation
Subaccount................ N/A N/A 0.97% September 30, 1997
Disciplined Stock
Subaccount................ N/A N/A 1.98% September 30, 1997
Growth and Income
Subaccount................ N/A N/A (0.67%) September 30, 1997
Quality Bond Subaccount.... N/A N/A 2.47% September 30, 1997
Small Cap Subaccount....... N/A N/A (5.83%) September 30, 1997
Small Cap Value Subaccount
(Endeavor)................ N/A N/A (5.97%) September 30, 1997
Federated Advisers
High Income Bond Fund II
Subaccount................ N/A N/A 1.69% September 30, 1997
Utility Fund II
Subaccount................ N/A N/A 12.57% September 30, 1997
Janus Capital Corporation
WRL Global Subaccount...... N/A N/A (4.47%) September 30, 1997
WRL Growth Subaccount...... N/A N/A (4.08%) September 30, 1997
OpCap Advisors
Endeavor Value Equity
Subaccount................ N/A N/A 1.81% September 30, 1997
T. Rowe Price Associates,
Inc.
Equity Income Subaccount
(Endeavor)................ N/A N/A 3.62% September 30, 1997
Growth Stock Subaccount
(Endeavor)................ N/A N/A 2.66% September 30, 1997
Van Kampen American Capital
Asset Management, Inc.
WRL Emerging Growth
Subaccount................ N/A N/A (5.66%) September 30, 1997
</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.
Adjusted Historical Performance Data. The following performance data is
historic performance data for the underlying Portfolios since their inception
reduced by some or all of the fees and charges under the Policy. Such adjusted
historic performance includes data that precedes the inception dates of the
Subaccounts. This data is designed to show the performance that would have
resulted if the Policy had been in existence during that time, based on the
performance of the applicable Portfolio and the assumption that the applicable
Subaccount was in existence for the same period as the Portfolio with a level
of charges equal to those currently assessed under the Policies. This data is
not intended to indicate future performance.
For instance, as shown in the table below, PFL Life may disclose average
annual total returns for the Portfolios reduced by all fees and charges under
the Policy, as if the Policy had been in existence since the inception of the
Portfolio. Such fees and charges include the Mortality and
- 21 -
<PAGE>
Expense Risk Fee, Administrative Charge 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 following information is also based on the method of calculation
described in the Statement of Additional Information. The adjusted historical
average annual total returns for periods ended December 31, 1997, were as
follows:
ADJUSTED HISTORICAL AVERAGE ANNUAL TOTAL RETURNS (1)
<TABLE>
<CAPTION>
CORRESPONDING
10 YEAR OR PORTFOLIO
1 YEAR 5 YEAR INCEPTION INCEPTION DATE
------ ------ ---------- ------------------
<S> <C> <C> <C> <C>
Atlas Advisers, Inc.
Balanced Growth Subaccount...... N/A N/A (7.94%) September 30, 1997
The Dreyfus Corporation
Capital Appreciation
Subaccount..................... 21.07% N/A 18.21% April 5, 1993
Disciplined Stock Subaccount.... 24.53% N/A 26.45% May 1, 1996
Growth and Income Subaccount.... 9.22% N/A 22.83% May 2, 1994
Quality Bond Subaccount......... 2.40% 6.87% 8.08% August 31, 1990
Small Cap Subaccount............ 9.76% 24.41% 42.02% August 31, 1990
Small Cap Value Subaccount
(Endeavor)..................... 18.47% N/A 14.08% May 4, 1993
Federated Advisers
High Income Bond Fund II
Subaccount..................... 6.84% N/A 8.93% February 2, 1994
Utility Fund II Subaccount...... 19.64% N/A 13.29% April 14, 1994
Janus Capital Corporation
WRL Global Subaccount........... 11.74% 18.69% 18.73% December 3, 1992
WRL Growth Subaccount........... 10.55% 12.64% 16.93%(2) October 2, 1986
OpCap Advisors
Endeavor Value Equity
Subaccount..................... 17.81% N/A 17.33% May 27, 1993
T. Rowe Price Associates, Inc.
Equity Income Subaccount
(Endeavor)..................... 21.28% N/A 23.90% January 3, 1995
Growth Stock Subaccount
(Endeavor)..................... 21.57% N/A 26.47% January 3, 1995
Van Kampen American Capital
Asset Management, Inc.
WRL Emerging Growth Subaccount.. 14.45% N/A 18.72% 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) Ten Year return.
- 22 -
<PAGE>
The following non-standardized adjusted historical average annual total
return figures are based on the assumption that the Policy is not surrendered,
and therefore the following figures assume that the Surrender Charge is not
imposed.
ADJUSTED HISTORICAL AVERAGE ANNUAL TOTAL RETURNS (1)
(ASSUMING NO SURRENDER CHARGE)
<TABLE>
<CAPTION>
CORRESPONDING
10 YEAR OR PORTFOLIO INCEPTION
1 YEAR 5 YEAR INCEPTION DATE
------ ------ ---------- -------------------
<S> <C> <C> <C> <C>
Atlas Advisers, Inc.
Balanced Growth Subaccount..... N/A N/A (1.62%) September 30, 1997
The Dreyfus Corporation
Capital Appreciation
Subaccount.................... 26.30% N/A 18.21% April 5, 1993
Disciplined Stock Subaccount... 29.72% N/A 28.92% May 1, 1996
Growth and Income Subaccount... 14.61% N/A 22.95% May 2, 1994
Quality Bond Subaccount........ 7.89% 6.87% 8.08% August 31, 1990
Small Cap Subaccount........... 15.15% 24.41% 42.02% August 31, 1990
Small Cap Value Subaccount
(Endeavor).................... 23.74% N/A 14.12% May 4, 1993
Federated Advisers
High Income Bond Fund II
Subaccount.................... 12.27% N/A 9.35% February 2, 1994
Utility Fund II Subaccount..... 24.89% N/A 13.61% April 14, 1994
Janus Capital Corporation
WRL Global Subaccount.......... 17.11% 18.69% 18.73% December 3, 1992
WRL Growth Subaccount.......... 15.92% 12.64% 16.93%(2) October 2, 1986
OpCap Advisors
Endeavor Value Equity
Subaccount.................... 23.09% N/A 17.33% May 27, 1993
T. Rowe Price Associates, Inc.
Equity Income Subaccount
(Endeavor).................... 26.51% N/A 24.45% January 3, 1995
Growth Stock Subaccount
(Endeavor).................... 26.80% N/A 26.95% January 3, 1995
Van Kampen American Capital
Asset Management, Inc.
WRL Emerging Growth
Subaccount.................... 19.77% N/A 18.72% 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) Ten Year return.
All non-standard performance data will be advertised only if the standard
performance data is also disclosed. For additional information regarding the
calculation of other performance data, please refer to the Statement of
Additional Information, a copy of which may be obtained free from PFL's
Administrative and Service office upon request.
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
- 23 -
<PAGE>
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, 1997, PFL had
assets of approximately $8.7 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 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.
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 has dedicated fifteen Subaccounts to the
Policy. 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.
The 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,
- 24 -
<PAGE>
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 of
domestic and foreign issuers. The Portfolio may also invest in 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 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 PORTFOLIO (ENDEAVOR) 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.
- 25 -
<PAGE>
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 ENDEAVOR VALUE EQUITY 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 WRL GLOBAL 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 WRL GROWTH 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 election 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 PORTFOLIO (ENDEAVOR) 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).
The T. ROWE PRICE GROWTH STOCK PORTFOLIO (ENDEAVOR) 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 WRL EMERGING GROWTH 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
- 26 -
<PAGE>
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. The amount of these
reimbursements or revenues, if any, may be based on the amount of assets that
PFL or the Mutual Fund Account invests in the Underlying Funds.
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
- 27 -
<PAGE>
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 additional 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 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%.
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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. 35.) 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. 30.)
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. 29.)
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. 35.)
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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 Investment Option to another within certain limits. Subject to the
limitations and restrictions described below, transfers from an Investment
Option may be made, up to thirty days prior to the Annuity Commencement Date,
by sending Written Notice, signed by the Owner, to Atlas.
Transfers currently may be made without charge as often as the Owner wishes,
subject to the minimum dollar amounts specified below. PFL reserves the right
to limit these transfers to no more than 12 per Policy Year in the future or
to charge up to $10 per transfer in excess of 12 per Policy Year.
Transfers of funds among Investment Options are only allowed as follows:
. Before the Guaranteed Period ends, a maximum amount equal to the interest
credited to any of the Guaranteed Period Options may be transferred
("interest transfers"). No Excess Interest Adjustment will apply to
interest transfers. PFL's interest crediting rates on amounts in the Fixed
Account, however, are determined using a "first-in first-out" ("FIFO")
method, and interest transfers may affect the credited rate on the
remaining amounts. There is a $50 minimum for each interest transfer.
. When any Guaranteed Period ends, Policy Values may be transferred to any of
the other Investment Options. No Excess Interest Adjustment will apply to
these transfers. PFL will provide notice of the termination of the
Guaranteed Period Option, and at least a 30-day period in which to elect an
Investment Option.
. Dollar Cost Averaging transfers from the One Year Fixed Account Option may
be made to one or more other Investment Options (subject to limits
established by PFL).
. Transfers other than Dollar Cost Averaging transfers from the One Year
Fixed Option may be made to one or more Subaccounts of the Mutual Fund
Account. Each such transfer must be at least $500.
. The minimum amount that may be transferred from a Subaccount of the Mutual
Fund Account to any other Investment Option is the lesser of $500 or the
entire Subaccount value. PFL 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
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variable annuity units as part of the transfer. (See "DISTRIBUTIONS UNDER THE
POLICY--Annuity Payment Options," p. 38.)
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 additional 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 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.
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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.
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.
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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. 31). 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 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
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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. 38.) The Policy
cannot be surrendered after the Annuity Commencement Date. (See "DISTRIBUTIONS
UNDER THE POLICY--Annuity Payments," p. 37.)
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.
In each Policy Year the Owner may request partial surrenders ($250 minimum)
of up to 10% of the cumulative premiums at the time of withdrawal free of
Surrender Charges. The amount that may be taken free of Surrender Charges each
Policy Year is cumulative. This is referred to as the Cumulative Free
Percentage. That is, Cumulative Free Percentages which are not taken are
carried forward and are available to be taken in subsequent Policy Years free
of Surrender Charges. Partial withdrawals previously taken (including
Cumulative Free Percentage withdrawals, Systematic Payouts and Minimum
Required Distributions) reduce the Cumulative Free Percentage that is
available. For example, 10% Cumulative Free Percentage is available at the
beginning of the first Policy Year. If no partial withdrawals are taken in the
first Policy Year, the first year unused Cumulative Free Percentage of 10% is
carried forward to the second Policy Year. The unused 10% from year one plus
10% additional Cumulative Free Percentage available at the beginning of Policy
Year two accumulates to a 20% Cumulative Free Percentage as of the beginning
of Policy Year two.
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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:
Ris the requested partial withdrawal;
Eis the Excess Interest Adjustment;
SCequals the Surrender Charge on (EPW minus E), where:
EPWis 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. 43, "DISTRIBUTIONS
UNDER THE POLICY--Excess Interest Adjustment," p. 35 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. 45.)
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. (This benefit may not be
available in New Jersey. See the Policy or endorsement for details.)
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:
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. 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
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.
In certain circumstances amounts withdrawn under a Systematic Payout Option
may be included in the Owner's gross income and may be subject to penalty tax.
In addition, Qualified Policies are subject to complex rules with respect to
restrictions on and taxation of distributions, including the applicability of
penalty taxes. Therefore, the Owner should consult a qualified tax adviser
before requesting a Systematic Payout. In certain circumstances withdrawn
amounts may be
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included in the Owner's gross income. (See "CERTAIN FEDERAL INCOME TAX
CONSEQUENCES," p. 45.)
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 for the distribution to be free from Surrender Charges
and Excess Interest Adjustments. 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
Annuitant attains age 95. The laws of some states may require earlier Annuity
Commencement Dates. 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 30
days prior to the Annuity Commencement Date. If no election is made prior to
the Annuity Commencement Date, Annuity Payments will be made under (i) Payment
Option 3,
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life income with level payments for 10 years certain, using the existing
Adjusted Policy Value of the Fixed Account, or (ii) under Payment Option 3-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. 41.) 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 Payment 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 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.
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<PAGE>
Guaranteed Values. There are five Fixed Payment Options. Payment Options 1,
2 and 4 are based on a guaranteed effective annual interest rate of 3%.
Payment 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.)
Payment 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.
Payment 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.
Payment 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.
Payment Option 4--Income of a Specified Amount. Payments are made for any
specified amount until the proceeds with interest are exhausted.
Payment 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 Payment 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 Payment 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 amount of additional 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
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<PAGE>
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:
Payment 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 ten years.
Payment 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 Additional Variable Payments. All Variable Annuity Payments
other than the first are calculated using "Annuity Units" which are credited
to the Policy. The number of Annuity Units to be credited in respect of a
particular Subaccount is determined by dividing that portion of the first
Variable Annuity Payment attributable to that Subaccount by the Annuity Unit
Value of that Subaccount on the Annuity Commencement Date. The number of
Annuity Units of each particular Subaccount credited to the Policy then
remains fixed, assuming no transfers to or from that Subaccount occur. The
dollar value of variable Annuity Units in the chosen Subaccount will increase
or decrease reflecting the investment experience of the chosen Subaccount. The
dollar amount of each Variable Annuity Payment after the first may increase,
decrease or remain constant, and is equal to the sum of the amounts determined
by multiplying the number of Annuity Units of each particular Subaccount
credited to the Policy by the Annuity Unit value for the particular Subaccount
on the date the payment is made.
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 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
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<PAGE>
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.
45.)
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.
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
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<PAGE>
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. 41.)
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<PAGE>
CHARGES AND DEDUCTIONS
No deductions are made from Premium Payments, 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. 34.)
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. 35.)
Amounts withdrawn in excess of the Surrender Charge-Free withdrawal amount
are subject to a Surrender Charge. The amount of the Surrender Charge is
determined by multiplying the amount of the Premium Payment withdrawn by the
applicable Surrender Charge Percentage. The applicable Surrender Charge
Percentage will depend upon the number of years that have elapsed since the
Policy Date. Premium Payments are deemed to be withdrawn before earnings, and
after all Premium Payments have been withdrawn, the remaining Adjusted Policy
Value may be withdrawn without any Surrender Charge. The following is the
table of Surrender Charge Percentages:
<TABLE>
<CAPTION>
APPLICABLE SURRENDER
CHARGE PERCENTAGE
(AS PERCENTAGE OF
PREMIUM PAYMENT
POLICY YEAR WITHDRAWN)
----------- --------------------
<S> <C>
1................................................... 7%
2................................................... 7%
3................................................... 6%
4................................................... 5%
5................................................... 4%
6 or later............................................ 0%
</TABLE>
No Surrender Charge will be applied after the fifth Policy Year. For
example, additional Premium Payments made in year four in the above schedule
would only be subject to a Surrender Charge for two years, in the amount of 5%
of the premium payment for withdrawals during year four and 4% for withdrawals
during year five.
PFL anticipates that the Surrender Charge will not generate sufficient funds
to pay the cost of distributing the Policies. If this charge is insufficient
to cover the distribution expenses, the deficiency will be met from PFL's
general funds, which will include amounts derived from the fee for mortality
and expense risks.
MORTALITY AND EXPENSE RISK FEE
PFL imposes a charge as compensation for bearing certain mortality and
expense risks in connection with the Policies. This charge is equal to an
effective annual rate of 1.25% of the daily net asset value of the Mutual Fund
Account. The Mortality and Expense Risk Fee is reflected in the Accumulation
or Annuity Unit Values for the Policy for each Subaccount.
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<PAGE>
Policy Values and Annuity Payments are not affected by changes in actual
mortality experience nor by actual expenses incurred by PFL. The mortality
risks assumed by PFL arise from its contractual obligations to make Annuity
Payments (determined in accordance with the Annuity tables and other
provisions contained in the Policy) and to pay Death Benefits prior to the
Annuity Commencement Date. Thus, Owners are assured that neither an
Annuitant's own longevity nor an unanticipated improvement in general life
expectancy will adversely affect the periodic Annuity Payments that the
Annuitant will receive under the Policy.
PFL also bears substantial risk in connection with the Death Benefit
Guarantee since PFL will pay a Death Benefit equal to the Guaranteed Minimum
Death Benefit if that amount is higher than the greater of the Policy Value or
the Cash Value.
The expense risk assumed by PFL is the risk that PFL's actual expenses in
administering the Policy and the Accounts will exceed the amount recovered
through the Mortality and Expense Risk Fee and the Administrative Charge.
If the Mortality and Expense Risk Fee is insufficient to cover PFL's actual
costs, PFL will bear the loss; conversely, if the charge is more than
sufficient to cover costs, the excess will be profit to PFL. PFL expects a
profit from this charge. To the extent that the Surrender Charge is
insufficient to cover the actual cost of Policy distribution, the deficiency
will be met from PFL's general corporate assets, which may include amounts, if
any, derived from the Mortality and Expense Risk Fee. A Mortality and Expense
Risk Fee is also assessed during the annuity phase for all Variable Payment
Options.
ADMINISTRATIVE CHARGE
PFL deducts a daily Administrative Charge from the net assets of the Mutual
Fund Account to partially cover expenses incurred by PFL in connection with
the administration of the Mutual Fund Account and the Policies. The effective
annual rate of this charge is .15% of the net assets in the Mutual Fund
Account.
PREMIUM TAXES
PFL currently makes no deduction from the Premium Payments for any state
premium taxes PFL pays in connection with Premium Payments it receives under
the Policies. However, PFL will deduct the aggregate premium taxes that it
pays 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 additional transfer request made by the Owner during
a single Policy Year. For the purpose of determining whether a Transfer Fee is
payable, Premium Payment allocations are not considered transfers. All
transfer requests made simultaneously will be treated as a single request.
OTHER EXPENSES INCLUDING INVESTMENT ADVISORY FEES
Each of the Portfolios of the Underlying Funds is responsible for all of its
expenses. In addition, charges will be made against each of the Portfolios of
the Underlying Funds for investment advisory
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<PAGE>
services provided to the Portfolio. The net assets of each Portfolio of the
Underlying Funds will reflect deductions in connection with the investment
advisory fee and other expenses. The Atlas Insurance Trust is a "Fund of
Funds" that invests in other mutual fund portfolios; therefore, total expenses
may be higher than other investment options, since an investment in the Atlas
Balanced Growth subaccount involves two sets of advisory fees and expenses.
For more information concerning the investment advisory fee and other
charges against the Portfolios, see the prospectuses for the Underlying Funds,
current copies of which accompany this Prospectus.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following summary does not constitute tax advice. It is a general
discussion of certain of the expected federal income tax consequences of
investment in and distributions with respect to a Policy, based on the
Internal Revenue Code of 1986, as (the "Code"), proposed and final Treasury
Regulations thereunder, judicial authority, and current administrative rulings
and practice. This summary discusses only certain federal income tax
consequences to "United States Persons," and does not discuss state, local, or
foreign tax consequences. United States Persons means citizens or residents of
the United States, domestic corporations, domestic partnerships and trusts or
estates that are subject to United States federal income tax regardless of the
source of their income.
At the time the initial Premium Payment is paid, a prospective purchaser
must specify whether he or she is purchasing a Nonqualified Policy or a
Qualified Policy. If the initial Premium Payment is derived from an exchange
or surrender of another annuity policy, PFL may require that the prospective
purchaser provide information with regard to the federal income tax status of
the previous annuity policy. PFL will require that persons purchase separate
Policies if they desire to invest monies qualifying for different annuity tax
treatment under the Code. Each such separate Policy would require the minimum
initial Premium Payment stated above. 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 an 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), 408(a), 408A or 457 of the Code and
individuals purchasing individual retirement annuities that qualify for
special federal income tax treatment under Section 408(b) of the Code. Certain
requirements must be satisfied in purchasing a Qualified Policy in order for
the plan, account or annuity to retain its special tax treatment. This summary
is not intended to cover such requirements, and assumes that Qualified
Policies are purchased pursuant to retirement plans or individual retirement
accounts, or are individual retirement annuities, that qualify for such
special tax treatment. This summary was prepared by PFL after consultation
with tax counsel, but no opinion of tax counsel has been obtained.
THE DISCUSSION SET FORTH BELOW IS INCLUDED FOR GENERAL PURPOSES ONLY. EACH
POTENTIAL PURCHASER IS URGED TO CONSULT HIS/HER OWN TAX ADVISER AS TO THE
CONSEQUENCES OF INVESTMENT IN A POLICY UNDER FEDERAL AND APPLICABLE STATE,
LOCAL AND FOREIGN TAX LAWS.
TAX STATUS OF THE POLICY
The following discussion is based on the assumption that the Policy
qualifies as an annuity contract for federal income tax purposes. The
Statement of Additional Information discusses the tax requirements for
qualifying as an annuity contract.
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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. The same aggregation rules apply
to Roth individual retirement annuities and accounts. The Roth IRAs and
Traditional IRAs shall be treated separately for distribution purposes.
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,
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<PAGE>
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, 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,
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or (iv) which is part of a series of substantially equal periodic payments
made (not less frequently 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. The withholding rate varies according to the
type of distribution and the Owner's tax status. For qualified policies,
"eligible rollover distributions" from section 401(a) plans and section 403(b)
tax-sheltered annuities are subject to a mandatory federal income tax
withholding of 20%. An eligible rollover distribution is the taxable portion
of any distribution from such a plan, except certain distributions such as
distributions required by the Code or distributions in a specified annuity
form. The 20% withholding does not apply, however, if the Owner chooses a
"direct rollover" from the plan to another tax-qualified plan or IRA.
Qualified Policies. The Qualified Policy is designed for use with several
types of tax-qualified retirement plans. The tax rules applicable to
participants and beneficiaries in tax-qualified retirement plans vary
according to the type of plan and the terms and conditions of the plan.
Special favorable tax treatment may be available for certain types of
contributions and distributions. Adverse tax consequences may result from
contributions in excess of specified limits; distributions prior to age 59 1/2
(subject to certain exceptions); distributions that do not conform to
specified commencement and minimum distribution rules; and in other specified
circumstances. Some retirement plans are subject to distribution and other
requirements that are not incorporated into PFL's Policy administration
procedures. Owners, participants and beneficiaries are responsible for
determining that contributions, distributions and other transactions with
respect to the Policies comply with applicable law.
For qualified plans under section 401(a), 403(a), 403(b), and 457, the Code
requires that distributions generally must commence no later than the later of
April 1 of the calendar year following the calendar year in which the Owner
(or plan participant) (i) reaches age 70 1/2 or (ii) retires, and must be made
in a specified form or manner. If the plan participant is a "5 percent owner"
(as defined in the Code), distributions generally must begin no later than
April 1 of the calendar year in which the Owner (or plan participant) reaches
age 70 1/2. Each Owner is responsible for requesting distributions under the
Policy that satisfy applicable tax rules.
PFL makes no attempt to provide more than general information about use of
the Policy with the various types of retirement plans. Purchasers of Policies
for use with any retirement plan should consult their legal counsel and
tax adviser regarding the suitability of the Policy.
Individual Retirement Annuities. In order to qualify as a Traditional
individual retirement annuity under Section 408(b) of the Code, a Policy must
contain certain provisions: (i) the Owner must be the Annuitant; (ii) the
Policy generally is not transferable by the Owner, e.g., the Owner may not
designate a new Owner, designate a Contingent Owner or assign the Policy as
collateral security; (iii) the total Premium Payments for any calendar year on
behalf of any individual may not exceed $2,000, except in the case of a
rollover amount or contribution under Sections 402(c), 403(a)(4), 403(b)(8) or
408(d)(3) of the Code; (iv) Annuity Payments or partial withdrawals must begin
no later than April 1 of the calendar year following the calendar year in
which the Annuitant attains age 70 1/2; (v) an Annuity Payment Option with a
Period Certain that will guarantee Annuity Payments beyond the life expectancy
of the Annuitant and the Beneficiary may not be selected; (vi) certain
payments of Death Benefits must be made in the event the Annuitant dies prior
to the distribution of the Policy Value; and (vii) the entire interest of the
Owner is non-forfeitable. Policies intended to qualify as individual
retirement annuities under Section 408(b) of the Code contain such provisions.
Amounts in the IRA (other than nondeductible contributions) are taxed when
distributed from the IRA. Distributions prior to age 59 1/2 (unless certain
exceptions apply) are subject to a 10% penalty tax.
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<PAGE>
Section 408 of the Code also indicates that no part of the funds for a
Traditional individual retirement account or annuity ("IRA") may be invested
in a life insurance contract, but the regulations thereunder allow such funds
to be invested in an annuity policy that provides a death benefit that equals
the greater of the premiums paid or the Cash Value for the contract. The
Policy provides an enhanced death benefit that could exceed the amount of such
a permissible death benefit, but it is unclear to what extent such an enhanced
death benefit could disqualify the Policy under Section 408 of the Code. The
Internal Revenue Service has not reviewed the Policy for qualification as an
IRA, and has not addressed in a ruling of general applicability whether an
enhanced death benefit provision, such as the provision in the Policy,
comports with IRA qualification requirements.
Roth Individual Retirement Annuities (Roth IRA). The Roth IRA, under Section
408A of the Code, contains many of the same provisions as a Traditional IRA.
