<PAGE>
As filed with the Securities and Exchange Commission on April 28, 2000
------------------------
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. 3
-----
and
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 4
------
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, 2000 pursuant to paragraph (b) of Rule 485
- -------
_______ 60 days after filing pursuant to paragraph (a)(1) of Rule 485
_______ on __________ pursuant to paragraph (a)(1) 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>
THE ATLAS
PORTFOLIO BUILDER VARIABLE ANNUITY
Issued Through
PFL Life Variable Annuity Account A
by
PFL Life Insurance Company
Prospectus--May 1, 2000
This annuity policy has many investment choices. There is a fixed account,
which offers interest at rates that are guaranteed by PFL Life Insurance
Company (PFL), and twenty-seven mutual fund portfolios offered by various
underlying funds. You can choose any combination of the investment choices. You
bear the entire investment risk for all amounts you put in the mutual fund
portfolios.
This prospectus and the mutual fund prospectuses give you important information
about the policy and the mutual funds. Please read them carefully before you
invest and keep them for future reference.
If you would like more information about the Atlas Portfolio Builder Variable
Annuity policy, you can obtain a free copy of the Statement of Additional
Information (SAI) dated May 1, 2000. Please call Atlas Securities, Inc. (Atlas)
at (800) 933-2852 or write to 794 Davis Street, San Leandro, CA 94577. You may
also write PFL at: PFL Life Insurance Company, Financial Markets Division,
Variable Annuity Department, 4333 Edgewood Road N.E., Cedar Rapids, Iowa,
52499-0001. A registration statement, including the SAI, has been filed with
the Securities and Exchange Commission (SEC) and is incorporated herein by
reference. Information about the separate account can be reviewed and copied at
the SEC's Public Reference Room in Washington, D.C. You may obtain information
about the operation of the public reference room by calling the SEC at 1-800-
SEC-0330. The SEC also maintains a web site (http://www.sec.gov) that contains
the prospectus, the SAI, material incorporated by reference, and other
information. The table of contents of the SAI is included at the end of this
prospectus.
The Securities and Exchange Commission has not approved or disapproved these
securities, or passed upon the adequacy of this prospectus. Any representation
to the contrary is a criminal offense.
[ATLAS PINBUG INSERTED HERE]
Atlas Insurance Trust
Managed by Atlas Advisers, Inc.
Atlas Balanced Growth Portfolio
AIM Variable Insurance Funds
Managed by A I M Advisors, Inc.
AIM V.I. Growth Fund
AIM V.I. Growth and Income Fund
AIM V.I. Value Fund
Alliance Variable Products Series Fund, Inc.--Class B
Managed by Alliance Capital Management L.P.
Alliance Growth Portfolio
Alliance Premier Growth Portfolio
Alliance Technology Portfolio
The Dreyfus Socially Responsible Growth Fund, Inc.
Managed by The Dreyfus Corporation
Dreyfus Variable Investment Fund
Managed by The Dreyfus Corporation
Dreyfus VIF--Appreciation Portfolio
Dreyfus VIF--Disciplined Stock Portfolio
Dreyfus VIF--Growth and Income Portfolio
Dreyfus VIF--Quality Bond Portfolio
Dreyfus VIF--Small Cap Portfolio
Endeavor Series Trust
Subadvised by The Dreyfus Corporation
Dreyfus Small Cap Value Portfolio
Subadvised by OpCap Advisors
OpCap--Endeavor Value Equity Portfolio
Subadvised by T. Rowe Price Associates, Inc.
T. Rowe Price Equity Income Portfolio
T. Rowe Price Growth Stock Portfolio
Federated Insurance Series
Managed by Federated Investment
Management Company
Federated High Income Bond Fund II
Federated Utility Fund II
Janus Aspen Series--Service Shares
Managed by Janus Capital Corporation
Janus Aspen--Aggressive Growth Portfolio
Janus Aspen--Balanced Portfolio
Janus Aspen--Growth Portfolio
Janus Aspen--International Growth Portfolio
WRL Series Fund, Inc.
Subadvised by Janus Capital Corporation
WRL Janus Global
WRL Janus Growth
Subadvised by Van Kampen Asset Management Inc.
WRL VKAM Emerging Growth
Subadvised by Fred Alger Management, Inc.
WRL Alger Aggressive Growth
<PAGE>
TABLE OF CONTENTS Page
<TABLE>
<S> <C>
GLOSSARY OF TERMS........................................................... 3
SUMMARY..................................................................... 4
ANNUITY POLICY FEE TABLE.................................................... 8
EXAMPLES.................................................................... 11
1.THE ANNUITY POLICY........................................................ 13
2.PURCHASE.................................................................. 13
Policy Issue Requirements................................................. 13
Premium Payments.......................................................... 13
Initial Premium Requirements.............................................. 13
Additional Premium Payments............................................... 14
Allocation of Premium Payments............................................ 14
Policy Value.............................................................. 14
3.INVESTMENT CHOICES........................................................ 14
The Separate Account...................................................... 14
The Fixed Account......................................................... 15
Transfers................................................................. 15
4.PERFORMANCE............................................................... 16
5.EXPENSES.................................................................. 17
Surrender Charges......................................................... 17
Excess Interest Adjustment................................................ 17
Mortality and Expense Risk Fee............................................ 18
Administrative Charges.................................................... 18
Premium Taxes............................................................. 18
Federal, State and Local Taxes............................................ 18
Transfer Fee.............................................................. 18
Portfolio Management Fees................................................. 18
6.FAMILY PROTECTION FEATURE................................................. 18
When We Pay A Death Benefit............................................... 18
When We Do Not Pay A Death Benefit........................................ 19
Amount of Death Benefit................................................... 19
Guaranteed Minimum Death Benefit.......................................... 19
Adjusted Partial Withdrawal............................................... 20
7.ACCESS TO YOUR MONEY...................................................... 20
Surrenders................................................................ 20
Delay of Payment and Transfers............................................ 20
Excess Interest Adjustment................................................ 21
</TABLE>
Page
<TABLE>
<S> <C>
8. ANNUITY PAYMENTS
(THE INCOME PHASE)........................................................ 21
Annuity Payment Options................................................... 21
9.TAXES..................................................................... 23
Annuity Policies in General............................................... 23
Qualified and Nonqualified Policies....................................... 23
Withdrawals--Qualified Policies........................................... 24
Withdrawals--403(b) Policies.............................................. 24
Diversification and Distribution Requirements............................. 24
Withdrawals--Nonqualified Policies........................................ 24
Taxation of Death Benefit Proceeds........................................ 25
Annuity Payments.......................................................... 25
Transfers, Assignments or Exchanges of Policies........................... 25
Possible Tax Law Changes.................................................. 25
10.ADDITIONAL FEATURES...................................................... 25
Systematic Payout Option.................................................. 25
Nursing Care and Terminal Condition
Withdrawal Option........................................................ 26
Telephone Transactions.................................................... 26
Dollar Cost Averaging Program............................................. 26
Asset Rebalancing......................................................... 27
11.OTHER INFORMATION........................................................ 27
Ownership................................................................. 27
Assignment................................................................ 27
PFL Life Insurance Company................................................ 27
The Separate Account...................................................... 27
Mixed and Shared Funding.................................................. 27
Reinstatements............................................................ 28
Voting Rights............................................................. 28
Distributor of the Policies............................................... 28
Variations in Policy Provisions........................................... 28
Insurance Marketplace Standards Association............................... 28
Legal Proceedings......................................................... 29
Financial Statements...................................................... 29
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION................ 29
APPENDIX A
Condensed Financial Information............................................. 30
APPENDIX B
Historical Performance Data................................................. 32
</TABLE>
2
<PAGE>
GLOSSARY OF TERMS
Accumulation Unit--An accounting unit of measure used in calculating the policy
value in the separate account before the annuity commencement date.
Adjusted Partial Withdrawal--The adjusted partial withdrawal is:
. the gross partial withdrawal, [gross partial withdrawal = requested
withdrawal - excess interest adjustment + surrender charges on (excess
partial withdrawal - excess interest adjustment)]; multiplied by
. the adjustment factor, which is the current death benefit prior to
withdrawal divided by the current policy value prior to withdrawal.
Annuitant--The person during whose life any annuity payments involving life
contingencies will continue.
Annuity Commencement Date--The date upon which annuity payments are to
commence. This date may be any date at least thirty days after the policy date
and may not be later than the last day of the policy month starting after the
annuitant attains age 85, except as expressly allowed by PFL. In no event will
this date be later than the last day of the month following the month in which
the annuitant attains age 95.
Annuity Payment Option--A method of receiving a stream of annuity payments
selected by the owner.
Cash Value--The policy value, increased or decreased by an excess interest
adjustment, less the surrender charge, if any.
Cumulative Free Percentage--The percentage (as applied to the cumulative
premium payments) which is available to the owner free of any surrender charge.
Excess Interest Adjustment--An adjustment that can either decrease or increase
the amount to be received by the owner upon full surrender or commencement of
annuity payments from the guaranteed period options of the fixed account. 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.
Fixed Account--One or more investment choices under the policy that are part of
PFL's general assets and are not in the separate account.
Guaranteed Period Options--The various guaranteed interest rate periods of the
fixed account, which PFL may offer, into which premium payments may be paid or
amounts transferred.
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.
Owner--The person who may exercise all rights and privileges under the policy.
The owner during the lifetime of the annuitant and prior to the annuity
commencement date is the person designated as the owner or a successor owner in
the information that we require to issue a policy.
Policy Date--The date shown on the policy data page attached to the policy and
the date on which the policy becomes effective.
Policy Value--On or before the annuity commencement date, the policy value is
equal to the owner's:
. premium payments; minus
. partial withdrawals (including the net effect of any applicable excess
interest adjustment and surrender charges on such withdrawals); plus
. interest credited in the fixed account; plus or minus
. accumulated gains or losses in the separate account; minus
. any applicable premium or other taxes and transfer fees, if any.
Separate 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, as amended (the "1940 Act"), to which premium payments
under the policies may be allocated.
Subaccount--A subdivision within the separate account, the assets of which are
invested in a specified portfolio of the underlying funds.
Note: The SAI contains a more extensive Glossary.
3
<PAGE>
SUMMARY
The sections in this summary correspond to sections in this prospectus, which
discuss the topics in more detail.
THE ANNUITY POLICY
The flexible premium variable annuity policy offered by PFL Life Insurance
Company (PFL, we, us or our) through Atlas Securities, Inc. (Atlas) provides a
way to invest on a tax-deferred basis in the following investment choices:
subaccounts of the separate account, and a fixed account of PFL. The policy is
intended to accumulate money for retirement or other long-term investment
purposes.
This policy offers twenty-seven subaccounts that are listed in Section 3. Each
subaccount invests exclusively in shares of one of the portfolios of the
underlying funds. The policy value may depend on the investment experience of
the selected subaccounts. Therefore, you bear the entire investment risk with
respect to all policy value in any subaccount. You could lose the amount that
you invest.
The fixed account offers an interest rate that PFL guarantees. We guarantee to
return your investment with interest credited for all amounts allocated to the
fixed account.
You can transfer money between any of the investment choices within certain
limits. We reserve the right to impose a $10 fee for each transfer in excess of
12 transfers per policy year.
The policy, like all deferred annuity policies, has two phases: the
"accumulation phase" and the "income phase." During the accumulation phase,
earnings accumulate on a tax-deferred basis and are taxed as ordinary income
when you take them out of the policy. The income phase occurs when you begin
receiving regular payments from your policy. The money you can accumulate
during the accumulation phase will largely determine the income payments you
receive during the income phase.
This policy is designed for people seeking long-term tax-deferred accumulation
of assets, generally for retirement or other long-term purposes; and for
persons who have maximized their use of other retirement savings methods, such
as 401(k) plans. The tax-deferral feature is most attractive to people in high
federal and state tax brackets and is of no value when the policy is purchased
to fund a qualified plan. You should not buy this policy if you are looking for
a short-term investment or if you cannot take the risk of losing the money that
you put in.
There are various fees and charges associated with the policy. You should
consider whether the features and benefits of the policy, such as the
opportunity for lifetime income payments, a guaranteed death benefit, the
guaranteed level of certain charges, and the family income protector, make this
policy appropriate for your needs.
PURCHASE
You can buy a nonqualified policy with a premium payment of $5,000 or more and
a qualified policy with $2,000 or more, under most circumstances. You can add
as little as $500 at any time during the accumulation phase.
INVESTMENT CHOICES
You can allocate your premium payments to one or more of the following
investment choices described in the underlying fund prospectuses:
Managed by Atlas Advisers, Inc.
Atlas Balanced Growth Portfolio
Managed by A I M Advisors, Inc.
AIM V.I. Growth Fund
AIM V.I. Growth and Income Fund
AIM V.I. Value Fund
Managed by Alliance Capital Management L.P.
Alliance Growth Portfolio
Alliance Premier Growth Portfolio
Alliance Technology Portfolio
Managed or Subadvised* by the Dreyfus Corporation
The Dreyfus Socially Responsible Growth Fund, Inc.
Dreyfus VIF--Appreciation Portfolio(/1/)
Dreyfus VIF--Disciplined Stock Portfolio
Dreyfus VIF--Growth and Income Portfolio
4
<PAGE>
Dreyfus VIF--Quality Bond Portfolio
Dreyfus VIF--Small Cap Portfolio
Endeavor--Dreyfus Small Cap Value Portfolio*
Subadvised by OPCAP Advisors
OpCap--Endeavor Value Equity Portfolio
Subadvised by T. Rowe Price Associates, Inc.
T. Rowe Price Equity Income Portfolio
T. Rowe Price Growth Stock Portfolio
Managed by Federated Investment
Management Company
Federated High Income Bond Fund II
Federated Utility Fund II
Managed or Subadvised* by Janus Capital Corporation
Janus Aspen--Aggressive Growth Portfolio
Janus Aspen--Balanced Portfolio
Janus Aspen--Growth Portfolio
Janus Aspen--International Growth Portfolio
WRL Janus Global*
WRL Janus Growth*
Subadvised by Van Kampen Asset Management Inc.
WRL VKAM Emerging Growth
Subadvised by Fred Alger Management, Inc.
WRL Alger Aggressive Growth
(/1/Formerly)known as Dreyfus--Capital Appreciation Portfolio.
You can make or lose money in any of the mutual fund portfolios.
You may also allocate your premium payments to the fixed account.
PERFORMANCE
The value of the policy will vary up or down depending upon the investment
performance of the subaccounts you choose. We provide performance information
in Appendix B and in the SAI. This data is not intended to indicate future
performance.
EXPENSES
No deductions are made from premium payments at the time you buy the policy so
that the full amount of each premium payment is invested in one or more of your
investment choices.
PFL may apply a surrender charge of up to 7% of premium payments withdrawn
within five years after the policy date. After the fifth policy year, no
surrender charges apply. To calculate surrender charges, we consider the
premium you paid to come out before any earnings. Additional premium payments
do not extend the surrender charge period.
Full surrenders and partial withdrawals from the guaranteed period options of
the fixed account may also be subject to an excess interest adjustment, which
may increase or decrease the amount you receive. This adjustment may also apply
to amounts applied to an annuity payment option from a guaranteed period option
of the fixed account.
We deduct daily mortality and expense risk fees and administrative charges of
1.40% per year from the assets in each subaccount.
We will deduct state premium taxes, which currently range from 0% to 2.35%,
when annuity payments begin upon total surrender, or payment of a death
benefit, if applicable.
The value of the net assets of the subaccounts will reflect the management fee
and other expenses incurred by the underlying funds.
FAMILY PROTECTION FEATURE
If you are both the owner and the annuitant and you die before the income phase
begins, then your beneficiary will receive a death benefit.
Naming different persons as owner and annuitant can affect whether the death
benefit is payable and to whom amounts will be paid. Use care when naming
owners, annuitants, and beneficiaries, and consult your agent if you have
questions.
The death benefit is the greatest of:
. policy value;
. cash value; or
. the guaranteed minimum death benefit.
5
<PAGE>
If the annuitant is younger than age 75 on the policy date, the guaranteed
minimum death benefit is the greater of:
. 5% Annually Compounding
. Annual Step-Up
If the annuitant is age 75 or older on the policy date, the guaranteed minimum
death benefit is a Return of Premium.
ACCESS TO YOUR MONEY
You can take out $250 or more anytime during the accumulation phase (except
under certain qualified policies). You may take out up to 10% of your
cumulative premium payments free of surrender charges each policy year. The
percentage that may be taken free of surrender charges is referred to as the
cumulative free percentage. Also, withdrawals from the fixed account up to this
percentage will not be subject to an excess interest adjustment. Any cumulative
free percentage that is not taken in one year is carried forward and is
available to be taken in following policy years. Amounts withdrawn in excess of
the cumulative free percentage may be subject to a surrender charge and excess
interest adjustment. You may also have to pay income tax and a tax penalty on
any money you take out. Access to amounts held in qualified plans may be
restricted or limited.
ANNUITY PAYMENTS (THE INCOME PHASE)
The policy allows you to receive an income under one of five annuity payment
options. You can choose from fixed payment options, variable payment options,
or a combination of both. If you select a variable payment option, the dollar
amount of your payments may go up or down.
TAXES
Your earnings, if any, are not taxed until you take them out. If you take money
out during the accumulation phase, earnings come out first and are taxed as
ordinary income for federal tax purposes. If you are younger than 59 1/2 when
you take money out, you may be charged a 10% federal penalty tax on the
earnings. Payments during the income phase may be considered partly a return of
your original investment so that part of each payment may not be taxable as
income.
ADDITIONAL FEATURES
This policy has additional features that might interest you. These include the
following:
. Systematic Payout Option. You can arrange to have money automatically sent
to you monthly, quarterly, semi-annually or annually while your policy is in
the accumulation phase. Amounts you receive may be included in your gross
income, and in certain circumstances, may be subject to penalty taxes.