However, there are some differences. First, the contributions are not
deductible and must be made in cash or as a rollover or transfer from another
Roth IRA or other IRA. A rollover from or conversion of an IRA to a Roth IRA
may be subject to tax and other special rules may apply. You should consult a
tax adviser before combining any converted amounts with any other Roth IRA
contributions, including any other conversion amounts from other tax years.
The Roth IRA is available to individuals with earned income and whose adjusted
gross income is under $110,000 for single filers, $160,000 for married filing
jointly, and $10,000 for married filing separately. The amount per individual
that may be contributed to all IRAs (Roth and Traditional) is $2,000.
Secondly, the distributions are taxed differently. The Roth IRA offers tax-
free distributions when made from assets which have been held in the account
for 5 tax years and are made after attaining age 59 1/2, to pay for qualified
first time homebuyer expenses (lifetime maximum of $10,000) or due to death or
disability. All other distributions are subject to income tax when made from
earnings and may be subject to a premature withdrawal penalty tax unless an
exception applies. Unlike the Traditional IRA, there are no minimum required
distributions during the Owner's lifetime; however, required distributions at
death are the same.
Section 403(b) Plans. Under Section 403(b) of the Code, payments made by
public school systems and certain tax exempt organizations to purchase
Policies for their employees are excludable from the gross income of the
employee, subject to certain limitations. However, such payments may be
subject to FICA (Social Security) taxes. The Policy includes a Death Benefit
that in some cases may exceed the greater of the Premium Payments or the
Policy Value. The Death Benefit could be characterized as an incidental
benefit, the amount of which is limited in any tax-sheltered annuity under
section 403(b). Because the Death Benefit may exceed this limitation,
employers using the Policy in connection with such plans should consult their
tax adviser. Additionally, in accordance with the requirements of the Code,
Section 403(b) annuities generally may not permit distribution of (i) elective
contributions made in years beginning after December 31, 1988, and (ii)
earnings on those contributions and (iii) earnings on amounts attributed to
elective contributions held as of the end of the last year beginning before
January 1, 1989. Distributions of such amounts will be allowed only upon the
death of the employee, on or after attainment of age 59 1/2, separation from
service, disability, or financial hardship, except that income attributable to
elective contributions may not be distributed in the case of hardship.
Corporate Pension and Profit Sharing Plans and H.R. 10 Plans. Sections
401(a) and 403(a) of the Code permit corporate employers to establish various
types of retirement plans for employees and self-employed individuals to
establish qualified plans for themselves and their employees. Such retirement
plans may permit the purchase of the Policies to accumulate retirement
savings. Adverse tax consequences to the plan, the participant or both may
result if the Policy is assigned or transferred to any individual as a means
to provide benefit payments. The Policy includes a Death Benefit that in some
cases may exceed the greater of the Premium Payments or the Policy Value. The
Death Benefit could be characterized as an incidental benefit, the amount of
which is limited in an pension or profit-sharing plan. Because the Death
Benefit may exceed this limitation, employers using the Policy in connection
with such plans should consult their tax adviser.
Deferred Compensation Plans. Section 457 of the Code, while not actually
providing for a qualified plan (as that term is not used in the Code),
provides for certain deferred compensation
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plans with respect to service for state governments, local governments,
political sub-divisions, agencies, instrumentalities and certain affiliates of
such entities, and tax exempt organizations. The Policies can be used with
such plans. Under such plans a participant may specify the form of investment
in which his or her participation will be made. 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. Although the likelihood of legislative change
in uncertain, there is always the possibility that the tax treatment of the
Policies could change by legislation or other means. For instance, the
President's 1999 Budget Proposal recommended legislation that, if enacted,
would adversely modify the federal taxation of the Policies. It is also
possible that any change could be retroactive (that is, effective prior to the
date of the change). A tax adviser should be consulted with respect to
legislative developments and their effect on the Policy.
DISTRIBUTION OF THE POLICIES
AFSG Securities Corporation, (the "Distributor") an affiliate of PFL,
located at 4333 Edgewood Road N.E., Cedar Rapids, IA 52499-0001, is the
principal underwriter of the Policies. The Distributor was incorporated under
the laws of the State of Pennsylvania in 1986 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 AFSG Securities Corporation for
acting as Distributor for the Policies. The offering of Policies will be made
on a continuing basis.
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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.
YEAR 2000 MATTERS
In October, 1996, PFL adopted and presently has in place a Year 2000
Assessment and Planning Project (the "Plan") to review and analyze existing
hardware and software systems, as well as voice and data communications
systems, to determine if they are Year 2000 compatible. The Plan provides for
a management process which ensures that when a particular system, or software
application, is determined to be "non-compliant" the proper steps are in place
to either remedy the "non-compliance" or cease using the particular system or
software. The Plan also provides that the Chief Information Officer report to
the Board of Directors as to the status of the efforts under the Plan on a
regular and routine basis. PFL has engaged the services of a third-party
provider that is specialized in Year 2000 issues to work on the project.
The Plan has four specific objectives (1) develop an inventory of all
applications; (2) evaluate all applications in the inventory to determine the
most prudent manner to move them to Year 2000 compliance, if required; (3)
estimate budgets, resources and schedules for the migration of the "affected"
applications to Year 2000 compliance; and (4) define testing and deployment
requirements to successfully manage validation and re-deployment of any
changed code. It is anticipated that all compliance issues will be resolved by
December 1998.
As of the date of this Prospectus, PFL has identified and made available
what it believes are the appropriate resources of hardware, people, and
dollars, including the engagement of outside third parties, to ensure that the
Plan will be completed.
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The Year 2000 computer problem, and its resolution, is complex and
multifaceted, and the success of a response plan cannot be conclusively known
until the Year 2000 is reached (or an earlier date to the extent that the
systems or equipment addresses Year 2000 data prior to the Year 2000). Even
with appropriate and diligent pursuit of a well-conceived response plan,
including testing procedures, there is no certainty that any company will
achieve complete success. Further, notwithstanding its efforts or results,
PFL's ability to function unaffected to and through the Year 2000 may be
adversely affected by actions (or failure to act) of third parties beyond its
knowledge or control.
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, like other life
insurance companies, is a defendant in lawsuits. In some class action and
other lawsuits involving other insurers, substantial damages have been sought
and/or material settlement payments have been made. Although the outcome of
any litigation cannot be predicted with certainty, PFL believes that at the
present time there are no pending or threatened lawsuits that are reasonably
likely to have a material adverse impact on the Mutual Fund Account or PFL.
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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>
<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
Historical Performance Data................................................. 10
Subaccount Yields......................................................... 10
Total Returns............................................................. 10
Other Performance Data.................................................... 11
State Regulation of PFL..................................................... 11
Administration.............................................................. 11
Records and Reports......................................................... 12
Distribution of the Policies................................................ 12
Custody of Assets........................................................... 12
Adjusted Historical Performance Data........................................ 12
Legal Matters............................................................... 12
Independent Auditors........................................................ 13
Other Information........................................................... 13
Financial Statements........................................................ 13
</TABLE>
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APPENDIX A
EXCESS INTEREST ADJUSTMENT(/1/)
The formula used to determine the Excess Interest Adjustment (EIA) is:
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%):
<TABLE>
<S> <C>
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) ^ 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) ^ 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
</TABLE>
- --------
(1) * represents multiplication;
^ represents exponentiation.
- 54 -
<PAGE>
EXAMPLE 2 (FULL SURRENDER, RATES DECREASE BY 1%):
<TABLE>
<S> <C>
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) ^ 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) ^ 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) ^ 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
</TABLE>
- 55 -
<PAGE>
EXAMPLE 4 (PARTIAL WITHDRAWAL, RATES DECREASE BY 1%):
<TABLE>
<S> <C>
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) ^ 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
</TABLE>
- 56 -
<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 May 1, 1998 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: May 1, 1998
- 1 -
<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........................................................ 5
Federal Tax Matters........................................................ 5
Tax Status of the Policy................................................. 5
Taxation of PFL.......................................................... 6
Investment Experience...................................................... 6
Historical Performance Data................................................ 10
Subaccount Yields........................................................ 10
Total Returns............................................................ 10
Other Performance Data................................................... 11
State Regulation of PFL.................................................... 11
Administration............................................................. 11
Records and Reports........................................................ 12
Distribution of the Policies............................................... 12
Custody of Assets.......................................................... 12
Adjusted Historical Performance Data....................................... 12
Legal Matters.............................................................. 12
Independent Auditors....................................................... 13
Other Information.......................................................... 13
Financial Statements....................................................... 13
</TABLE>
- 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.
- 3 -
<PAGE>
Certain delays and restrictions apply to transfers of amounts out of the
Fixed Account. See p. 28 of the Policy Prospectus.
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.
- 4 -
<PAGE>
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 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
- 5 -
<PAGE>
within 5 years after such Owner's date of death or be applied to provide an
immediate annuity under which payments will begin within one year of such
Owner's death and will be made for the life of the Beneficiary or for a period
not extending beyond the life expectancy of the Beneficiary. However, if such
Owner's death occurs prior to the Annuity Commencement Date, and such Owner's
surviving spouse is named 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. ---- 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.
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.
- 6 -
<PAGE>
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.
ILLUSTRATION OF ACCUMULATION UNIT VALUE CALCULATIONS
FORMULA AND ILLUSTRATION FOR DETERMINING THE NET INVESTMENT FACTOR
Investment Experience Factor = (A + B - C) - E
D
Where: The Net Asset Value of an Underlying Fund share as of the end of
A = 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
- 7 -
<PAGE>
FORMULA AND ILLUSTRATION FOR DETERMINING ACCUMULATION UNIT VALUE
Accumulation Unit Value = A X B
Where: The Accumulation Unit Value for the immediately preceding
A = Valuation Period.
Assume.............................................. = $ X
B = The Net Investment Factor for the current Valuation Period.
Assume................................................ = Y
Then, the Accumulation Unit Value = $ X X Y = $ Z
ANNUITY UNIT VALUE AND ANNUITY PAYMENT RATES
The amount of Variable Annuity Payments will vary with Annuity Unit Values.
Annuity Unit Values rise if the net investment performance of the Subaccount
exceeds the assumed interest rate of 5% annually. Conversely, Annuity Unit
Values fall if the net investment performance of the Subaccount is less than
the assumed rate. The value of a variable Annuity Unit in each Subaccount was
established at $1.00 on the date operations began for that Subaccount. The
value of a variable Annuity Unit on any subsequent Business Day is equal to
(a) multiplied by (b) multiplied by (c), where:
(a) is the variable Annuity Unit Value for that Subaccount on the
immediately preceding Business Day;
(b) is the net investment factor for that Subaccount for the valuation
period; and
(c) is the investment result adjustment factor for the valuation period.
The investment result adjustment factor for the valuation period is the
product of discount factors of .99986634 per day to recognize the 5% effective
annual Assumed Investment Return. The valuation period is the period from the
close of the immediately preceding Business Day to the close of the current
Business Day.
The net investment factor for the Policy used to calculate the value of a
variable Annuity Unit in each Subaccount for the valuation period is
determined by dividing (i) by (ii) and subtracting (iii) from the result,
where:
(i) is the result of:
(1) the net asset value of a fund share held in that Subaccount
determined at the end of the current valuation period; plus
(2) the per share amount of any dividend or capital gain
distributions made by the fund for shares held in that Subaccount if
the ex-dividend date occurs during the valuation period; plus or minus
(3) a per share charge or credit for any taxes reserved for, which
PFL determines to have resulted from the investment operations of the
Subaccount.
(ii) is the net asset value of a fund share held in that Subaccount
determined as of the end of the immediately preceding valuation period.
(iii) is a factor representing the Mortality and Expense Risk Fee and
Administrative Charge. This factor is equal, on an annual basis, to 1.40%
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.
- 8 -
<PAGE>
The annuity payment rates vary according to the Annuity Option elected and
the sex and adjusted age of the Annuitant at the Annuity Commencement Date.
The Policy also contains a table for determining the adjusted age of the
Annuitant.
ILLUSTRATION OF CALCULATIONS FOR ANNUITY UNIT VALUE
AND VARIABLE ANNUITY PAYMENTS
FORMULA AND ILLUSTRATION FOR DETERMINING ANNUITY UNIT VALUE
Annuity Unit Value = A X B X C
Where: Annuity Unit Value for the immediately preceding Valuation Period.
A = 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 X Y X Z = $ Q
FORMULA AND ILLUSTRATION FOR DETERMINING AMOUNT OF FIRST MONTHLY VARIABLE
ANNUITY PAYMENT
First Monthly Variable Annuity Payment = A X B
$1,000
Where: The Policy Value as of the Annuity Commencement Date.
A = 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 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: The dollar amount of the first monthly Variable Annuity Payment.
A = 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
- 9 -
<PAGE>
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.
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
- 10 -
<PAGE>
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%.
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.
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.
- 11 -
<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.
AFSG Securities Corporation, an affiliate of PFL, will be the principal
underwriter of the Policies. AFSG Securities Corporation has entered into an
agreement with Atlas Securities, Inc. for the exclusive distribution of the
Policies. Prior to April 30, 1998, AEGON USA Securities, Inc. (also an
affiliate of PFL) was the principal underwriter. During 1997 the amount paid
to AEGON USA Securities, Inc. and/or the broker-dealers for their services was
$628,439.24. No fees had been paid to AEGON USA Securities, Inc. and/or the
broker/dealers for their services during 1996 or prior years.
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.
ADJUSTED HISTORICAL PERFORMANCE DATA
From time to time, sales literature or advertisements may quote average
annual total returns for periods prior to the date the 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 LLP, of Washington D.C.
- 12 -
<PAGE>
INDEPENDENT AUDITORS
The Financial Statements of PFL as of December 31, 1997 and 1996, and for
each of the three years in the period ended December 31, 1997, and the
Financial Statements of PFL Life Variable Annuity Account A at December 31,
1997, and for the period September 30, 1997 (commencement of operations) to
December 31, 1997, 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.
- 13 -
<PAGE>
FINANCIAL STATEMENTS - STATUTORY BASIS
PFL LIFE INSURANCE COMPANY
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
WITH REPORT OF INDEPENDENT AUDITORS
<PAGE>
PFL Life Insurance Company
Financial Statements - Statutory Basis
Years ended December 31, 1997, 1996 and 1995
CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Report of Independent Auditors................................. 1
Audited Financial Statements
Balance Sheets - Statutory Basis................................ 3
Statements of Operations - Statutory Basis...................... 5
Statements of Changes in Capital and Surplus - Statutory Basis.. 6
Statements of Cash Flows - Statutory Basis...................... 7
Notes to Financial Statements - Statutory Basis................. 9
</TABLE>
<PAGE>
[LETTERHEAD OF ERNST & YOUNG LLP APPEARS HERE]
Report of Independent Auditors
The Board of Directors
PFL Life Insurance Company
We have audited the accompanying statutory-basis balance sheets of PFL Life
Insurance Company as of December 31, 1997 and 1996, 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, 1997. Our audits
also included the accompanying statutory-basis financial statement schedules
required by Article 7 of Regulation S-X. These financial statements and
schedules are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and schedules based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As described in Note 1 to the financial statements, the Company presents its
financial statements in conformity with accounting practices prescribed or
permitted by the Insurance Division, Department of Commerce, of the State of
Iowa, which practices differ from generally accepted accounting principles. The
variances between such practices and generally accepted accounting principles
also are described in Note 1. The effects on the financial statements of these
variances are not reasonably determinable but are presumed to be material.
In our opinion, because of the effects of the matters described in the preceding
paragraph, the financial statements referred to above do not present fairly, in
conformity with generally accepted accounting principles, the financial position
of PFL Life Insurance Company at December 31, 1997 and 1996, or the results of
its operations or its cash flows for each of the three years in the period ended
December 31, 1997.
1
Ernst & Young LLP is a member of Ernst & Young International, Ltd.
<PAGE>
[LETTERHEAD OF ERNST & YOUNG LLP APPEARS HERE]
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, 1997 and 1996, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1997 in
conformity with accounting practices prescribed or permitted by the Insurance
Division, Department of Commerce, of the State of Iowa. Also, in our opinion,
the related financial statement schedules, when considered in relation to the
basic statutory-basis financial statements taken as a whole, present fairly in
all material respects the information set forth therein.
/s/ Ernst & Young LLP
February 27, 1998
2
<PAGE>
PFL Life Insurance Company
Balance Sheets - Statutory Basis
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
DECEMBER 31
1997 1996
--------------------------------
<S> <C> <C>
ADMITTED ASSETS
Cash and invested assets:
Cash and short-term investments $ 23,939 $ 50,737
Bonds 4,913,144 4,773,433
Stocks:
Preferred 2,750 3,097
Common (cost: 1997 - $33,058; 1996 - $23,212) 42,345 32,038
Affiliated entities (cost: 1997 - $10,798; 1996 -
$14,893) 8,031 6,934
Mortgage loans on real estate 935,207 911,705
Real estate, at cost less accumulated depreciation
($8,655 in 1997; $11,338 in 1996):
Home office properties 8,283 10,372
Properties acquired in satisfaction of debt 11,814 12,260
Investment properties 36,416 35,922
Policy loans 57,136 54,214
Other invested assets 29,864 16,343
--------------------------------
Total cash and invested assets 6,068,929 5,907,055
Premiums deferred and uncollected 16,101 16,345
Accrued investment income 69,662 70,401
Short-term notes receivable from affiliate -- 53,900
Federal income taxes recoverable -- 4,018
Transfers from separate accounts 60,193 38,528
Other assets 37,624 31,215
Separate account assets 2,517,365 1,844,515
--------------------------------
Total admitted assets $8,769,874 $7,965,977
================================
</TABLE>
See accompanying notes.
3
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31
1997 1996
-----------------------------
<S> <C> <C>
LIABILITIES AND CAPITAL AND SURPLUS
Liabilities:
Aggregate reserves for policies and contracts:
Life $ 884,018 $ 736,100
Annuity 4,204,125 4,408,419
Accident and health 169,328 139,269
Policy and contract claim reserves:
Life 8,635 7,369
Accident and health 57,713 66,988
Other policyholders' funds 143,831 126,672
Remittances and items not allocated 153,745 64,064
Asset valuation reserve 69,825 54,851
Interest maintenance reserve 30,287 23,745
Federal income taxes payable 1,889 --
Short-term notes payable to affiliates 16,400 --
Other liabilities 75,070 70,663
Payable to affiliates 13,240 4,975
Separate account liabilities 2,512,406 1,844,515
--------------------------------
Total liabilities 8,340,512 7,547,630
Commitments and contingencies
Capital and surplus:
Common stock, $10 par value, 500 shares authorized,
266 issued and outstanding 2,660 2,660
Paid-in surplus 154,282 154,129
Unassigned surplus 272,420 261,558
--------------------------------
Total capital and surplus 429,362 418,347
--------------------------------
Total liabilities and capital and surplus $8,769,874 $7,965,977
================================
</TABLE>
See accompanying notes.
4
<PAGE>
PFL Life Insurance Company
Statements of Operations - Statutory Basis
(Dollars in thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1996 1995
--------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Premiums and other considerations, net of
reinsurance:
Life $ 202,435 $ 204,872 $ 114,704
Annuity 657,695 725,966 921,452
Accident and health 207,982 227,862 232,738
Net investment income 446,424 428,337 392,685
Amortization of interest maintenance reserve 3,645 2,434 4,341
Commissions and expense allowances on reinsurance
ceded 49,859 73,931 77,071
--------------------------------------------------------
1,568,040 1,663,402 1,742,991
Benefits and expenses:
Benefits paid or provided for:
Life and accident and health benefits 146,583 147,024 146,346
Surrender benefits 658,071 512,810 498,626
Other benefits 126,495 101,288 88,607
Increase (decrease) in aggregate reserves for
policies and contracts:
Life 149,575 140,126 50,071
Annuity (203,139) 188,002 528,330
Accident and health 30,059 26,790 17,694
Other 16,998 19,969 16,017
--------------------------------------------------------
924,642 1,136,009 1,345,691
Insurance expenses:
Commissions 157,300 177,466 200,706
General insurance expenses 57,571 57,282 57,623
Taxes, licenses and fees 8,715 13,889 15,700
Net transfers to separate accounts 297,480 171,785 42,981
Other expenses 119 526 760
--------------------------------------------------------
521,185 420,948 317,770
--------------------------------------------------------
1,445,827 1,556,957 1,663,461
--------------------------------------------------------
Gain from operations before federal income taxes and
net realized capital gains (losses) on investments 122,213 106,445 79,530
Federal income tax expense 43,381 41,177 33,335
--------------------------------------------------------
Gain from operations before net realized capital
gains (losses) on investments 78,832 65,268 46,195
Net realized capital gains (losses) on investments
(net of related federal income taxes and amounts
transferred to interest maintenance reserve) 7,159 (3,503) (18,096)
--------------------------------------------------------
Net income $ 85,991 $ 61,765 $ 28,099
========================================================
</TABLE>
See accompanying notes.
5
<PAGE>
PFL Life Insurance Company
Statements of Changes in Capital and Surplus - Statutory Basis
(Dollars in thousands)
<TABLE>
<CAPTION>
TOTAL CAPITAL
COMMON STOCK PAID-IN UNASSIGNED AND SURPLUS
SURPLUS SURPLUS
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at January 1, 1995 $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 commission
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
Capital contribution - 153 - 153
Net income for 1997 - - 85,991 85,991
Net unrealized capital gains - - 3,592 3,592
Increase in non-admitted assets - - (481) (481)
Increase in asset valuation reserve - - (14,974) (14,974)
Dividend to stockholder - - (62,000) (62,000)
Surplus effect of sale of a division - - (161) (161)
Surplus effect of ceding commissions
associated with the sale of a division - - 5 5
Surplus effect of amendment of reinsurance - - 389 389
agreement
Surplus effect of reinsurance agreement - - 402 402
Increase in liability for reinsurance in
unauthorized companies - - (1,901) (1,901)
---------------------------------------------------------------------
Balance at December 31, 1997 $2,660 $154,282 $272,420 $429,362
=====================================================================
</TABLE>
See accompanying notes.
6
<PAGE>
PFL Life Insurance Company
Statements of Cash Flows - Statutory Basis
(Dollars in thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1996 1995
--------------------------------------------------------------
<S> <C> <C> <C>
Operating activities
Premiums and other considerations, net of reinsurance $ 1,119,936 $ 1,240,748 $ 1,353,407
Net investment income 452,091 431,456 398,051
Life and accident and health claims (154,383) (147,556) (140,798)
Surrender benefits and other fund withdrawals (658,071) (512,810) (498,626)
Other benefits to policyholders (126,462) (101,254) (88,519)
Commissions, other expenses and other taxes (225,042) (248,321) (278,241)
Net transfers to separate accounts (319,146) (210,312) (42,981)
Federal income taxes, excluding tax on capital gains (47,909) (35,551) (32,905)
Cash paid in conjunction with an amendment of a
reinsurance agreement (4,826) (5,812)
Repayment of intercompany notes and receivables, net - - (48,070)
Cash received in connection with a reinsurance
agreement 1,477 - -
Other, net 89,693 (41,677) 62,345
--------------------------------------------------------------
Net cash provided by operating activities 127,358 368,911 683,663
INVESTING ACTIVITIES
Proceeds from investment sold, matured or repaid:
Bonds and preferred stocks 3,284,095 2,112,831 1,757,229
Common stocks 34,004 27,214 20,338
Mortgage loans on real estate 138,162 74,351 36,550
Real estate 6,897 18,077 23,203
Cash received from ceding commissions associated
with the sale of a division 8 45 55
Other 57,683 22,568 8,258
--------------------------------------------------------------
3,520,849 2,255,086 1,845,633
Cost of investments acquired:
Bonds and preferred stocks (3,411,442) (2,270,105) (2,294,195)
Common stocks (37,339) (29,799) (23,284)
Mortgage loans on real estate (159,577) (324,381) (192,292)
Real estate (2,013) (222) (10,188)
Policy loans (2,922) (1,539) (877)
Cash paid in association with the sale of a division - (539) -
Cash paid in conjunction with sales of a division (591) (123) -
Other (15,674) (6,404) (2,670)
--------------------------------------------------------------
(3,629,558) (2,633,112) (2,523,506)
--------------------------------------------------------------
Net cash used in investing activities (108,709) (378,026) (677,873)
</TABLE>
7
<PAGE>
PFL Life Insurance Company
Statements of Cash Flows - Statutory Basis (continued)
(Dollars in thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1996 1995
-----------------------------------------------------------
<S> <C> <C> <C>
FINANCING ACTIVITIES
Issuance of short-term intercompany notes payable $ 16,400 $ - $ 40,000
Capital contribution 153 - -
Dividends to stockholder (62,000) (20,000) -
-----------------------------------------------------------
Net cash provided by (used in) financing activities (45,447) (20,000) 40,000
-----------------------------------------------------------
Increase (decrease) in cash and short-term
investments (26,798) (29,115) 45,790
Cash and short-term investments at beginning of year 50,737 79,852 34,062
-----------------------------------------------------------
Cash and short-term investments at end of year $ 23,939 $ 50,737 $ 79,852
===========================================================
</TABLE>
See accompanying notes.
8
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements - Statutory Basis
(Dollars in thousands)
December 31, 1997
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.
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, during 1996 the Company
transferred $123 in assets, substantially all of which was cash, and $70 of
liabilities. The difference between the assets and liabilities of $(53) plus
a tax credit of $19 was charged directly to unassigned surplus. During 1997,
the Company transferred $591 in assets, substantially all of which was cash
and $343 of liabilities. The difference between the assets and liabilities
of $(248) net of a tax credit of $87 was charged directly to unassigned
surplus.
. 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.
9
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements - Statutory Basis (continued)
(Dollars in thousands)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
. 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
$4,303 in assets and liabilities of $4,467 during 1995. 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 1997, the Company transferred $5,045 in assets,
including $4,826 of cash and short-term investments, and liabilities of
$5,164. The difference between the assets and liabilities of $119 plus a tax
credit of $270 was credited directly to unassigned surplus.
. During 1993, the Company sold the Oakbrook Division (primarily group health
business). The initial transfer of risk occurred through an indemnity
reinsurance agreement. The policies will then be assumed by the reinsurer by
novation as state regulatory and policyholder approvals are received. During
1996, the Company paid $539 in association with this sale; the payment, net
of a tax credit of $189, were charged directly to unassigned surplus. 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 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. In
1997, the Company received $8 for ceding commissions; the commissions net of
the related tax effect of $3 was credited directly to unassigned surplus.
. During 1997, the Company entered into a reinsurance agreement with a non-
affiliate. As a result of the agreement, the Company received $1,480 of
assets, including $1,477 of cash and short-term securities, and $861 of
liabilities. The difference between the assets and liabilities of $619, net
of a tax effect of $217 was credited directly to unassigned surplus.
NATURE OF BUSINESS
The Company sells individual non-participating whole life, endowment and term
contracts, as well as a broad line of single fixed and flexible premium annuity
products. In addition, the Company offers group life, universal life, and
individual and specialty health coverages. The Company is licensed in 49 states
and the District of Columbia. Sales of the Company's products are primarily
through the Company's agents and financial institutions.
10
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements - Statutory Basis (continued)
(Dollars in thousands)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 based on statutory interest rates rather than full
account values; (e) reinsurance amounts are netted against the corresponding
asset or liability rather than shown as gross amounts on the balance sheet; (f)
deferred income taxes are not provided for the difference between the financial
statement and income tax bases of assets and liabilities; (g) net realized gains
or losses attributed to changes in the level of interest rates in the market are
deferred and amortized over the remaining life of the bond or mortgage loan,
rather than recognized as gains or losses in the statement of operations when
the sale is completed; (h) potential declines in the estimated realizable value
of investments are provided for through the establishment of a formula-
determined statutory investment reserve (reported as a liability) changes to
which are charged directly to surplus, rather than through recognition in the
statement of operations for declines in value, when such declines are judged to
be other than temporary; (i) certain assets designated as "non-admitted assets"
have been charged to surplus rather than being reported as assets; (j) revenues
for universal life and investment products consist of premiums received rather
than policy charges for the cost of insurance, policy administration charges,
amortization of policy initiation fees and surrender charges assessed; (k)
pension expense is recorded as amounts are paid;
11
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements - Statutory Basis (continued)
(Dollars in thousands)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(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 1998,
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 retrospectively when such assumptions
are changed due to experience and/or expected future patterns. Investments in
preferred stocks in good standing are reported at cost. Investments in preferred
stocks not in good standing are reported at the lower of cost or market. Common
stocks of affiliated and unaffiliated companies, which includes 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.
12
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements - Statutory Basis (continued)
(Dollars in thousands)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Realized capital gains and losses are determined on the basis of specific
identification and are recorded net of related federal income taxes. The Asset
Valuation Reserve (AVR) is established by the Company to provide for potential
losses in the event of default by issuers of certain invested assets. These
amounts are determined using a formula prescribed by the NAIC and are reported
as a liability. The formula for the AVR provides for a corresponding adjustment
for realized gains and losses. Under a formula prescribed by the NAIC, the
Company defers, in the Interest Maintenance Reserve (IMR), the portion of
realized gains and losses on sales of fixed income investments, principally
bonds and mortgage loans, attributable to changes in the general level of
interest rates and amortizes those deferrals over the remaining period to
maturity of the security.
Interest income is recognized on an accrual basis. The Company does not accrue
income on bonds in default, mortgage loans on real estate in default and/or
foreclosure or which are delinquent more than twelve months, or on real estate
where rent is in arrears for more than three months. Further, income is not
accrued when collection is uncertain. At December 31, 1997, 1996 and 1995, the
Company excluded investment income due and accrued of $177, $1,541 and $2,272,
respectively, with respect to such practices.
The Company uses interest rate swaps and caps as part of its overall interest
rate risk management strategy for certain life insurance and annuity products.
The Company entered into several interest rate swap contracts to modify the
interest rate characteristics of the underlying liabilities. The net interest
effect of such swap transactions is reported as an adjustment of interest income
from the hedged items as incurred.
The Company has entered into interest-rate cap agreements to hedge the exposure
of changing interest rates. The cash flows from the interest rate caps will help
offset losses that might occur from changes in interest rates. The cost of such
agreements 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 based on
statutorily specified interest rates and valuation methods that will provide, in
the aggregate, reserves that are greater than or equal to the minimum required
by law.
13
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements - Statutory Basis (continued)
(Dollars in thousands)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The 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.
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 ACCOUNTS
Assets held in trust for purchases of variable annuity contracts and the
Company's corresponding obligation to the contract owners are shown separately
in the balance sheets. The assets in the separate accounts are valued at market.
Income and gains and losses with respect to the assets in the separate accounts
accrue to the benefit of the policyholders and, accordingly, the operations of
the separate accounts are not included in the accompanying financial statements.
The separate accounts do not have any minimum guarantees and the investment
risks associated with market value changes are borne entirely by the
policyholders. The Company received variable contract premiums of $281,095,
$227,864 and $133,386 in 1997, 1996 and 1995, 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.
14
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements - Statutory Basis (continued)
(Dollars in thousands)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECLASSIFICATIONS
Certain reclassifications have been made to the 1996 and 1995 financial
statements to conform to the 1997 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.
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 are based on
quoted market prices.
Mortgage loans and policy loans: The fair values for mortgage loans are
estimated utilizing discounted cash flow analyses, using interest rates
reflective of current market conditions and the risk characteristics of the
loans. The fair value of policy loans is assumed to equal their carrying value.
15
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements - Statutory Basis (continued)
(Dollars in thousands)
2. FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
Investment contracts: Fair values for the Company's liabilities under
investment-type insurance contracts are estimated using discounted cash flow
calculations, based on interest rates currently being offered for similar
contracts with maturities consistent with those remaining for the contracts
being valued.
Interest rate cap and interest rate swaps: Estimated fair value of the
interest rate cap is based upon the latest quoted market price.
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
1997 1996
------------------------------ ------------------------------
CARRYING Carrying
VALUE FAIR VALUE Value FAIR VALUE
------------------------------ ------------------------------
<S> <C> <C> <C> <C>
ADMITTED ASSETS
Bonds $4,913,144 $5,046,527 $4,773,433 $4,867,770
Preferred stocks 2,750 8,029 3,097 7,133
Common stocks 42,345 42,345 32,038 32,038
Affiliated common stock 8,031 8,031 6,934 6,934
Mortgage loans on real estate 935,207 983,720 911,705 922,010
Policy loans 57,136 57,136 54,214 54,214
Cash and short-term
investments 23,939 23,939 50,737 50,737
Interest rate cap 5,618 1,513 6,797 6,975
Interest rate swaps - 2,546 - -
Separate account assets 2,517,365 2,517,365 1,844,515 1,844,515
LIABILITIES
Investment contract liabilities 4,345,181 4,283,461 4,532,568 4,398,630
Separate account liabilities 2,452,205 2,452,205 1,803,057 1,803,057
</TABLE>
16
<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, 1997
Bonds:
United States Government and agencies $ 188,241 $ 2,562 $ (21) $ 190,782
State, municipal and other government 61,532 2,584 (1,774) 62,342
Public utilities 121,582 5,384 (2,952) 124,014
Industrial and miscellaneous 1,955,587 85,233 (7,752) 2,033,068
Mortgage-backed securities 2,586,202 55,382 (5,263) 2,636,321
-----------------------------------------------------------------
4,913,144 151,145 (17,762) 5,046,527
Preferred stocks 2,750 5,279 - 8,029
-----------------------------------------------------------------
$4,915,894 $156,424 $(17,762) $5,054,556
=================================================================
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
=================================================================
</TABLE>
The carrying value and estimated fair value of bonds at December 31, 1997, by
contractual maturity, are shown below. Expected maturities may differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
CARRYING ESTIMATED
VALUE FAIR VALUE
----------------------------
<S> <C> <C>
Due in one year or less $ 132,834 $ 133,608
Due after one year through five years 1,036,862 1,066,474
Due after five years through ten years 886,542 915,229
Due after ten years 270,704 294,895
----------------------------
2,326,942 2,410,206
Mortgage and other asset-backed securities 2,586,202 2,636,321
----------------------------
$4,913,144 $5,046,527
============================
</TABLE>
17
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements - Statutory Basis (continued)
(Dollars in thousands)
3. INVESTMENTS (CONTINUED)
A detail of net investment income is presented below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1996 1995
--------------------------------------
<S> <C> <C> <C>
Interest on bonds and notes $373,496 $364,356 $342,182
Dividends on equity investments 1,460 1,436 1,822
Interest on mortgage loans 80,266 69,418 52,702
Rental income on real estate 7,501 9,526 10,443
Interest on policy loans 3,400 3,273 3,112
Other investment income 613 1,799 1,803
--------------------------------------
Gross investment income 466,736 449,808 412,064
Investment expenses 20,312 21,471 19,379
--------------------------------------
Net investment income $446,424 $428,337 $392,685
======================================
</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
1997 1996 1995
----------------------------------------------
<S> <C> <C> <C>
Proceeds $3,284,095 $2,112,831 $1,757,229
==============================================
Gross realized gains $ 30,094 $ 19,876 $ 19,721
Gross realized losses (17,265) (19,634) (34,399)
----------------------------------------------
Net realized gains (losses) $ 12,829 $ 242 $ (14,678)
==============================================
</TABLE>
At December 31, 1997, investments with an aggregate carrying value of $5,944,376
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.
18
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements - Statutory Basis (continued)
(Dollars in thousands)
3. INVESTMENTS (CONTINUED)
Realized investment gains (losses) and changes in unrealized gains (losses) for
investments are summarized below:
<TABLE>
<CAPTION>
REALIZED
---------------------------------------
YEAR ENDED DECEMBER 31
1997 1996 1995
---------------------------------------
<S> <C> <C> <C>
Debt securities $ 12,829 $ 242 $(14,678)
Short-term investments (19) (197) 24
Equity securities 6,972 1,798 504
Mortgage loans on real estate 2,252 (5,530) (1,053)
Real estate 4,252 1,210 (1,908)
Other invested assets 1,632 12 (970)
---------------------------------------
27,918 (2,465) (18,081)
Tax effect (10,572) (1,235) 7,878
Transfer to interest maintenance reserve (10,187) 197 (7,891)
---------------------------------------
Net realized gains (losses) $ 7,159 $(3,503) $(18,096)
=======================================
<CAPTION>
CHANGE IN UNREALIZED
---------------------------------------
YEAR ENDED DECEMBER 31
1997 1996 1995
----------------------------------------
<S> <C> <C> <C>
Debt securities $40,289 $(115,867) $355,560
Equity securities 5,653 2,929 (16,379)
----------------------------------------
Change in unrealized appreciation
(depreciation) $45,942 $(112,938) $339,181
=======================================
</TABLE>
Gross unrealized gains and gross unrealized losses on equity securities were as
follows:
<TABLE>
<CAPTION>
DECEMBER 31
1997 1996 1995
---------------------------------------
<S> <C> <C> <C>
Unrealized gains $10,356 $ 9,590 $ 6,833
Unrealized losses (3,836) (8,723) (8,895)
---------------------------------------
Net unrealized gains (losses) $ 6,520 $ 867 $(2,062)
=======================================
19
</TABLE>
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements - Statutory Basis (continued)
(Dollars in thousands)
3. INVESTMENTS (CONTINUED)
During 1997, the Company issued mortgage loans with interest rates ranging from
7.32% to 8.62%. The maximum percentage of any one mortgage loan to the value of
the underlying real estate at origination was 80%. Mortgage loans with a
carrying value of $237 were non-income producing for the previous twelve months.
Accrued interest of $79 related to these mortgage loans was excluded from
investment income. The Company requires all mortgaged properties to carry fire
insurance equal to the value of the underlying property.
During 1996 and 1995, mortgage loans of $13,163 and $1,644, respectively, were
foreclosed and transferred to real estate. No mortgage loans were foreclosed
during 1997. At December 31, 1997 and 1996, the Company held a mortgage loan
loss reserve in the asset valuation reserve of $11,985 and $5,432, respectively.
The mortgage loan portfolio is diversified by geographic region and specific
collateral property type as follows:
<TABLE>
<CAPTION>
GEOGRAPHIC DISTRIBUTION PROPERTY TYPE DISTRIBUTION
- -------------------------------------- --------------------------------------
DECEMBER 31 DECEMBER 31
1997 1996 1997 1996
--------------- ---------------
<S> <C> <C> <C> <C> <C>
South Atlantic 29% 26% Retail 35% 37%
Pacific 15 13 Office 31 34
E. North Central 12 15 Apartment 14 14
Mountain 10 10 Other 14 12
W. South Central 9 12 Industrial 6 3
E. South Central 8 9
Middle Atlantic 7 6
W. North Central 6 6
New England 4 3
</TABLE>
At December 31, 1997, 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:
Structured Asset Securities Corporation $66,650
Countrywide Mortgage Backed Securities, Inc. 94,918
</TABLE>
20
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements - Statutory Basis (continued)
(Dollars in thousands)
3. INVESTMENTS (CONTINUED)
The Company utilizes a variety of off-balance sheet financial instruments as
part of its efforts to hedge and manage fluctuations in the market value of its
investment portfolio attributable to changes in general interest rate levels and
to manage duration mismatch of assets and liabilities. Those instruments include
interest rate exchange agreements (swaps and caps), options, and commitments to
extend credit and all involve elements of credit and market risks in excess of
the amounts recognized in the accompanying financial statements at a given point
in time. The contract or notional amounts of those instruments reflect the
extent of involvement in the various types of financial instruments.
The Company's exposure to credit risk is the risk of loss from a counterparty
failing to perform according to the terms of the contract. That exposure
includes settlement risk (i.e., the risk that the counterparty defaults after
the Company has delivered funds or securities under terms of the contract) that
would result in an accounting loss and replacement cost risk (i.e., the cost to
replace the contract at current market rates should the counterparty default
prior to settlement date). Credit loss exposure resulting from nonperformance by
a counterparty for commitments to extend credit is represented by the
contractual amounts of the instruments.
At December 31, 1997 and 1996, the Company's outstanding financial instruments
with on and off-balance sheet risks, shown in notional amounts, are summarized
as follows:
<TABLE>
<CAPTION>
NOTIONAL AMOUNT
1997 1996
-----------------------
<S> <C> <C>
Derivative securities:
Interest rate swaps:
Receive fixed pay floating $100,000 $ -
Receive floating (uncapped) - pay floating (capped) 67,229 -
Interest rate cap agreements 500,000 500,000
</TABLE>
4. REINSURANCE
The Company reinsures portions of risk on certain insurance policies which
exceed its established limits, thereby providing a greater diversification of
risk and minimizing exposure on larger risks. The Company remains contingently
liable with respect to any insurance ceded, and this would become an actual
liability in the event that the assuming insurance company became unable to meet
its obligation under the reinsurance treaty.
21
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements - Statutory Basis (continued)
(Dollars in thousands)
4. REINSURANCE (CONTINUED)
Reinsurance assumption and cession treaties are transacted primarily with
affiliates. Premiums earned reflect the following reinsurance assumed and ceded
amounts:
<TABLE>
<CAPTION>
1997 1996 1995
--------------------------------------------------
<S> <C> <C> <C>
Direct premiums $1,312,446 $1,457,450 $1,591,531
Reinsurance assumed 2,038 1,796 2,356
Reinsurance ceded (246,372) (300,546) (324,993)
--------------------------------------------------
Net premiums earned $1,068,112 $1,158,700 $1,268,894
==================================================
</TABLE>
The Company received reinsurance recoveries in the amount of $183,638, $168,155
and $167,287 during 1997, 1996 and 1995, respectively. At December 31, 1997 and
1996, estimated amounts recoverable from reinsurers that have been deducted from
policy and contract claim reserves totaled $60,437 and $63,226, respectively.
The aggregate reserves for policies and contracts were reduced for reserve
credits for reinsurance ceded at December 31, 1997 and 1996 of $2,434,130 and
$2,737,441, respectively.
At December 31, 1997, amounts recoverable from unauthorized reinsurers of
$73,080 (1996 $73,434) and reserve credits for reinsurance ceded of $78,838
(1996 $55,035) were associated with a single reinsurer and its affiliates. The
Company holds collateral under these reinsurance agreements in the form of trust
agreements totaling $117,686 at December 31, 1997 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.
22
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements - Statutory Basis (continued)
(Dollars in thousands)
5. INCOME TAXES (CONTINUED)
Federal income tax expense differs from the amount computed by applying the
statutory federal income tax rate to gain from operations before taxes and
realized capital losses for the following reasons:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1996 1995
-------------------------------------------
<S> <C> <C> <C>
Computed tax at federal statutory rate (35%) $42,775 $37,256 $27,835
Tax reserve adjustment 2,004 2,211 2,405
Excess tax depreciation (392) (384) (365)
Deferred acquisition costs tax basis 4,308 5,583 4,581
Prior year over accrual (1,016) (499) (306)
Dividend received deduction (941) (454) (56)
Charitable contribution (848) - -
Other items net (2,509) (2,536) (759)
-------------------------------------------
Federal income tax expense $43,381 $41,177 $33,335
===========================================
</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, 1997). 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 .9% and 1.0% of
ordinary life insurance in force at December 31, 1997 and 1996, respectively.
23
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements - Statutory Basis (continued)
(Dollars in thousands)
6. POLICY AND CONTRACT ATTRIBUTES (CONTINUED)
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:
<TABLE>
<CAPTION>
DECEMBER 31
1997 1996
------------------------------- --------------------------------
PERCENT PERCENT
AMOUNT OF TOTAL AMOUNT OF TOTAL
------------------------------- --------------------------------
<S> <C> <C> <C> <C>
Subject to discretionary withdrawal with
market value adjustment $ 8,912 0% $ 20,800 0%
Subject to discretionary withdrawal at
book value less surrender charge 755,300 8 794,881 9
Subject to discretionary withdrawal at
market value 2,454,845 27 1,803,057 20
Subject to discretionary withdrawal at
book value (minimal or no charges or
adjustments) 5,821,049 63 6,284,876 69
Not subject to discretionary withdrawal
provision 203,522 2 174,416 2
------------------------------- --------------------------------
9,243,628 100% 9,078,030 100%
Less reinsurance ceded 2,372,495 2,677,432
------------------ ------------------
Total policy reserves on annuities and
deposit fund liabilities $6,871,134 $6,400,598
================== ==================
</TABLE>
A reconciliation of the amounts transferred to and from the separate accounts is
presented below:
<TABLE>
<CAPTION>
1997 1996 1995
---------------------------------------------------
Transfers as reported in the summary of operations of the
separate accounts statement:
<S> <C> <C> <C>
Transfers to separate accounts $281,095 $227,864 $133,386
Transfers from separate accounts 9,819 75,172 104,219
---------------------------------------------------
Net transfers to separate accounts 271,276 152,692 29,167
Reconciling adjustments charges for investment
manage-ment, administration fees and contract guarantees 26,204 19,093 13,814
---------------------------------------------------
Transfers as reported in the summary of operations of the
life, accident and health annual statement $297,480 $171,785 $ 42,981
===================================================
</TABLE>
24
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements - Statutory Basis (continued)
(Dollars in thousands)
6. POLICY AND CONTRACT ATTRIBUTES (CONTINUED)
Reserves on the Company's traditional life products are computed using mean
reserving methodologies. These methodologies result in the establishment of
assets for the amount of the net valuation premiums that are anticipated to be
received between the policy's paid-through date to the policy's next anniversary
date. At December 31, 1997 and 1996, 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, 1997
Life and annuity:
Ordinary direct first year business $ 2,316 $1,698 $ 618
Ordinary direct renewal business 22,724 6,834 15,890
Group life direct business 1,523 646 877
Reinsurance ceded (1,464) (81) (1,383)
----------------------------------------
25,099 9,097 16,002
Accident and health:
Direct 148 - 148
Reinsurance ceded (49) - (49)
----------------------------------------
Total accident and health 99 - 99
----------------------------------------
$25,198 $9,097 $16,101
========================================
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
========================================
</TABLE>
At December 31, 1997 and 1996, the Company had insurance in force aggregating
$69,271 and $69,251, 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 $1,128 and $1,252 to cover these deficiencies at
December 31, 1997 and 1996, respectively.
25
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements - Statutory Basis (continued)
(Dollars in thousands)
6. POLICY AND CONTRACT ATTRIBUTES (CONTINUED)
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.
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 $62,000 and $20,000 in 1997 and
1996, 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 $422, $1,056 and $942 for the
years ended December 31, 1997, 1996 and 1995, 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 $226, $297 and $465 for the years ended December 31,
1997, 1996 and 1995, respectively.
26
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements - Statutory Basis (continued)
(Dollars in thousands)
8. RETIREMENT AND COMPENSATION PLANS (CONTINUED)
AEGON sponsors supplemental retirement plans to provide the Company's senior
management with benefits in excess of normal pension benefits. The plans are
noncontributory and benefits are based on years of service and the employee's
compensation level. The plans are unfunded and nonqualified under the Internal
Revenue Service Code. In addition, AEGON has established incentive deferred
compensation plans for certain key employees of the Company. AEGON also sponsors
an employee stock option plan for individuals employed at least three years and
a stock purchase plan for its producers, with the participating affiliated
companies establishing their own eligibility criteria, producer contribution
limits and company matching formula. These plans have been accrued or funded as
deemed appropriate by management of AEGON and the Company.
In addition to pension benefits, the Company participates in plans sponsored by
AEGON that provide postretirement medical, dental and life insurance benefits to
employees meeting certain eligibility requirements. Portions of the medical and
dental plans are contributory. The expenses of the postretirement plans
calculated on the pay-as-you-go basis are charged to affiliates in accordance
with an intercompany cost sharing arrangement. The Company expensed $62, $184
and $164 for the years ended December 31, 1997, 1996 and 1995, respectively.
9. RELATED PARTY TRANSACTIONS
The Company shares certain offices, employees and general expenses with
affiliated companies.
The Company receives data processing, investment advisory and management,
marketing and administration services from certain affiliates. During 1997, 1996
and 1995, the Company paid $18,705, $17,028 and $14,214, 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 5.6% at December 31, 1997. During 1997, 1996 and
1995, the Company paid net interest of $1,188, $174 and $71, respectively, to
affiliates.
During 1997 and 1995, the Company received capital contributions of $153 and
$40,000, respectively, in cash from its parent.
At December 31, 1997, the Company has a $16,400 short-term note payable to an
affiliate. Interest on this note accrues at 5.6%.
27
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements - Statutory Basis (continued)
(Dollars in thousands)
9. RELATED PARTY TRANSACTIONS (CONTINUED)
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 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. The Company has established a reserve of
$17,700 and $21,774 and an offsetting premium tax benefit of $7,984 and $8,752
at December 31, 1997 and 1996, respectively, for its estimated share of future
guaranty fund assessments related to several major insurer insolvencies. The
guaranty fund expense (benefit) was $(975), $2,617 and $5,859 for December 31,
1997, 1996 and 1995, respectively.
28
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements - Statutory Basis (continued)
(Dollars in thousands)
11. YEAR 2000 (UNAUDITED)
AEGON has adopted and has in place a Year 2000 Assessment and Planning Project
(the "Project") to review and analyze its information technology and systems to
determine if they are Year 2000 compatible. The Company has begun to convert or
modify, where necessary, critical data processing systems. It is contemplated
that the plan will be substantially completed by early 1999. The Company does
not expect this project to have a significant effect on operations. However, to
mitigate the effect of outside influences upon the success of the project, the
Company has undertaken communications with its significant customers, suppliers
and other third parties to determine their Year 2000 compatibility and
readiness. Management believes that the issues associated with the Year 2000
will be resolved with no material financial impact on the Company.
Since the Year 2000 computer problem, and its resolution is complex and
multifaceted, the success of a response plan cannot be conclusively known until
the Year 2000 is reached (or an earlier date to the extent that systems or
equipment addresses Year 2000 date data prior to the Year 2000). Even with
appropriate and diligent pursuit of a well-conceived Project, including testing
procedures, there is no certainty that any company will achieve complete
success. Notwithstanding the efforts or results of the Company, its ability to
function unaffected to and through the Year 2000 may be adversely affected by
actions (or failure to act) of third parties beyond its knowledge or control.