. Nursing Care and Terminal Condition Withdrawal Option. Under certain
medically related circumstances, we will allow you to surrender or partially
withdraw your money without a surrender charge and excess interest
adjustment.
. Telephone Transactions. You may make transfers and/or change the allocation
of additional premium payments by telephone.
. Dollar Cost Averaging. You can arrange to have a certain amount of money
automatically transferred from the fixed account, either monthly or
quarterly, into your choice of subaccounts.
. Asset Rebalancing. We will, upon your request, automatically transfer
amounts among the subaccounts on a regular basis to maintain a desired
allocation of the policy value among the various subaccounts.
These features are not available in all states and may not be suitable for your
particular situation.
OTHER INFORMATION
Right to Cancel Period. You may return your policy for a refund. The amount of
the refund will generally be the policy value. We will pay the refund within 7
days after we receive written notice of cancellation and the returned policy.
The policy will then be deemed void. The amount of time you have to return the
policy will depend on the state where the policy was issued. It is typically 20
days. In some states you may
6
<PAGE>
have more or less than 20 days to return a policy, or receive a refund of more
(or less) than the policy value.
No Probate. Usually, when the annuitant dies, the person you choose as your
beneficiary will receive the death benefit under this policy without going
through probate. State laws vary on how the amount that may be paid is treated
for estate tax purposes.
Financial Statements. Financial statements for PFL and the subaccounts are in
the SAI.
INQUIRIES
If you need more information, please contact us at:
Atlas Securities, Inc.
794 Davis Street
San Leandro, CA 94577
PFL Life Insurance Company
Administrative and Service Office
Financial Markets Division
Variable Annuity Department
4333 Edgewood Road N.E.
P.O. Box 3183
Cedar Rapids, IA 52406-3183
7
<PAGE>
ANNUITY POLICY FEE TABLE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Policy Owner Transaction Expenses
- ---------------------------------
Separate Account Annual Expenses
(as a percentage of average account
value)
<S> <C>
Mortality and Expense Risk
Fees.......................... 1.25%
Administrative Charge.......... 0.15%
----
TOTAL SEPARATE ACCOUNT ANNUAL
EXPENSES...................... 1.40%
Sales Load On Purchase Payments.... 0
Maximum Surrender Charge (as a % of
Premium
Payments Surrendered)(/1/)(/2/)... 7%
Service Charge................... None
Transfer Fee(/2/).... Currently No Fee
- -----------------------
<CAPTION>
Portfolio Annual
Expenses(/3/)
(as a percentage of
average net assets
and after expense
reimbursements) -
- -----------------------
Total
Management/ Rule Portfolio
Administrative Other 12b-1 Annual
Fees Expenses Fees Expenses
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Atlas Balanced Growth
Portfolio(/4/).................... 0.25% 0.25% -- 0.50%
AIM V.I. Growth Fund............... 0.63% 0.10% -- 0.73%
AIM V.I. Growth and Income Fund.... 0.61% 0.16% -- 0.77%
AIM V.I. Value Fund................ 0.61% 0.15% -- 0.76%
Alliance Growth Portfolio.......... 0.75% 0.12% 0.25% 1.12%
Alliance Premier Growth Portfolio.. 1.00% 0.04% 0.25% 1.29%
Alliance Technology
Portfolio(/5/).................... 1.00% 0.27% 0.25% 1.52%
The Dreyfus Socially Responsible
Growth Fund, Inc.................. 0.75% 0.04% -- 0.79%
Dreyfus VIF--Appreciation
Portfolio......................... 0.75% 0.03% -- 0.78%
Dreyfus VIF--Disciplined Stock
Portfolio......................... 0.75% 0.06% -- 0.81%
Dreyfus VIF--Growth and Income
Portfolio......................... 0.75% 0.04% -- 0.79%
Dreyfus VIF--Quality Bond
Portfolio......................... 0.65% 0.09% -- 0.74%
Dreyfus VIF--Small Cap Portfolio... 0.75% 0.03% -- 0.78%
Endeavor--Dreyfus Small Cap Value
Portfolio(/6/)(/7/)............... 0.80% 0.10% 0.32% 1.22%
OpCap--Endeavor Value Equity
Portfolio(/6/)(/8/)............... 0.80% 0.07% 0.08% 0.95%
T. Rowe Price Equity Income
Portfolio(/6/)(/9/)............... 0.80% 0.07% 0.01% 0.88%
T. Rowe Price Growth Stock
Portfolio(/6/)(/10/).............. 0.80% 0.07% 0.01% 0.88%
Federated High Income Bond Fund
II................................ 0.60% 0.19% -- 0.79%
Federated Utility Fund II.......... 0.75% 0.19% -- 0.94%
Janus Aspen--Aggressive Growth
Portfolio--Service Shares(/11/)... 0.65% 0.02% 0.25% 0.92%
Janus Aspen--Balanced Portfolio--
Service Shares(/11/).............. 0.65% 0.02% 0.25% 0.92%
Janus Aspen--Growth Portfolio--
Service Shares(/11/).............. 0.65% 0.02% 0.25% 0.92%
Janus Aspen--International Growth
Portfolio--Service Shares(/11/)... 0.65% 0.11% 0.25% 1.01%
WRL Janus Global(/12/)............. 0.80% 0.12% -- 0.92%
WRL Janus Growth(/13/)............. 0.80% 0.05% -- 0.85%
WRL VKAM Emerging Growth........... 0.80% 0.07% -- 0.87%
WRL Alger Aggressive Growth........ 0.80% 0.09% -- 0.89%
</TABLE>
- --------------------------------------------------------------------------------
8
<PAGE>
(/1/)The surrender charge decreases 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.
(/2/)The surrender charge and transfer fee, if any are imposed, apply to each
policy, regardless of how policy value is allocated among the separate
account and the fixed account. Separate account annual expenses do not
apply to the fixed account.
(/3/)The fee table information of the underlying funds was provided to PFL by
the underlying funds, for the year ended December 31, 1999, and PFL has
not independently verified such information. Actual future expenses of the
funds may be greater or less than those shown in the Table.
(/4/)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 Atlas Balanced Growth 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 1.70%. 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, 1999, the Portfolio's ratio of expenses to average net assets
would have been 0.95%.
(/5/)Effective May 1, 2000, the Alliance Technology Portfolio will no longer
assume portfolio expenses. Accordingly, the table shows restated total
expenses for the fund without the assumption of expenses as of December
31, 1999.
(/6/)The Board of Trustees of Endeavor Series Trust (the "Trust") has
authorized an arrangement whereby, subject to best price and execution,
executing brokers will share commissions with the Trust's affiliated
broker. Under supervision of the Trustees, the affiliated broker will use
the "recaptured commission" to promote marketing of the Trust's shares.
The staff of the SEC believes that, through the use of these recaptured
commissions, the Trust is indirectly paying for distribution expenses and
such amounts must be shown as 12b-1 fees in the above table. The use of
recaptured commissions to promote the sale of the Trust's shares involves
no additional costs to the Trust or any Owner. Endeavor Series Trust,
based on advice of counsel, does not believe that recaptured brokerage
commissions should be treated as 12b-1 fees. For more information on the
Trust's Brokerage Enhancement Plan, see the Trust's prospectus
accompanying this prospectus.
(/7/)For the Dreyfus Small Cap Value Portfolio, the management fees were 0.80%
and other expenses before reimbursements were 0.10%. Therefore, Total
Portfolio Annual Expenses before reimbursements (reduced by custidial
offset arrangements) for the period ended December 31, 1999 were 0.90%.
(/8/)For the Endeavor Value Equity Portfolio, the management fees were 0.80%
and other expenses before reimbursements were 0.08%. Therefore, Total
Portfolio Annual Expenses before reimbursements (reduced by custidial
offset arrangements) for the period ended December 31, 1999 were 0.88%.
(/9/)For the T. Rowe Price Equity Income Portfolio, the management fees were
0.80% and other expenses before reimbursements were 0.07%. Therefore,
Total Portfolio Annual Expenses before reimbursements (reduced by
custidial offset arrangements) for the period ended December 31, 1999 were
0.87%.
(/10/)For the T. Rowe Price Growth Stock, the management fees were 0.80% and
other expenses before reimbursements were 0.08%. Therefore, Total
Portfolio Annual Expenses before reimbursements (reduced by custidial
offset arrangements) for the period ended December 31, 1999 were 0.87%.
(/11/)Expenses are based on the estimated expenses that the new Service Shares
Class of each portfolio expects to incur in its initial fiscal year.
9
<PAGE>
(/12/)For WRL Janus Global, the investment adviser currently waives 0.025% of
its advisory fee on portfolio average daily net assets over $2 billion
(net fee--0.775%). This waiver is voluntary and will be terminated on
June 25, 2000.
(/13/)For WRL Janus Growth, the investment adviser currently waives 0.025% of
its advisory fee for the first $3 billion of the portfolio's average
daily net assets (net fee--0.775%); and 0.05% for the portfolio's average
daily net assets above $3 billion (net fee--0.75%). This waiver is
voluntary and will be terminated on June 25, 2000.
10
<PAGE>
EXAMPLES
You would pay the following expenses on a $1,000 investment, assuming a
hypothetical 5% annual return on assets, and assuming the entire policy value
is in the applicable subaccount:
The expenses reflect a mortality and expense risk fee of 1.25% for the
guaranteed minimum death benefit, which is the greater of the 5% Annually
Compounding Death Benefit and the Annual Step-Up Death Benefit.
<TABLE>
<CAPTION>
If the Policy is
annuitized at
If the Policy is the end of the
surrendered applicable time period
at the end of the or if the Policy is
applicable still in the
time period. accumulation phase.
-----------------------------------------------
1 3 5 10 1 3 5 10
Subaccounts Year Years Years Years Year Years Years Years
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Atlas Balanced Growth(/1/).... $82 $102 $123 $222 $19 $60 $103 $222
- -------------------------------------------------------------------------------
AIM V.I. Growth Fund.......... $85 $109 $134 $246 $22 $67 $114 $246
- -------------------------------------------------------------------------------
AIM V.I. Growth and Income
Fund......................... $85 $110 $136 $250 $22 $68 $116 $250
- -------------------------------------------------------------------------------
AIM V.I. Value Fund........... $85 $110 $136 $249 $22 $68 $116 $249
- -------------------------------------------------------------------------------
Alliance Growth Portfolio..... $87 $114 $144 $266 $24 $72 $124 $266
- -------------------------------------------------------------------------------
Alliance Premier Growth
Portfolio.................... $90 $126 $162 $302 $27 $84 $142 $302
- -------------------------------------------------------------------------------
Alliance Technology
Portfolio.................... $93 $132 $174 $324 $30 $90 $154 $324
- -------------------------------------------------------------------------------
The Dreyfus Socially
Responsible Growth Fund,
Inc.......................... $85 $111 $137 $252 $22 $69 $117 $252
- -------------------------------------------------------------------------------
Dreyfus VIF--Appreciation
Portfolio.................... $85 $110 $137 $251 $22 $68 $117 $251
- -------------------------------------------------------------------------------
Dreyfus VIF--Disciplined Stock
Portfolio.................... $85 $111 $138 $254 $22 $69 $118 $254
- -------------------------------------------------------------------------------
Dreyfus VIF--Growth and Income
Portfolio.................... $85 $111 $137 $252 $22 $69 $117 $252
- -------------------------------------------------------------------------------
Dreyfus VIF--Quality Bond
Portfolio.................... $85 $109 $135 $247 $22 $67 $115 $247
- -------------------------------------------------------------------------------
Dreyfus VIF--Small Cap
Portflio..................... $85 $110 $137 $251 $22 $68 $117 $251
- -------------------------------------------------------------------------------
Endeavor--Dreyfus Small Cap
Value Portfolio.............. $90 $123 $159 $295 $27 $81 $139 $295
- -------------------------------------------------------------------------------
OpCap--Endeavor Value Equity.. $87 $115 $146 $269 $24 $73 $126 $269
- -------------------------------------------------------------------------------
T. Rowe Price Equity Income... $86 $113 $142 $262 $23 $71 $122 $262
- -------------------------------------------------------------------------------
T. Rowe Price Growth Stock.... $86 $113 $142 $262 $23 $71 $122 $262
- -------------------------------------------------------------------------------
Federated High Income Bond
Fund II...................... $85 $111 $137 $252 $22 $69 $117 $252
- -------------------------------------------------------------------------------
Federated Utility Fund II..... $87 $115 $145 $268 $24 $73 $125 $268
- -------------------------------------------------------------------------------
Janus--Aggressive Growth
Portfolio.................... $87 $114 $144 $266 $24 $72 $124 $266
- -------------------------------------------------------------------------------
Janus--Balanced Portfolio..... $87 $114 $144 $266 $24 $72 $124 $266
- -------------------------------------------------------------------------------
Janus--Growth Portfolio....... $87 $114 $144 $266 $24 $72 $124 $266
- -------------------------------------------------------------------------------
Janus--International Growth
Portfolio.................... $87 $117 $149 $275 $24 $75 $129 $275
- -------------------------------------------------------------------------------
WRL Janus Global.............. $87 $114 $144 $266 $24 $72 $124 $266
- -------------------------------------------------------------------------------
WRL Janus Growth.............. $86 $112 $140 $258 $23 $70 $120 $258
- -------------------------------------------------------------------------------
WRL VKAM Emerging Growth...... $86 $113 $142 $261 $23 $71 $122 $261
- -------------------------------------------------------------------------------
WRL Alger Aggressive Growth... $86 $114 $143 $263 $23 $72 $123 $263
</TABLE>
11
<PAGE>
(/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 table will assist you in understanding the costs and expenses of the
policy and the underlying funds that you will bear, directly or indirectly.
These include the 1999 expenses of the underlying funds. In addition to the
expenses listed above, premium taxes, currently ranging from 0% to 2.35% 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.
Financial Information. Condensed financial information for the subaccounts is
in Appendix A to this prospectus.
12
<PAGE>
1. THE ANNUITY POLICY
This prospectus describes the Atlas Portfolio Builder Variable Annuity policy
offered by PFL Life Insurance Company through Atlas Securities, Inc.
An annuity is a contract between you, the owner, and an insurance company (in
this case PFL), where the insurance company promises to pay you an income in
the form of annuity payments. These payments begin on a designated date,
referred to as the annuity commencement date. Until the annuity commencement
date, your annuity is in the accumulation phase and the earnings (if any) are
tax deferred. Tax deferral means you generally are not taxed on your annuity
until you take money out of your annuity. After the annuity commencement date,
your annuity switches to the income phase.
The policy is a flexible premium variable annuity. You can use the policy to
accumulate funds for retirement or other long-term financial planning purposes.
The policy 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. However, you are not required to make any
additional investments.
The policy is a "variable" annuity because the value of your investments can go
up or down based on the performance of your investment choices. If you invest
in the variable annuity portion of the policy, the amount of money you are able
to accumulate in your policy during the accumulation phase depends upon the
performance of your investment choices. The amount of annuity payments you
receive during the income phase from the variable annuity portion of your
policy also depends upon the investment performance of your investment choices
for the income phase.
The policy also contains a fixed account. The fixed account offers interest at
rates that PFL guarantees will not decrease during each one year period. There
may be different interest rates for each different guaranteed period that you
select.
2. PURCHASE
Policy Issue Requirements
PFL will not issue a policy unless:
. PFL receives all information needed to issue the policy;
. PFL receives a minimum initial premium payment; and
. owner and annuitant are age 80 or younger, however, PFL reserves the right
to issue policies up to age 90.
We reserve the right to reject any application or premium payment.
Premium Payments
You should make checks for premium payments payable only to PFL Life Insurance
Company. Your check must be honored in order for PFL to pay any associated
payments and benefits due under the policy.
Initial Premium Requirements
The initial premium payment must be at least:
. $5,000 for nonqualified policies; and
. $2,000 for qualified policies.
We allow premium payments up to a total of $1,000,000 without prior approval.
We will credit your initial premium payment to your policy within two business
days after the day we receive it and your complete policy information. If we
are unable to credit your initial premium payment, we will contact you within
five business days and explain why. We will also return your initial premium
payment at that time unless you let us keep it and credit it as soon as
possible.
The date on which we credit your initial premium payment to your policy is the
policy date. The policy date is used to determine policy years, policy months
and policy anniversaries.
13
<PAGE>
Additional Premium Payments
Additional premium payments must be at least $500.
You are not required to make any additional premium payments. However, you can
make additional premium payments as often as you like during the lifetime of
the annuitant during the accumulation phase. We will credit additional premium
payments to your policy as of the business day PFL receives your premium and
required information at our administrative and service office. Additional
premium payments must be received by PFL before the New York Stock Exchange
closes to get same-day pricing of the additional premium payment.
Allocation of Premium Payments
When you purchase a policy, we will allocate your premium payment to the
investment choices you select. Your allocation must be in whole percentages and
must total 100%. We will allocate additional premium payments the same way,
unless you request a different allocation.
You may change allocations for future additional premium payments by sending us
written instructions or by telephone, subject to the limitations described
below under "Telephone Transactions." The allocation change will apply to
premium payments received after the date we receive the change request.
Policy Value
You should expect your policy value to change from valuation period to
valuation period. A valuation period begins at the close of trading on the New
York Stock Exchange on each business day and ends at the close of trading on
the next succeeding business day. A business day is each day that the New York
Stock Exchange is open. The New York Stock Exchange generally closes at 4:00
p.m. eastern time. Holidays are generally not business days.
3. INVESTMENT CHOICES
The Separate Account
The separate account currently consists of twenty-seven subaccounts.