29
<PAGE>
PFL Life Insurance Company
Summary of Investments - Other Than
Investments in Related Parties
(Dollars in thousands)
December 31, 1997
SCHEDULE I
<TABLE>
<CAPTION>
AMOUNT AT WHICH
MARKET SHOWN IN THE
TYPE OF INVESTMENT COST (1) VALUE BALANCE SHEET
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FIXED MATURITIES
Bonds:
United States Government and
government agencies and authorities $1,325,817 $1,355,098 $1,325,817
States, municipalities and political
subdivisions 136,058 139,110 136,058
Foreign governments 51,407 51,154 51,407
Public utilities 124,013 124,013 121,582
All other corporate bonds 3,275,849 3,377,152 3,278,280
Redeemable preferred stock 2,750 8,029 2,750
----------------------------------------------------
Total fixed maturities 4,915,894 5,054,556 4,915,894
EQUITY SECURITIES
Common stocks:
Banks, trust and insurance 7,593 9,046 9,046
Industrial, miscellaneous and all other 36,263 41,330 41,330
----------------------------------------------------
Total equity securities 43,856 50,376 50,376
Mortgage loans on real estate 935,207 935,207
Real estate 44,699 44,699
Real estate acquired in satisfaction of
debt 11,814 11,814
Policy loans 57,136 57,136
Other long-term investments 29,864 29,864
Cash and short-term investments 23,939 23,939
-------------- ----------------
Total investments $6,062,409 $6,068,929
============== ================
</TABLE>
(1) Original cost of equity securities and, as to fixed maturities, original
cost reduced by repayments and adjusted for amortization of premiums or
accrual of discounts.
30
<PAGE>
PFL Life Insurance Company
Supplementary Insurance Information
(Dollars in thousands)
SCHEDULE III
<TABLE>
<CAPTION>
FUTURE POLICY POLICY AND
BENEFITS AND UNEARNED CONTRACT
EXPENSES PREMIUMS LIABILITIES
--------------------------------------------------
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1997
Individual life $ 882,003 $ - $ 8,550
Individual health 62,033 9,207 12,821
Group life and health 88,211 11,892 44,977
Annuity 4,204,125 - -
--------------------------------------------------
$5,236,372 $21,099 $66,348
==================================================
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
==================================================
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
NET BENEFITS, CLAIMS OTHER
PREMIUM INVESTMENT LOSSES AND SETTLEMENT OPERATING PREMIUMS
REVENUE INCOME* EXPENSES EXPENSES* WRITTEN
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 200,175 $ 75,914 $ 211,921 $ 36,185 -
63,548 5,934 37,706 29,216 $ 63,383
146,694 11,888 103,581 91,568 143,580
657,695 352,688 571,434 364,216 -
- ----------------------------------------------------------------------
$ 1,068,112 $446,424 $ 924,642 $521,185
======================================================================
$ 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
======================================================================
</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.
32
<PAGE>
PFL Life Insurance Company
Reinsurance
(Dollars in thousands)
SCHEDULE IV
<TABLE>
<CAPTION>
ASSUMED PERCENTAGE
CEDED TO FROM OF AMOUNT
GROSS OTHER OTHER NET ASSUMED
AMOUNT COMPANIES COMPANIES AMOUNT TO NET
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER
31, 1997
Life insurance in force $5,025,027 $420,519 $ 35,486 $4,639,994 .8%
=========================================================================
Premiums:
Individual life $ 201,691 $ 3,554 $ 2,038 $ 200,175 1.0%
Individual health 73,593 10,045 - 63,548 -
Group life and health 339,269 192,575 - 146,694 -
Annuity 697,893 40,198 - 657,695 -
-------------------------------------------------------------------------
$1,312,446 $ 246,372 $ 2,038 $1,068,112 .2%
=========================================================================
YEAR ENDED DECEMBER
31, 1996
Life insurance in force $4,863,416 $477,112 $30,685 $4,416,989 .7%
=========================================================================
Premiums:
Individual life $ 204,144 $ 3,858 $ 1,796 $ 202,082 .9%
Individual health 68,699 12,828 - 55,871 -
Group life and health 390,296 215,515 - 174,781 -
Annuity 794,311 68,345 - 725,966 -
-------------------------------------------------------------------------
$1,457,450 $300,546 $ 1,796 $1,158,700 .2%
=========================================================================
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%
=========================================================================
</TABLE>
33
<PAGE>
PFL LIFE VARIABLE ANNUITY ACCOUNT A,
ATLAS PORTFOLIO BUILDER VARIABLE ANNUITY
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Contract Owners
Atlas Portfolio Builder Variable Annuity
PFL Life Insurance Company
We have audited the accompanying balance sheet of PFL Life Variable Annuity
Account A as of December 31, 1997, and the related statements of operations
and changes in contract owners' equity for the period September 30, 1997
(commencement of operations) to December 31, 1997. These financial
statements are the responsibility of the Variable Account's management. Our
responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit 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. Our procedures included confirmation of mutual fund shares
owned as of December 31, 1997 by correspondence with the mutual funds'
transfer agent. 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 audit
provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of PFL Life Variable
Annuity Account A at December 31, 1997, and the results of its operations
and changes in its contract owners' equity for the period September 30,
1997 to December 31, 1997 in conformity with generally accepted accounting
principles.
Des Moines, Iowa
March 27, 1998
<PAGE>
PFL LIFE VARIABLE ANNUITY ACCOUNT A,
ATLAS PORTFOLIO BUILDER VARIABLE ANNUITY
BALANCE SHEET
December 31, 1997
<TABLE>
<CAPTION>
Balanced Capital Disciplined Growth & Quality
Growth Small Cap Appreciation Stock Income Bond
Total Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount
----- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Cash $ 1 - - - - - 1
Investments in mutual funds,
at current market value (Note 2):
Atlas Insurance Trust:
Balanced Growth Portfolio 3,413,366 3,413,366 - - - - -
Dreyfus Variable Investment Fund:
Small Cap Portfolio 374,163 - 374,163 - - - -
Capital Appreciation Portfolio 611,380 - - 611,380 - - -
Disciplined Stock Portfolio 251,965 - - - 251,965 - -
Growth & Income Portfolio 200,150 - - - - 200,150 -
Quality Bond Portfolio 387,019 - - - - - 387,019
Federated Insurance Series:
Utility Fund II Portfolio 72,983 - - - - - -
High Income Bond Fund II Portfolio 181,071 - - - - - -
WRL Series Fund, Inc.:
Global Portfolio 672,827 - - - - - -
Growth Portfolio 241,433 - - - - - -
Emerging Growth Portfolio 118,975 - - - - - -
Endeavor Series Trust:
Dreyfus Small Cap Value Portfolio 166,366 - - - - - -
Value Equity Portfolio 92,727 - - - - - -
T. Rowe Price Equity Income Portfolio 302,140 - - - - - -
T. Rowe Price Growth Stock Portfolio 202,066 - - - - - -
--------- --------- ------- ------- ------- ------- -------
Total investments in mutual funds 7,288,631 3,413,366 374,163 611,380 251,965 200,150 387,019
--------- --------- ------- ------- ------- ------- -------
Total Assets $ 7,288,632 3,413,366 374,163 611,380 251,965 200,150 387,020
========= ========= ======= ======= ======= ======= =======
LIABILITIES AND CONTRACT OWNERS' EQUITY
Liabilities
Contract terminations payable $ 73 34 4 6 3 3 -
--------- --------- ------- ------- ------- ------- -------
Total Liabilities 73 34 4 6 3 3 -
Contract Owners' Equity
Deferred annuity contracts terminable
by owners (Note 3) 7,288,559 3,413,332 374,159 611,374 251,962 200,147 387,020
--------- --------- ------- ------- ------- ------- -------
7,288,632 3,413,366 374,163 611,380 251,965 200,150 387,020
========= ========= ======= ======= ======= ======= =======
<CAPTION>
Utility High Income Emerging Dreyfus Small Value
Fund II Bond Fund II Global Growth Growth Cap Value Equity
Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Assets
Cash - - - - - - -
Investments in mutual funds,
at current market value (Note 2):
Atlas Insurance Trust:
Balanced Growth Portfolio - - - - - - -
Dreyfus Variable Investment Fund:
Small Cap Portfolio - - - - - - -
Capital Appreciation Portfolio - - - - - - -
Disciplined Stock Portfolio - - - - - - -
Growth & Income Portfolio - - - - - - -
Quality Bond Portfolio - - - - - - -
Federated Insurance Series:
Utility Fund II Portfolio 72,983 - - - - - -
High Income Bond Fund II Portfolio - 181,071 - - - - -
WRL Series Fund, Inc.:
Global Portfolio - - 672,827 - - - -
Growth Portfolio - - - 241,433 - - -
Emerging Growth Portfolio - - - - 118,975 - -
Endeavor Series Trust:
Dreyfus Small Cap Value Portfolio - - - - - 166,366 -
Value Equity Portfolio - - - - - - 92,727
T. Rowe Price Equity Income Portfolio - - - - - - -
T. Rowe Price Growth Stock Portfolio - - - - - - -
----------- ------- ------- ------- -------- ------- -------
Total investments in mutual funds 72,983 181,071 672,827 241,433 118,975 166,366 92,727
----------- ------- ------- ------- ------- ------- -------
----------- ------- ------- ------- ------- ------- -------
Total Assets $ 72,983 181,071 672,827 241,433 118,975 166,366 92,727
=========== ======= ======= ======= ======= ======= =======
LIABILITIES AND CONTRACT OWNERS' EQUITY
Liabilities
Contract terminations payable 4 1 3 2 2 - 1
----------- ------- ------- ------- ------- ------- -------
Total Liabilities 4 1 3 2 2 - 1
Contract Owners' Equity
Deferred annuity contracts terminable
by owners (Note 3) $ 72,979 181,070 672,824 241,431 118,973 166,366 92,726
----------- ------- ------- ------- ------- ------- -------
72,983 181,071 672,827 241,433 118,975 166,366 92,727
=========== ======= ======= ======= ======= ======= =======
<CAPTION>
Equity Income Growth Stock
Subaccount Subaccount
---------- ----------
<S> <C> <C>
Assets
Cash - -
Investments in mutual funds,
at current market value (Note 2):
Atlas Insurance Trust:
Balanced Growth Portfolio - -
Dreyfus Variable Investment Fund:
Small Cap Portfolio - -
Capital Appreciation Portfolio - -
Disciplined Stock Portfolio - -
Growth & Income Portfolio - -
Quality Bond Portfolio - -
Federated Insurance Series:
Utility Fund II Portfolio - -
High Income Bond Fund II Portfolio - -
WRL Series Fund, Inc.:
Global Portfolio - -
Growth Portfolio - -
Emerging Growth Portfolio - -
Endeavor Series Trust:
Dreyfus Small Cap Value Portfolio - -
Value Equity Portfolio - -
T. Rowe Price Equity Income Portfolio 302,140 -
T. Rowe Price Growth Stock Portfolio - 202,066
------- -------
Total investments in mutual funds 302,140 202,066
------- -------
------- -------
Total Assets 302,140 202,066
======= =======
LIABILITIES AND CONTRACT OWNERS' EQUITY
Liabilities
Contract terminations payable 6 4
------- -------
Total Liabilities 6 4
Contract Owners' Equity
Deferred annuity contracts terminable
------- -------
by owners (Note 3) 302,134 202,062
------- -------
302,140 202,066
======= =======
</TABLE>
See accompanying Notes to Financial Statements
Page 1
<PAGE>
PFL LIFE VARIABLE ANNUITY ACCOUNT A,
ATLAS PORTFOLIO BUILDER VARIABLE ANNUITY
STATEMENT OF OPERATIONS
Period From September 30, 1997 (commencement of operations)
through December 31, 1997
<TABLE>
<CAPTION>
Balanced Capital Disciplined Growth &
Growth Small Cap Appreciation Stock Income
Total Subaccount Subaccount Subaccount Subaccount Subaccount
----- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net Investment Income (Loss)
Income:
Dividends $ 343,475 187,699 19,577 4,820 12,939 11,742
Expenses (Note 4):
Mortality and expense risk charge 14,284 6,828 699 1,332 386 388
------------ --------- --------- -------- ---------- ----------
Net Investment income (loss) $ 329,191 180,871 18,878 3,488 12,553 11,354
============ ========= ========= ======== ========== ==========
Net Realized & Unrealized
Capital Gain (Loss)
From Investments
Net realized capital gain (loss) from
sales of investments:
Proceeds from sales 118,763 8,265 23,533 1,253 105 10,071
Cost of investments sold 123,620 8,675 25,250 1,266 113 10,721
------------ --------- --------- -------- ---------- ----------
Net realized capital gain (loss) from
sales of investments (4,857) (410) (1,717) (13) (8) (650)
Net change in unrealized
appreciation/depreciation
of investments:
Beginning of the period - - - - - -
End of the period (309,397) (172,835) (24,894) 3,890 (8,620) (7,654)
------------ --------- --------- -------- ---------- ----------
Net change in unrealized
appreciation/depreciation
of investments (309,397) (172,835) (24,894) 3,890 (8,620) (7,654)
------------ --------- --------- -------- ---------- ----------
Net realized and unrealized
capital gain (loss)
from investments (314,254) (173,245) (26,611) 3,877 (8,628) (8,304)
------------ --------- --------- -------- ---------- ----------
Increase (Decrease) From Operations $ 14,937 7,626 (7,733) 7,365 3,925 3,050
============ ========= ========= ======== ========== ==========
<CAPTION>
Quality Utility High Income Emerging Dreyfus Small
Bond Fund II Bond Fund II Global Growth Growth Cap Value
Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount
<S> ---------- ---------- ---------- ---------- ---------- ---------- ----------
Net Investment Income (Loss) <C> <C> <C> <C> <C> <C> <C>
Dividends 6,060 - - 69,086 22,539 9,013 -
Expenses (Note 4):
Mortality and expense risk charge 760 123 287 1,478 486 185 349
--------- ---------- --------- -------- -------- --------- ---------
Net Investment income (loss) 5,300 (123) (287) 67,608 22,053 8,828 (349)
========= ========== ========= ======== ======== ========= =========
Net Realized & Unrealized
Capital Gain (Loss)
From Investments
Net realized capital gain (loss) from
sales of investments:
Proceeds from sales 19,054 10,302 6,297 7,461 2,658 171 24,551
Cost of investments sold 19,085 9,562 6,226 8,622 2,846 196 25,999
--------- ---------- --------- -------- -------- --------- ---------
Net realized capital gain (loss) from
sales of investments (31) 740 71 (1,161) (188) (25) (1,448)
Net change in unrealized
appreciation/depreciation
of investments:
Beginning of the period - - - - - - -
End of the period (53) 4,981 2,304 (81,947) (23,574) (10,858) (3,673)
--------- ---------- --------- -------- -------- --------- ---------
Net change in unrealized
appreciation/depreciation
of investments (53) 4,981 2,304 (81,947) (23,574) (10,858) (3,673)
--------- ---------- --------- -------- -------- --------- ---------
Net realized and unrealized
capital gain (loss)
from investments (84) 5,721 2,375 (83,108) (23,762) (10,883) (5,121)
--------- ---------- --------- -------- -------- --------- ---------
Increase (Decrease) From Operations 5,216 5,598 2,088 (15,500) (1,709) (2,055) (5,470)
========= ========== ========= ======== ======== ======== =========
<CAPTION>
Value
Equity Equity Income Growth Stock
Subaccount Subaccount Subaccount
---------- ---------- ----------
<S> <C> <C> <C>
Net Investment Income (Loss)
Income:
Dividends - - -
Expenses (Note 4):
Mortality and expense risk charge 127 467 389
--------- ---------- ---------
Net Investment income (loss) (127) (467) (389)
========= ========== =========
Net Realized & Unrealized
Capital Gain (Loss)
From Investments
Net realized capital gain (loss) from
sales of investments:
Proceeds from sales 170 1,107 3,765
Cost of investments sold 172 1,091 3,796
--------- ---------- ---------
Net realized capital gain (loss) from
sales of investments (2) 16 (31)
Net change in unrealized
appreciation/depreciation
of investments:
Beginning of the period - - -
End of the period 1,430 7,672 4,434
--------- ---------- ---------
Net change in unrealized
appreciation/depreciation
of investments 1,430 7,672 4,434
--------- ---------- ---------
Net realized and unrealized
capital gain (loss)
from investments 1,428 7,688 4,403
--------- ---------- ---------
Increase (Decrease) From Operations 1,301 7,221 4,014
========= ========== =========
</TABLE>
See accompanying Notes to Financial Statements.
Page 2
<PAGE>
PFL LIFE VARIABLE ANNUITY ACCOUNT A,
ATLAS PORTFOLIO BUILDER VARIABLE ANNUITY
STATEMENT OF CHANGES IN CONTRACT OWNERS' EQUITY
PERIOD FROM SEPTEMBER 30, 1997 (COMMENCEMENT OF OPERATIONS)
THROUGH DECEMBER 31, 1997
<TABLE>
<CAPTION>
Balanced Capital Disciplined
Growth Small Cap Appreciation Stock
Total Subaccount Subaccount Subaccount Subaccount
---------- ---------- ---------- ---------- -----------
1997 1997 1997 1997 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
OPERATIONS
Net investment income (loss) $ 329,191 180,871 18,878 3,488 12,553
Net realized capital gain (loss) (4,857) (410) (1,717) (13) (8)
Net change in unrealized appreciation/
depreciation of investments (309,397) (172,835) (24,894) 3,890 (8,620)
---------- ---------- --------- ---------- --------
Increase (decrease) from operations 14,937 7,626 (7,733) 7,365 3,925
---------- ---------- --------- ---------- --------
CONTRACT TRANSACTIONS
Net contract purchase payments 7,145,059 3,375,577 366,713 593,051 246,186
Transfer payments from (to) other subaccounts
or general account 149,734 31,091 16,080 11,940 2,835
Contract terminations, withdrawals,
and other deductions (21,171) (962) (901) (982) (984)
---------- ---------- --------- ---------- --------
Increase from contract transactions 7,273,622 3,405,706 381,892 604,009 248,037
---------- ---------- --------- ---------- --------
---------- ---------- --------- ---------- --------
Net increase in contract owners' equity 7,288,559 3,413,332 374,159 611,374 251,962
---------- ---------- --------- ---------- --------
CONTRACT OWNERS' EQUITY
Beginning of the period - - - - -
---------- ---------- --------- ---------- --------
End of the period $7,288,559 3,413,332 374,159 611,374 251,962
========== ========== ========= ========== ========
<CAPTION>
Growth & Quality Utility
Income Bond Fund II
Subaccount Subaccount Subaccount
---------- ---------- ----------
1997 1997 1997
---- ---- ----
<S> <C> <C> <C>
OPERATIONS
Net investment income (loss) 11,354 5,300 (123)
Net realized capital gain (loss) (650) (31) 740
Net change in unrealized appreciation/
depreciation of investments (7,654) (53) 4,981
---------- -------- ----------
Increase (decrease) from operations 3,050 5,216 5,598
---------- -------- ----------
CONTRACT TRANSACTIONS
Net contract purchase payments 193,019 372,024 68,628
Transfer payments from (to) other subaccounts
or general account 5,038 17,404 (141)
Contract terminations, withdrawals,
and other deductions (960) (7,624) (1,106)
---------- -------- ----------
Increase from contract transactions 197,097 381,804 67,381
---------- -------- ----------
---------- -------- ----------
Net increase in contract owners' equity 200,147 387,020 72,979
---------- -------- ----------
CONTRACT OWNERS' EQUITY
Beginning of the period - - -
---------- -------- ----------
End of the period 200,147 387,020 72,979
========== ======== ==========
</TABLE>
<TABLE>
<CAPTION>
High Income Emerging Dreyfus Small Value
Bond Fund II Global Growth Growth Cap Value Equity
Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount
-----------------------------------------------------------------------------
1997 1997 1997 1997 1997 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS
Net investment income (loss) $ (287) 67,608 22,053 8,828 (349) (127)
Net realized capital gain (loss) 71 (1,161) (188) (25) (1,448) (2)
Net change in unrealized appreciation/
depreciation of investments 2,304 (81,947) (23,574) (10,858) (3,673) 1,430
--------- -------- -------- --------- -------- --------
Increase (decrease) from operations 2,088 (15,500) (1,709) (2,055) (5,470) 1,301
--------- -------- -------- --------- -------- --------
CONTRACT TRANSACTIONS
Net contract purchase payments 173,626 668,809 243,524 120,287 166,934 89,930
Transfer payments from (to) other subaccounts
or general account 6,372 20,441 537 1,619 5,816 2,487
Contract terminations, withdrawals,
and other deductions (1,016) (926) (921) (878) (914) (992)
--------- -------- -------- --------- -------- --------
Increase from contract transactions 178,982 688,324 243,140 121,028 171,836 91,425
--------- -------- -------- --------- -------- --------
--------- -------- -------- --------- -------- --------
Net increase in contract owners' equity 181,070 672,824 241,431 118,973 166,366 92,726
--------- -------- -------- --------- -------- --------
CONTRACT OWNERS' EQUITY
Beginning of the period - - - - - -
--------- -------- -------- --------- -------- --------
End of the period $ 181,070 672,824 241,431 118,973 166,366 92,726
========== ======== ======== ========= ======== ========
<CAPTION>
Equity Income Growth Stock
Subaccount Subaccount
------------- ------------
1997 1997
---- ----
<S> <C> <C>
OPERATIONS
Net investment income (loss) (467) (389)
Net realized capital gain (loss) 16 (31)
Net change in unrealized appreciation/
depreciation of investments 7,672 4,434
-------- --------
Increase (decrease) from operations 7,221 4,014
-------- --------
CONTRACT TRANSACTIONS
Net contract purchase payments 278,237 188,514
Transfer payments from (to) other subaccount
or general account 17,690 10,525
Contract terminations, withdrawals,
and other deductions (1,014) (991)
Increase from contract -------- --------
transactions 294,913 198,048
-------- --------
Net increase in contract owners
-------- --------
equity 302,134 202,062
-------- --------
CONTRACT OWNERS' EQUITY
Beginning of the period - -
-------- --------
End of the period 302,134 202,062
======== ========
</TABLE>
See accompanying Notes to Financial Statements.
Page 3
<PAGE>
PFL LIFE VARIABLE ANNUITY ACCOUNT A,
ATLAS PORTFOLIO BUILDER VARIABLE ANNUITY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization --- The PFL Life Variable Annuity Account A ("Mutual Fund
Account") is a segregated investment account of PFL Life Insurance Company
("PFL Life"), an indirect, wholly-owned subsidiary of AEGON USA, Inc.
("AUSA"), a holding company. AUSA is an indirect, wholly-owned subsidiary of
AEGON nv, a holding company organized under the laws of The Netherlands.
The Subaccounts commenced operations on September 30, 1997. The investment
manager of the Atlas Insurance Trust is Atlas Advisers, Inc. The investment
manager of the Dreyfus Variable Investment Fund is The Dreyfus Corporation.
The investment manager of the Federated Insurance Series is Federated
Advisers, Inc. The investment manager of the WRL Series Fund Inc. is Western
Reserve Life Assurance Co. of Ohio, an affiliate of PFL. The investment
manager of the Endeavor Series Trust is Endeavor Investment Advisors, a
general partnership between Endeavor Management Co. and AUSA Financial
Markets, Inc., an affiliate of PFL Life.
The Mutual Funds Account is registered with the Securities and Exchange
Commission as a Unit Investment Trust pursuant to provisions of the
Investment Company Act of 1940.
Investments --- Net purchase payments received by the Mutual Fund Account are
invested in the portfolios of the Atlas Insurance Trust, Dreyfus Variable
Investment Fund, Federated Insurance Series, WRL Series Fund, Inc., and the
Endeavor Series Trust (collectively the "Series Funds"), as selected by the
contract owner. Investments are stated at the closing net asset values per
share on December 31, 1997.
Realized capital gains and losses from sale of shares in the Series Funds are
determined on the first-in, first-out basis. Investment transactions are
accounted for on the trade date (date the order to buy or sell is executed)
and dividend income is recorded on the ex-dividend date. Unrealized gains or
losses from investments in the Series Funds are credited or charged to
contract owners equity.
Dividend Income --- Dividends received from the Series Funds investments are
reinvested to purchase additional mutual fund shares.