The subaccounts invest in shares of the underlying funds. The companies that
provide investment management, investment advisory and administrative services
for the underlying funds offered through this policy are listed below. The
following investment choices are currently offered through this policy:
Atlas Advisers, Inc.
Atlas Balanced Growth Portfolio
A I M Advisors, Inc.
AIM V.I. Growth Fund
AIM V.I. Growth and Income Fund
AIM V.I. Value Fund
Alliance Capital Management L.P.
Alliance Growth Portfolio
Alliance Premier Growth Portfolio
Alliance Technology Portfolio
The Dreyfus Corporation
The Dreyfus Socially Responsible Growth Fund, Inc.
Dreyfus VIF--Appreciation Portfolio
Dreyfus VIF--Disciplined Stock Portfolio
Dreyfus VIF--Growth and Income Portfolio
Dreyfus VIF--Quality Bond Portfolio
Dreyfus VIF--Small Cap Portfolio
Endeavor--Dreyfus Small Cap Value Portfolio
OpCap Advisors
OpCap--Endeavor Value Equity Portfolio
T. Rowe Price Associates, Inc.
T. Rowe Price Equity Income Portfolio
T. Rowe Price Growth Stock Portfolio
Federated Investment Management Company
Federated High Income Bond Fund II
Federated Utility Fund II
Janus Capital Corporation
Janus Aspen--Aggressive Growth Portfolio
Janus Aspen--Balanced Portfolio
Janus Aspen--Growth Portfolio
Janus Aspen--International Growth Portfolio
WRL Janus Global
WRL Janus Growth
14
<PAGE>
Van Kampen Asset Management Inc.
WRL VKAM Emerging Growth
Fred Alger Management, Inc.
WRL Alger Aggressive Growth
The general public may not purchase these underlying fund portfolios. The
investment objectives and policies may be similar to other portfolios and
mutual funds managed by the same investment adviser or manager that are sold
directly to the public. You should not expect the investment results of the
underlying funds to be the same as those of other portfolios or mutual funds.
More detailed information, including an explanation of the portfolio's
investment objectives, may be found in the current prospectuses for the
underlying fund portfolios, which are attached to this prospectus. You should
read the prospectuses for each of the underlying funds carefully before you
invest.
We may receive expense reimbursements or other revenues from the underlying
funds or their managers. The amount of these reimbursements or revenues, if
any, may be different for different funds or portfolios, and may be based on
the amount of assets that PFL or the separate account invests in the underlying
funds.
We do not guarantee that any of the subaccounts will always be available for
premium payments, allocations, or transfers. See the SAI for more information
concerning the possible addition, deletion or substitution of investments.
The Fixed Account
The fixed account currently consists of guaranteed period options and a one
year fixed option.
Premium payments allocated and amounts transferred to the fixed account become
part of PFL's general account. Interests in the general account are not
registered under the Securities Act of 1933 (the "1933 Act"), nor is the
general account registered as an investment company under the 1940 Act.
Accordingly, neither the general account nor any interests therein are
generally subject to the provisions of the 1933 or 1940 Acts. PFL has been
advised that the staff of the SEC has not reviewed the disclosures in this
prospectus which relate to the fixed account.
We guarantee that the interest credited to the fixed account will never be less
than 3% per year. At the end of an option period, the value in that period
option will automatically be transferred into a new period option of the same
length (or the next shorter period if the same period is no longer offered) at
the current interest rate for that period.
Surrenders or partial withdrawals from a guaranteed period option of the fixed
account (other than at the end of a guaranteed period) are subject to an excess
interest adjustment. However, surrenders or partial withdrawals from the one
year fixed option of the fixed account will never be subject to an excess
interest adjustment. This adjustment may increase or decrease the amount of
interest credited to your policy. The excess interest adjustment will not
decrease the interest credited to your policy below 3% per year, however. You
bear the risk that we will not credit interest greater than 3% per year. We
determine credited rates, which are guaranteed for at least one year, in our
sole discretion.
If you select the fixed account, your money will be placed with PFL's other
general assets. The amount of money you are able to accumulate in the fixed
account during the accumulation phase depends upon the total interest credited.
The amount of annuity payments you receive during the income phase from the
fixed portion of your policy will remain level for the entire income phase.
Transfers
During the accumulation phase, you may make transfers to or from any subaccount
as often as you wish, within certain limitations as described below.
Transfers from the guaranteed period options of the fixed account are allowed
only under the following circumstances:
. Within 30 days prior to the end of the guaranteed period you must notify us
that
15
<PAGE>
you wish to transfer the amount in the guaranteed period option to another
investment choice. No excess interest adjustment will apply to these
transfers.
. Transfers of amounts equal to interest credited to the guaranteed period
options of the fixed account on a monthly, quarterly, semi-annual or annual
basis. No excess interest adjustment will apply to these transfers. This may
affect your overall interest-crediting rate, because transfers are deemed to
come from the oldest premium payment first.
Transfers from the one year fixed option to any of the other investment choices
are permitted without an excess interest adjustment.
Each transfer from a subaccount must be at least $500, or the entire subaccount
value. Transfers out of the fixed account of amounts equal to interest credited
to the guaranteed period options of the fixed account must be at least $50. If
less than $500 remains, then we reserve the right to include that amount in the
transfer. Transfers must be received by PFL while the New York Stock Exchange
is open to get same-day pricing of the transaction.
During the income phase of your policy, you may transfer values out of any
subaccount up to four times per policy year. However, you cannot transfer
values out of the fixed account in this phase. The minimum amount that can be
transferred during this phase is the lesser of $10 of monthly income, or the
entire monthly income of the annuity units in the subaccount from which the
transfer is being made.
Transfers may be made by telephone, subject to the limitations described under
"Telephone Transactions."
Currently, there is no charge for transfers and no limit on the number of
transfers during the accumulation phase. However, in the future, the number of
transfers permitted may be limited and a $10 charge in excess of 12 transfers
per year may apply.
We reserve the right to prohibit transfers to the fixed account if we are
crediting an effective annual interest rate of 3.0% (the guaranteed minimum).
The policy is not designed for professional market timing organizations or
other persons that use programmed, large, or frequent transfers. The use of
such transfers may be disruptive to an underlying fund. We reserve the right to
reject any premium payment or transfer request from any person, if, in our
judgment, an underlying fund would be unable to invest effectively in
accordance with its investment objectives and policies or would otherwise be
potentially adversely affected or if an underlying portfolio would reject our
purchase order.
4. PERFORMANCE
PFL and Atlas periodically advertise performance of the underlying funds. We
may disclose at least four different kinds of performance. First, we may
calculate performance by determining the percentage change in the value of an
accumulation unit by dividing the increase (decrease) for that unit by the
value of the accumulation unit at the beginning of the period. This performance
number reflects the deduction of the mortality and expense risk fees and
administrative charges. It does not reflect the deduction of any applicable
premium taxes or surrender charges. The deduction of any applicable premium
taxes or surrender charges would reduce the percentage increase or make greater
any percentage decrease.
Second, any advertisement will also include total return figures, which reflect
the deduction of the mortality and expense risk fees, administrative charges
and surrender charges.
Third, in addition, for certain underlying funds, performance may be shown for
the period commencing from the inception date of the underlying fund. These
figures should not be interpreted to reflect actual historical performance of
the separate account.
We also may, from time to time, include in our advertising and sales materials,
tax deferred compounding charts and other hypothetical
16
<PAGE>
illustrations, which may include comparisons of currently taxable and tax
deferred investment programs, based on selected tax brackets.
Appendix B contains performance information that you may find useful. It is
divided into various parts, depending upon the type of performance information
shown. Future performance will vary and future results will not be the same as
the results shown.
5. EXPENSES
There are charges and expenses associated with your policy that reduce the
return on your investment in the policy.
Surrender Charges
During the accumulation phase, you can withdraw part or all of the cash value.
Cash value is the policy value increased or decreased by any excess interest
adjustment, if applicable, and decreased by any applicable surrender charge. We
may deduct a surrender charge to compensate us for expenses relating to policy
sales, including commissions to registered representatives and other
promotional expenses. You can withdraw up to 10% of your cumulative premium
payments each year free of surrender charges. This free amount is cumulative
and is referred to as the cumulative free percentage and is determined at the
time of the withdrawal. If you withdraw money in excess of the cumulative free
percentage, you might have to pay a surrender charge, which is a contingent
deferred sales charge, on the excess amount. The following schedule shows the
surrender charges that apply during the first five policy years:
<TABLE>
<CAPTION>
Surrender Charge
Policy (as a percentage of
Year premium withdrawn)
- ------------------------------------------------------------------------------
<S> <C>
1 7%
- ------------------------------------------------------------------------------
2 7%
- ------------------------------------------------------------------------------
3 6%
- ------------------------------------------------------------------------------
4 5%
- ------------------------------------------------------------------------------
5 4%
- ------------------------------------------------------------------------------
6+ 0%
</TABLE>
Surrender charges are based only on policy years. No surrender charge will be
applied after the fifth policy year. For example, an additional premium payment
in policy year four would only be subject to a 5% surrender charge for one year
and a 4% surrender charge for a second year.
The application of the cumulative free percentage is shown in the following
example. Assume your premium payments total $100,000 at the beginning of policy
year 2 and you withdraw $30,000. Since that amount is more than your cumulative
free percentage of 20% that is available at that time, you would pay a
surrender charge of $700 on the remaining $10,000 (7% of $30,000--$20,000).
You receive the full amount of a requested partial withdrawal because we deduct
any surrender charge and any applicable excess interest adjustment from your
remaining policy value. You receive your cash value upon full surrender.
For surrender charge purposes, premium payments are deemed to be withdrawn
before earnings. After all premium payments are withdrawn, the remaining
adjusted policy value may be withdrawn free from any surrender charges.
Withdrawals may be taxable, and if made before age 59 1/2, may be subject to a
10% federal penalty tax. For tax purposes, withdrawals are considered to come
from earnings first.
Surrender charges are waived if you withdraw money under the nursing care and
terminal condition withdrawal option.
Excess Interest Adjustment
Withdrawals of cash value from the guaranteed period option's of the fixed
account may be subject to an excess interest adjustment. This adjustment could
retroactively reduce the interest credited in the fixed account to the
guaranteed minimum of 3% per year. See "Excess Interest Adjustment" in Section
7 of this prospectus.
17
<PAGE>
Mortality and Expense Risk Fee
We charge a fee as compensation for bearing certain mortality and expense risks
under the policy. Examples include a guarantee of annuity rates, the death
benefits, certain expenses of the policy, and assuming the risk that the
current charges will be insufficient in the future to cover costs of
administering the policy. The mortality and expense risk fee is at an annual
rate of 1.25% of assets. This annual fee is assessed daily based on the net
asset value of each subaccount.
If this charge does not cover our actual costs, we absorb the loss. Conversely,
if the charge more than covers actual costs, the excess is added to our
surplus. We expect to profit from this charge. We may use our profit or surplus
for any proper purpose, including distribution expenses.
Administrative Charges
We deduct an annual administrative charge to cover the costs of administering
the policies. This charge is equal to an annual rate of 0.15% of the daily net
asset value of the separate account.
Premium Taxes
Some states assess premium taxes on the premium payments you make. We currently
do not deduct for these taxes at the time you make a premium payment. However,
we will deduct the total amount of premium taxes, if any, from the policy value
when:
. you elect to begin receiving annuity payments;
. you surrender the policy; or
. you die and a death benefit is paid (you must also be the annuitant for the
death benefit to be paid).
Generally, premium taxes range from 0% to 2.37%, depending on the state.
Federal, State and Local Taxes
We may in the future deduct charges from the policy for any taxes we incur
because of the policy. However, no deductions are being made at the present
time.
Transfer Fee
Currently there is no charge for transfers. However, if you make more than 12
transfers per year before the annuity commencement date, we reserve the right
to charge $10 for each additional transfer. Premium payments, asset rebalancing
and dollar cost averaging transfers are not considered transfers. All transfer
requests made at the same time are treated as a single request.
Portfolio Management Fees
The value of the assets in each subaccount will reflect the fees and expenses
paid by the underlying fund. A list of these expenses is found in the "Annuity
Policy Fee Table" section of this prospectus. See the prospectuses for the
underlying funds for more information.
6. FAMILY PROTECTION FEATURE
We will pay a death benefit to the beneficiary you name, under certain
circumstances, if the annuitant dies during the accumulation phase and the
annuitant was also an owner. (If the annuitant was not an owner, a death
benefit may or may not be paid. See below.) The beneficiary may choose an
amount payable under one of the guaranteed period options or may choose to
receive a lump sum.
When We Pay A Death Benefit
Before the Annuity Commencement Date
We will pay a death benefit to your beneficiary IF:
. you are both the annuitant and an owner of the policy; and
. you die before the annuity commencement date.
We will also pay a death benefit to your beneficiary IF:
. you are not the annuitant; and
. the annuitant dies before the annuity commencement date; and
. you specifically requested that the death benefit be paid upon the
annuitant's death.
If the only beneficiary is your surviving spouse, then he or she may elect to
continue the policy
18
<PAGE>
as the new annuitant and owner, instead of receiving the death benefit. All
future surrender charges will be waived. Distribution requirements apply upon
the death of the owner. These requirements are detailed in the SAI.
After the Annuity Commencement Date
The death benefit payable, if any, on or after the annuity commencement date
depends on the annuity payment option selected.
IF:
. you are not the annuitant; and
. you die on or after the annuity commencement date; and
. the entire interest in the policy has not been paid to you;
THEN:
. the remaining portion of such interest in the policy will be distributed at
least as rapidly as under the method of distribution being used as of the
date of your death.
When We Do Not Pay A Death Benefit
No death benefit is paid in the following cases:
IF:
. you are not the annuitant; and
. the annuitant dies prior to the annuity commencement date; and
. you did not specifically request that the death benefit be paid to the
beneficiary upon the annuitant's death;
THEN:
. you will become the new annuitant and the policy will continue.
IF:
. you are not the annuitant; and
. you die prior to the annuity commencement date;
THEN:
. the new owner must surrender the policy within five years of your death for
the policy value increased or decreased by an excess interest adjustment.
Note carefully. If the owner does not name a contingent owner, the owner's
estate will become the new owner. If no probate estate is opened (because, for
example, the owner has precluded the opening of a probate estate by means of a
trust or other instrument), and PFL has not received written notice of the
trust as a successor owner signed prior to the owner's death, then that trust
may not exercise ownership rights to the policy. It may be necessary to open a
probate estate in order to exercise ownership rights to the policy if no
contingent owner is named in a written notice PFL receives.
Amount of Death Benefit
Death benefit provisions may differ from state to state. The death benefit may
be paid as a lump sum or as annuity payments. The amount of the death benefit
depends on the guaranteed minimum death benefit, which is based on the age of
the annuitant on the policy date. The death benefit will be the greatest of:
. policy value on the date we receive the required information; or
. cash value on the date we receive the required information (this could be
more than the policy value if there is a positive excess interest adjustment
that exceeds the surrender charge); or
. guaranteed minimum death benefit, if any, (discussed below), plus premium
payments, less partial withdrawals from the date of death to the date the
death benefit is paid.
Guaranteed Minimum Death Benefit
If the annuitant(s) is younger than age 75 on the policy date, the guaranteed
minimum death benefit is the greater of:
. A 5% Annually Compounding Death Benefit. Total premium payments, less any
adjusted partial withdrawals, plus interest at an effective annual rate of
5% from the premium payment date or withdrawal date to the date of death
(but not later than your 76th birthday); or
. An Annual Step-Up Death Benefit. On each policy anniversary before your 76th
birthday, a new "stepped-up" death benefit is determined and becomes the
guaranteed minimum death benefit for that policy year. The death benefit is
equal to:
. the largest policy value on the policy date or on any policy anniversary
before you reach age 76; plus
19
<PAGE>
. any premium payments you have made since then; minus
. any adjusted partial withdrawals we have paid to you since then.
If the annuitant(s) is age 75 or older on the policy date, the guaranteed
minimum death benefit is a Return of Premium.
IF, under both death benefit options:
. the surviving spouse elects to continue the policy instead of receiving the
death benefit; and
. the guaranteed minimum death benefit is greater than the policy value;
THEN:
. we will increase the policy value to be equal to the guaranteed minimum
death benefit. This increase is made only at the time the surviving spouse
elects to continue the policy.
Adjusted Partial Withdrawal
When you request a partial withdrawal, your guaranteed minimum death benefit
will be reduced by an amount called the adjusted partial withdrawal. Under
certain circumstances (such as when the policy value is less than the
guaranteed minimum death benefit immediately before the withdrawal), the
adjusted partial withdrawal may be more than the amount of your withdrawal
request. It is also possible that if a death benefit is paid after you have
made a partial withdrawal, then the total amount paid could be less than the
total premium payments. We have included a detailed explanation of this
adjustment in the SAI.
7. ACCESS TO YOUR MONEY
During the accumulation phase, you can have access to the money in your policy
in several ways:
. by making a withdrawal (either a complete or partial withdrawal); or
. by taking systematic payouts.
Surrenders
If you want to make a complete withdrawal, you will receive:
. the value of your policy; plus or minus
. any excess interest adjustment; minus
. surrender charges and premium taxes.
If you want to take a partial withdrawal, in most cases it must be for at least
$250. You must tell us how you want the withdrawal to be allocated among the
various investment choices.
You may take up to 10% of your cumulative premium payments free of surrender
charges each policy year. The free amount is cumulative so any free amount not
taken one year is available to be taken the following year free of surrender
charges. Remember that any withdrawal you take will reduce the policy value and
the amount of the death benefit. See Section 6, "Family Protection Feature,"
for more details.
Withdrawals may be subject to a surrender charge. Withdrawals from the
guaranteed period option's of the fixed account may also be subject to an
excess interest adjustment. Income taxes, federal tax penalties and certain
restrictions may apply to any withdrawals you make.