<PAGE>
ALTAS PORTFOLIO BUILDER VARIABLE ANNUITY
NOTES TO FINANCIAL STATEMENTS
2. Investments
A summary of the mutual fund investment at December 31, 1997 follows:
<TABLE>
<CAPTION>
Net Asset Value
Number of Per Share
Shares Held (in dollars) Market Value Cost
------------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
Atlas Insurance Trust:
Balanced Growth Portfolio 365,848.422 $ 9.33 $ 3,413,366 $ 3,586,201
Dreyfus Variable Investment Fund:
Small Cap Portfolio 6,548.178 57.14 374,163 399,057
Capital Appreciation Portfolio 21,913.249 27.90 611,380 607,490
Disciplined Stock Portfolio 13,768.595 18.30 251,965 260,585
Growth & Income Portfolio 9,631.855 20.78 200,150 207,804
Quality Bond Portfolio 32,993.947 11.73 387,019 387,072
Federated Insurance Series:
Utility Fund II Portfolio 5,107.280 14.29 72,983 68,002
High Income Bond Fund II Portfolio 16,536.193 10.95 181,071 178,767
WRL Series Fund, Inc.:
Global Portfolio 35,331.330 19.043340 672,827 754,774
Growth Portfolio 6,552.812 36.844201 241,433 265,007
Emerging Growth Portfolio 5,841.393 20.367602 118,975 129,833
Endeavor Series Trust:
Dreyfus Small Cap Value Portfolio 10,138.095 16.41 166,366 170,039
Value Equity Portfolio 4,479.579 20.70 92,727 91,297
T. Rowe Price Equity Income Portfolio 15,622.569 19.34 302,140 294,468
T. Rowe Price Growth Stock Portfolio 9,724.063 20.78 202,066 197,632
============ ============
$ 7,288,631 $ 7,598,028
============ ============
</TABLE>
The aggregate cost of purchases and proceeds from sales of investments were as
follows:
<TABLE>
<CAPTION>
Commencement of Operations
to December 31,
----------------------------
1997
----------------------------
Purchases Sales
-------------- -----------
<S> <C> <C>
Atlas Insurance Trust:
Balanced Growth Portfolio $ 3,594,876 8,265
Dreyfus Variable Investment Fund:
Small Cap Portfolio 424,307 23,533
Capital Appreciation Portfolio 608,756 1,253
Disciplined Stock Portfolio 260,698 105
Growth & Income Portfolio 218,525 10,071
Quality Bond Portfolio 406,157 19,054
Federated Insurance Series:
Utility Fund II Portfolio 77,564 10,302
High Income Bond Fund II Portfolio 184,993 6,297
WRL Series Fund, Inc.:
Global Portfolio 763,396 7,461
Growth Portfolio 267,853 2,658
Emerging Growth Portfolio 130,029 171
Endeavor Series Trust:
Dreyfus Small Cap Value Portfolio 196,038 24,551
Value Equity Portfolio 91,469 170
T. Rowe Price Equity Income Portfolio 295,559 1,107
T. Rowe Price Growth Stock Portfolio 201,428 3,765
------------- ------------
$ 7,721,648 118,763
============= ============
</TABLE>
<PAGE>
Atlas Portfolio Builder Variable Annuity
Notes to Financial Statements
3. Contract Owners' Equity
A summary of deferred annuity contracts terminable by
owners at December 31, 1997 follows:
<TABLE>
<CAPTION>
Accumulation Accumulation Total
Units Owned Unit Value Contract Value
---------------- -------------- ----------------
<S> <C> <C> <C>
Balanced Growth 3,469,693.985 $0.983756 $ 3,413,332
Small Cap 397,321.058 0.941704 374,159
Capital Appreciation 605,501.874 1.009698 611,374
Disciplined Stock 247,060.402 1.019838 251,962
Growth & Income 201,499.858 0.993285 200,147
Quality Bond 377,687.374 1.024710 387,020
Utility Fund II 64,830.195 1.125700 72,979
High Income Bond Fund II 178,054.703 1.016935 181,070
Global 704,269.755 0.955350 672,824
Growth 12,277.088 19.665157 241,431
Emerging Growth 126,110.341 0.943400 118,973
Dreyfus Small Cap Value 89,867.657 1.851229 166,366
Value Equity 44,448.849 2.086130 92,726
T Rowe Price Equity Income 156,951.014 1.925022 302,134
T Rowe Price Growth Stock 98,880.797 2.043487 202,062
------------
$ 7,288,559
============
</TABLE>
At December 31, 1997 contract owners' equity was comprised of:
<TABLE>
<CAPTION>
Balanced Capital Disciplined Growth & Quality
Growth Small Cap Appreciation Stock Income Bond
Total Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount
----- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Unit transactions, accumulated
net investment income and
realized capital gains $ 7,597,956 3,586,167 399,053 607,484 260,582 207,801 387,073
Adjustment for appreciation/
depreciation to market value (309,397) (172,835) (24,894) 3,890 (8,620) (7,654) (53)
------------- ------------- ----------- ------------ ------------ ------------ -----------
Total Contract Owners' Equity $ 7,288,559 3,413,332 374,159 611,374 251,962 200,147 387,020
============= ============= =========== ============ ============ ============ ===========
<CAPTION>
Utility High Income Emerging Dreyfus Small Value
Fund II Bond Fund II Global Growth Growth Cap Value Equity
Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount
------------ ------------ ------------ ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Unit transactions, accumulated
net investment income and
realized capital gains 67,998 178,766 754,771 265,005 129,831 170,039 91,296
Adjustment for appreciation/
depreciation to market value 4,981 2,304 (81,947) (23,574) (10,858) (3,673) 1,430
------------ ----------- ----------- ---------- ---------- ---------- -------------
Total Contract Owners' Equity 72,979 181,070 672,824 241,431 118,973 166,366 92,726
============ =========== =========== ========== ========== ========== =============
<CAPTION>
Equity Income Equity Stock
Subaccount Subaccount
-------------- --------------
<S> <C> <C>
Unit transactions, accumulated
net investment income and
realized capital gains 294,462 197,628
Adjustment for appreciation/
depreciation to market value 7,672 4,434
-------------- -------------
Total Contract Owners' Equity 302,134 202,062
============== =============
</TABLE>
A summary of changes in contract owners' account units follows:
<TABLE>
<CAPTION>
Balanced Capital Disciplined Growth & Quality
Growth Small Cap Appreciation Stock Income Bond
Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount
------------ ---------- ------------ ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Units outstanding at beginning of period - - - - - -
Units purchased 3,438,739 383,032 595,851 245,153 197,428 368,060
Units redeemed and transferred 30,955 14,289 9,651 1,907 4,072 9,627
------------ ---------- ----------- ------------ ---------- ----------
Units outstanding 12/31/97 3,469,694 397,321 605,502 247,060 201,500 377,687
============ ========== =========== ============ ========== ==========
<CAPTION>
Utility High Income Emerging Dreyfus Small
Fund II Bond Fund II Global Growth Growth Cap Value
Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount
------------ ------------ ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Units outstanding at beginning of period - - - - - -
Units purchased 65,726 172,718 685,142 12,308 125,702 88,064
Units redeemed and transferred (896) 5,337 19,128 (31) 408 1,804
------------ ------------ ----------- ------------ ------------ ------------
Units outstanding 12/31/97 64,830 178,055 704,270 12,277 126,110 89,868
============ ============ =========== ============ ============ ============
<CAPTION>
Value
Equity Equity Income Growth Stock
Subaccount Subaccount Subaccount
------------ ------------- -------------
<S> <C> <C> <C>
Units outstanding at beginning of period - - -
Units purchased 43,737 148,169 93,998
Units redeemed and transferred 712 8,782 4,883
------------ ------------- -------------
Units outstanding 12/31/97 44,449 156,951 98,881
============ ============= =============
</TABLE>
<PAGE>
PFL LIFE VARIABLE ANNUITY ACCOUNT A,
ATLAS PORTFOLIO BUILDER VARIABLE ANNUITY
NOTES TO FINANCIAL STATEMENTS
4. MORTALITY AND EXPENSES RISK CHARGE
PFL Life deducts a daily charge equal to an annual rate of 1.25% of the
value of the contract owners' account as a charge for assuming certain
mortality and expense risks. PFL Life also deducts a daily charge equal to
an annual rate of 0.15% of the contract owners' account for administrative
expenses.
5. TAXES
Operations of the Mutual Fund Account form a part of PFL Life, which is
taxed as a life insurance company under Subchapter L of the Internal
Revenue Code of 1986, as amended (the "Code"). The operations of the Mutual
Fund Account are accounted for separately from other operations of PFL Life
for purposes of federal income taxation. The Mutual Fund Account is not
separately taxable as a regulated investment company under Subchapter M of
the Code and is not otherwise taxable as an entity separate from PFL Life.
Under existing federal income tax laws, the income of the Mutual Fund
Account, to the extent applied to increase reserves under the variable
annuity contracts, is not taxable to PFL Life.
6. YEAR 2000 (UNAUDITED)
PFL Life and its parent have adopted and have in place a Year 2000
Assessment and Planning Project (the "Project") to review and analyze its
information technology and systems to determine if they are Year 2000
compatible. PFL Life has begun to convert, remediate or modify, where
necessary, critical data processing systems. It is contemplated that the
Project will be substantially completed by early 1999. PFL Life does not
expect this Project to have a significant effect on operations. However, to
mitigate the effect of outside influences upon the success of the Project,
PFL Life has undertaken communications with its significant customers,
suppliers and other third parties to determine their Year 2000
compatibility and readiness. Management believes that the issues associated
with the Year 2000 will be resolved with no material financial impact on
PFL Life.
Since the Year 2000 computer problem, and its resolution, is complex and
multifaceted, the success of a response plan cannot be conclusively known
until the Year 2000 is reached (or an earlier date to the extent that
systems or equipment addresses Year 2000 date data prior to the Year 2000).
Even with appropriate and diligent pursuit of a well-conceived Project,
including testing procedures, there is no certainty that any company will
achieve complete success. Notwithstanding the efforts or results of PFL
Life, its ability to function unaffected to and through the Year 2000 may
be adversely affected by actions (or failure to act) of third parties
beyond its knowledge or control.
<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.
(a)(1) Form of Principal Distribution Agreement by and between
PFL Life Insurance Company on its own behalf and on
behalf of the Mutual Fund Account and AFSG Securities
Corporation. Note. 4.
(b) Form of Broker/Dealer Supervision and Sales Agreement by and
between AFSG Securities Corporation and the Broker/Dealer.
Note 4.
(4) Form of Policy for the Atlas Portfolio Builder Variable
Annuity. Note 3.
(5) Form of Application for the Atlas Portfolio Builder Variable
Annuity. Note 3.
(6) (a) Articles of Incorporation of PFL Life
Insurance Company. Note 1.
(b) ByLaws of PFL Life Insurance Company. Note 1.
(7) Not Applicable.
(8) (a) Participation Agreement by and between PFL Life Insurance
Company and 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 3.
(8) (d) Participation Agreement by and between PFL
Life Insurance Company and Federated
Insurance Series.
Note 3.
(8) (e) (1) Participation Agreement by and between PFL
Life Insurance Company and WRL Series Funds,
Inc., and addendums thereof.
Note 4.
(e) (2) Amended Schedule A to Participation Agreement.
Note 3.
(9) Opinion and Consent of Counsel. Note 3.
(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 3.
(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. Filed with initial Registration Statement on Form N-4 (File
No. 333-26209) on April 30, 1997.
Note 2. Incorporated by reference to the Endeavor Series Trust
Post-Effective Amendment #14, Exhibit No. 6, (File No. 33-
27352), filed on April 29, 1996.
Note 3. Filed with Pre-Effective Amendment No. 1 on Form N-4 (File
No. 333-26209) on July 28, 1997.
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 Operating 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
<TABLE>
<CAPTION>
Jurisdication of Percent of Voting
Name Incorporation Securities Owned Business
- ------------------------------- ------------------------------- ------------------------------- ---------------------------
<S> <C> <C> <C>
AEGON N.V. Netherlands 53.63% of Vereniging Holding company
Corporation AEGON Netherlands
Membership Association
Groninger Financieringen B.V. Netherlands 100% of AEGON N.V. Holding company
Corporation Netherlands Corporation
AEGON Netherland N.V. Netherlands 100% of AEGON N.V. Holding company
Corporation Netherlands Corporation
AEGON Nevak Holding B.V. Netherlands 100% of AEGON N.V. Holding company
Corporation Netherlands Corporation
AEGON International N.V. Netherlands 100% of AEGON N.V. Holding company
Corporation Netherlands Corporation
Voting Trust Delaware Voting Trust
Trustees:
K.J. Storm
Donald J. Shepard
H.B. Van Wijk
Dennis Hersch
AEGON U.S. Holding Delaware 100% of Voting Trust Holding company
Corporation
Short Hills Management New Jersey 100% of AEGON U.S. Holding company
Company Holding Corporation
CORPA Reinsurance New York 100% of AEGON U.S. Holding company
Company Holding Corporation
AEGON Management Indiana 100% of AEGON U.S. Holding company
Company Holding Corporation
RCC North America Inc. Delaware 100% of AEGON U.S. Holding company
Holding Corporation
AEGON USA, Inc. Iowa 100% AEGON U.S. Holding company
Holding Corporation
AUSA Holding Company Maryland 100% AEGON USA, Inc. Holding company
Monumental General Insurance Maryland 100% AUSA Holding Co. Holding company
Group, Inc.
Trip Mate Insurance Agency, Kansas 100% Monumental General Sale/admin. of travel
Inc. Insurance Group, Inc. insurance
Monumental General Maryland 100% Monumental General Provides management srvcs.
Administrators, Inc. Insurance Group, Inc. to unaffiliated third party
administrator
Executive Management and Maryland 100% Monumental General Provides actuarial consulting
Consultant Services, Inc. Administrators, Inc. services
Monumental General Mass Maryland 100% Monumental General Marketing arm for sale of
Marketing, Inc. Insurance Group, Inc. mass marketed insurance
coverages
Diversified Investment Delaware 100% AUSA Holding Co. Registered investment advisor
Advisors, Inc.
Diversified Investors Delaware 100% Diversified Investment Broker-Dealer
Securities Corp. Advsiors, Inc.
AEGON USA Securities, Inc. Iowa 100% AUSA Holding Co. Broker-Dealer
Supplemental Ins. Division, Tennessee 100% AUSA Holding Co. Insurance
Inc.
Creditor Resources, Inc. Michigan 100% AUSA Holding Co. Credit insurance
CRC Creditor Resources Canada 100% Creditor Resources, Inc. Insurance agency
Canadian Dealer Network Inc.
AEGON USA Investment Iowa 100% AUSA Holding Co. Investment advisor
Management, Inc.
AEGON USA Realty Iowa 100% AUSA Holding Co. Provides real estate
Advisors, Inc. administrative and real
estate investment services
Quantra Corporation Delaware 100% AEGON USA Realty Real estate and financial
Advisors, Inc. software production and sales
Quantra Software Corporation Delaware 100% Quantra Corporation Manufacture and sell
mortgage loan and security
management software
Landauer Realty Advisors, Inc. Iowa 100% AEGON USA Realty Real estate counseling
Advisors, Inc.
Landauer Associates, Inc. Delaware 100% AEGON USA Realty Real estate counseling
Advisors, Inc.
Realty Information Systems, Iowa 100% AEGON USA Realty Information Systems for
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 Ins. Co. Real estate investment trust
Trust 13.11% PFL Life Ins. Co.
4.86% Bankers United Life
Assurance Co.
Cedar Income Fund, Ltd. Iowa 16.73% PFL Life Ins. Co. Real estate investment trust
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.
RCC Properties Limited Iowa AEGON USA Realty Advisors, Limited Partnership
Partnership Inc. is General Partner and 5%
owner.
AUSA Financial Markets, Inc. Iowa 100% AUSA Holding Co. Marketing
Endeavor Investment Advisors California 49.9% AUSA Financial General Partnership
Markets, Inc.
Universal Benefits Corporation Iowa 100% AUSA Holding Co. Third party administrator
Investors Warranty of Iowa 100% AUSA Holding Co. Provider of automobile
America, Inc. extended maintenance
contracts
Massachusetts Fidelity Trust Iowa 100% AUSA Holding Co. Trust company
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, Inc. Insurance agency
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, Inc. Insurance agency
ISI Insurance Agency Ohio 100% ISI Insurance Agency, Inc. Insurance agency
of Ohio, Inc.
ISI Insurance Agency Texas 100% ISI Insurance Agency, Inc. Insurance agency
of Texas, Inc.
ISI Insurance Agency Massachusetts 100% ISI Insurance Agency Inc. Insurance Agency
of Massachusetts, Inc.
Associated Mariner Financial Michigan 100% Intersecurities, Inc. Holding co./management
Group, Inc. services
Mariner Financial Services, Michigan 100% Associated Mariner Broker/Dealer
Inc. Financial Group, Inc.
Mariner Planning Corporation Michigan 100% Mariner Financial Financial planning
Services, Inc.
Associated Mariner Agency, Inc. Michigan 100% Associated Mariner Insurance agency
Financial Group, Inc.
Associated Mariner Agency Hawaii 100% Associated Mariner Insurance agency
of Hawaii, Inc. Agency, Inc.
Associated Mariner Ins. Agency Massachusetts 100% Associated Mariner Insurance agency
of Massachusetts, Inc. Agency, Inc.
Associated Mariner Agency Ohio 100% Associated Mariner Insurance agency
Ohio, Inc. Agency, Inc.
Associated Mariner Agency Texas 100% Associated Mariner Insurance agency
Texas, Inc. Agency, Inc.
Associated Mariner Agency New Mexico 100% Associated Mariner Insurance agency
New Mexico, Inc. Agency, Inc.
Mariner Mortgage Corp. Michigan 100% Associated Mariner Mortgage origination
Financial Group, Inc.
Idex Investor Services, Inc. Florida 100% AUSA Holding Co. Shareholder services
Idex Management, Inc. Delaware 50% AUSA Holding Co. Investment advisor
50% Janus Capital Corp.
IDEX 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
Company
AUSA Life Insurance New York 100% First AUSA Life Insurance
Company, Inc. Insurance Company
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
Life Investors Agency Iowa 100% Life Investors Ins. Marketing
Group, Inc. Company of America
PFL Life Insurance Company Iowa 100% First AUSA Life Ins. Co. Insurance
AEGON Financial Services Minnesota 100% PFL Life Insurance Co. Marketing
Group, Inc.
AEGON Assignment Corporation Kentucky 100% AEGON Financial Administrator of structured
Services Group, Inc. settlements
Southwest Equity Life Ins. Co. Arizona 100% of Common Voting Stock Insurance
First AUSA Life Ins. Co.
Iowa Fidelity Life Insurance Arizona 100% of Common Voting Stock Insurance
Co. 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
AEGON Special Markets Maryland 100% Monumental Life Ins. Co. Marketing
Group, Inc.
Monumental General Casualty Co. Maryland 100% First AUSA Life Ins. Co. Insurance
United Financial Services, Inc. Maryland 100% First AUSA Life Ins. Co. General agency
Bankers Financial Life Ins. Co. Arizona 100% First AUSA Life Ins. Co. Insurance
The Whitestone Corporation Maryland 100% First AUSA Life Ins. Co. Insurance agency
Cadet Holding Corp. Iowa 100% First AUSA Life Holding company
Insurance Company
Commonwealth General Delaware 100% AEGON USA Holding company
Corporation ("CGC")
PB Series Trust Massachusetts N/A Mutual fund
Monumental Agency Group, Inc. Kentucky 100% CGC Provider of srvcs. to ins.
cos.
Benefit Plans, Inc. Delaware 100% CGC TPA for Peoples Security Life
Insurance Company
Durco Agency, Inc. Virginia 100% Benefit Plans, Inc. General agent
Commonwealth General. Kentucky 100% CGC Administrator of structured
Assignment Corporation settlements
Providian Financial Services, Pennsylvania 100% CGC Financial services
Inc.
AFSG Securities Corporation Pennsylvania 100% CGC Broker-Dealer
PB Investment Advisors, Inc. Delaware 100% CGC Registered investment advisor
Diversified Financial Products Delaware 100% CGC Provider of investment,
Inc. marketing and admin.
services to ins. cos.
AEGON USA Real Estate Delaware 100% Diversified Financial Real estate and mortgage
Services, Inc. Products Inc., holding company
Capital Real Estate Delaware 100% CGC Furniture and equiment lessor
Development Corporation
Capital General Development Delaware 100% CGC 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
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
Agency Holding II, Inc. Delaware 100% Peoples Security Life Investment subsidiary
Insurance Company
Agency Investments II, Inc. Delaware 100% Agency Holding II, Inc. Investment subsidiary
Agency Holding III, Inc. Delaware 100% Peoples Security Life Investment subsidiary
Insurance Company
Agency Investments III, Inc. Delaware 100% Agency Holding III, Inc. Investment subsidiary
JMH Operating Company, Inc. Mississippi 100% Peoples Security Life Real estate holdings
Insurance Company
Capital Security Life Ins. Co. North Carolina 100% Capital General Insurance company
Development Corporation
Independence Automobile Florida 100% Capital Security Automobile Club
Association, Inc. Life Insurance Company
Independence Automobile Georgia 100% Capital Security Automobile Club
Club, Inc. Life Insurance Company
Capital 200 Block Corporation Delaware 100% CGC Real estate holdings
Capital Broadway Corporation Kentucky 100% CGC Real estate holdings
Southlife, Inc. Tennessee 100% CGC Investment subsidiary
Ampac Insurance Agency, Inc. Pennsylvania 100% CGC Provider of management
(EIN 23-1720755) support services
National Home Life Corporation Pennsylvania 100% Ampac Insurance Special-purpose subsidiary
Agency, Inc.
Compass Rose Development Pennsylvania 100% Ampac Insurance Special-purpose subsidiary
Corporation Agency, Inc.
Association Consultants, Inc. Illinois 100% Ampac Insurance TPA license-holder
Agency, Inc.
Valley Forge Associates, Inc. Pennsylvania 100% Ampac Insurance Furniture & equipment lessor
Agency, Inc.
Veterans Benefits Plans, Inc. Pennsylvania 100% Ampac Insurance Administator of group
Agency, Inc. insurance programs
Veterans Insurance Services, Delaware 100% Ampac Insurance Special-purpose subsidiary
Inc. Agency, Inc.
Financial Planning Services, Dist. Columbia 100% Ampac Insurance Special-purpose subsidiary
Inc. Agency, Inc.
Providian Auto and Home Missouri 100% CGC Insurance company
Insurance Company
Academy Insurance Group, Inc. Delaware 100% CGC Holding company
Academy Life Insurance Co. Missouri 100% Academy Insurance Insurance company
Group, Inc.
Pension Life Insurance New Jersey 100% Academy Insurance Insurance company
Company of America Group, Inc.
Academy Services, Inc. Delaware 100% Academy Insurance Special-purpose subsidiary
Group, Inc.
Ammest Development Corp. Inc. Kansas 100% Academy Insurance Special-purpose subsidiary
Group, Inc.
Ammest Insurance Agency, Inc. California 100% Academy Insurance General agent
Group, Inc.
Ammest Massachusetts Massachusetts 100% Academy Insurance Special-purpose subsidiary
Insurance Agency, Inc. Group, Inc.
Ammest Realty, Inc. Pennsylvania 100% Academy Insurance Special-purpose subsidiary
Group, Inc.
Ampac, Inc. Texas 100% Academy Insurance Managing general agent
Group, Inc.
Ampac Insurance Agency, Inc. Pennsylvania 100% Academy Insurance Special-purpose subsidiary
(EIN 23-2364438) Group, Inc.
Data/Mark Services, Inc. Delaware 100% Academy Insurance Provider of mgmt. services
Group, Inc.
Force Financial Group, Inc. Delaware 100% Academy Insurance Special-purpose subsidiary
Group, Inc.
Force Financial Services, Inc. Massachusetts 100% Force Fin. Group, Inc. Special-purpose subsidiary
Military Associates, Inc. Pennsylvania 100% Academy Insurance Special-purpose subsidiary
Group, Inc.
NCOA Motor Club, Inc. Georgia 100% Academy Insurance Automobile club
Group, Inc.
NCOAA Management Company Texas 100% Academy Insurance Special-purpose subsidiary
Group, Inc.
Unicom Administrative Pennsylvania 100% Academy Insurance Provider of admin. services
Services, Inc. Group, Inc.
Unicom Administrative Germany 100%Unicom Administrative Provider of admin. servcies
Services, GmbH Services, Inc.
Providian Property and Casualty Kentucky 100% Providian Auto and Insurance company
Insurance Company Home Insurance Company
Providian Fire Insurance Co. Kentucky 100% Providian Property Insurance company
and Casualty Insurance Co.
Capital Liberty, L.P. Delaware 79.2% Commonwealth Life Holding Company
Insurance Company
19.8% Peoples Security Life
Insurance Company
1% CGC
Commonwealth General LLC Turks & 100% CGC Special-purpose subsidiary
Caicos Islands
Providian Life and Health Missouri 3.7% CGC Insurance company
Insurance Company 15.3% Peoples Security Life
Insurance Company
20% Capital Liberty, L.P.
61% Commonwealth Life
Insurance Company
Veterans Life Insurance Co. Illinois 100% Providian Life and Insurance company
Health Insurance Company
Peoples Benefit Services, Inc. Pennsylvania 100% Veterans Life Ins. Co. Special-purpose subsidiary
First Providian Life and New York 100% Veterans Life Ins. Co. Insurance Company
Health Insurance Company
</TABLE>
<PAGE>
Item 27. Number of Contract Owners.
As of December 31, 1997, there were 267 Owners of the Policies.
Item 28. Indemnification
The Iowa Code (Sections 490.850 et. seq.) provides for permissive
--------
indemnification in certain situations, mandatory indemnification in other
situations, and prohibits indemnification in certain situations. The Code also
specifies procedures for determining when indemnification payments can be made.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Depositor pursuant to the foregoing provisions, or otherwise, the Depositor has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Depositor of expenses incurred
or paid by a director, officer or controlling person in connection with the
securities being registered), the Depositor will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
Item 29. Principal Underwriters
AFSG Securities Corporation
4333 Edgewood Road N.E.
Cedar Rapids, IA 52499-0001
The directors and officers of
AFSG Securities Corporation
are as follows:
Larry N. Norman Sarah J. Strange
Director and President Director and Vice President
Harvey E. Willis Brenda K. Clancy
Vice President and Secretary Vice President
Lisa Wachendorf Michael G. Ayers
Compliance Officer Treasurer/Controller
Debra C. Cubero Colleen S. Lyons
Vice President Assistant Secretary
Gregory J. Garvin John F. Reesor
Vice President Assistant Secretary
Michael F. Lane
Vice President
Anne Spaes
Vice President
- --------------------
The principal business address of each person listed is ASFG Securities
Corporation, 4333 Edgewood Road N.E., Cedar Rapids, IA 52499-0001.
<PAGE>
Commissions and Other Compensation Received by Principal Underwriter.