Withdrawals from qualified policies may be restricted or prohibited.
During the income phase, you will receive annuity payments under the annuity
payment option you select; however, you generally may not take any other
withdrawals, either complete or partial.
Delay of Payment and Transfers
Payment of any amount due from the separate account for a surrender, a death
benefit, or the death of the owner of a nonqualified policy, will generally
occur within seven business days from the date PFL receives all required
information. PFL may defer such payment from the separate account if:
. the New York Stock Exchange is closed other than for usual weekends or
holidays or trading on the Exchange is otherwise restricted; or
. an emergency exists as defined by the SEC or the SEC requires that trading
be restricted; or
. the SEC permits a delay for the protection of owners.
In addition, transfers of amounts from the subaccounts may be deferred under
these circumstances.
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<PAGE>
Pursuant to the requirements of certain state laws, we reserve the right to
defer payment of the cash value from the fixed account for up to six months. We
may defer payment of any amount until your premium check has cleared your bank.
Excess Interest Adjustment
Money that you withdraw from a guaranteed period option of the fixed account
before the end of its guaranteed period (the number of years you specified the
money would remain in the guaranteed period option) may be subject to an excess
interest adjustment. At the time you request a withdrawal, if interest rates
set by PFL have risen since the date of the initial guarantee, the excess
interest adjustment will result in a lower cash value on surrender. However, if
interest rates have fallen since the date of the initial guarantee, the excess
interest adjustment will result in a higher cash value on surrender.
Generally, any amount withdrawn from a guaranteed period option during a policy
year in excess of 10% of your cumulative premium payments is subject to an
excess interest adjustment. You can, however, withdraw up to 10% of your
cumulative premium payments each policy year, in one or more withdrawals,
without an excess interest adjustment.
There will be no excess interest adjustment on any of the following:
. nursing care and terminal condition withdrawals;
. periodic withdrawals of amounts equal to cumulative interest credited to the
guaranteed period options of the fixed account;
. withdrawals to satisfy any minimum distribution requirements; and
. systematic payout option payments, which do not exceed the cumulative
interest credited to the guaranteed period options of the fixed account; and
. surrenders, partial withdrawals and transfers from the one year fixed option
to any other investment choice.
Please note that in these circumstances, you will not receive a higher cash
value if interest rates have fallen, nor will you receive a lower cash value if
interest rates have risen.
8. ANNUITY PAYMENTS (THE INCOME PHASE)
You choose the annuity commencement date. You can change this date by giving us
written notice 30 days before the current annuity commencement date. The new
annuity commencement date must be at least 30 days after we receive notice of
the change. The latest annuity commencement date generally cannot be after the
policy month following the month in which the annuitant attains age 85. We may
allow a later annuity commencement date, but in no event will that date be
later than the last day of the policy month following the month in which the
annuitant attains age 95.
Election of Annuity Payment Option. Before the annuity commencement date, if
the annuitant is alive, you may choose an annuity payment option or change your
election. If the annuitant dies before the annuity commencement date, the
beneficiary may elect to receive the death benefit in a lump sum or under one
of the annuity payment options.
Unless you specify otherwise, the annuitant will receive the annuity payments.
After the annuitant's death, the beneficiary will receive any remaining
guaranteed payments.
Annuity Payment Options
The policy provides five annuity payment options that are described below. You
may choose any combination of annuity payment options. We will use your
"adjusted policy value" to provide these annuity payments. The adjusted policy
value is the policy value increased or decreased by any applicable excess
interest adjustment. If the adjusted policy value on the annuity commencement
date is less than $2,000, PFL reserves the right to pay it in one lump sum in
lieu of applying it under an annuity payment option. You can receive payments
monthly, quarterly, semi-annually, or annually. (We
21
<PAGE>
reserve the right to change the frequency if payments would be less than $50.)
A charge for premium taxes and an excess interest adjustment, if applicable,
may be made when annuity payments begin.
The annuity payment options are explained below. Options 1, 2, and 4 are fixed
only. Options 3 and 5 can be fixed or variable.
Payment Option 1--Interest Payments. We will pay the interest on the amount we
use to provide annuity payments in equal payments, or this amount may be left
to accumulate for a period of time you and PFL agree to. You and PFL will agree
on withdrawal rights when you elect this option.
Payment Option 2--Income for a Specified Period. We will make level payments
only for the fixed period you choose. No funds will remain at the end.
Payment Option 3--Life Income. You may choose between:
Fixed Payments
. No Period Certain--We will make level payments only during the annuitant's
lifetime.
. 10 Years Certain--We will make level payments for the longer of the
annuitant's lifetime or ten years.
. Guaranteed Return of Policy Proceeds--We will make level payments for the
longer of the annuitant's lifetime or until the total dollar amount of
payments we made to you equals the amount applied to this option.
Variable Payments
. No Period Certain--Payments will be made only during the lifetime of the
annuitant.
. 10 Years Certain--Payments will be made for the longer of the annuitant's
lifetime or ten years.
Payment Option 4--Income of a Specified Amount. Payments are made for any
specified amount until the amount applied to this option, with interest, is
exhausted. This will be a series of level payments followed by a smaller final
payment.
Payment Option 5--Joint and Survivor Annuity. You may choose between:
Fixed Payments
. Payments are made during the joint lifetime of the annuitant and a joint
annuitant of your selection. Payments will be made as long as either person
is living.
Variable Payments
. Payments are made during the joint lifetime of the annuitant and a joint
annuitant of your selection. Payments will be made as long as either person
is living.
Unless you choose to receive variable payments under annuity payment options 3
or 5, the amount of each payment will be set on the annuity commencement date
and will not change. You may, however, choose to receive variable payments
under payment options 3 and 5.
The dollar amount of the first variable payment will be determined in
accordance with the annuity payment rates set forth in the applicable table
contained in the policy. The dollar amount of additional variable payments will
vary based on the investment performance of the subaccount(s) that you select.
The dollar amount of each variable payment after the first may increase,
decrease or remain constant. If the actual investment performance exactly
matched the assumed investment return of 5% at all times, the amount of each
variable annuity payment would remain equal. If actual investment performance
exceeds the assumed investment return, the amount of the variable annuity
payments would increase. Conversely, if actual investment performance is lower
than the assumed investment return, the amount of the variable annuity payments
would decrease.
Other annuity payment options may be arranged by agreement with PFL. Certain
annuity payment options may not be available in all states.
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<PAGE>
NOTE CAREFULLY:
IF:
. you choose Life Income with No Period Certain or a Joint and Survivor
Annuity; and
. the annuitant(s) dies before the due date of the second (third, fourth,
etc.) annuity payment(s);
THEN:
. we may make only one (two, three, etc.) annuity payment(s).
IF:
. you choose Income for a Specified Period, Life Income with 10 years Certain,
Life Income with Guaranteed Return of Policy Proceeds, or Income of a
Specified Amount; and
. the person receiving payments dies prior to the end of the guaranteed
period;
THEN:
. the remaining guaranteed payments will be continued to that person's
beneficiary, or their present value may be paid in a single sum.
We will not pay interest on amounts represented by uncashed annuity payment
checks if the postal or other delivery service is unable to deliver checks to
the payee's address of record. The person receiving payments is responsible for
keeping PFL informed of their current address.
9. TAXES
NOTE: PFL has prepared the following information on federal income taxes as a
general discussion of the subject. It is not intended as tax advice to any
individual. You should consult your own tax adviser about your own
circumstances. PFL has included an additional discussion regarding taxes in the
SAI.
Annuity Policies in General
Deferred annuity policies are a way of setting aside money for future needs
like retirement. Congress recognized how important saving for retirement is and
provided special rules in the Internal Revenue Code for annuities.
Simply stated, these rules provide that generally you will not be taxed on the
earnings, if any, on the money held in your annuity policy until you take the
money out. This is referred to as tax deferral. There are different rules as to
how you will be taxed depending on how you take the money out and the type of
policy--qualified or nonqualified (discussed below).
You will not be taxed on increases in the value of your policy until a
distribution occurs--either as a withdrawal or as annuity payments.
When a non-natural person (e.g., corporation or certain other entities other
than tax-qualified trusts) owns a nonqualified policy, the policy will
generally not be treated as an annuity for tax purposes.
Qualified and Nonqualified Policies
If you purchase the policy under an individual retirement annuity, a pension
plan, or specially sponsored program, your policy is referred to as a qualified
policy.
Qualified policies are issued in connection with the following plans:
. Individual Retirement Annuity (IRA): A traditional IRA allows individuals to
make contributions, which may be deductible, to the contract. A Roth IRA
also allows individuals to make contributions to the contract, but it does
not allow a deduction for contributions, and distributions may be tax-free
if the owner meets certain rules.
. Tax-Sheltered Annuity (403(b) Plan): A 403(b) Plan may be made available to
employees of certain public school systems and tax-exempt organizations and
permits contributions to the contract on a pre-tax basis.
. Corporate Pension and Profit-Sharing and H.R. 10 Plan: Employers and self-
employed individuals can establish pension or profit-sharing plans for their
employees or themselves and make contributions to the contract on a pre-tax
basis.
. Deferred Compensation Plan (457 Plan): Certain governmental and tax-exempt
organizations can establish a plan to defer compensation on behalf of their
employees through contributions to the contract.
23
<PAGE>
If you purchase the policy as an individual and not under an individual
retirement annuity, 403(b) plan, 457 plan, or pension or profit sharing plan,
your policy is referred to as a nonqualified policy.
Withdrawals--Qualified Policies
The information set forth herein describing the taxation of nonqualified
policies does not apply to qualified policies. There are special rules that
govern with respect to qualified policies. Generally, these rules restrict:
. the amount that can be contributed to the policy during any year; and
. the time when amounts can be paid from the policies.
In addition, a penalty tax may be assessed on amounts withdrawn from the policy
prior to the date you reach age 59 1/2, unless you meet one of the exceptions
to this rule. You may also be required to begin taking minimum distributions
from the policy by a certain date. The terms of the plan may limit the rights
otherwise available to you under the policies. We have provided more
information in the SAI.
You should consult your legal counsel or tax adviser if you are considering
purchasing a policy for use with any retirement plan.
Withdrawals--403(b) Policies
The Internal Revenue Code limits withdrawal from certain 403(b) policies.
Withdrawals can generally only be made when an owner:
. reaches age 59 1/2;
. leaves his/her job;
. dies;
. becomes disabled (as that term is defined in the Internal Revenue Code); or
. in the case of hardship. However, in the case of hardship, the owner can
only withdraw the premium payments and not any earnings.
Diversification and Distribution Requirements
The Internal Revenue Code provides that the underlying investments for a
variable annuity must satisfy certain diversification requirements in order to
be treated as an annuity policy. The policy must also meet certain distribution
requirements at the death of an owner in order to be treated as an annuity
policy. These diversification and distribution requirements are discussed in
the SAI. PFL may modify the policy to attempt to maintain favorable tax
treatment.
Withdrawals--Nonqualified Policies
If you make a withdrawal from your policy during the annuity commencement date,
the Internal Revenue Code treats that withdrawal as first coming from earnings
and then from your premium payments. When you make a withdrawal you are taxed
on the amount of the withdrawal that is earnings. (Any excess interest
adjustment resulting from a withdrawal from a guaranteed period option of the
fixed account may affect the amount on which you are taxed. The tax treatment
of excess interest adjustments is uncertain. You should consult a tax adviser
if a withdrawal results in an excess interest adjustment.) Different rules
apply for annuity payments. See "Annuity Payments" below.
The Internal Revenue Code also provides that withdrawn earnings may be subject
to a penalty. The amount of the penalty is equal to 10% of the amount that is
includable in income. Some withdrawals will be exempt from the penalty. They
include any amounts:
. paid on or after the taxpayer reaches age 59 1/2;
. paid after an owner dies;
. paid if the taxpayer becomes totally disabled (as that term is defined in
the Internal Revenue Code);
. paid in a series of substantially equal payments made annually (or more
frequently) under a lifetime annuity;
. paid under an immediate annuity; or
. which come from premium payments made prior to August 14, 1982.
All deferred non-qualified annuity policies that are issued by PFL (or its
affiliates) to the same owner during any calendar year are treated as one
annuity for purposes of determining the amount includable in the owner's income
when a taxable distribution occurs.
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<PAGE>
Taxation of Death Benefit Proceeds
Amounts may be distributed from the policy because of the death of an owner or
the annuitant . Generally, such amounts are includable in the income of the
recipient:
. if distributed in a lump sum, these amounts are taxed in the same manner as
a full surrender; or
. if distributed under an annuity payment option, these amounts are taxed in
the same manner as annuity payments.
For these purposes, the "investment in the contract" is not affected by the
owner's or annuitant's death. That is, the "investment in the contract" remains
generally the total premium payments, less amounts received, which were not
includable in gross income.
Annuity Payments
Although the tax consequences may vary depending on the annuity payment option
you select, in general, for nonqualified and certain qualified policies, only a
portion of the annuity payments you receive will be includable in your gross
income.
In general, the excludable portion of each annuity payment you receive will be
determined as follows:
. Fixed payments--by dividing the "investment in the contract" on the annuity
commencement date by the total expected value of the annuity payments for
the term of the payments. This is the percentage of each annuity payment
that is excludable.
. Variable payments--by dividing the "investment in the contract" on the
annuity commencement date by the total number of expected periodic payments.
This is the amount of each annuity payment that is excludable.
The remainder of each annuity payment is includable in gross income. Once the
"investment in the contract" has been fully recovered, the full amount of any
additional annuity payments is includable in gross income.
If you select more than one annuity payment option, special rules govern the
allocation of the Policy's entire "investment in the contract" to each such
option, for purposes of determining the excludable amount of each payment
received under that option. We advise you to consult a competent tax adviser as
to the potential tax effects of allocating amounts to any particular annuity
payment option.
If, after the annuity commencement date, annuity payments stop because an
annuitant died, the excess (if any) of the "investment in the contract" as of
the annuity commencement date over the aggregate amount of annuity payments
received that was excluded from gross income is generally allowable as a
deduction for your last taxable year.
Transfers, Assignments or Exchanges of Policies
A transfer of ownership or assignment of a policy, the designation of an
annuitant or payee or other beneficiary who is not also the owner, the
selection of certain annuity commencement dates, or a change of annuitant, may
result in certain income or gift tax consequences to the owner that are beyond
the scope of this discussion. An owner contemplating any such transfer,
assignment, selection, or change should contact a competent tax adviser with
respect to the potential tax effects of such a transaction.
Possible Tax Law Changes
Although the likelihood of legislative changes is uncertain, there is always
the possibility that the tax treatment of the policy could change by
legislation or otherwise. You should consult a tax adviser with respect to
legal developments and their effect on the policy.
10. ADDITIONAL FEATURES
Systematic Payout Option
You can select at any time (during the accumulation phase) to receive regular
payments from your policy by using the systematic payout option. Under this
option, you can receive up to 10% (annually) of your cumulative premium
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<PAGE>
payments free of surrender charges. Payments that are less than the amount of
cumulative interest credited to the guaranteed payment options of the fixed
account, less any prior interest withdrawals, are available without an excess
interest adjustment.
Payments can be made monthly, quarterly, semi-annually, or annually. Each
payment must be at least $50. There is no charge for this benefit.
Nursing Care and Terminal
Condition Withdrawal Option
No surrender charges or excess interest adjustment will apply if you or your
spouse has been:
. confined in a hospital or nursing facility for 30 days in a row; or
. diagnosed with a terminal condition (usually a life expectancy of 12 months
or less).
This benefit is also available to the annuitant or annuitant's spouse if the
owner is not a natural person.
You may exercise this benefit at any time (during the accumulation phase) and
there is no charge for this benefit.
This benefit may not be available in all states. See the policy or endorsement
for details and conditions.
Telephone Transactions
You may make transfers and change the allocation of additional premium payments
by telephone unless you elect otherwise on the application.
You will be required to provide certain information for identification purposes
to PFL and Atlas when requesting a transaction by telephone and we may record
your telephone call. PFL may also require written confirmation of your request.
Neither PFL nor Atlas will be liable for following the instructions to
telephone requests that they believe are genuine.
Telephone requests must be received by PFL and Atlas while the New York Stock
Exchange is open to get same-day pricing of the transaction. This option may be
discontinued at any time.
Dollar Cost Averaging Program
During the accumulation phase, you may instruct us to automatically transfer
money from the one year fixed option into one or more variable subaccounts.
There is no charge for this program.
Complete and clear instructions must be received before a dollar cost averaging
program will begin. The instructions must include:
. the subaccounts into which money from the dollar cost averaging fixed
account (or other subaccount(s) used for dollar cost averaging) is to be
transferred; and
. either the dollar amount to transfer monthly or quarterly (each transfer
must be at least $500) or the number of transfers (minimum of 6 monthly or 4
quarterly and maximum of 24 monthly or 8 quarterly).
Transfers must begin within 30 days. We will make the transfers on the 28th day
of the applicable month. You may change your allocations at anytime.
Only one dollar cost averaging program can run at one time. This means that any
addition to a dollar cost averaging program must change either the length of
the program or the dollar amount of the transfers. New instructions must be
received each time there is an addition to a dollar cost averaging program.
Any amount in the dollar cost averaging fixed account (or other subaccount(s)
used for dollar cost averaging) for which we have not received complete and
clear instructions will remain in the dollar cost averaging fixed account (or
other such subaccount) until we receive the instructions. If we have not
received complete and clear instructions within 30 days, the interest credited
in the dollar cost averaging fixed account may be adjusted downward, but not
below the guaranteed effective annual interest rate of 3%.
Dollar cost averaging buys more accumulation units when prices are low and
fewer accumulation units when prices are high. It does not guarantee profits or
assure that you will not experience a loss. You should consider your ability to
continue the dollar cost averaging program during all economic conditions.