- --------------------------------------------------------------------
AEGON USA Securities, Inc., the former broker-dealer and/or the broker-dealers
received $628,439.24 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.
Prior to May 1, 1998, AEGON USA Securities, Inc. served as the principal
underwriter for the PFL Endeavor VA Separate Account, the PFL Retirement Builder
Variable Annuity Account, the PFL Life Variable Annuity Account A, the PFL
Wright Variable Annuity Account and the AUSA Endeavor Variable Annuity Account.
These accounts are separate accounts of PFL Life Insurance Company or AUSA Life
Insurance Company, Inc., life insurance company affiliates of AEGON USA
Securities, Inc.. As of May 1, 1998, AFSG Securities Corporation will serve as
the principal underwriter for the above named Accounts. AFSG Securities
Corporation also serves as principal underwriter for the Separate Account I,
Separate Account II, and Separate Account V of Providian Life and Health
Insurance Company, and for Separate Account C of First Providian Life and Health
Insurance Company.
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 hereby certifies that this Amendment to the Registration
Statement meets the requirements for effectiveness pursuant to paragraph (b) of
Rule 485 and has caused this Registration Statement to be signed on its behalf,
in the City of Cedar Rapids and State of Iowa, on this 20th day of April, 1998.
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.
Signatures Title Date
- ---------- ----- ----
/s/ Patrick S. Baird Director April 20, 1998
- ---------------------------
Patrick S. Baird
/s/ Craig D. Vermie Director April 20, 1998
- ---------------------------
Craig D. Vermie
/s/ William L. Busler Director April 20, 1998
- ---------------------------
William L. Busler (Principal Executive Officer)
/s/ Patrick E. Falconio Director April 20, 1998
- ---------------------------
Patrick E. Falconio
/s/ Douglas C. Kolsrud Director April 20, 1998
- ---------------------------
Douglas C. Kolsrud
/s/ Robert J. Kontz Vice President and April 20, 1998
- --------------------------- Corporate Controller
Robert J. Kontz
/s/ Brenda K. Clancy Treasurer April 20, 1998
- ---------------------------
Brenda K. Clancy
<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 INDEX
-------------
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT PAGE NO./*/
- ----------------------------- ----------------------------------- -----------
<S> <C> <C>
(3)(a)(1) Form of Principal Distribution
Agreement by and between PFL Life
Insurance Company on its own
behalf and on behalf of the Mutual
Fund Account, and AFSG Securities
Corporation.
(3)(b) Form of Broker/Dealer Supervision
and Sales Agreement by and between
AFSG Securities Corporation and
the Broker/Dealer.
(8)(a) Participation Agreement by and
between PFL Life Insurance Company
and Atlas Insurance Trust.
(8)(e)(1) Participation Agreement by and
between PFL Life Insurance Company
and WRL Series Funds, Inc.
(10)(a) Consent of Independent Auditors.
(10)(b) Opinion and Consent of Actuary.
</TABLE>
- --------------
/*/ Page numbers included only in manually executed original.
<PAGE>
EXHIBIT (3)(A)(1)
-----------------
PRINCIPAL UNDERWRITING AGREEMENT
BY AND BETWEEN
PFL LIFE INSURANCE COMPANY ON ITS OWN BEHALF
AND ON BEHALF OF THE MUTUAL FUND ACCOUNT,
AND AFSG SECURITIES CORPORATION.
<PAGE>
PRINCIPAL UNDERWRITING AGREEMENT
THIS PRINCIPAL UNDERWRITING AGREEMENT made and effective as of the 30th day
of April, 1998, by and between AFSG SECURITIES CORPORATION ("AFSG"), a
Pennsylvania corporation, and PFL LIFE INSURANCE COMPANY ("PFL"), an Iowa
corporation, on its own behalf and on behalf the separate investment accounts of
PFL set forth in Exhibit A attached hereto and made a part hereof (collectively,
---------
the "Account").
WITNESSETH:
WHEREAS, the Account was established or acquired by PFL under the laws of
the State of Iowa, pursuant to a resolution of PFL's Board of Directors in order
to set aside the investment assets attributable to certain flexible premium,
multi-funded annuity contracts ("Contracts") issued by PFL;
WHEREAS, PFL has registered or will register the Account with the
Securities and Exchange Commission ("SEC") as a unit investment trust under the
Investment Company Act of 1940 (the "1940 Act");
WHEREAS, PFL has registered or will register the Contracts under the
Securities Act of 1933 (the "1933 Act");
WHEREAS, AFSG is and will continue to be registered as a broker-dealer with
the SEC under the Securities Exchange Act of 1934 (the "1934 Act"), and a member
of the National Association of Securities Dealers, Inc. (the "NASD") prior to
the offer and sale of the Contracts; and
WHEREAS, PFL proposes to have the Contracts sold and distributed through
AFSG, and AFSG is willing to sell and distribute such Contracts under the terms
stated herein;
NOW, THEREFORE, the parties, intending to be legally bound, hereby agree
as follows:
2
<PAGE>
1. Appointment as Distributor/Principal Underwriter. PFL grants to AFSG
------------------------------------------------
the exclusive right to be, and AFSG agrees to serve as, distributor and
principal underwriter of the Contracts during the term of this Agreement. AFSG
agrees to use its best efforts to solicit applications for the Contracts and
otherwise perform all duties and functions which are necessary and proper for
the distribution of the Contracts.
2. Prospectus. AFSG agrees to offer the Contracts for sale in accordance
----------
with the registration statements and prospectus therefor then in effect. AFSG
is not authorized to give any information or to make any representations
concerning the Contracts other than those contained in the current prospectus
therefor filed with the SEC or in such sales literature as may be authorized by
PFL.
3. Considerations. All premiums, purchase payments or other moneys
--------------
payable under the Contracts shall be remitted promptly in full together with
such application, forms and any other required documentation to PFL or its
designated servicing agent and shall become the exclusive property of PFL.
Checks or money orders in payment under the Contracts shall be drawn to the
order of "PFL Life Insurance Company" and funds may be remitted by wire if prior
written approval is obtained from PFL.
4. Copies of Information. On behalf of the Account, PFL shall furnish
---------------------
AFSG with copies of all prospectuses, financial statements and other documents
which AFSG reasonably requests for use in connection with the distribution of
the Contracts.
5. Representations. AFSG represents that it is (a) duly registered as a
---------------
broker-dealer under the 1934 Act, (b) a member in good standing of the NASD and
(c) to the extent necessary to offer the Contracts, duly registered or otherwise
qualified under the securities laws of any state or other jurisdiction. AFSG
shall be responsible for carrying out its sales and underwriting obligations
hereunder in continued compliance with the NASD Rules and federal and state
securities and insurance laws and regulations. Further, AFSG represents and
warrants that it will
3
<PAGE>
adopt, abide by and enforce the principles set forth in the Principles and Code
of Ethical Market Conduct of the Insurance Marketplace Standards Association as
adopted by the Company.
6. Other Broker-Dealer Agreements. AFSG is hereby authorized to enter
------------------------------
into written sales agreements with other independent broker-dealers for the sale
of the Contracts. All such sales agreements entered into by AFSG shall provide
that each independent broker-dealer will assume full responsibility for
continued compliance by itself and by its associated persons with the NASD Rules
and applicable federal and state securities and insurance laws, shall provide
that each independent broker-dealer will adopt, abide by and enforce the
principles set forth in the Principles and Code of Ethical Market Conduct of the
Insurance Marketplace Standards Association as adopted by the Company, and shall
be in such form and contain such other provisions as PFL may from time to time
require. All associated persons of such independent broker-dealers soliciting
applications for the Contracts shall be duly and appropriately registered by the
NASD and licensed and appointed by PFL for the sale of Contracts under the
insurance laws of the applicable states or jurisdictions in which such Contracts
may be lawfully sold. All applications for Contracts solicited by such broker-
dealers through their representatives, together with any other required
documentation and premiums, purchase payments and other moneys, shall be handled
as set forth in paragraph 3 above.
7. Insurance Licensing and Appointments. PFL shall apply for the proper
------------------------------------
insurance licenses and appointments in appropriate states or jurisdictions for
the designated persons associated with AFSG or with other independent broker-
dealers that have entered into sales agreements with AFSG for the sale of
Contracts, provided that PFL reserves the right to refuse to appoint any
proposed registered representative as an agent or broker, and to terminate an
agent or broker once appointed.
8. Recordkeeping. PFL and AFSG shall cause to be maintained and
-------------
preserved for the periods prescribed such accounts, books, and other documents
as are required of them by the
4
<PAGE>
1940 Act, and 1934 Act, and any other applicable laws and regulations. The
books, accounts and records of PFL, of the Account, and of AFSG as to all
transactions hereunder shall be maintained so as to disclose clearly and
accurately the nature and details of the transactions. PFL (or such other entity
engaged by PFL for this purpose), on behalf of and as agent for AFSG, shall
maintain AFSG's books and records pertaining to the sale of Contracts to the
extent as mutually agreed upon from time to time by PFL and AFSG; provided that
such books and records shall be the property of AFSG, and shall at all times be
subject to such reasonable periodic, special or other audit or examination by
the SEC, NASD, any state insurance commissioner and/or all other regulatory
bodies having jurisdiction. PFL shall be responsible for sending on behalf of
and as agent for AFSG all required confirmations on customer transactions in
compliance with applicable regulations, as modified by an exemption or other
relief obtained by PFL. AFSG shall cause PFL to be furnished with such reports
as PFL may reasonably request for the purpose of meeting its reporting and
recordkeeping requirements under the insurance laws of the State of Iowa and any
other applicable states or jurisdictions. PFL agrees that its records relating
to the sale of Contracts shall be subject to such reasonable periodic, special
or other audit or examination by the SEC, NASD, and any state insurance
commissioner and/or all other regulatory bodies having jurisdiction.
9. Commissions. PFL shall have the responsibility for paying on behalf
-----------
of AFSG (a) any compensation to other independent broker-dealers and their
associated persons due under the terms of any sales agreements entered into
pursuant to paragraph 6 above, between AFSG and such broker-dealers as agreed to
by PFL and (b) all commissions or other fees to associated persons of AFSG which
are due for the sale of the Contracts in the amounts and on such terms and
conditions as PFL and AFSG determine. Notwithstanding the preceding sentence,
no broker-dealer, associated person or other individual or entity shall have an
interest in any deductions or other fees payable to AFSG as set forth herein.
5
<PAGE>
10. Expense Reimbursement. PFL shall reimburse AFSG for all costs and
---------------------
expenses incurred by AFSG in furnishing the services, materials, and supplies
required by the terms of this Agreement.
11. Indemnification. PFL agrees to indemnify AFSG for any losses incurred
---------------
as a result of any action taken or omitted by AFSG, or any of its officers,
agents or employees, in performing their responsibilities under this Agreement
in good faith and without willful misfeasance, gross negligence, or reckless
disregard of such obligations.
12. Regulatory Investigations. AFSG and PFL agree to cooperate fully in
-------------------------
any insurance or judicial regulatory investigation or proceeding arising in
connection with Contracts distributed under this Agreement. AFSG and PFL
further agree to cooperate fully in any securities regulatory inspection,
inquiry, investigation or proceeding or any judicial proceeding with respect to
PFL, AFSG, their affiliates and their representatives to the extent that such
inspection, inquiry, investigation or proceeding or judicial proceeding is in
connection with Contracts distributed under this Agreement. Without limiting
the foregoing:
(a) AFSG will be notified promptly of any customer complaint or notice of
any regulatory inspection, inquiry investigation or proceeding or judicial
proceeding received by PFL with respect to AFSG or any representative or which
may affect PFL's issuance of any Contracts marketed under this Agreement; and
(b) AFSG will promptly notify PFL of any customer complaint or notice of
any regulatory inspection, inquiry, investigation or judicial proceeding
received by AFSG or any representative with respect to PFL or its affiliates in
connection with any Contracts distributed under this Agreement.
In the case of a customer complaint, AFSG and PFL will cooperate in
investigating such complaint and shall arrive at a mutually satisfactory
response.
6
<PAGE>
13. Termination.
-----------
(a) This Agreement may be terminated by either party hereto upon 60
days' prior written notice to the other party.
(b) This Agreement may be terminated upon written notice of one party
to the other party hereto in the event of bankruptcy or insolvency of such party
to which notice is given.
(c) This Agreement may be terminated at any time upon the mutual
written consent of the parties hereto.
(d) AFSG shall not assign or delegate its responsibilities under this
Agreement without the written consent of PFL.
(e) Upon termination of this Agreement, all authorizations, rights and
obligations shall cease except the obligations to settle accounts hereunder,
including payments or premiums or contributions subsequently received for
Contracts in effect at the time of termination or issued pursuant to
applications received by PFL prior to termination.
14. Regulatory Impact. This Agreement shall be subject to, among other
-----------------
laws, the provisions of the 1940 Act and the 1934 Act and the rules,
regulations, and rulings thereunder and of the NASD, from time to time in
effect, including such exemptions from the 1940 Act as the SEC may grant, and
the terms hereof shall be interpreted and construed in accordance therewith.
AFSG shall submit to all regulatory and administrative bodies having
jurisdiction over the operations of the Account, present or future; and will
provide any information, reports or other material which any such body by reason
of this Agreement may request or require pursuant to applicable laws or
regulations.
15. Severability. If any provision of this Agreement shall be held or
------------
made invalid by a court decision, statute, rule or otherwise, the remainder of
this Agreement shall not be affected thereby.
7
<PAGE>
16. Choice of Law. This Agreement shall be construed, enforced and
-------------
governed by the laws of the State of Iowa.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their respective duly authorized officials as of the day and year
first above written.
AFSG SECURITIES CORPORATION PFL LIFE INSURANCE COMPANY
By: Lorri E. Mehaffey By: William L. Busler
Title: President Title: President
8
<PAGE>
EXHIBIT A
1. PFL Life Variable Annuity Account A
2. PFL Endeavor VA Separate Account
3. PFL Wright Variable Annuity Account
4. PFL Retirement Builder Variable Annuity Account
5. PFL Endevaor Target Account
9
<PAGE>
EXHIBIT (3)(B)
-------------
FORM OF BROKER/DEALER SUPERVISION AND SALES AGREEMENT
BY AND BETWEEN
AFSG SECURITIES CORPORATION
AND THE BROKER/DEALER.
<PAGE>
SELECTED BROKER AGREEMENT
AGREEMENT dated__________________________,19____, by and between AFSG Securities
Corporation
("Distributor"), a Pennsylvania corporation, AUSA Life Insurance Company, Inc.
("Company") and
("Broker"), a ___________________corporation. This Agreement
supersedes and replaces any prior Selected Broker Agreement regarding the
subject matter between the parties hereto.
WITNESSETH:
In consideration of the mutual promises contained herein, the parties hereto
agree as follows:
A. Definitions
-----------
(1) Contracts--Variable life insurance contracts and/or variable annuity
contracts described in Schedule A attached hereto and issued by AUSA
Life Insurance Company, Inc. 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 New York, as applicable, to fund the benefits
under the Contracts.
(3) The Funds--, open-end management investment companies registered under
the 1940 Act, shares of which are sold to the Accounts in connection
with the sale of the Contracts, as described in the Prospectus for the
Contracts.
(4) Registration Statement--The registration statements and amendments
thereto relating to the Contracts, the Accounts, and the Funds,
including financial statements and all exhibits.
(5) Prospectus--The prospectuses included within the Registration
Statements.
(6) 1933 Act--The Securities Act of 1933, as amended.
(7) 1934 Act--The Securities Exchange Act of 1934, as amended.
(8) 1940 Act--The Investment Company Act of 1940, as amended.
(9) SEC--The Securities and Exchange Commission.
(10) NASD--The National Association of Securities Dealers, Inc.
B. Agreements of Distributor
-------------------------
(1) Pursuant to the authority delegated to it by Company, Distributor hereby
authorizes Broker during the term of this Agreement to solicit
applications for Contracts from eligible persons provided that there is
an effective Registration Statement relating to such Contracts and
provided further that Broker has been notified by Distributor that the
Contracts are qualified for sale under all applicable securities and
insurance laws of the state or jurisdiction in which the application
will be solicited. In connection with the solicitation of applications
for Contracts, Broker is hereby authorized to offer riders that are
available with the Contracts in accordance with instructions furnished
by Distributor or Company.
(2) Distributor, during the term of this Agreement, will notify Broker of
the issuance by the SEC of any stop order with respect to the
Registration Statement or any amendments thereto or the initiation of
any proceedings for that purpose or for any other purpose relating to
the registration and/or offering of the Contracts and of any other
action or circumstance that may prevent the lawful sale of the Contracts
in any state or jurisdiction.
(3) During the term of this Agreement, Distributor shall advise Broker of
any amendment to the Registration Statement or any amendment or
supplement to any Prospectus.
C. Agreements of Broker
--------------------
(1) It is understood and agreed that Broker is a registered broker/dealer
under the 1934 Act and a member of the NASD and that the agents or
representatives of Broker who will be soliciting applications for the
Contracts also will be duly registered representative of Broker.
(2) Commencing at such time as Distributor and Broker shall agree upon,
Broker agrees to use commercially reasonable efforts to find purchasers
for the Contracts acceptable to Company. In meeting its obligation to
use its commercially reasonable efforts to solicit applications for
Contracts, Broker shall, during the term of this Agreement, engage in
the following activities:
(a) Regularly utilize only training, sales and promotional materials
relating to the Contracts which have been approved by Company.
(b) Establish and implement reasonable procedures for periodic
inspection and supervision of sales practices of its agents or
representatives and submit periodic reports to Distributor as may be
requested on the results of such inspections and the compliance with
such procedures.
(c) Broker shall take reasonable steps to ensure that the various
representatives appointed by it shall not make recommendations to an
applicant to purchase a Contract in the absence of reasonable grounds to
believe that
<PAGE>
the purchase of the Contract is suitable for such applicant. While not
limited to the following, a determination of suitability shall be based on
information furnished to a representative after reasonable inquiry of such
applicant concerning the applicant's insurance and investment objectives,
financial situation and needs, and, if applicable, the likelihood that the
applicant will make the premium payments contemplated by the Contract.
(d) Broker shall adopt, abide by, and enforce the principles set forth in
the Principles and Code of Ethical market Conduct of the Insurance
Marketplace Standards Association as adopted by the Company and provided
to You with this Agreement.
(3) All payments for Contracts collected by agents or representatives of
Broker shall be held at all times in a fiduciary capacity and shall be
remitted promptly in full together with such applications, forms and other
required documentation to an office of the Company designated by
Distributor. Checks or money orders in payment of initial premiums shall
be drawn to the order of "AUSA Life Insurance Company, Inc." Broker
acknowledges that the Company retains the ultimate right to control the
sale of the Contracts and that the Distributor or Company shall have the
unconditional right to reject, in whole or part, any application for the
Contract. In the event Company or Distributor rejects an application,
Company immediately will return all payments directly to the purchaser and
Broker will be notified of such action. In the event that any purchaser of
a Contract elects to return such Contract pursuant to the free look right,
the purchaser will receive a refund of either premium payments or the
value of the invested portion of such premiums as set forth in the
Contract and according to applicable state law. The Broker will be
notified of any such action.
(4) Broker shall act as an independent contractor, and nothing herein
contained shall constitute Broker, its agents or representatives, or any
employees thereof as employees of Company or Distributor in connection
with solicitation of applications for Contracts. Broker, its agents or
representatives, and its employees shall not hold themselves out to be
employees of Company or Distributor in this connection or in any dealings
with the public.
(5) Broker agrees that any material, including material it develops, approves
or uses for sales, training, explanatory or other purposes in connection
with the solicitation of applications for Contracts hereunder (other than
generic advertising materials which do not make specific reference to the
Company or the Contracts) will only be used after receiving the written
consent of Distributor to such material and, where appropriate, the
endorsement of Company to be obtained by Distributor.
(6) Solicitation and other activities by Broker shall be undertaken only in
accordance with applicable Company procedures, ethical principles and
manuals, and applicable laws and regulations. No agent or representative
of Broker shall solicit applications for the contracts until duly licensed
and appointed by Company (such appointment not to be unreasonably withheld
by the Company) as a life insurance and variable contract broker or agent
of Company in the appropriate states or other jurisdictions. Broker shall
ensure that such agents or representatives fulfill any training
requirements necessary to be licensed and that such agents or
representatives are properly supervised and controlled pursuant to the
rules and regulations of the SEC and the NASD. Broker shall certify
agents' and representatives' qualifications to the satisfaction of
Distributor, including certifying a General Letter of Recommendation set
forth in Exhibit A hereto. Broker understands and acknowledges that
neither it nor its agents or representatives is authorized by Distributor
or Company to give any information or make any representation in
connection with this Agreement or the offering of the Contracts other than
those contained in the Prospectus or other solicitation material
authorized in writing by Distributor or Company.
(7) Broker shall not have authority on behalf of Distributor or Company to:
make, alter or discharge any Contract or other form; waive any forfeiture,
extend the time of paying any premium; receive any monies or premiums due,
or to become due, to Company, except as set forth in Section C(3) of this
Agreement. Broker shall not expend, nor contract for the expenditure of
the funds of Distributor, nor shall Broker possess or exercise any
authority on behalf of Broker by this Agreement.
(8) Broker shall have the responsibility for maintaining the records of its
representatives licensed, registered and otherwise qualified to sell the
Contracts. Broker shall maintain such other records as are required of it
by applicable laws and regulations. The books, accounts and records of the
Company, the Account, Distributor and Broker relating to the sale of the
Contracts shall be maintained so as to clearly and accurately disclose the
nature and details of the transactions. All records maintained by the
Broker in connection with this Agreement shall be the property of the
Company and shall be returned to the Company upon termination of this
Agreement, free from any claims or retention of rights by the Broker.
Nothing in this Section C(8) shall be interpreted to prevent the Broker
from retaining copies of any such records which the Broker, in its
discretion, deems necessary or desirable to keep. The Broker shall keep
confidential any information obtained pursuant to this Agreement and shall
disclose such information only if the Company has authorized such
disclosure or if such disclosure is expressly required by applicable
federal or state regulatory authorities.
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
<PAGE>
agent or representative of Broker. Such amounts shall be paid to Broker or
its subsidiary insurance agency, whichever is authorized to receive
insurance commissions under applicable insurance laws, in accordance with
the schedules attached hereto, the General Agent Agreement, and the
commission schedules attached thereto. All terms and conditions of the
General Agent Agreement not otherwise conflicting with the terms herein,
shall be incorporated by reference herein. Company shall identify to
Broker with each such payment the name of the agent or representative of
Broker who solicited each Contract covered by the payment.
(2) Neither Broker nor any of its agents or representatives shall have any
right to withhold or deduct any part of any premium it shall receive for
purposes of payment of commission or otherwise. Neither Broker nor any of
its agents or representatives shall have an interest in any compensation
paid by Company to Distributor, now or hereafter, in connection with the
sale of any Contracts hereunder.
E. Complaints and Investigations
-----------------------------
(1) Broker and Distributor jointly agree to cooperate fully in any insurance
or securities regulatory investigation or proceeding or judicial
proceeding arising in connection with the Contracts marketed under this
Agreement. Broker, upon receipt, will notify Distributor of any customer
complaint or notice of any regulatory investigation or proceeding or
judicial proceeding in connection with the Contracts. Broker and
Distributor further agree to cooperate fully in any securities regulatory
investigation or proceeding or judicial proceeding with respect to Broker,
Distributor, their affiliates and their agents or representatives to the
extent that such investigation or proceeding is in connection with
Contracts marketed under this Agreement. Broker shall furnish applicable
federal and state regulatory authorities with any information or reports
in connection with its services under this Agreement which such
authorities may request in order to ascertain whether the Company's
operations are being conducted in a manner consistent with any applicable
law or regulation. Each party shall bear its own costs and expenses of
complying with any regulatory requests, subject to any right of
indemnification that may be available pursuant to Section G of this
Agreement.
F. Term of Agreement
-----------------
(1) This Agreement shall continue in force for one year from its effective
date and thereafter shall automatically be renewed every year for a
further one year period; provided that either party may unilaterally
terminate this Agreement upon thirty (30) days' written notice to the
other party of its intention to do so.
(2) Upon termination of this Agreement, all authorizations, rights and
obligations shall cease except (a) the agreements contained in Section E
hereof; (b) the indemnity set forth in Section G hereof; and (c) the
obligations to settle accounts hereunder, including commission payments on
premiums subsequently received for Contracts in effect at the time of
termination or issued pursuant to applications received by Broker prior to
termination.
(3) Distributor and Company reserve the right, without notice to Broker, to
suspend, withdraw or modify the offering of the Contracts or to change the
conditions of their offering.
G. Indemnity
---------
(1) Broker shall be held to the exercise of reasonable care in carrying out
the provisions of this Agreement.
(2) Distributor agrees to indemnify and hold harmless Broker and each officer
or director of Broker against any losses, claims, damages or liability,
joint or several, to which Broker or such officer or director become
subject, under the 1933 Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are
based upon any untrue statement or alleged untrue statement of a material
fact, required to be stated therein or necessary to make the statements
therein not misleading, contained in any Registration Statement or any
post-effective amendment thereto or in the Prospectus or any amendment or
supplement to the Prospectus, or any sales literature provided by the
Company or by the Distributor.