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<PAGE>
We may credit different interest rates for dollar cost averaging programs of
varying time periods. If you discontinue the dollar cost averaging program
before its completion, then the interest credited on amounts in the dollar cost
averaging fixed account may be adjusted downward, but not below the minimum
guaranteed effective annual interest rate of 3%.
Asset Rebalancing
During the accumulation phase you can instruct us to automatically rebalance
the amounts in your subaccounts to maintain your desired asset allocation. This
feature is called asset rebalancing and can be started and stopped at any time,
free of charge. However, we will not rebalance if you are in the dollar cost
averaging program or if any other transfer is requested. If a transfer is
requested, we will honor the requested transfer and discontinue asset
rebalancing. Asset rebalancing ignores amounts in the guaranteed period options
of the fixed account. You can choose to rebalance monthly, quarterly, semi-
annually, or annually based on the policy date.
11. OTHER INFORMATION
Ownership
You, as owner of the policy, exercise all rights under the policy. You can
change the owner at any time by notifying us in writing. An ownership change
may be a taxable event.
Assignment
You can also assign the policy any time during your lifetime. PFL will not be
bound by the assignment until we receive written notice of the assignment. We
will not be liable for any payment or other action we take in accordance with
the policy before we receive notice of the assignment. There may be limitations
on your ability to assign a qualified policy. An assignment may have tax
consequences.
PFL Life Insurance Company
PFL Life Insurance Company was incorporated under the laws of the State of Iowa
on April 19, 1961 as NN Investors Life Insurance Company, Inc. It is engaged in
the sale of life and health insurance and annuity policies. PFL is a wholly-
owned indirect subsidiary of AEGON USA, Inc. which conducts most of its
operations through subsidiary companies engaged in the insurance business or in
providing non-insurance financial services. All of the stock of AEGON USA,
Inc., is indirectly owned by AEGON N.V. of The Netherlands, the securities of
which are publicly traded. AEGON N.V., a holding company, conducts its business
through subsidiary companies engaged primarily in the insurance business. PFL
is licensed in the District of Columbia, Guam, and in all states except New
York.
All obligations arising under the policies, including the promise to make
annuity payments, are general corporate obligations of PFL.
The Separate Account
PFL established a separate account, called the PFL Life Variable Annuity
Account A, under the laws of the State of Iowa on February 17, 1997. The
separate account receives and currently invests the premium payments under the
policies that are allocated to the separate account for investment in shares of
the underlying mutual fund portfolios.
The separate account is registered with the SEC as a unit investment trust
under the 1940 Act. However, the SEC does not supervise the management, the
investment practices, or the policies of the separate account or PFL. Income,
gains and losses, whether or not realized, from assets allocated to the
separate account are, in accordance with the policies, credited to or charged
against the separate account without regard to PFL's other income, gains or
losses.
The assets of the separate account are held in PFL's name on behalf of the
separate account and belong to PFL. However, those assets that underlie the
policies are not chargeable with liabilities arising out of any other business
PFL may conduct.
Mixed and Shared Funding
Before making a decision concerning the allocation of premium payments to a
particular
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<PAGE>
subaccount, please read the prospectuses for the underlying funds. The
underlying funds are not limited to selling their shares to this separate
account and can accept investments from any separate account or qualified
retirement plan. Since the underlying fund portfolios are available to
registered separate accounts offering variable annuity products of PFL, as well
as variable annuity and variable life products of other insurance companies,
and qualified retirement plans, there is a possibility that a material conflict
may arise between the interests of this separate account and one or more of the
other separate accounts of another participating insurance company. In the
event of a material conflict, the affected insurance companies, including PFL,
agree to take any necessary steps to resolve the matter. This includes removing
their separate accounts from the underlying funds. See the prospectuses for the
underlying funds for more details.
Reinstatements
You may decide to surrender your policy and transfer your money directly to
another life insurance company (sometimes referred to as a 1035 Exchange or a
trustee-to-trustee transfer). You may also request us to reinstate your policy
after such a transfer by returning the same total dollar amount of funds to the
applicable investment choices. The dollar amount will be used to purchase new
accumulation units at the then-current price. Because of changes in market
value, your new accumulation units may be worth more or less than the units you
previously owned. We recommend that you consult a tax professional to explain
the possible tax consequences of exchanges and/or reinstatements.
Voting Rights
PFL will vote all shares of the underlying funds in accordance with
instructions we receive from you and other owners that have voting interests in
the portfolios. We will send you and other owners written requests for
instructions on how to vote those shares. When we receive those instructions,
we will vote all of the shares in proportion to those instructions. If,
however, we determine that we are permitted to vote the shares in our own
right, we may do so. Each person having a voting interest will receive proxy
material, reports, and other materials relating to the appropriate portfolio.
Distributor of the Policies
AFSG Securities Corporation is the principal underwriter of the policies. Like
PFL, an indirect wholly-owned subsidiary of AEGON USA, Inc. It is located at
4333 Edgewood Road N.E., Cedar Rapids, IA 52499-0001. AFSG Securities
Corporation is registered as a broker/dealer under the Securities Exchange Act
of 1934. It is a member of the National Association of Securities Dealers, Inc.
It was incorporated in Pennsylvania on March 12, 1986.
The policies are sold through registered representatives of Atlas. Commissions
of up to 6.58% of premium payments will be paid to Atlas under its agreement
with AFSG Securities Corporation. These commissions are not deducted from
premium payments. In addition, certain production, persistency and managerial
bonuses may be paid. PFL may also, in conjunction with Atlas, pay compensation
to banks and other financial institutions for their services in connection with
the sale and servicing of the policies.
Variations in Policy Provisions
Certain provisions of the policies may vary from the descriptions in this
prospectus in order to comply with different state laws. See your policy for
variations since any such state variations will be included in your policy or
in riders or endorsements attached to your policy.
Insurance Marketplace Standards Association
PFL is a member of the Insurance Marketplace Standards Association (IMSA). IMSA
is an independent, voluntary organization of life insurance companies. It
promotes high ethical standards in the sales and advertising of individual life
insurance and annuity products. Companies must undergo a rigorous self and
independent assessment of their
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practices to become a member of IMSA. The IMSA logo in our sales literature
shows our ongoing commitment to these standards.
Legal Proceedings
There are no legal proceedings to which the separate account is a party or to
which the assets of the account are subject. PFL, like other life insurance
companies, is involved in lawsuits. In some class action and other lawsuits
involving other insurers, substantial damages have been sought and/or material
settlement payments have been made. Although the outcome of any litigation
cannot be predicted with certainty, PFL believes that at the present time there
are no pending or threatened lawsuits that are reasonably likely to have a
material adverse impact on the separate account or PFL.
Financial Statements
The financial statements of PFL and the separate account are included in the
SAI.
Table of Contents of the Statement of Additional Information
<TABLE>
<S> <C>
Glossary of Terms
The Policy--General Provisions
Certain Federal Income Tax Consequences
Investment Experience
Historical Performance Data
Published Ratings
State Regulation of PFL
Administration
Records and Reports
Distribution of the Policies
Voting Rights
Other Products
Custody of Assets
Legal Matters
Independent Auditors
Other Information
Financial Statements
</TABLE>
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<PAGE>
APPENDIX A
CONDENSED FINANCIAL INFORMATION
The accumulation unit values and the number of accumulation units outstanding
for each subaccount from the date of inception are shown in the following
tables.
<TABLE>
<CAPTION>
Accumulation Unit Accumulation Unit Number of
Value Value Accumulation
at Beginning of Year at End of Year Units at End of Year
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Atlas Balanced Growth
Subaccount
1999.................. $1.093398 $1.395432 11,200,977.172
1998.................. $0.983756 $1.093398 11,389,300.902
1997(/1/)............. $1.000000 $0.983756 3,469,693.985
- -------------------------------------------------------------------------------------
Dreyfus VIF--
Appreciation Subaccount
1999.................. $1.296659 $1.425253 8,301,390.397
1998.................. $1.009698 $1.296659 3,327,523.150
1997(/1/)............. $1.000000 $1.009698 605,501.874
- -------------------------------------------------------------------------------------
Dreyfus VIF--Disciplined
Stock Subaccount
1999.................. $1.274542 $1.488843 10,277,509.233
1998.................. $ 1.19838 $1.274542 4,690,029.548
1997(/1/)............. $1.000000 $ 1.19838 247,060.402
- -------------------------------------------------------------------------------------
Dreyfus VIF--Growth and
Income Subaccount
1999.................. $1.095299 $1.262599 4,806,549.375
1998.................. $0.993285 $1.095299 3,163,385.885
1997(/1/)............. $1.000000 $0.993285 201,499.858
- -------------------------------------------------------------------------------------
Dreyfus VIF--Quality
Bond Subaccount
1999.................. $1.066053 $1.053187 5,188,912.039
1998.................. $1.024710 $1.066053 4,940,300.961
1997(/1/)............. $1.000000 $1.024710 377,687.374
- -------------------------------------------------------------------------------------
Dreyfus VIF--Small Cap
Subaccount
1999.................. $0.896739 $1.089091 2,680,811.514
1998.................. $0.941704 $0.896739 2,709,276.044
1997(/1/)............. $1.000000 $0.941704 397,321.058
- -------------------------------------------------------------------------------------
Endeavor--Dreyfus Small
Cap Value Subaccount
1999.................. $1.785929 $2.278888 467,184.374
1998.................. $1.851229 $1.785929 509,101.233
1997(/1/)............. $1.968681 $1.851229 89,867.657
- -------------------------------------------------------------------------------------
T. Rowe Price Equity
Income Subaccount
1999.................. $2.065623 $2.107761 2,657,573.292
1998.................. $1.925022 $2.065623 1,698,141.538
1997(/1/)............. $1.857860 $1.925022 156,951.014
- -------------------------------------------------------------------------------------
T. Rowe Price Growth
Stock Subaccount
1999.................. $2.593121 $3.124914 2,781,922.330
1998.................. $2.043487 $2.593121 1,358,408.215
1997(/1/)............. $1.990457 $2.043487 98,880.797
- -------------------------------------------------------------------------------------
OpCap--Endeavor Value
Equity Subaccount
1999.................. $2.212928 $2.115695 506,137.294
1998.................. $2.086130 $2.212928 433,206.587
1997(/1/)............. $2.048951 $2.086130 44,448.849
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
Accumulation Unit Accumulation Unit Number of
Value Value Accumulation
at Beginning of Year at End of Year Units at End of Year
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Federated High Income
Bond Fund II Subaccount
1999.................. $ 1.029959 $ 1.039161 3,030,970.070
1998.................. $ 1.016935 $ 1.029959 2,819,023.591
1997(/1/)............. $ 1.000000 $ 1.016935 178,054.703
- -------------------------------------------------------------------------------------
Federated Utility Fund
II Subaccount
1999.................. $ 1.265017 $ 1.268683 3,517,145.195
1998.................. $ 1.125700 $ 1.265017 1,492.268.116
1997(/1/)............. $ 1.000000 $ 1.125700 64,830.195
- -------------------------------------------------------------------------------------
WRL Janus Global
Subaccount
1999.................. $ 1.224958 $ 2.067073 7,496,165.763
1998.................. $ 0.955350 $ 1.224958 3,285,525.975
1997(/1/)............. $ 1.000000 $ 0.955350 704,269.755
- -------------------------------------------------------------------------------------
WRL Janus Growth
Subaccount
1999.................. $31.898334 $50.230109 925,560.693
1998.................. $19.665157 $31.898334 242,873.315
1997(/1/)............. $20.501671 $19.665157 12,277.088
- -------------------------------------------------------------------------------------
WRL VKAM Emerging Growth
Subaccount
1999.................. $ 1.277710 $ 2.585245 3,607,865.342
1998.................. $ 0.943400 $ 1.277710 1,179,122.693
1997(/1/)............. $ 1.000000 $ 0.943400 126,110.341
</TABLE>
(/1/)Period from September 30, 1997 through December 31, 1997.
The AIM V.I. Growth Fund Subaccount, AIM V.I. Growth and Income Fund
Subaccount, AIM V.I. Value Fund Subaccount, Alliance Growth Subaccount,
Alliance Premier Growth Subaccount, Alliance Technology Subaccount, The Dreyfus
Socially Responsible Growth Fund, Inc. Subaccount, Janus Aspen--Aggressive
Growth Subaccount, Janus Aspen--Balanced Subaccount, Janus Aspen--Growth
Subaccount, Janus Aspen--International Growth Subaccount, and the WRL Alger
Aggressive Growth Subaccount had not commenced operations as of December 31,
1999, therefore comparable information is not available.
31
<PAGE>
APPENDIX B
HISTORICAL PERFORMANCE DATA
Standardized Performance Data
PFL and Atlas may advertise historical yields and total returns for the
subaccounts of the separate account. These figures are based on historical
earnings and are calculated according to guidelines from the SEC. They do not
indicate future performance.
The yield of a subaccount of the separate 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 separate account refers to return
quotations assuming an investment under a policy has been held in the
subaccount for various periods of time including a period measured from the
date the subaccount commenced operations. When a subaccount has been in
operation for 1, 5, and 10 years, respectively, the total return for these
periods will be provided. The total return quotations for a subaccount will
represent the average annual compounded rates of return that equate an initial
investment of $1,000 in the subaccount to the redemption value of that
investment as of the last day of each of the periods for which total return
quotations are provided.
The yield and total return calculations for a subaccount do not reflect the
effect of any premium taxes that may be applicable to a particular policy. The
yield calculations also do not reflect the effect of any surrender charge that
may be applicable to a particular policy. To the extent that any or all of a
premium tax and/or surrender charge is applicable to a particular policy, the
yield and/or total return of that policy will be reduced. For additional
information regarding yields and total returns calculated using the standard
formats briefly summarized above, please refer to the SAI.
Based on the method of calculation described in the SAI, the average annual
total returns for periods from inception of the subaccounts to December 31,
1999, and for the one and five year periods ended December 31, 1999 are shown
in Table 1 below. Total returns shown reflect deductions for the mortality and
expense risk fee and administrative charges. Standard total return calculations
will reflect the effect of surrender charges that may be applicable to a
particular period.
32
<PAGE>
TABLE 1
Standard Average Annual Total Returns
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1 Year 5 Year Inception of
Ended Ended the Subaccount Subaccount
Subaccount 12/31/99 12/31/99 to 12/31/99 Inception Date
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Atlas Balanced Growth.... 22.41% N/A 14.65% September 30, 1997
AIM V.I. Growth
Fund(/1/)............... N/A N/A N/A N/A
AIM V.I. Growth and
Income Fund(/1/)........ N/A N/A N/A N/A
AIM V.I. Value
Fund(/1/)............... N/A N/A N/A N/A
Alliance Growth(/1/)..... N/A N/A N/A N/A
Alliance Premier
Growth(/1/)............. N/A N/A N/A N/A
Alliance
Technology(/1/)......... N/A N/A N/A N/A
The Dreyfus Socially
Responsible Growth Fund,
Inc.(/1/)............... N/A N/A N/A N/A
Dreyfus VIF--
Appreciation............ 4.46% N/A 15.78% September 30, 1997
Dreyfus VIF--Disciplined
Stock................... 11.45% N/A 18.14% September 30, 1997
Dreyfus VIF--Growth and
Income.................. 9.88% N/A 9.44% September 30, 1997
Dreyfus VIF--Quality
Bond.................... (6.82%) N/A 0.54% September 30, 1997
Dreyfus VIF--Small Cap... 16.15% N/A 2.13% September 30, 1997
Endeavor--Dreyfus Small
Cap Value............... 22.39% N/A 5.09% September 30, 1997
OpCap--Endeavor Value
Equity.................. (10.06%) N/A (0.39%) September 30, 1997
T. Rowe Price Equity
Income.................. (3.53%) N/A 4.11% September 30, 1997
T. Rowe Price Growth
Stock................... 15.19% N/A 21.07% September 30, 1997
Federated High Income
Bond Fund II............ (4.69%) N/A (0.09%) September 30, 1997
Federated Utility Fund
II...................... (5.31%) N/A 9.69% September 30, 1997
Janus Aspen--Aggressive
Growth(/1/)............. N/A N/A N/A N/A
Janus Aspen--
Balanced(/1/)........... N/A N/A N/A N/A
Janus Aspen--
Growth(/1/)............. N/A N/A N/A N/A
Janus Aspen--
International
Growth(/1/)............. N/A N/A N/A N/A
WRL Janus Global......... 64.11% N/A 37.37% September 30, 1997
WRL Janus Growth......... 52.67% N/A 48.44% September 30, 1997
WRL VKAM Emerging
Growth.................. 98.17% N/A 52.11% September 30, 1997
WRL Alger Aggressive
Growth(/1/)............. N/A N/A N/A N/A
</TABLE>
(/1/The)AIM V.I. Growth Fund Subaccount, AIM V.I. Growth and Income Fund
Subaccount, AIM V.I. Value Fund Subaccount, Alliance Growth Subaccount,
Alliance Premier Growth Subaccount, Alliance Technology Subaccount, The
Dreyfus Socially Responsible Growth Fund, Inc. Subaccount, Janus--
Aggressive Growth Subaccount, Janus--Balanced Subaccount, Janus--Growth
Subaccount, Janus--International Growth Subaccount, and the WRL Alger
Aggressive Growth Subaccount had not commenced operations as of December
31, 1999, therefore comparable information is not available.
Non-Standardized Performance Data
In addition to the standard data discussed above, similar performance data for
other periods may also be shown.
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 separate account. The non-standard performance data may assume that no
surrender charge is applicable, and may also make other assumptions such as the
amount invested in a subaccount, differences in time periods to be shown, or
the effect of partial withdrawals or annuity payments.