(3) Broker agrees to indemnify and hold harmless Company and Distributor and
each of their current and former directors and officers and each person,
if any, who controls or has controlled Company or Distributor within the
meaning of the 1933 Act or the 1934 Act, against any losses, claims,
damages or liabilities to which Company or Distributor and any such
director or officer or controlling person may become subject, under the
1933 Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based
upon:
(a) Any unauthorized use of sales materials or any verbal or written
misrepresentations or any unlawful sales practices concerning the
Contracts by Brokers, its agents, employees or representatives; or
(b) Claims by agents or representatives or employees of Broker for
commissions, service fees, development allowances or other compensation or
remuneration of any type;
(c) The failure of Broker, its officers, employees, or agents to comply
with the provisions of this Agreement; and Broker will reimburse Company
and Distributor and any director or officer or controlling person of
either for any legal or other expenses reasonably incurred by Company,
Distributor, or such director, officer of controlling person in connection
with investigating or defending any such loss, claims, damage, liability
or action. This indemnity agreement will be in addition to any liability
which Broker may otherwise have.
H. Assignability
-------------
<PAGE>
This Agreement shall not be assigned by either party without the written
consent of the other.
I. Governing Law
-------------
This Agreement shall be governed by and construed in accordance with the
laws of the State of Iowa.
J. Notices
-------
All communications under the Agreement shall be in writing and shall be
deemed delivered when mailed by certified mail, postage prepaid.
Alternatively, communications shall be deemed delivered by timely
transmission of the writing, delivery charges prepaid, to a third party
company or governmental entity providing delivery services in the
ordinary course of business, which guarantees delivery to the other party
on the next business day. Notices shall be sent to the following
addresses unless and until the addressee notifies the other party of a
change in address according to the terms of this Section:
<TABLE>
<S> <C>
(1) if to Broker, to: (2) if to the Distributor or
Company, send to the Company,
to:
PFL LIFE INSURANCE COMPANY
------------------------------ FINANCIAL MARKETS DIVISION
(street address) 4333 EDGEWOOD ROAD NE
----------------------------- CEDAR RAPIDS, IOWA 52499
----------------------------- (319) 297-8208 (telephone no.)
(city, state, zip) (319) 297-8132 (fax no.)
-----------------------------
(telephone no.)
-----------------------------
(fax no.)
-----------------------------
Attention:
-------------------
</TABLE>
In Witness Whereof, the parties hereto have caused this Agreement to be duly
executed as of the day and year first above written.
------------------------------
(Broker Name)
By:
---------------------------
Title:
------------------------
AFSG SECURITIES CORPORATION
(Distributor)
By:
---------------------------
Title:
------------------------
PFL LIFE INSURANCE COMPANY
(Company)
By:
---------------------------
Title:
------------------------
<PAGE>
EXHIBIT A
General Letter of Recommendation
BROKER-DEALER hereby certifies to the Company that all the following
requirements will be fulfilled in conjunction with the submission of
licensing/appointment papers for all applicants as agents of the Company
submitted by BROKER-DEALER. BROKER-DEALER will, upon request, forward proof of
compliance with same to the Company in a timely manner.
1. We have made a thorough and diligent inquiry and investigation relative to
each applicant's identity, residence and business reputation and declare
that each applicant is personally known to us, has been examined by us, is
known to be of good moral character, has a good business reputation, is
reliable, is financially responsible and is worthy of a license. Each
individual is trustworthy, competent and qualified to act as an agent for
the Company to hold himself out in good faith to the general public.
2. We have on file a U-4 form which was completed (and has been amended, as
required) by each applicant. We have fulfilled all the necessary
investigative requirements for the registration of each applicant as a
registered representative through our NASD member firm, including but not
limited to: (i) checking for and investigating criminal arrest and
conviction records available to Broker-Dealer on the CRD system; and (ii)
communicating with each employer of the applicant for 3 years prior to the
applicant's registration with our firm. Each applicant is presently
registered as an NASD registered representative.
The above information in our files indicates no fact or condition which
would disqualify the applicant from receiving a license and all the findings of
all investigative information is favorable.
At the time of application, in those states required by the Company, we
shall provide the Company with a copy of the entire U-4 form, or designated
pages, thereof, completed by each applicant, including any amendments or
updates thereto, and we certify those items are true copies of the
original.
3. We certify that all educational requirements have been met for the
specified state each applicant is requesting a license in, and that all
such persons have fulfilled the appropriate examination, education and
training requirements.
4. If the applicant is required to submit his picture, his signature, and
securities registration in the state in which he is applying for a license,
we certify that those items forwarded to the Company are those of the
applicant and the securities registration is a true copy of the original.
5. We hereby warrant that the applicant is not applying for a license with the
Company in order to place insurance chiefly and solely on his life or
property, or lives or property of his relatives, or property or liability
of his associates.
6. We will not permit any applicant to transact insurance in a state as an
agent until duly licensed and appointed therefor with the appropriate State
Insurance Department. No applicants have been given a contract or furnished
supplies, nor have any applicants been permitted to write, solicit
business, or act as an agent in any capacity, and they will not be so
permitted until the certificate of authority or license applied for is
received.
<PAGE>
EXHIBIT (8)(a)
--------------
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 24th day of September,
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: /s/ William L. Busler
----------------------------
William L. Busler
Title: President
Date: October 17, 1997
--------------------------
Trust:
SEAL ATLAS INSURANCE TRUST
By its authorized officer,
By: /s/ Larry E. LaCasse
----------------------------
Larry E. LaCasse
Title: Group Senior Vice President
Date: October 17, 1997
--------------------------
Underwriter:
SEAL ATLAS SECURITIES INC.
By its authorized officer,
By: /s/ Larry E. LaCasse
----------------------------
Larry E. LaCasse
Title: Group Senior Vice President
Date: October 17, 1997
--------------------------
<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)(e)(1)
-----------------
PARTICIPATION AGREEMENT
BY AND BETWEEN
PFL LIFE INSURANCE COMPANY
AND WRL SERIES FUNDS, INC.
AND ADDENDUMS THEREOF.
<PAGE>
PARTICIPATION AGREEMENT
-----------------------
Among
WRL SERIES FUND. INC.,
--------------------
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
------------------------------------------
and
PFL LIFE INSURANCE COMPANY
--------------------------
THIS AGREEMENT, made and entered into this 1st day of July, 1992 by and
among PFL LIFE INSURANCE COMPANY, an Iowa corporation (hereinafter the
"Company") on its own behalf and on behalf of the PFL Endeavor Variable Annuity
Account, and other segregated asset accounts of the Company (hereinafter the
"Account(s)"), and WRL SERIES FUND, INC., a Maryland corporation (hereinafter
the "Funds), and WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO, an Ohio corporation
and an affiliate of the Company (hereinafter "WRL") .
WHEREAS, the Fund engages in business as an open-end management investment
company and is available to act as the investment vehicle for the Account(s),
and other separate accounts established for variable life insurance policies and
variable annuity contracts of WRL and its affiliates; and
WHEREAS, shares of common stock of the Fund are divided into several series of
shares each designated a "Portfolio" or collectively, "Portfolios, and each
representing the interests in a Particular managed pool of securities and other
assets; and
WHEREAS, the Fund is registered as an open-end management investment
company under the Investment Company Act of 1940,
<PAGE>
as amended (the "1940 Act") and its shares are registered under the Securities
Act of 1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, WRL is duly registered as an investment adviser under the federal
Investment Advisers Act of 1940 and any applicable state securities law, and is
the Fund's investment adviser; and
WHEREAS, the Company has registered or will register certain variable
annuity and/or life insurance contracts under the 1933 Act (hereinafter,
individually, the "Policy" or, collectively. the "Policies"); and
WHEREAS, the Account(s) are duly organized, validly existing segregated
asset account(s), established by resolution of the Board of Directors of the
Company, to set aside and invest assets attributable to the aforesaid variable
annuity and/or life insurance contracts that are allocated to the Account(s)
(the Policies and the Account(s) covered by this Agreement, and each
corresponding Portfolio covered by this Agreement in which the Account(s)
invest(s), is specified in Schedule A attached hereto as may be modified from
time to time); and
WHEREAS, the Company has registered or will register the Account(s) as unit
investment trust(s) under the 1940 Act; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in one or more of the
Portfolios specified in Schedule A attached
-2-
<PAGE>
hereto (the "Shares") on behalf of the Account(s) to fund the Policies, and the
Fund intends to sell such Shares to the Account(s) at net asset value:
NOW, THEREFORE, in consideration of their mutual promises, the Fund, WRL
and the Company agree as follows:
ARTICLE I. Sale of Fund Shares
-------------------
1.1 The Fund agrees to sell to the Company those Shares which the
Account(s) orders and which are available for purchase by such Account,
executing such orders on a daily basis at the net asset value next computed
after receipt by the Fund or its designee of the order for the Shares. For
purposes of this Section 1.1, the Company shall be the designee of the Fund for
receipt of such orders from Policy owners and receipt by such designee shall
constitute receipt by the Fund; provided that the Fund receives notice of such
---------
order by 9:30 a.m. New York time on the next following Business Day. "Business
Day" shall mean any day on which the New York Stock Exchange is open for trading
and on which the Fund calculates its net asset value pursuant to the rules of
the Securities and Exchange Commission (the "SEC").
1.2. The Fund agrees to make the Shares available indefinitely for purchase
at the applicable net asset value per share by the Company and the Account(s) on
those days on which the Fund calculates its net asset value pursuant to rules of
the SEC and the Fund shall use reasonable efforts to calculate such net asset
value on each day which the New York Stock Exchange is open for trading.
Notwithstanding the foregoing, the Board of
-3-
<PAGE>
Directors of the Fund (hereinafter the "Board") may refuse to sell any Shares to
the Company and the Account(s), or suspend or terminate the offering of the
Shares 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 its fiduciary duties under federal and any applicable state laws,
necessary in the best interests of the shareholders of such Portfolio.
1.3. The Fund agrees that the Shares will be sold only to the Company and
the Account(s) and/or WRL and its separate accounts. In addition, the Shares may
be sold to other insurance companies affiliated with WRL or their separate
accounts only with the express written consent of WRL. The Shares will not be
sold to the general public or to other investors. Nothing herein shall prohibit
the-Company from establishing separate accounts or sub-accounts of separate
accounts which purchase shares from investment companies other than the Fund.
1.4. The Fund agrees to redeem for cash, on the Company's request, any full
or fractional Shares held by the Company, executing such requests on a daily
basis at the net asset value next computed after receipt by the Fund or its
designee of the request for redemption. For purposes of this Section 1.4, the
Company shall be the designee of the Fund for receipt of requests for redemption
from Policy owners and receipt by such designee shall constitute receipt by the
Fund; provided that the
-4-
<PAGE>
Fund receives notice of such request for redemption by 9:30 a.m. New York time
on the next following Business Day.
1.5. The Company shall pay for the Shares by 2:00 p.m. New York time on the
next Business Day after an order to purchase the Shares is made in accordance
with the provisions of Section 1.1 hereof. Payment shall be in federal funds
transmitted by wire or by a credit for any Shares redeemed. For purpose of
Section 2.9, upon receipt by the Fund of the federal funds so wired, such funds
shall cease to be the responsibility of the Company and shall become the
responsibility of the Fund.
1.6. Issuance and transfer of the Shares will be by book entry only. Stock
certificates will not be issued to the Company or the Account(s). The Shares
ordered from the Fund will be recorded in an appropriate title for the
Account(s) or the appropriate subaccount of the Account(s).
1.7. The Fund 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 Shares. The Company hereby elects to receive all
such dividends and distributions as are payable on a Portfolio's Shares in
additional Shares of that Portfolio. The Fund shall notify the Company of the
number of Shares so issued as payment of such dividends and distributions.
1.8. The Fund or its custodian shall make the net asset value per share for
each Portfolio available to the Company on each Business Day as soon as
reasonably practical after the
-5-
<PAGE>
net asset value per share is calculated and shall use its best efforts to make
such net asset value per share available by 6:30 p.m. New York time.
ARTICLE II. Representations and Warranties
------------------------------
2.1. The Company represents and warrants that the Policies are or will be
registered under the 1933 Act, and that the Policies will be issued, sold, and
distributed in compliance in all material respects with all applicable state and
federal laws, including without limitation the 1933 Act, the Securities Exchange
Act of 1934, as amended (the "1934 Act"), and the 1940 Act. 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 the PFL Endeavor Variable Annuity Account as a segregated asset
account under Iowa law and has registered or, prior to any issuance or sale of
the Policies, will register the Account(s) as unit investment trust(s) in
accordance with the provisions of the 1940 Act (unless exempt therefrom) to
serve as a segregated investment account(s) for the Policies, and that it will
maintain such registration(s) for so long as any Policies are outstanding. The
Company shall amend the registration statement(s) under the 1933 Act for the
Policies and the registration statement(s) under the 1940 Act for the Account(s)
from time to time as required in order to effect the continuous offering of the
Policies or as may otherwise be required by applicable law. The Company shall
register and qualify the Policies for sale in accordance with the
-6-
<PAGE>
securities laws of the various states only if and to the extent deemed necessary
by the Company.
2.2 The Company represents that it believes, in good faith, that the
Policies are currently and at the time of issuance will be treated as life
insurance, endowment or annuity contracts under applicable provisions of the
Internal Revenue Code of 1986, as amended (the "Code", that it will make every
effort to maintain such treatment and that it will notify the Fund and WRL
immediately upon having a reasonable basis for believing that the Policies have
ceased to be so treated or that they might not be so treated in the future.
2.3. The Fund and WRL each separately represents and warrants that the
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 Maryland
and all applicable federal and state securities laws and that the Fund is and
shall remain registered under the 1940 Act. The Fund shall amend the
Registration Statement for its Shares under the 1933 Act and the 1940 Act from
time to time as required in order to effect the continuous offering of its
Shares. The Fund shall register and qualify the Shares for sale in accordance
with the laws of the various states only if and to the extent deemed necessary
by the Fund, with the concurrence of WRL.
2.4. The Fund and WRL each separately represents that each Portfolio of the
Fund is currently qualified or will be Qualified as a Regulated Investment
Company under Subchapter M of the code and that every effort will be made to
maintain such qualification (under Subchapter M or any successor or similar
provision) and that the Fund or WRL, as appropriate, will notify the Company
orally (followed by written notice) or by wire immediately upon having a
reasonable basis for believing that any Portfolio of the Fund has ceased to so
qualify or that any Portfolio might not so qualify in the future.
-7-
<PAGE>
2.5. The Fund currently does not intend to make any payments to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act or otherwise,
although to the extent permitted and in conformity with the requirements under
the 1940 Act it may make such payments in the future.
2.6. The Fund represents that it will sell and distribute the Shares in
accordance in all material respects with all applicable state and federal
securities laws, including without limitation the 1933 Act, the 1934 Act, and
the 1940 Act.
2.7. The Fund represents that it is lawfully organized and validly existing
under the laws of the State of Maryland and that it does and will comply in all
material respects with the 1940 Act.
2.8. WRL represents and warrants that it is and shall remain duly
registered under all applicable federal and state securities laws and that it
shall perform its obligations for the Fund in compliance in all material
respects with any applicable state and federal securities laws.
-8-
<PAGE>
2.9. The Fund and WRL each separately represents and warrants that, to the
extent required by Section 17(g) and Rule 17g-1 of the 1940 Act, or related
provisions as may be promulgated from time to time, all of its directors,
officers, employees, investment advisers, and other individuals or entities
dealing with the money and/or securities of the Fund are and shall continue to
be at all times covered by a blanket fidelity bond or similar coverage for the
benefit of the Fund in an amount not less than the minimal coverage as required
currently by Section 17(g) and 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.
ARTICLE III. Prospectus and Proxy Statements; Voting
---------------------------------------
3.1. At least annually, the Fund or WRL, as appropriate, shall provide the
Company, free of charge, with as many copies of the current prospectus for the
Shares as the Company may reasonably request for distribution to existing Policy
owners whose Policies are funded by such Shares. The Fund or WRL, as
appropriate, shall provide the Company, at the Company's expense, with as many
copies of the current prospectus for the Shares as the Company may reasonable
request for distribution to prospective purchasers of Policies. If requested by
the Company in lieu thereof, the Fund or WRL, as appropriate, shall provide such
documentation (including a final "camera ready" copy of the new prospectus as
set; in type at the expense of the Fund or WRL, as the
-9-
<PAGE>
case may be) and other assistance as is reasonably necessary in order for the
parties hereto once each year (or more frequently if the prospectus for the
Shares is supplemented or amended) to have the prospectus for the Policies and
the prospectus for the Shares printed together in one document; the expenses of
such printing to be apportioned between (a) the Company, and (b) the Fund or
WRL, as the case may be, in proportion to the number of pages of the Policy and
Shares' prospectuses, taking account of other relevant factors affecting the
expense of printing, such as columns, charts, etc.; the Fund or WRL, as the case
may be, to bear the cost of printing the Shares' prospectus portion of such
document for distribution to owners of existing Policies funded by the Shares,
and the Company to bear the expenses of printing the portion of such document
relating to the Account(s); provided, however, that the Company shall bear all
---------
printing expenses of such combined documents where used for distribution to
prospective purchasers or to owners of existing Policies not funded by the
Shares.
3.2. The prospectus for the Shares shall state that the Statement of
Additional Information for the Shares is available from the Fund (or WRL). The
Fund or WRL, at its expense, as appropriate, shall print and provide such
Statement to the Company (or a master of such Statement suitable for duplication
by the Company) for distribution to any owner of a Policy funded by the Shares.
WRL, at the Company's expense, shall print and provide such Statement to the
Company (or a master of such Statement
-10-
<PAGE>
suitable for duplication by the Company) for distribution to a prospective
purchaser who requests such Statement or to an owner of a Policy not funded by
the Shares.
3.3. The Fund shall provide the Company free of charge copies, if and to
the extent applicable to the Shares, of the Fund's proxy material, reports to
Shareholders and other communications to Shareholders in such quantity as the
Company shall reasonably require for distributing to Policy owners.
3.4. Notwithstanding the provisions of Sections 3.1, 3.2, and 3.3 above, or
of Article V below, the Company shall pay the expense of printing or providing
documents to the extent such cost is considered a distribution expense.
Distribution expenses would include by way of illustration, but are not limited
to, the printing of the Shares' prospectus for distribution to prospective
purchasers or to owners of existing Policies not funded by such Shares.
3.5. If and to the extent required by law, the Company shall:
(i) solicit voting instructions from Policy owners;
(ii) vote the Shares in accordance with instructions received from
Policy owners; and
(iii) vote the Shares for which no instructions have been received in
the same proportion as the Shares of such Portfolio for which
instructions have been received;
-11-
<PAGE>
so long as and to the extent that the SEC continues to interpret the 1940 Act to
require passthrough voting privileges for variable contract owners. The Company
reserves the right to vote the Shares held in the Account(s) in its own right,
to the extent permitted by law.
3.6. The process of soliciting Policy owners' voting instructions, tabulating
votes, etc. shall be conducted in accordance with Schedule B attached hereto.
ARTICLE IV. Sales Material and Information
------------------------------
4.1. The Company 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 the Fund's advisers are named, at least ten Business Days
prior to its use. No such material shall be used if the Fund or its designee
object to such use within ten Business Days after receipt of such material.
4.2. The Company shall not give any information or make any representations
or statements on behalf of the Fund or its advisers concerning the Fund or its
advisers in connection with the sale of the Policies 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, except with the permission of the Fund. The Fund or its
-12-
<PAGE>
designee agrees to respond to any request for approval on a prompt and timely
basis.
4.3. WRL 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 the Account(s) is named, at least ten Business Days prior to
its use. No such material shall be used if the Company or its designee object to
such use within ten Business Days after receipt of such material.
4.4. The Fund and WRL each separately agrees not to give any information or
make any representations on behalf of the Company or concerning the Company, the
Account(s), or the Policies other than information or representations contained
in a registration statement or prospectus for the Policies, as such registration
statement and prospectus may be amended or supplemented from time to time, or in
reports for the Account(s) which are in the public domain or approved by the
Company for distribution to Policy owners, or in sales literature or other
promotional material approved by the Company or its designee, except with the
permission of the Company. The Company or its designee agrees to respond to any
request for approval on a prompt and timely basis.
4.5. The Company and Fund (or WRL in lieu of the Fund, as appropriate) will
each provide to the other at least one complete copy of all registration
statements, prospectuses, State- of additional Information. reports, proxy
statements, sales
-13-
<PAGE>
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 Policies, or to the Fund or its Shares, prior to or
contemporaneously with the filing of such document with the SEC or other
regulatory authorities. The Company or Fund shall also each promptly inform the
other of the results of any examination by the SEC (or other regulatory
authorities) that relates to the Policies, the Fund or its Shares, and the party
that was the subject of the examination shall provide the other party with a
copy of any "deficiency letter" or other correspondence or written report
regarding any such examination.
4.6. For purposes of this Article IV, the phrase "sales literature or other
promotional material" means 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 billboard),
and sales literature (such as brochures, circulars, market letters and form
letters), distributed or made generally available to customers or the public,
educational or training materials or communications distributed or made
generally available to some or all agents or employees.
ARTICLE V. Fees and Expenses
-----------------
5.1. Neither the Fund nor WRL shall pay any fee or other compensation to
the Company under this Agreement, and the Company shall pay no fee or other
compensation to the Fund or WRL, except that if the Fund or any Portfolio adopts
and imple-
-14-
<PAGE>
ments a plan pursuant to Rule 12b-1 under the 1940 Act to finance distribution
expenses, then, subject to obtaining any required exemptive orders or regulatory
approvals, the Fund may make payments to the Company or to the underwriter for
the Policies if and in amounts agreed to by the Fund in writing (currently no
such payments are contemplated). Each party, however, shall, in accordance with
the allocation of expenses specified in Articles III and V hereof, reimburse
other parties for expenses initially paid by one party but allocated to another
party.
5.2. The Fund or WRL, as appropriate, shall bear the expenses for the cost
of registration and qualification of the Shares under all applicable federal and
state laws, including preparation and filing of the Fund's registration
statement, and payment of filing fees and registration fees; preparation and
filing of the Fund's proxy materials and reports to Shareholders; setting in
type and printing its prospectus (to the extent provided by and as determined in
accordance with Article III above); setting in type and printing the proxy
materials and reports to Shareholders (to the extent provided by and as
determined in accordance with Article III above); the preparation of all
statements and notices required of the Fund by any federal or state law with
respect to its Shares; all taxes on the issuance or transfer of the Shares; and
the costs of distributing the Fund's prospectuses and proxy materials to owners
of Policies funded by the Shares and any expenses permitted to be paid or
assumed by the Fund pursuant to a plan, if any, under Rule 12b-1 of the 1940
-15-
<PAGE>
Act. The Fund shall not bear any expenses of marketing the Policies.
5.3. The Company shall bear the expenses of distributing the Shares'
prospectus in connection with new sales of the Policies and of distributing the
Fund's Shareholder reports to Policy owners. The Company shall bear all expenses
associated with the registration, qualification, and filing of the Policies
under applicable federal securities and state insurance laws; the cost of
printing the Policy prospectus; and the cost of preparing and printing annual
individual account statements for Policy owners required by state insurance
laws.
ARTICLE VI. Diversification and Related Limitations
---------------------------------------
6.1. The Fund and WRL each separately represents and warrants that the Fund
will at all times invest its assets in such a manner as to ensure that the
Policies will be treated as annuity, endowment, or life insurance contracts
under the Code and the regulations issued thereunder. Without limiting the scope
of the foregoing, the Fund will at all times comply with Section 817(h) of the
Code and Treas. Reg. (S) 1.817-5, as amended from time to time, and any Treasury
interpretations thereof, relating to the diversification requirements for
variable annuity, endowment, or life insurance contracts and any amendments or
other modifications to such Section or Regulations.
6.2. The Shares will not be sold to any person or entity that would result
in the Policies not being treated as annuity, endowment, or life insurance
contracts, in accordance
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<PAGE>
with the statutes and regulations referred to in the preceding paragraph
(Section 6.1 hereof).
Article VII. Potential Material Conflicts
----------------------------
7.1 The Fund agrees that the Board, constituted with a majority of
disinterested directors, will monitor each Portfolio of the Fund for the
existence of any material irreconcilable conflict between the interests of the
variable annuity contract owners and the variable life insurance policy owners
of the Company and/or affiliated companies ("contract owners") investing in the
Fund. The Board shall have the sole authority to determine if a material
irreconcilable conflict exists, and such determination shall be binding on the
Company only if approved in the form of a resolution by a majority of the Board,
or a majority of the disinterested directors of the Board. The Board will give
prompt notice of any such determination to the Company.
7.2 The Company and WRL each separately agrees that it will be responsible
for promptly reporting any potential or existing conflicts of which it is aware
to the Board. The Company also agrees that, if a material irreconcilable
conflict arises, it will at its own cost remedy such conflict up to and
including (a) withdrawing the assets allocable to some or all of the Accounts
from the Fund or any Portfolio and reinvesting such assets in a different
investment medium, including (but not limited to) another Portfolio of the Fund,
or submitting to a vote of all affected contract owners whether to withdraw
assets from the Fund or any Portfolio and reinvesting such assets in a dif-
-17-
<PAGE>
ferent investment medium and, as appropriate, segregating the assets
attributable to any appropriate group of contract owners that votes in favor of
such segregation, or offering to any of the affected contract owners the option
of segregating the assets attributable to their contracts or policies, and (b)
establishing a new registered management investment company and segregating the
assets underlying the Policies, unless a majority of Policy owners materially
adversely affected by the conflict have voted to decline the offer to establish
a new registered management investment company.