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 SAI.
The non-standardized average annual total return figures shown in Table 2 are
based on the assumption that the policy is not surrendered, and therefore the
surrender charge is not imposed.
33
<PAGE>
TABLE 2
Non-Standardized Average Annual Total Returns
(Assuming No Surrender Charge)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1 Year 5 Year Inception of Subaccount
Ended Ended the Subaccount Inception
Subaccount 12/31/99 12/31/99 to 12/31/99 Date
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Atlas Balanced Growth.... 27.62% N/A 15.95% September 30, 1997
AIM V.I. Growth
Fund(/1/)............... N/A N/A N/A N/A
AIM V.I. Growth and
Income Fund(/1/)........ N/A N/A N/A N/A
AIM V.I. Value
Fund(/1/)............... N/A N/A N/A N/A
Alliance Growth(/1/)..... N/A N/A N/A N/A
Alliance Premier
Growth(/1/)............. N/A N/A N/A N/A
Alliance
Technology(/1/)......... N/A N/A N/A N/A
The Dreyfus Socially
Responsible Growth Fund,
Inc.(/1/)............... N/A N/A N/A N/A
Dreyfus VIF--
Appreciation............ 9.92% N/A 17.04% September 30, 1997
Dreyfus VIF--Disciplined
Stock................... 16.81% N/A 19.33% September 30, 1997
Dreyfus VIF--Growth and
Income.................. 15.27% N/A 10.91% September 30, 1997
Dreyfus VIF--Quality
Bond.................... (1.21%) N/A 2.33% September 30, 1997
Dreyfus VIF--Small Cap... 21.45% N/A 3.86% September 30, 1997
Endeavor--Dreyfus Small
Cap Value............... 27.60% N/A 6.71% September 30, 1997
OpCap--Endeavor Value
Equity.................. (4.39%) N/A 1.43% September 30, 1997
T. Rowe Price Equity
Income.................. 2.04% N/A 5.76% September 30, 1997
T. Rowe Price Growth
Stock................... 20.51% N/A 22.17% September 30, 1997
Federated High Income
Bond Fund II............ 0.89% N/A 1.72% September 30, 1997
Federated Utility Fund
II...................... 0.29% N/A 11.15% September 30, 1997
Janus Aspen--Aggressive
Growth(/1/)............. N/A N/A N/A N/A
Janus Aspen--
Balanced(/1/)........... N/A N/A N/A N/A
Janus Aspen--
Growth(/1/)............. N/A N/A N/A N/A
Janus Aspen--
International
Growth(/1/)............. N/A N/A N/A N/A
WRL Janus Global......... 68.75% N/A 38.05% September 30, 1997
WRL Janus Growth......... 57.47% N/A 48.87% September 30, 1997
WRL VKAM Emerging
Growth.................. 102.33% N/A 52.46% September 30, 1997
WRL Alger Aggressive
Growth(/1/)............. N/A N/A N/A N/A
</TABLE>
(/1/The)AIM V.I. Growth Fund Subaccount, AIM V.I. Growth and Income Fund
Subaccount, AIM V.I. Value Fund Subaccount, Alliance Growth Subaccount,
Alliance Premier Growth Subaccount, Alliance Technology Subaccount, The
Dreyfus Socially Responsible Growth Fund, Inc. Subaccount, Janus--
Aggressive Growth Subaccount, Janus--Balanced Subaccount, Janus--Growth
Subaccount, Janus--International Growth Subaccount, and the WRL Alger
Aggressive Growth Subaccount had not commenced operations as of December
31, 1999, therefore comparable information is not available.
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 Table 3 below, PFL may disclose average annual total
returns for the portfolios reduced by all fees and charges under the policy, as
if the policy had been in existence since the inception of the portfolio. Such
fees and charges include the mortality and expense risk fee, administrative
charge and surrender charges. Table 3 assumes that the policy is not
surrendered, and therefore the surrender charge is not deducted.
The following information is also based on the method of calculation described
in the SAI. The adjusted historical average annual total returns for periods
ended December 31, 1999, were as follows:
34
<PAGE>
TABLE 3
Adjusted Historical Average Annual Total Returns(/1/)
(Assuming No Surrender Charge)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Corresponding
10 Year Portfolio
Portfolio 1 Year 5 Year or Inception Inception Date
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Atlas Balanced Growth
Portfolio................... 27.62% N/A N/A September 30, 1997
AIM V.I. Growth Fund......... 35.25% 29.64% N/A May 5, 1993
AIM V.I. Growth and Income
Fund........................ 32.42% 26.43% N/A May 2, 1994
AIM V.I. Value Fund.......... 28.13% 25.49% N/A May 5, 1993
Alliance Growth Portfolio.... N/A N/A N/A June 1, 1999
Alliance Premier Growth
Portfolio................... N/A N/A N/A July 14, 1999
Alliance Technology
Portfolio................... N/A N/A N/A September 22, 1999
The Dreyfus Socially
Responsible Growth Fund,
Inc......................... 28.31% 26.91% N/A October 7, 1993
Dreyfus VIF--Appreciation
Portfolio................... 9.92% 23.80% N/A April 5, 1993
Dreyfus VIF--Disciplined
Stock Portfolio............. 16.81% N/A N/A May 1, 1996
Dreyfus VIF--Growth and
Income Portfolio............ 15.27% 22.60% N/A May 2, 1994
Dreyfus VIF--Quality Bond
Portfolio................... (1.21)% 6.03% N/A August 31, 1990
Dreyfus VIF--Small Cap
Portfolio................... 21.45% 14.34% N/A August 31, 1990
Endeavor--Dreyfus Small Cap
Value Portfolio............. 27.60% 16.26% N/A May 4, 1993
OpCap--Endeavor Value Equity
Portfolio................... (4.39)% 15.14% N/A May 27, 1993
T. Rowe Price Equity Income
Portfolio................... 2.04% N/A N/A January 3, 1995
T. Rowe Price Growth Stock
Portfolio................... 20.51% N/A N/A January 3, 1995
Federated High Income Bond
Fund II..................... 0.89% 8.96% N/A February 2, 1994
Federated Utility Fund II.... 0.29% 13.65% N/A February 28, 1994
Janus Aspen--Aggressive
Growth Portfolio............ N/A N/A N/A December 31, 1999
Janus Aspen--Balanced
Portfolio................... N/A N/A N/A December 31, 1999
Janus Aspen--Growth
Portfolio................... N/A N/A N/A December 31, 1999
Janus Aspen--International
Growth Portfolio............ N/A N/A N/A December 3, 1999
WRL Janus Global............. 68.75% 31.10% N/A December 3, 1992
WRL Janus Growth............. 57.47% 37.98% 21.92%+ October 2, 1986
WRL VKAM Emerging Growth..... 102.33% 40.98% N/A March 1, 1993
WRL Alger Aggressive Growth.. 66.75% 34.76% N/A March 1, 1994
- -------------------------------------------------------------------------------
</TABLE>
+ Ten Year Date
(/1/The)calculation of total return performance for periods prior to inception
of the subaccounts reflects deductions for the mortality and expense risk
fee and administrative charge on a monthly basis, rather than a daily
basis. The monthly deduction is made at the beginning of each month and
generally approximates the performance that would have resulted if the
subaccounts had actually been in existence since the inception of the
portfolio.
35
<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 offered by
PFL Life Insurance Company. You may obtain a copy of the prospectus dated May
1, 2000 by calling Atlas Securities, Inc. 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 (SAI) is not a prospectus and should
be read only in conjunction with the prospectus for the policy and the
underlying fund portfolios.
Dated: May 1, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
GLOSSARY OF TERMS.......................................................... 3
THE POLICY--GENERAL PROVISIONS............................................. 6
Owner.................................................................... 6
Entire Policy............................................................ 6
Misstatement of Age or Sex............................................... 7
Addition, Deletion, or Substitution of Investments....................... 7
Excess Interest Adjustment............................................... 7
Reallocation of Policy Values After the Annuity Commencement Date........ 11
Annuity Payment Options.................................................. 11
Death Benefit............................................................ 12
Death of Owner........................................................... 15
Assignment............................................................... 15
Evidence of Survival..................................................... 15
Non Participating........................................................ 15
Amendments............................................................... 16
CERTAIN FEDERAL INCOME TAX CONSEQUENCES.................................... 16
Tax Status of the Policy................................................. 16
Taxation of PFL.......................................................... 19
INVESTMENT EXPERIENCE...................................................... 20
Accumulation Units....................................................... 20
Annuity Unit Value and Annuity Payment Rates............................. 21
HISTORICAL PERFORMANCE DATA................................................ 23
Subaccount Yields........................................................ 23
Total Returns............................................................ 24
Other Performance Data................................................... 24
Adjusted Historical Performance Data..................................... 25
PUBLISHED RATINGS.......................................................... 25
STATE REGULATION OF PFL.................................................... 25
ADMINISTRATION............................................................. 25
RECORDS AND REPORTS........................................................ 25
DISTRIBUTION OF THE POLICIES............................................... 26
VOTING RIGHTS.............................................................. 26
OTHER PRODUCTS............................................................. 27
CUSTODY OF ASSETS.......................................................... 27
LEGAL MATTERS.............................................................. 27
INDEPENDENT AUDITORS....................................................... 27
OTHER INFORMATION.......................................................... 27
FINANCIAL STATEMENTS....................................................... 27
</TABLE>
-2-
<PAGE>
GLOSSARY OF TERMS
Accumulation Unit--An accounting unit of measure used in calculating the policy
value in the separate account before the annuity commencement date.
Adjusted Policy Value--An amount equal to the policy value increased or
decreased by any excess interest adjustments.
Administrative and Service Office--PFL Life Insurance Company, Financial
Markets Division--Variable Annuity Department, 4333 Edgewood Road, N.E., Cedar
Rapids, Iowa 52499-0001.
Annuitant--The person during whose life any annuity payments involving life
contingencies will continue.
Annuity Commencement Date--The date upon which annuity payments are to
commence. This date may be any date at least thirty days after the policy date
and may not be later than the last day of the policy month starting after the
annuitant attains age 85, except as expressly allowed by PFL. In no event will
this date be later than the last day of the month following the month in which
the annuitant attains age 95.
Annuity Payment Option--A method of receiving a stream of annuity payments
selected by the owner.
Annuity Unit--An accounting unit of measure used in the calculation of the
amount of the second and each subsequent variable annuity payment after the
annuity commencement date.
Application--A written application, order form, or any other information
received electronically or otherwise upon which the policy is issued and/or is
reflected on the data or specifications page.
Beneficiary--The person who has the right to the death benefit set forth in the
policy.
Business Day--A day when the New York Stock Exchange is open for business.
Cash Value--The policy value, increased or decreased by 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.
Excess Interest Adjustment ("EIA")--An adjustment that can either decrease or
increase the amount to be received by the owner upon full surrender or
commencement of annuity payments from the guaranteed period options of the
fixed account. 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.
Fixed Account--One or more investment choices under the Policy that are part of
PFL's general assets that are not in the separate account.
Guaranteed Period Options--The various guaranteed interest rate periods of the
fixed account which PFL may offer into which premium payments may be paid or
amounts transferred.
Nonqualified Policy--A policy other than a qualified policy.
-3-
<PAGE>
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.
Owner--The person who may exercise all rights and privileges under the policy.
The owner during the lifetime of the annuitant and prior to the annuity
commencement date is the person designated as the owner or a successor owner in
the information we require to issue a policy.
Policy Date--The date shown on the policy data page attached to the policy and
the date on which the policy becomes effective.
Policy Value--On or before the annuity commencement date, the policy value is
equal to the owner's:
. premium payments; minus
. partial withdrawals (including any applicable excess interest adjustments and
surrender charges on such withdrawals); plus
. interest credited in the fixed account; plus or minus
. accumulated gains or losses in the separate account; minus
. any applicable premium or other taxes and transfer fees, if any.
Policy Year--A policy year begins on the policy date and on each policy
anniversary.
Premium Payment--An amount paid to PFL by the owner or on the owner's behalf as
consideration for the benefits provided by the policy.
Qualified Policy--A policy issued in connection with retirement plans that
qualify for special federal income tax treatment under the Code.
Separate Account--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, as amended (the "1940 Act"), to which premium payments
under the policies may be allocated.
Subaccount--A subdivision within the separate account, the assets of which are
invested in a specified portfolio of the underlying funds.
Successor Owner--A person appointed by the owner to succeed to ownership of the
policy in the event of the death of the owner who is not the annuitant before
the annuity commencement date.
Surrender Charge--The applicable contingent deferred sales charge, assessed on
certain full surrenders or partial withdrawals of premium payments to cover
expenses relating to the sale of the policies.
Underlying Funds--The designated portfolios of: (1) Atlas Insurance Trust; (2)
AIM Variable Insurance Funds; (3) Alliance Variable Products Series Fund,
Inc.--Class B; (4) Dreyfus Socially Responsible Growth Fund, Inc.; (5) Dreyfus
Variable Investment Fund; (6) Endeavor Series Trust; (7) Federated Insurance
Series; (8) Janus Aspen Series; and (9) WRL Series Fund, Inc., which are
described in the underlying fund prospectuses that are attached to 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 shall be made on each business day.
-4-
<PAGE>
Variable Annuity Payments--Payments made pursuant to an annuity payment option
which fluctuates as to dollar amount or payment term in relation to the
investment performance of the specified subaccounts within the separate
account.
Written Notice--Written notice, signed by the owner, that gives PFL the
information it requires and is received at the administrative and service
office. For some transactions, PFL may accept an electronic notice such as
telephone instructions. Such electronic notice must meet the requirements PFL
establishes for such notices.
-5-
<PAGE>
In order to supplement the description in the prospectus, the following
provides additional information about PFL and the policy, which may be of
interest to a prospective purchaser.
THE POLICY--GENERAL PROVISIONS
Owner
The policy shall belong to the owner upon issuance of the policy after
completion of an application and delivery of the initial premium payment. While
the annuitant is living, the owner may: (1) assign the policy; (2) surrender
the policy; (3) amend or modify the policy with PFL's consent; (4) receive
annuity payments or name a payee to receive the payments; and (5) exercise,
receive and enjoy every other right and benefit contained in the policy. The
exercise of these rights may be subject to the consent of any assignee or
irrevocable beneficiary; and of the owner's spouse in a community or marital
property state.
Unless PFL has been notified of a community or marital property interest in the
policy, it will rely on its good faith belief that no such interest exists and
will assume no responsibility for inquiry.
A successor owner can be named in the application or in a written notice. The
successor owner will become the new owner upon 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.
Note Carefully. If the owner does not name a successor owner, the owner's
estate will become the new owner if the owner predeceases the annuitant. If no
probate estate is opened because the owner has precluded the opening of a
probate estate by means of a trust or other instrument, unless PFL has received
written notice of the trust as a successor owner signed prior to the owner's
death, that trust may not exercise ownership rights to the policy. It may be
necessary to open a probate estate in order to exercise ownership rights to the
policy if no successor owner is named in a written notice received by PFL.
The owner may change the ownership of the policy in a written notice. When this
change takes effect, all rights of ownership in the policy will pass to the new
owner. A change of ownership may have adverse tax consequences.
When there is a change of owner or successor owner, the change will not be
effective until it is recorded in our records. Once recorded, it will take
effect as of the date the owner signs the written notice, subject to any
payment PFL has made or action PFL has taken before recording the change.
Changing the owner or naming a new successor owner cancels any prior choice of
successor owner, but does not change the designation of the beneficiary or the
annuitant.
If ownership is transferred (except to the owner's spouse) because the owner
dies before the annuitant, the adjusted policy value generally must be
distributed to the successor owner within five years of the owner's death, or
if the first payment begins within one year of the owner's death, payments must
be made for a period certain which does not exceed that successor owner's life
expectancy.
Entire Policy
The policy, any endorsements thereon, the application, and information provided
in lieu thereof, constitute the entire contract between PFL and the owner. All
statements in the application are representations and not warranties. No
statement will cause the policy to be void or to be used in defense of a claim
unless contained in the application or information provided in lieu thereof.
-6-
<PAGE>
Misstatement Of Age Or Sex
If the age or sex of the annuitant has been misstated, PFL will change the
annuity benefit payable to that which the premium payments would have purchased
for the correct age or sex. The dollar amount of any underpayment made by PFL
shall be paid in full with the next payment due such person or the beneficiary.
The dollar amount of any overpayment made by PFL due to any misstatement shall
be deducted from payments subsequently accruing to such person or beneficiary.
Any underpayment or overpayment will include interest at 5% per year, from the
date of the wrong payment to the date of the adjustment. The age of the
annuitant may be established at any time by the submission of proof
satisfactory to PFL.
Addition, Deletion, or Substitution of Investments
PFL cannot and does not guarantee that any of the subaccounts or portfolios
will always be available for premium payments, allocations, or transfers. PFL
retains the right, subject to any applicable law, to make certain changes in
the separate account and its investments. PFL reserves the right to eliminate
the shares of any portfolio held by a subaccount and/or to substitute shares of
another portfolio of the underlying funds, or of another registered open-end
management investment company for the shares of any portfolio, if the shares of
the portfolio are no longer available for investment or if, in PFL's judgment,
investment in any portfolio would be inappropriate in view of the purposes of
the separate account. To the extent required by the 1940 Act, substitutions of
shares attributable to an owner's interest in a subaccount will not be made
without prior notice to the owner and the prior approval of the Securities and
Exchange Commission (SEC). Nothing contained herein shall prevent the separate
account from purchasing other securities for other series or classes of
variable annuity policies, or from effecting an exchange between series or
classes of variable annuity policies on the basis of requests made by owners.