7.3 A majority of the disinterested directors of the Board shall determine
whether any proposed action by the Company adequately remedies any material
irreconcilable conflict. In the event that the Board determines that any
proposed action does not adequately remedy any material irreconcilable conflict,
the Company will withdraw from investment in the Fund each of the Account(s)
designated by the disinterested directors 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 to remedy any such material irreconcilable
conflict as determined by a majority of the disinterested directors of the
Board.
7.4 The Fund agrees that it will not enter into any agreement with a life
insurance com-
-18-
<PAGE>
pany affiliated with the Company unless such agreement includes a section
substantially identical to this Article VII.
ARTICLE VIII. Indemnification
---------------
8.1. Indemnification By The Company
------------------------------
8.1 (a). The Company agrees to indemnify and hold harmless the Fund, WRL,
and each of their respective directors and officers and each person, if any, who
controls the Fund or WRL within the meaning of Section 15 of the 1933 Act, and
any agents or employees of the foregoing (each an "Indemnified Party, " or
collectively, the Indemnified Parties" for purposes of this Section 8.1) against
any and all losses, claims, damages, liabilities (including amounts paid in
settlement with the written consent of the Company) or litigation (including
legal and other expenses), to which an Indemnified Party 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 Shares or the
Policies 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 Policies or contained in the Policies or sales
literature for the Policies (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
-19-
<PAGE>
reasonable and good faith reliance upon and in conformity with
information furnished the Company by or on behalf of the Fund or WRL
for use in the registration statement or prospectus for the Policies or
in the Policies or sales literature (or any amendment or supplement) or
otherwise for use in connection with the sale of the Policies or
Shares; or
(ii) arise out of or as a result of statements or representations (other
than statements or representations contained in the registration
statement, prospectus or sales literature of the Fund not supplied by
the Company, or persons under it" control and on which the Company has
reasonably relied in good faith) or wrongful conduct of the Company or
persons under its control, with respect to the sale or distribution of
the Policies or 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 statement or omission was made in
reliance upon information furnished to the Fund or WRY by or on behalf
of the Company; or
(iv) 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;
except to the extent provided in 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
to which an Indemnified Party would otherwise be subject by reason of willful
misfeasance, bad
-20-
<PAGE>
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 Fund, 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
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, except to the extent that failure to
notify results in failure of actual notice to the Company and the Company is
damaged solely as a result of failure to give notice. In case any such action is
brought against one or more of 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. Each Indemnified Party shall
fully cooperate with the Company in defense of the action, regardless of whether
the Company assumes or only participates in the defense. After notice
-21-
<PAGE>
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, unless (i) the Company and the Indemnified
Party shall have mutually agreed on the retention of such counsel or (ii) the
named parties to any such proceeding (including any impleaded parties) include
both the Company and the Indemnified Party and representation of both par ties
by the same counsel would be inappropriate due to actual or potential differing
interests between them. The Company shall not be liable for any settlement of
any proceeding effected with out its written consent but if settled with such
consent or if there be a final judgment for the plaintiff, the Company agrees to
indemnify the Indemnified Party from all and against any loss or liability by
reason of such settlement or judgment.
8.1(d). Each Indemnified Party will promptly notify the Company of the
commencement of any litigation or proceedings against it in connection with the
issuance or sale of the Shares or the Policies or the operation of the Fund and
each Indemnified Party will provide the Company with all relevant information
and documents in its possession or in the possession of a person within its
control requested by the Company. For purposes of this Section 8.1(d), the
"commencement" of proceedings shall in-
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<PAGE>
clude any informal or formal communications from the SEC or its staff (or the
receipt of information from any other persons or entities) indicating that
enforcement action by the SEC or staff may be contemplated or forthcoming; this
includes any information to the effect that any matter(s) has been referred to
the SEC's Division of Enforcement, or that any matter(s) is being discussed with
that Division.
8.2. Indemnification by WRL
----------------------
8.2(a). WRL 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, and any agents or employees of
the foregoing (each an "Indemnified Party, " or 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 WRL) or litigation (including legal and other expenses) to which an
Indemnified Party 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 Shares or the Policies 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
-23-
<PAGE>
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 reasonable and good faith reliance upon and in conformity with
information furnished to WRL by or on behalf of the Company for use in
the registration statement or prospectus for the Fund or in sales
literature for the Fund (or any amendment or supplement) or otherwise
for use in connection with the sale of the Policies or 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 Policies not
supplied by WRL, or persons under its control and on which WRL has
reasonably relied in good faith) or wrongful conduct of WRL or persons
under its control, with respect to the sale or distribution of the
Policies or 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 Policies, 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 WRL; or
(iv) arise out of or result from any material breach of any representation
and/or warranty made by WRL in this Agreement OR ARISE out of or
result from any other material breach of this Agreement by WRL
(including a failure, whether unintentional or in good faith or
otherwise, to comply with the requirements specified in Article Vl of
this Agreement);
except to the extent provided in Sections 8.2(b) and 8.2(c) hereof.
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<PAGE>
8.2(b) WRL 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 the
Company or the Account(s).
8.2(c). WRL 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 WRL 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 WRL of any such claim shall not relieve WRL 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,
except to the extent that failure to notify results in the failure of actual
notice to WRL and WRL is damaged solely as a result of failure to give such
notice. In case any such action is brought against one or more of the
Indemnified Parties, WRL will be entitled to participate, at its own expense, in
the defense thereof. WRL also shall be entitled to assume the defense thereof,
with counsel satisfactory to the party named in the
-25-
<PAGE>
action. Each Indeminified Party shall fully cooperate with WRL in defense of the
action, regardless of whether WRL assumes or only participates in the defense.
After notice from WRL to such party of its election to assume the defense
thereof, the Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it, and WRL 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, unless (i) WRL and the Indemnified Party
shall have mutually agreed to the retention of such counsel or (ii) the named
parties to any such proceeding (including any impleaded parties) include WRL and
the Indemnified Party and representation of these parties by the same counsel
would be inappropriate due to actual or potential differing interests between
them. WRL shall not be liable for any settlement of any proceeding effected
without its written consent but if settled with such consent or if there be a
final judgment for the plaintiff, WRL agrees to indemnify the Indemnified Party
from and against any loss or liability by reason of such settlement or
judgement.
8.2(d) Each Indemnified Party will promptly notify WRL of the commencement
of any litigation or proceedings against it in connection with the issuance or
sale of the Shares or the Policies or the operation of the Fund and each
Indemnified Party will provide WRL with all relevant information and documents
in its possession or in the possession of a person within its con-
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<PAGE>
trol requested by WRL. For purposes of this Section 8.2(d), the "commencement"
of proceedings shall include any informal or formal communications from the SEC
or its staff (or the receipt of information from any other persons or entities)
indicating that enforcement action by the SEC or staff may be contemplated or
forthcoming; this includes any information to the effect that any matter(s) has
been referred to the SEC's Division of Enforcement, or that any matter(s) is
being discussed with that Division.
8.3. Indemnification by the Fund
---------------------------
8.3(a). The Fund 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, and any agents or employees of
the foregoing (each an "Indemnified Party, " or collectively, the "Indemnified
Panties for purposes of this Section 8.3) against any and all losses, claims,
damages, liabilities (including amounts paid in settlement with the written
consent of the Fund) or litigation (including legal and other expenses) to which
any Indemnified Party 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 Shares or the Policies 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
-27-
<PAGE>
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 reasonable and good
faith reliance upon and in conformity with information furnished to the
Fund by or on behalf of the Company for use in the registration
statement or prospectus for the Fund or in sales literature for the
Fund (or any amendment or supplement) or otherwise for use in
connection with the sale of the Policies or 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 Policies not supplied
by the Fund, or persons under its control and on which the Fund has
reasonably relied in good faith) or wrongful conduct of the Fund or
persons under its control, with respect to the sale or distribution of
the Policies or 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 Policies, 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 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
(including a failure, whether unintentional or in good faith or
otherwise, to comply with the requirements specified in Article VI of
this Agreement);
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<PAGE>
except to the extent provided in Sections 8.3(b), 8.3(c) and 8.3(e) hereof.
8.3(b). The Fund 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 the
Company or the Account(s).
8.3(c). The Fund 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 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 Indemnified 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, except to the extent that failure to notify results
in the failure of actual notice to the Fund and the Fund is damaged solely as a
result of failure to give such notice. In case any such action is brought
against one or more of the Indem-
-29-
<PAGE>
nified 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. Each
Indemnified Party shall fully cooperate with the Fund in defense of the action,
regardless of whether the Fund assumes or only participates in the defense.
After notice from the Fund to such party of its 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 legal or other expenses subsequently incurred by
such party independently in connection with the defense thereof other than
reasonable costs of investigation, unless (i) the Fund and the Indemnified Party
shall have mutually agreed to the retention of such counsel or (ii) the named
parties to any such proceeding (including any impleaded parties) include the
Fund and the Indemnified Party and representation of these parties by the same
counsel would be inappropriate due to actual or potential differing interests
between them. The Fund shall not be liable for any settlement of any proceeding
effected without its written consent but if settled with such consent or if
there be a final judgment for the plaintiff, the Fund agrees to indemnify the
Indemnified Party from and against any loss or liability by reason of such
settlement or judgment.
8.3(d). Each Indemnified Party will promptly notify the Fund of the
commencement of any litigation or proceedings
-30-
<PAGE>
against it in connection with the issuance or sale of the Shares or the Policies
or the operation of the Fund and each Indemnified Party will provide the Fund
with all relevant information and documents in its possession or in the
possession of a person within its control requested by the Fund. For purposes of
this Section 8.3(d), the "commencements of proceedings shall include any
informal or formal communications from the SEC or its staff (or the receipt of
information from any other persons or entities) indicating that enforcement
action by the SEC or staff may be contemplated or forthcoming; this includes any
information to the effect that any matter(s) has been referred to the SEC's
Division of Enforcement, or that any matter(s) is being discussed with that
Division.
8.3(e) Notwithstanding any other provision of this Article VIII to the
contrary, any liability which the Fund may have under this indemnification
provision shall be the liability only of the particular Portfolio or Portfolios
to which such liability relates; any such liability of a Portfolio may be
satisfied only by and to the extent of the assets of that Portfolio.
8.4 A successor by law of the parties to this Agreement shall be entitled
to the benefits of the indemnification contained in this Article VIII. The
indemnification provisions contained in this Article VIII shall survive any
termination of this Agreement.
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<PAGE>
ARTICLE IX. Applicable Law
--------------
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of Florida.
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 SEC may grant
and the terms hereof shall be interpreted and construed in accordance therewith.
ARTICLE X. Termination
-----------
10.1. This Agreement shall terminate with respect to the Account(s), or one,
some, or all Portfolios:
(a) at the option of any party upon six months' advance written notice to
the other parties; or
(b) at the option of the Company to the extent that the Shares of
Portfolios are not reasonably available to meet the requirements of the Policies
or are not "appropriate funding vehicles for the Policies, as determined by the
Company reasonably and in good faith. Without limiting the generality of the
foregoing, the Shares of a Portfolio would not be "appropriate funding vehicles.
if, for example, such Shares did not meet the diversification or other
requirements referred to in Article VI hereof; or if the Portfolio did not
qualify under Subchapter M of the Code, as referred to in Section 2.4 hereof; or
if the investments or investment policies, objectives, and/or limitations of
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<PAGE>
the Portfolio would impose unanticipated risks on the Company; or if the Company
would be permitted to disregard policyowner voting instructions pursuant to
Rules 6e-2 or 6e-3(T) under the 1940 Act; etc. Prompt notice of the election to
terminate for such cause and an explanation of such cause shall be furnished by
the Company; or
(c) at the option of the Fund upon institution of formal proceedings
against the Company by the National Association of Securities Dealers, Inc. (the
"NASD"), the SEC, or any insurance department or any other regulatory body
regarding the Company's duties under this Agreement or related to the sale of
the Policies, the operation of the Account(s), or the purchase of the Shares; or
(d) at the option of the Company upon institution of formal proceedings
against the Fund by the NASD, the SEC, or any state securities or insurance
department or any other regulatory body; or
(e) at the option of the Company or the Fund upon receipt of any necessary
regulatory approvals and/or the vote of the Policy owners having an interest in
the Account(s) (or any subaccount) to substitute the shares of another
investment company for the corresponding Portfolio Shares in accordance with the
terms of the Policies for which those Portfolio Shares had been selected to
serve as the underlying investment media. The Company will give 30 days' prior
written notice to the Fund of
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<PAGE>
the date of any proposed vote or other action taken to replace the Shares; or
(f) at the option of any party to this Agreement , upon another party's
material breach of any provision of this Agreement.
10.2. The notice shall specify the Portfolio or Portfolios, Policies and,
if applicable, the Account(s) as to which the Agreement is to be terminated.
10.3. It is understood and agreed that the right of any party hereto to
terminate this Agreement pursuant to Section lO.l(a) may be exercised for cause
or for no cause.
10.4. Except as necessary to implement Policy owner initiated transactions,
or as required by state insurance laws or regulations, the Company shall not
redeem the Shares attributable to the Policies (as opposed to the Shares
attributable to the Company's assets held in the Account(s)), and the Company
shall not prevent Policy owners from allocating payments to a Portfolio that was
otherwise available under the Policies, until 30 days after the Company shall
have notified the Fund and WRL of its intention to do so.
10.5. Notwithstanding any termination of this Agreement, the Fund shall, at
the option of the Company, continue to make available additional shares of the
Portfolios pursuant to the terms and conditions of this Agreement, for all
Policies in effect on the effective date of termination of this Agreement
(hereinafter referred to as "Existing Policies"), except as
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<PAGE>
otherwise provided under Article VII of this Agreement. Specifically, without
limitation, the owners of the Existing Policies shall be permitted to transfer
or reallocate investments under the Policies, redeem investments in any
Portfolio and/or invest in the Fund upon the making of additional purchase
payments under the Existing Policies.
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 Fund:
WRY Series Fund, Inc.
201 Highland Avenue
Largo, Florida 34640
Attn: William H. Geiger, Esq.
If to WRL:
Western Reserve Life Assurance Co. Of Ohio
201 Highland Avenue
Largo, Florida 34640
Attn: William H. Geiger, Esq.
If to the Company
PFL Life Insurance Company
4333 Edgewood Rd., N.E.
Cedar Rapids, Iowa 52499
Attention: Craig Vermie, Esq.
ARTICLE XII. Miscellaneous
-------------
12.1. Subject to the requirements of legal process and regulatory
authority, each party hereto shall treat as confiden-
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<PAGE>
tial the names and addresses of the owners of the Policies and all information
reasonably identified as confidential in writing by any other party hereto and,
except as permitted by this Agreement or as otherwise required By applicable law
or regulation, shall not disclose, disseminate or utilize such names and
addresses and other confidential information without the express written consent
of the affected party until such time as it may come into the public domain.
12.2. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
12.3. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
12.4 If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Agreement shall
not be affected thereby.
12.5. The Schedules attached hereto, as modified from time to time, are
incorporated herein by reference and are part of this Agreement.
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
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<PAGE>
inquiry relating to this Agreement or the transactions contemplated hereby.
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.
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:
PFL LIFE INSURANCE COMPANY
By its authorized officer,
By: /s/ Craig D. Vermie
-----------------------------
Title: V.P. Assistant Secretary
Date: July 1, 1992
WRL SERIES FUND, INC.
By its authorized officer,
By: /s/ John R. Kenney
------------------------------
Title: Chairman of the Board
Date: July 1, 1992
WESTERN RESERVE LIFE
ASSURANCE CO. OF OHIO
By its authorized of officer
By: /s/ John R. Kenney
--------------------------------
Title: Chairman of the Board & CEO
Date: July 1, 1992
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<PAGE>
SCHEDULE A
----------
Account(s), Policy(ies) and Portfolio(s) Subject
to the Participation Agreement
------------------------------
Account: PFL Endeavor Variable Annuity Account
- -------
Policies: The Endeavor Variable Annuity
- --------
Portfolio: WRL Series Fund Growth Portfolio
- ---------
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<PAGE>
SCHEDULE B
PROXY VOTING PROCEDURE
The following is a list of procedures and corresponding responsibilities for
the handling of proxies relating to the Fund by WRL, the Fund 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 Company to perform the steps delineated below.
1. The number of proxy proposals is given to the Company by WRL on a date as
early as possible before the date set by the Fund for the shareholder
meeting (the "Record Date") to facilitate the establishment of tabulation
procedures. At this time, WRL will inform the Company of the Record, mailing
and meeting dates. This will be done orally approximately two months before
the meeting.
2. Promptly after the Record Date, the Company will perform a Tape runs, or
other activity, which will generate the names, addresses and number of
Shares in each Portfolio which are attributed to each
Contractowner/policyholder (the "Customer") as of the Record Date.
Fractional shares will be counted. The number of shares for which a Customer
has the right to give voting instructions will be calculated
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<PAGE>
separately for each sub-account of the Account(s) and will be determined by
dividing the portion of the value allocable to the Customer's Policy in the
sub-account by S100. 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 voting instruction cards is determined by the
activities described in Step #2. If the proxy proposal only affects
a particular Portfolio, then only -the shares of that Portfolio may
be voted and only the Customers with investment of all or a portion
of their Policies in that Portfolio may vote on the proposal to the
extent of their investment. The Company will use its best efforts to
call in the number of Customers to WRL, as soon as possible, but no
later than two weeks after- the Record Date.
3. The Fund's annual report must be sent to each Customer by the Company either
before or together with the Customers' receipt of a proxy statement. The
Fund or WRL will provide to the Company as many copies of the last annual
report as the Company shall reasonably require for distribution to the
Customers.
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<PAGE>
4. The voting instruction cards (the "Cards" or "Card") are produced and paid
for by the Fund and sent to the Company. (This and related steps may occur
later in the chronological process due to possible uncertainties relating
to the proposals.)
5. The Company will, at its expense, print account information on the Cards.
6. Allow appropriately 2-4 business days for printing information on the
Cards. Information commonly found on the Cards includes:
a. name (legal name as found on account registration)
b. address
c. Fund or account number
d. coding which indicates number of shares of the Fund attributable
to the Customer and, if appropriate, of each applicable Portfolio
(depends upon tabulation process used by the computer system, ice
whether or not system knows number of shares held just by
"reading" the account number)
e. individual Card number for use in tracking and verification of
votes (already on Cards as Printed by the Fund)
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<PAGE>
Note: When the Cards are printed by the Fund, each Card is numbered
individually to guard against potential Card/vote duplication.
f. spaces where the Customer can vote "yes" or "no" on each proxy
proposal.
7. During this time, the Legal Department of WRY or its affiliate (CARL
Legal") will develop, produce, and the Fund will pay for as many copies of
the notice of proxy and the proxy statement (one document) for the Fund
or, if appropriate, for the Portfolio(s) in which the Customer's Policy is
invested as the Company may reasonably require for distribution to each
Customer. Printed and folded notices and statements will be sent to
Company for insertion into envelopes (envelopes and return envelopes are
provided and paid for by the Company). Contents of envelope sent to each
Customer by the Company will include:
a. voting instruction card
b. proxy notice and statement (one document) (for the Fund or, if
appropriate, for the Portfolio(s) in which the Customer's Policy
is invested)
c. the Fund's annual report (if not sent prior to this tine)
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<PAGE>
d. return envelope (postage pre-paid by the Company) addressed to
the Company or its tabulation agent
e. "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 Fund.)
f. cover letter - optional, supplied by the Company and reviewed and
orally approved in advance by WRL Legal.
8. The above contents should be received by the Company approximately 3-5
business days before the date set for mailing. The individual in charge at the
Company reviews and approves in writing the contents of the mailing package
supplied by WRL Legal to ensure correctness and completeness. Copy of this
approval must be sent to WRL Legal.
9. Package mailed by the Company at its expense to the Customers.
* The Fund must allow at least a 15-day solicitation time to the Company as
----
the shareowner. (A 5-week period is recommended, but not necessary, to
receive a proper response percentage.) Solicitation time is calculated as
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<PAGE>
days from (but not including) the meeting, counting backwards.
** If the Customers were actually the shareholders, at least 50% of the
outstanding shares must be represented and 66 2/3% of that 501 must have
voted affirmatively on the proposals to have an effective vote. However,
-------
since the Company is the shareholder, the Customers' votes will (except in
certain limited circumstances) be used to dictate how the Company will
vote.
10. Collection and tabulation of the Cards begins. Tabulation usually types
place in another department or another vendor depending on process used. An
often used procedure is to sort the Cards on arrival into vote categories
of all yes, no, or m; red replies, and to begin data entry.
* 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 WRL in the past.
11. Signatures on the Card checked against legal name on account registration
which was printed on the Card.
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<PAGE>
* This verifies whether an individual has signed correctly with the same name
as is on the account registration.
For Example:
If the account registration is under "8ertram C. Jones,
Trustee," then that is the exact legal name to be printed on the
Card and is the signature needed on the Card.
12. 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, illegible or improperly signed
Curd is disregarded and considered to be not received for purposes of vote
-------------
tabulation. (If the vote on any one proxy proposal on a Card with more
then one proxy proposal is legible and the Card is properly signed, then
that vote shall be counted, and the remainder of the Card which is
illegible shall be disregarded and shall be 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," ire, examined
as to why they did not complete the proxy process. Any questions on those
Cards are usually remedied individually.
-45-
<PAGE>
13. 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 descending upon their vote; an
estimate of how the vote is progressing may 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.
14. The actual tabulation of votes is done in shares. (It is very important
that the Fund receives the tabulations stated in terms of a percentage and
the number of shares.)
------
15. Final tabulation in shares is orally given by the Company to WRL Legal on
the morning of the meeting by 10:00 a.m. E.S.T.
16. The vote is verified by the Company and is sent to WRL Legal.
17. The Company then votes its proxy in accordance with the votes received
from the Customers the morning of he meeting (except as provided in the
Participation Agreement or in limited circumstances as may be otherwise
required by law). Voting instructions to abstain on any item to be voted
upon reduces the votes eligible to be cast by the Company. A letter
documenting the Company's vote is supplied by WRL
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<PAGE>
Legal and is sent to officer of the Company for his signature.
This letter is normally sent after the meeting has taken place.
Note: Shares do not have cumulative voting rights and the
holders of more than 50% of the shares of the Fund
voting for the election of directors of the Board can
elect all of the directors if they choose to do so, and
in such event holders of the remaining shares would not
be able to elect any directors.
18. 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, WRL will be pitted
reasonable access to such Cards.
19. All approvals and "signing-off" may be done orally, but must always be
followed up in writing.
20. Curing tabulation procedures, the Fund and the Company determine if a
resolicitation is advisable and what form that resolicitation should take,
whether it should be by a mailing, or by a recorded telephone call. A
resolicitation may be considered, for example, when the vote response is
slow
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<PAGE>
and a judgment is made that the number of votes is too low under the
circumstances. The Meeting could be adjourned to leave enough time for the
resolicitation.
A determination is made by the Company and the Fund to find the most cost
effective candidates for resolicitation. These are Customers who have not yet
voted, but whose balances are large enough that their vote would significantly
increase the number of votes with minimal costs.
a. By mail: GIRL Legal Emends the voting instruction cards, if necessary, and
writes a resolicitation letter. the Fund supplies these to the Company. The
Company generates a mailing list etc., as per step #2 onward.
b. By phone: Rarely used. This must be done on a recorded line. WRL Legal and
the Fund will supply the necessary procedures and script if a phone
resolicitation were to be required.
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<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 March 27, 1998 with
respect to the financial statements of PFL Life Variable Annuity Account A, and
to the use of our report dated February 27, 1998 with respect to the statutory-
basis financial statements and schedules of PFL Life Insurance Company, included
in Post-Effective Amendment No. 1 to the Registration Statement (Form N-4 No.
333-26209) and related Prospectus of The Atlas Portfolio Builder Variable
Annuity.
/s/ Ernst & Young LLP
Des Moines, Iowa
April 27, 1998
<PAGE>
EXHIBIT (10)(b)
---------------
OPINION AND CONSENT OF ACTUARY
<PAGE>
April 13, 1998
PFL Life Insurance Company
4333 Edgewood Road NE
Cedar Rapids, Iowa 52499-0001
RE: ATLAS PORTFOLIO BUILDER VARIABLE ANNUITY ACCOUNT REGISTRATION ON FORM N-4
SEC FILE NO. 333-26209
Dear Sir/Madam:
With regard to the above registration statement, I have examined such documents
and made such inquiries as I have deemed necessary and appropriate, and on the
basis of such examination, have the following opinions:
Fees and charges deducted under the Atlas Portfolio Builder Variable Annuity
policies are those deemed necessary to appropriately reflect:
(1) the expenses incurred in the acquisition and distribution of the Policies,
(2) the expenses associated with the development and servicing of the policies,
(3) the assumption of certain risks arising from the operation and management
of the Policies and that provides for a reasonable margin of profit.
Fees and charges assessed against the policy values in the Variable Account
include:
(i) Administrative Charge
(ii) Contingent Deferred Sales Charge (Surrender Charge)
(iii) Mortality and Expense Risk Fee (M&E)
(iv) Taxes (including Premium and other Taxes if applicable)
The magnitude of each of the individual charges listed above in (i) through (iv)
is established in the pricing of the Atlas Portfolio Builder, to achieve a
reasonable Return on Investment (ROI), which is within the range of industry
practice with respect to comparable variable annuity products.
<PAGE>
PFL Life Insurance Company
April 13, 1998
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