New subaccounts may be established when, in the sole discretion of PFL,
marketing, tax, investment or other conditions warrant. Any new subaccounts may
be made available to existing owners on a basis to be determined by PFL. Each
additional subaccount will purchase shares in a mutual fund portfolio or other
investment vehicle. PFL may also eliminate one or more subaccounts if, in its
sole discretion, marketing, tax, investment or other conditions warrant such
change. In the event any subaccount is eliminated, PFL will notify owners and
request a reallocation of the amounts invested in the eliminated subaccount. If
the owner provides no such reallocation, PFL will reinvest the amounts invested
in the eliminated subaccount in the subaccount that invests in another
subaccount, if appropriate.
In the event of any such substitution or change, PFL may, by appropriate
endorsement, make such changes in the policies as may be necessary or
appropriate to reflect such substitution or change. Furthermore, if deemed to
be in the best interests of persons having voting rights under the policies,
the separate account may be (i) operated as a management company under the 1940
Act or any other form permitted by law, (ii) deregistered under the 1940 Act in
the event such registration is no longer required or (iii) combined with one or
more other separate accounts. To the extent permitted by applicable law, PFL
also may (1) transfer the assets of the separate account associated with the
policies to another account or accounts, (2) restrict or eliminate any voting
rights of owners or other persons who have voting rights as to the separate
account, (3) create new separate accounts, (4) add new subaccounts to or remove
existing subaccounts from the separate account, or combine subaccounts, or (5)
add new underlying funds, or substitute a new fund for an existing fund.
Excess Interest Adjustment
Money that you withdraw from or apply to an annuity payment option from a
guaranteed period option of the fixed account before the end of its guaranteed
period (the number of years you specified the money would remain in the
guaranteed period option) may be subject to an excess interest adjustment.
-7-
<PAGE>
At the time you request a withdrawal, if interest rates set by PFL have risen
since the date of the initial guarantee, the excess interest adjustment will
result in a lower cash value. However, if interest rates have fallen since the
date of the initial guarantee, the excess interest adjustment will result in a
higher cash value.
Excess interest adjustments will not reduce the adjusted policy value for a
guaranteed period option below the amount paid into it, less any prior partial
withdrawals and transfers from that guaranteed period option, plus interest at
the policy's minimum guaranteed effective annual interest rate of 3%. This is
referred to as the excess interest adjustment floor.
The formula that will be used to determine the excess interest adjustment is:
S*(G-C)* (M/12)
S = Gross amount being withdrawn that is subject to the excess interest
adjustment.
G = Guaranteed Interest Rate applicable to S.
C = Current Guaranteed Interest Rate then being offered on new premium payments
for the next longer guaranteed period than "M". If this policy form or such
a guaranteed period is no longer offered, "C" will be the U.S. Treasury rate
for the next longer maturity (in whole years) than "M" on the 25th day of
the previous calendar month, plus up to 2%.
M = Number of months remaining in the current guaranteed period, rounded up to
the next higher whole number of months.
* = multiplication
/\= exponentiation
-8-
<PAGE>
Example 1
(Full Surrender, Rates Increase by 3%):
<TABLE>
<C> <S>
Single premium: $50,000
- --------------------------------------------------------------------------------
Guarantee period: 5 Years
- --------------------------------------------------------------------------------
Guarantee rate: 5.50% per annum
- --------------------------------------------------------------------------------
Full surrender: middle of policy year 3
- --------------------------------------------------------------------------------
= $50,000 * (1.055) /\ 2.5 =
Policy value before surrender $57,161.18
- --------------------------------------------------------------------------------
Surrender charge free amount = $50,000 * .3 = $15,000.00
- --------------------------------------------------------------------------------
Excess interest adjustment free amount = $57,161.18 - $50,000 = $7,161.18
- --------------------------------------------------------------------------------
Amount subject to excess interest
adjustment = $57,161.18 - $7,161.18 = $50,000.00
- --------------------------------------------------------------------------------
Excess interest adjustment floor = $50,000 * (1.03) /\ 2.5 = $53,834.80
- --------------------------------------------------------------------------------
Excess interest adjustment 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 excess
interest adjustment floor, so the
adjustment is limited to:
$53,834.80 - $57,161.18 = -
$3,326.38
- --------------------------------------------------------------------------------
= policy value + excess interest
Adjusted policy value adjustment
- --------------------------------------------------------------------------------
= $57,161.18 + ( - $3,326.38) =
$53,834.80
- --------------------------------------------------------------------------------
= ($50,000 - $15,000.00) * .06 =
Surrender charge $2,100.00
- --------------------------------------------------------------------------------
Cash value at middle of policy year 3 = policy value + excess interest
adjustment - surrender charge
- --------------------------------------------------------------------------------
= $57,161.18 + ( - $3,326.38) -
$2,100.00 = $51,734.80
</TABLE>
-9-
<PAGE>
Example 2
(Full Surrender, Rates Decrease by 1%):
<TABLE>
<C> <S>
Single premium: $50,000
- -------------------------------------------------------------------------------
Guarantee period: 5 Years
- -------------------------------------------------------------------------------
Guarantee rate: 5.50% per annum
- -------------------------------------------------------------------------------
Full surrender: middle of policy year 3
- -------------------------------------------------------------------------------
= $50,000 * (1.055) /\2.5 =
Policy value before surrender $57,161.18
- -------------------------------------------------------------------------------
Surrender charge free amount = $50,000 * .30 = $15,000.00
- -------------------------------------------------------------------------------
Excess interest adjustment free amount = $57,161.18 - $50,000 = $7,161.18
- -------------------------------------------------------------------------------
Amount subject to excess interest
adjustment = $57,161.18 - $7,161.18 = $50,000.00
- -------------------------------------------------------------------------------
Excess interest adjustment floor = $50,000 * (1.03) /\2.5 = $53,834.80
- -------------------------------------------------------------------------------
Excess interest adjustment assumptions: "G" = .055; "C" = .045; "M" = 30
- -------------------------------------------------------------------------------
Excess interest adjustment = S * (G - C) * (M/12)
= $50,000 * (.055 - .045) * (30/12)
= $1,250.00
- -------------------------------------------------------------------------------
= policy value + excess interest
Adjusted policy value adjustment
= $57,161.18 + $1,250.00 = $58,411.18
- -------------------------------------------------------------------------------
= ($50,000 - $15,000.00) * .06 =
Surrender charge $2,100.00
- -------------------------------------------------------------------------------
Cash value at middle of policy year 3 = policy value + excess interest
adjustment - surrender charge
= $57,161.18 + $1,250 - $2,100.00 =
$56,311.18
</TABLE>
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%):
<TABLE>
<C> <S>
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
- -------------------------------------------------------------------------------
Excess interest adjustment free amount = $57,161.18 - $50,000 = $7,161.18
- -------------------------------------------------------------------------------
"S" = $30,000 - $7,161.18 = $22,838.82
- -------------------------------------------------------------------------------
= $22,838.82 * (.055 - .065) * (30/12)
Excess interest adjustment = -$570.97
- -------------------------------------------------------------------------------
Surrender charge = [($30,000.00 - $15,000.00) - (-
$570.97)] *
(.06) = $934.26
- -------------------------------------------------------------------------------
= $30,000.00 - (-$570.97) + $934.26 =
Gross partial withdrawal $31,505.23
- -------------------------------------------------------------------------------
= $57,161.18 - [$30,000.00 - (-
Policy value after withdrawal $570.97) + ($934.26)]
= $57,161.18 - $31,505.23 = $25,655.95
</TABLE>
-10-
<PAGE>
Example 4
(Partial Withdrawal, Rates Decrease by 1%):
<TABLE>
<S> <C>
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
- -------------------------------------------------------------------------------------
Excess interest
adjustment 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>
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. A reallocation of policy value may be made
up to four times in any given policy year.
After the annuity commencement date, no transfers may be made from the fixed
account to the separate account.
Annuity Payment Options
During the lifetime of the annuitant and prior to the annuity commencement
date, the owner may choose an annuity payment option or change the election,
but written notice of any election or change of election must be received by
PFL at its administrative and service office at least thirty (30) days prior to
the annuity commencement date. If no election is made prior to the annuity
commencement date, annuity payments will be made under (i) Payment Option 3,
life income with fixed (level) payments for 10 years certain, using the
existing adjusted policy value of the fixed account, or (ii) under Payment
Option 3, life income with variable payments for 10 years certain using the
existing policy value of the separate account, or (iii) in a combination of (i)
and (ii).
The person who elects an annuity payment option can also name one or more
successor payees to receive any unpaid amount PFL has at the death of a payee.
Naming these payees cancels any prior choice of a successor payee.
A payee who did not elect the annuity payment option does not have the right to
advance or assign payments, take the payments in one sum, or make any other
change. However, the payee may be given the right to do one or more of these
things if the person who elects the option tells PFL in writing and PFL agrees.
-11-
<PAGE>
Variable Payment Options. The dollar amount of the first variable annuity
payment will be determined in accordance with the annuity payment rates set
forth in the applicable table contained in the policy. The tables are based on
a 5% effective annual Assumed Investment Return and the "1983 Table a" (male,
female, and unisex if required by law) mortality table with projection using
projection Scale G factors, assuming a maturity date in the year 2000. ("The
1983 Table a" mortality rates are adjusted based on improvements in mortality
since 1983 to more appropriately reflect increased longevity. This is
accomplished using a set of improvement factors referred to as projection scale
G.) The dollar amount of additional variable annuity payments will vary based
on the investment performance of the subaccount(s) of the separate account
selected by the annuitant or beneficiary.
Determination of the First Variable Payment. The amount of the first variable
payment depends upon the sex (if consideration of sex is allowed under state
law) and adjusted age of the annuitant. The adjusted age is the annuitant's
actual age nearest birthday, on the annuity commencement date, adjusted as
follows:
<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.
Determination of Additional Variable Payments. All variable annuity payments
other than the first are calculated using annuity units that are credited to
the policy. The number of annuity units to be credited in respect of a
particular subaccount is determined by dividing that portion of the first
variable annuity payment attributable to that subaccount by the annuity unit
value of that subaccount on the annuity commencement date. The number of
annuity units of each particular subaccount credited to the policy then remains
fixed, assuming no transfers to or from that subaccount occur. The dollar value
of variable annuity units in the chosen subaccount will increase or decrease
reflecting the investment experience of the chosen subaccount. The dollar
amount of each variable annuity payment after the first may increase, decrease
or remain constant, and is equal to the sum of the amounts determined by
multiplying the number of annuity units of each particular subaccount credited
to the policy by the annuity unit value for the particular subaccount on the
date the payment is made.
Death Benefit
Adjusted Partial Withdrawal. The amount of your guaranteed minimum death
benefit is reduced due to a partial withdrawal called the adjusted partial
withdrawal. The reduction amount depends on the relationship between your
guaranteed minimum death benefit and policy value. The adjusted partial
withdrawal is (1) multiplied by (2), where:
(1) is the gross partial withdrawal, where gross partial withdrawal =
requested withdrawal--excess interest adjustment + surrender charges on
(excess partial withdrawal--excess interest adjustment); and
(2) is the adjustment factor, which is the current death benefit prior
to withdrawal divided by the current policy value prior to withdrawal.
-12-
<PAGE>
The following examples describe the effect of a withdrawal on the guaranteed
minimum death benefit and policy value.
EXAMPLE 1
(Assumed Facts for Example)
<TABLE>
- -------------------------------------------------------------------------------
<C> <S>
$75,000 current guaranteed minimum death benefit before withdrawal
- -------------------------------------------------------------------------------
$50,000 current policy value before withdrawal
- -------------------------------------------------------------------------------
current death benefit (larger of policy value and guaranteed minimum
$75,000 death benefit)
- -------------------------------------------------------------------------------
6% current surrender charge percentage
- -------------------------------------------------------------------------------
$15,000 requested withdrawal
- -------------------------------------------------------------------------------
surrender charge--free amount (assumes 20% cumulative free percentage
$10,000 is available)
- -------------------------------------------------------------------------------
$ 5,000 excess partial withdrawal (amount subject to surrender charge)
- -------------------------------------------------------------------------------
excess interest adjustment--(assumes interest rates have decreased
$ 100 since initial guarantee)
- -------------------------------------------------------------------------------
$ 294 surrender charge on (excess partial withdrawal less excess interest
adjustment) = 0.06*(5000 - 100)
- -------------------------------------------------------------------------------
reduction in policy value due to excess partial withdrawal = 5000 -
$ 5,194 100 + 294
- -------------------------------------------------------------------------------
$22,791 adjusted partial withdrawal = 15,194 * (75,000/50,000)
- -------------------------------------------------------------------------------
New guaranteed minimum death benefit (after withdrawal) = 75,000 -
$52,209 22,791
- -------------------------------------------------------------------------------
$34,806 New policy value (after withdrawal) = 50,000 - 10,000 - 5,194
</TABLE>
<TABLE>
<C> <S>
Summary:
Reduction in guaranteed minimum death benefit = $22,791
Reduction in policy value = $15,194
</TABLE>
Note, guaranteed minimum death benefit is reduced more than the policy value
since the guaranteed minimum death benefit was greater than the policy value
just prior to the withdrawal.
-13-
<PAGE>
EXAMPLE 2
(Assumed Facts for Example)
<TABLE>
- -------------------------------------------------------------------------------
<C> <S>
$50,000 current guaranteed minimum death benefit before withdrawal
- -------------------------------------------------------------------------------
$75,000 current policy value before withdrawal
- -------------------------------------------------------------------------------
current death benefit (larger of policy value and guaranteed minimum
$75,000 death benefit)
- -------------------------------------------------------------------------------
6% current surrender charge percentage
- -------------------------------------------------------------------------------
$15,000 requested withdrawal
- -------------------------------------------------------------------------------
surrender charge--free amount (assumes 15% cumulative free percentage
$11,250 is available)
- -------------------------------------------------------------------------------
$ 3,750 excess partial withdrawal (amount subject to surrender charge)
- -------------------------------------------------------------------------------
excess interest adjustment--(assumes interest rates have increased
$ -100 since initial guarantee)
- -------------------------------------------------------------------------------
$ 231 surrender charge on (excess partial withdrawal less excess interest
adjustment) = 0.06*[(3750 - (-100))]
- -------------------------------------------------------------------------------
$ 4,081 reduction in policy value due to excess partial withdrawal = 3750 -
(-100) + 231 = 3750 + 100 + 231
- -------------------------------------------------------------------------------
$15,331 adjusted partial withdrawal = $15,331 * (75,000/75,000)
- -------------------------------------------------------------------------------
New guaranteed minimum death benefit (after withdrawal) = 50,000 -
$34,669 15,331
- -------------------------------------------------------------------------------
$59,669 New policy value (after withdrawal) = 75,000 - 11,250 - 4,081
</TABLE>
<TABLE>
<C> <S>
Summary:
Reduction in guaranteed minimum death benefit = $15,331
Reduction in policy value = $15,331
</TABLE>
Note, the guaranteed minimum death benefit and policy value are reduced by the
same amount since the policy value was higher than the guaranteed minimum death
benefit just prior to the withdrawal.
Due proof of death of the annuitant is proof that the annuitant who is the
owner died prior to the commencement of annuity payments. A certified copy of a
death certificate, a certified copy of a decree of a court of competent
jurisdiction as to the finding of death, a written statement by the attending
physician, or any other proof satisfactory to PFL, will constitute due proof of
death. Upon receipt of this proof and an election of a method of settlement and
return of the policy, the death benefit generally will be paid within seven
days, or as soon thereafter as PFL has sufficient information about the
beneficiary to make the payment. The beneficiary may receive the amount payable
in a lump sum cash benefit, or, subject to any limitation under any state or
federal law, rule, or regulation, under one of the annuity payment options
described above, unless a settlement agreement is effective at the death of the
owner preventing such election.
Distribution Requirements. If the annuitant was the owner, and the beneficiary
was not the annuitant's spouse, the death benefit must (1) be distributed
within five years of the date of the deceased owner's death, or (2) payments
under an annuity payment option must begin no later than one year after the
deceased owner's death and must be made for the beneficiary's lifetime or for a
period certain (so long as any period certain does not exceed the beneficiary's
life expectancy). Death proceeds which are not paid to or for the benefit of a
natural person must be distributed within five years of the date of the
deceased owner's death. If the sole beneficiary is the deceased owner's
surviving spouse, such spouse may elect to continue the policy as the new
annuitant and owner instead of receiving the death benefit. (See "Certain
Federal Income Tax Consequences.")
-14-
<PAGE>
If the annuitant is not the owner, and the owner dies prior to the annuity
commencement date, a successor owner may surrender the policy at any time for
the amount of the adjusted policy value. If the successor owner is not the
deceased owner's spouse, however, the adjusted policy value must be
distributed: (1) within five years after the date of the deceased owner's
death, or (2) payments under an annuity payment option must begin no later than
one year after the deceased owner's death and must be made for the successor
owner's lifetime or for a period certain (so long as any period certain does
not exceed the successor owner's life expectancy).
Beneficiary. The beneficiary designation in the application will remain in
effect until changed. The owner may change the designated beneficiary by
sending written notice to PFL. The beneficiary's consent to such change is not
required unless the beneficiary was irrevocably designated or law requires
consent. (If an irrevocable beneficiary dies, the owner may then designate a
new beneficiary.) The change will take effect as of the date the owner signs
the written notice, whether or not the owner is living when the Notice is
received by PFL. PFL will not be liable for any payment made before the written
notice is received. If more than one beneficiary is designated, and the owner
fails to specify their interests, they will share equally.
Death of Owner
Federal tax law requires that if any owner (including any joint owner or any
successor owner who has become a current owner) dies before the annuity
commencement date, then the entire value of the policy must generally be
distributed within five years of the date of death of such owner. Certain rules
apply where (1) the spouse of the deceased owner is the sole beneficiary; (2)
the owner is not a natural person and the primary annuitant dies or is changed;
or (3) any owner dies after the annuity commencement date. See "Certain Federal
Income Tax Consequences" below for more information about these rules. Other
rules may apply to qualified policies.
Assignment
During the lifetime of the annuitant, the owner may assign any rights or
benefits provided by the policy if the policy is a nonqualified policy. An
assignment will not be binding on PFL until a copy has been filed at its
administrative and service office. The rights and benefits of the owner and
beneficiary are subject to the rights of the assignee. PFL assumes no
responsibility for the validity or effect of any assignment. Any claim made
under an assignment shall be subject to proof of interest and the extent of the
assignment. An assignment may have 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 Code.
Evidence Of Survival
PFL reserves the right to require satisfactory evidence that a person is alive
if a payment is based on that person being alive. No payment will be made until
PFL receives such evidence.
Non-Participating
The policy will not share in PFL's surplus earnings; no dividends will be paid.
-15-
<PAGE>
Amendments
No change in the policy is valid unless made in writing by PFL and approved by
one of PFL's officers. No registered representative has authority to change or
waive any provision of the policy.
PFL reserves the right to amend the policy to meet the requirements of the
Code, regulations or published rulings. You can refuse such a change by giving
written notice, but a refusal may result in adverse tax consequences.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following summary does not constitute tax advice. It is a general
discussion of certain of the expected federal income tax consequences of
investment in and distributions with respect to a policy, based on the Code, as
amended, proposed and final Treasury Regulations thereunder, judicial
authority, and current administrative rulings and practice. This summary
discusses only certain federal income tax consequences to "United States
Persons," and does not discuss state, local, or foreign tax consequences.
United States Persons means citizens or residents of the United States,
domestic corporations, domestic partnerships and trusts or estates that are
subject to United States federal income tax regardless of the source of their
income.
Tax Status Of The Policy
The following discussion is based on the assumption that the policy qualifies
as an annuity contract for federal income tax purposes.
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.separate
account. The separate account, through the underlying funds and their
portfolios, intends to comply with the diversification requirements of the
Treasury. PFL has entered into agreements regarding participation in the 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 contract owner's gross income.
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 contract owners were not owners of separate account assets. For
example, the owner of a policy has the choice of one or more subaccounts in
which to allocate premiums and policy values, and may be able to transfer among
these accounts more frequently than in such rulings. These differences could
result in policyowners being treated as the owners of the assets of the
separate account. In addition, PFL does not know what standards will be set
forth, if any, in the regulations or rulings which the Treasury Department has
stated it expects to issue. PFL therefore reserves the right to modify the
policies as necessary to attempt to prevent the policyowners from being
considered the owners of a pro rata share of the assets of the separate
account.
-16-
<PAGE>
Distribution Requirements. The Code also requires that nonqualified policies
contain specific provisions for distribution of policy proceeds upon the death
of any owner. In order to be treated as an annuity contract for federal income
tax purposes, the Code requires that such policies provide that if any owner
dies on or after the annuity commencement date and before the entire interest
in the policy has been distributed, the remaining portion must be distributed
at least as rapidly as under the method in effect on such owners death. If any
owner dies before the annuity commencement date, the entire interest in the
policy must generally be distributed within 5 years after such owner's date of
death or be applied to provide an immediate annuity under which payments will
begin within one year of such owner's death and will be made for the life of
the beneficiary or for a period not extending beyond the life expectancy of the
beneficiary. However, if such owner's death occurs prior to the annuity
commencement date, and such owner's surviving spouse is named the beneficiary,
then the policy may be continued with the surviving spouse as the new owner
receiving the one-time adjustment to the policy value. If any owner is not a
natural person, then for purposes of these distribution requirements, the
primary annuitant shall be treated as the owner and any death or change of such
primary annuitant shall be treated as the death of an owner. The 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.
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. 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, Section 403(a) annuities, and Section 403(b) tax-
sheltered annuities are subject to a mandatory federal income tax withholding
of 20%. An eligible rollover distribution is the taxable portion of any
distribution from such a plan, except certain distributions such as
distributions required by the Code or distributions in a specified annuity
form. The 20% withholding does not apply, however, if the owner chooses a
"direct rollover" from the plan to another tax-qualified plan or IRA. Different
withholding requirements may apply in the case of non-United States persons.
Qualified Policies. The qualified policy is designed for use with several types
of tax-qualified retirement plans. The tax rules applicable to participants and
beneficiaries in tax-qualified retirement plans vary according to the type of
plan and the terms and conditions of the plan. Special favorable tax treatment
may be available for certain types of contributions and distributions. Adverse
tax consequences may result from contributions in excess of specified limits;
distributions prior to age 59 1/2 (subject to certain exceptions);
distributions that do not conform to specified commencement and minimum
distribution rules; and in other specified circumstances. Some retirement plans
are subject to distribution and other requirements that are not incorporated
into the policies or PFL's policy administration procedures. Owners,
participants and beneficiaries are responsible for determining that
contributions, distributions and other transactions with respect to the
policies comply with applicable law.
For qualified plans under Section 401(a), 403(a), 403(b), and 457, the Code
requires that distributions generally must commence no later than the later of
April 1 of the calendar year following the calendar year in which the owner (or
plan participant) (i) reaches age 70 1/2 or (ii) retires, and must be made in a
specified form or manner. If the plan participant is a "5 percent owner" (as
defined in the Code), or if the policy is a traditional individual retirement
annuity, then distributions generally must begin no later than April 1 of the
calendar year in which the owner (or plan participant) reaches age 70 1/2. Each
owner is responsible for requesting distributions under the policy that satisfy
applicable tax rules.
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<PAGE>
PFL makes no attempt to provide more than general information about use of the
policy with the various types of retirement plans. Purchasers of policies for
use with any retirement plan should consult their legal counsel and tax adviser
regarding the suitability of the policy.
Individual Retirement Annuities. In order to qualify as a traditional
individual retirement annuity under Section 408(b) of the Code, a policy must
contain certain provisions: (i) the owner must be the annuitant; (ii) the
policy generally is not transferable by the owner, e.g., the owner may not
designate a new owner, designate a successor owner or assign the policy as
collateral security; (iii) the total premium payments for any calendar year on
behalf of any individual may not exceed $2,000, except in the case of a
rollover amount or contribution under Sections 402(c), 403(a)(4), 403(b)(8) or
408(d)(3) of the Code; (iv) annuity payments or partial withdrawals must begin
no later than April 1 of the calendar year following the calendar year in which
the annuitant attains age 70 1/2; (v) an annuity payment option with a period
certain that will guarantee annuity payments beyond the life expectancy of the
annuitant and the beneficiary may not be selected; (vi) certain payments of
death benefits must be made in the event the annuitant dies prior to the
distribution of the policy value; and (vii) the entire interest of the owner is
non-forfeitable. Policies intended to qualify as traditional individual
retirement annuities under Section 408(b) of the Code contain such provisions.
Amounts in the IRA (other than nondeductible contributions) are taxed when
distributed from the IRA. Distributions prior to age 59 1/2 (unless certain
exceptions apply) are subject to a 10% penalty tax.
No part of the funds for an individual retirement account (including a Roth
IRA) or annuity, 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 as an IRA. 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 to the rollover or
conversion and to distributions attributable thereto. 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 modified
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 5 tax years after the first contribution to
any Roth IRA of the individual and 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 generally 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
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<PAGE>
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 plans with respect to service for state
governments, local governments, political sub-divisions, agencies,
instrumentalities and certain affiliates of such entities, and tax exempt
organizations. The policies can be used with such plans. Under such plans a
participant may specify the form of investment in which his or her
participation will be made. For non-governmental 457 plans, all such
investments, however, are owned by, and are subject to, the claims of the
general creditors of the sponsoring employer. Depending on the terms of the
particular plan, a non-governmental employer may be entitled to draw on
deferred amounts for purposes unrelated to its Section 457 plan obligations. In
general, all amounts received under a Section 457 plan are taxable and are
subject to federal income tax withholding as wages.
Non-natural Persons. Pursuant to Section 72(u) of the Code, an annuity contract
held by a taxpayer other than a natural person generally will not be treated as
an annuity contract under the Code; accordingly, an owner who is not a natural
person will recognize as ordinary income for a taxable year the excess of (i)
the sum of the cash value as of the close of the taxable year and all previous
distributions under the policy over (ii) the sum of the premium payments paid
for the taxable year and any prior taxable year and the amounts includable in
gross income for any prior taxable year with respect to the policy. For these
purposes, the policy value at year end may have to be increased by any positive
excess interest adjustment which could result from a full surrender at such
time. There is, however, no definitive guidance on the proper tax treatment of
excess interest adjustments and the owner should contact a competent tax
adviser with respect to the potential tax consequences of an excess interest
adjustment. Notwithstanding the preceding sentences in that paragraph, Section
72(u) of the Code does not apply to (i) a policy where the nominal owner is not
a natural person but the beneficial owner of which is a natural person, (ii) a
policy acquired by the estate of a decedent by reason of such decedent's death,
(iii) a qualified policy (other than one qualifying under Section 457) or (iv)
a single-payment annuity where the commencement date is no later than one year
from the date of the single premium payment; such policies are taxed as
described in the prospectus.
Taxation of PFL
PFL at present is taxed as a life insurance company under part I of Subchapter
L of the Code. The separate account is treated as part of PFL and, accordingly,
will not be taxed separately as a "regulated
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<PAGE>
investment company" under Subchapter M of the Code. PFL does not expect to
incur any federal income tax liability with respect to investment income and
net capital gains arising from the activities of the separate account retained
as part of the reserves under the policy. Based on this expectation, it is
anticipated that no charges will be made against the separate account for
federal income taxes. If, in future years, any federal income taxes are
incurred by PFL with respect to the separate account, PFL may make a charge to
the separate account.
INVESTMENT EXPERIENCE
A "Net Investment Factor" is used to determine the value of accumulation units
and annuity units, and to determine annuity payment rates.
Accumulation Units
Allocations of a premium payment directed to a subaccount are credited in the
form of accumulation units. Each subaccount has a distinct accumulation unit
value. The number of units credited is determined by dividing the premium
payment or amount transferred to the subaccount by the accumulation unit value
of the subaccount as of the end of the valuation period during which the
allocation is made. For each subaccount, the accumulation unit value for a
given business day is based on the net asset value of a share of the
corresponding portfolio of the underlying funds less any applicable charges or
fees. The investment performance of the portfolio, expenses, and deductions of
certain charges affect the value of an accumulation unit.
Upon allocation to the selected subaccount of the separate account, premium
payments are converted into accumulation units of the subaccount. The number of
accumulation units to be credited is determined by dividing the dollar amount
allocated to each subaccount by the value of an accumulation unit for that
subaccount as next determined after the premium payment is received at the
administrative and service office or, in the case of the initial premium
payment, when the application is completed, whichever is later. The value of an
accumulation unit was arbitrarily established at $1.000000 at the inception of
each subaccount. Thereafter, the value of an accumulation unit is determined as
of the close of business on each day the New York Stock Exchange is open for
business.
An index (the "Net Investment Factor") which measures the investment
performance of a subaccount during a valuation period, is used to determine the
value of an accumulation unit for the next subsequent valuation period. The Net
Investment Factor may be greater or less than or equal to one; therefore, the
value of an accumulation unit may increase, decrease or remain the same from
one valuation period to the next. The owner bears this investment risk. The net
investment performance of a subaccount and deduction of certain charges affect
the accumulation unit value.
The Net Investment Factor for any subaccount for any valuation period is
determined by dividing (a) by (b) and subtracting (c) from the result, where:
(a) is the net result of:
(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;
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<PAGE>
(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 0.15% 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
<TABLE>
<C> <S> <C>
Where: A = The Net Asset Value of an underlying fund share as of the
end of the current valuation period.
Assume........................................................ A = $11.57
B = The per share amount of any dividend or capital gains
distribution since the end of the immediately preceding
valuation period.
Assume........................................................ B = 0
C = The per share charge or credit for any taxes reserved for
at the end of the current valuation period.
Assume........................................................ C = 0
D = The Net Asset Value of an underlying fund share at the end
of the immediately preceding valuation period.
Assume........................................................ D = $11.40
E = The daily deduction for the mortality and expense risk fee
and administrative charge, which totals 1.40% on an annual
basis.
On a daily basis.............................................. = .0000380909
</TABLE>
<TABLE>
<S> <C>
Then, the Investment Experience Factor = 11.57 + 0-0--.0000380909 = Z = 1.0148741898
-------------------------
11.40
</TABLE>
Formula And Illustration For Determining Accumulation Unit Value
Accumulation Unit Value = A * B
<TABLE>
<S> <C>
Where: A = The accumulation unit value for the immediately preceding
valuation period.
Assume........................................................ = $X
B = The Net Investment Factor for the current valuation period.
Assume........................................................ = Y
</TABLE>
Then, the accumulation unit value = $X * Y = $Z
Annuity Unit Value and Annuity Payment Rates
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
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<PAGE>
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.
The annuity payment rates vary according to the annuity option elected and the
sex and adjusted age of the annuitant at the annuity commencement date. The
policy also contains a table for determining the adjusted age of the annuitant.
Illustration Of Calculations For Annuity Unit Value
And Variable Annuity Payments
Formula And Illustration For Determining Annuity Unit Value
Annuity unit value = A * B * C
<TABLE>
<C> <S> <C>
= Annuity unit value for the immediately preceding valuation
Where: A period.
Assume....................................................... = $ X
B = Investment Experience Factor for the valuation period for
which the annuity unit value is being calculated.
Assume....................................................... = Y
C = A factor to neutralize the assumed interest rate of 5%
built into the annuity tables used.
Assume....................................................... = Z
</TABLE>
Then, the annuity unit value is: $ X * Y * Z = $ Q
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<PAGE>
Formula And Illustration For Determining Amount
Of First Monthly Variable Annuity Payment
First Monthly Variable Annuity Payment = A * B
-----
$1,000
<TABLE>
<C> <S> <C>
Where: A = The policy value as of the annuity commencement date.
Assume..................................................... = $ X
B = The annuity purchase rate per $1,000 based upon the option
selected, the sex and adjusted age of the annuitant
according to the tables contained in the policy.
Assume..................................................... = $ Y
</TABLE>
Then, the first monthly variable annuity payment = $ X * $ Y = $Z
---------
1,000
Formula And Illustration For Determining The Number Of Annuity Units
Represented By Each Monthly Variable Annuity Payment
Number of annuity units = A
---
B
<TABLE>
<C> <S> <C>
The dollar amount of the first monthly variable annuity
Where: A = payment.
Assume..................................................... = $ X
B = The annuity unit value for the valuation date on which the
first monthly payment is due.
Assume..................................................... = $ Y
</TABLE>
Then, the number of annuity units = $ X = Z
---
$ Y
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 separate 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 * ((((NI-ES)/(U * UV)) + 1)/6/-1)
Where:
NI= Net investment income of the subaccount for the 30-day period attributable
to the subaccount's unit.
ES= Expenses of the subaccount for the 30-day period.
U= The average number of units outstanding.
UV = The unit value at the close (highest) of the last day in the 30-day
period.
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<PAGE>
Because of the charges and deductions imposed by the separate account, the
yield for a subaccount of the separate account will be lower than the yield for
its corresponding portfolio. The yield calculations do not reflect the effect
of any premium taxes or surrender charges that may be applicable to a
particular policy. Surrender charges range from 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 separate account normally
will fluctuate over time. Therefore, the disclosed yield for any given past
period is not an indication or representation of future yields or rates of
return. 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 separate account for various periods of time.
One of the periods of time will include the period measured from the date the
subaccount commenced operations. When a subaccount has been in operation for 1,
5 and 10 years, respectively, the total return for these periods will be
provided. Total returns for other periods of time may from time to time also be
disclosed. Total returns represent the average annual compounded rates of
return that would equate an initial investment of $1,000 to the redemption
value of that investment as of the last day of each of the periods. The ending
date for each period for which total return quotations are provided will be for
the most recent month end practicable, considering the type and media of the
communication and will be stated in the communication.
Total returns will be calculated using subaccount unit values which PFL
calculates on each business day based on the performance of the subaccount's
underlying portfolio, and the deductions for the mortality and expense risk fee
and the administrative 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.
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<PAGE>
All non-standardized performance data will only be advertised if the
standardized performance data for the same period, as well as for the required
period, is also disclosed.
Adjusted Historical Performance Data
From time to time, sales literature or advertisements may quote average annual
total returns for periods prior to the date the separate account commenced
operations. Such performance information for the subaccounts will be calculated
based on the performance of the various portfolios and the assumption that the
subaccounts were in existence for the same periods as those indicated for the
portfolios, with the level of policy charges that are currently in effect.
PUBLISHED RATINGS
PFL may, from time, to time publish in advertisements, sales literature and
reports to owners, the ratings and other information assigned to it by one or
more independent rating organizations such as A.M. Best Company, Standard &
Poor's Insurance Ratings Services, Moody's Investors Service and Duff & Phelps
Credit Rating Co. The purpose of the ratings is to reflect the financial
strength and/or claims-paying ability of PFL and they should not be considered
as bearing on the investment performance of assets held in the separate account
or of the safety or riskiness of an investment in the separate account. Each
year the A.M. Best Company reviews the financial status of thousands of
insurers, culminating in the assignment of Best's ratings. These ratings
reflect their current opinion of the relative financial strength and operating
performance of an insurance company in comparison to the norms of the
life/health insurance industry. In addition, the claims-paying ability of PFL
as measured by Standard & Poor's Insurance Ratings Services, Moody's Investors
Service or Duff & Phelps Credit Rating Co. may be referred to in advertisements
or sales literature or in reports to owners. These ratings are opinions of an
operating insurance company's financial capacity to meet the obligations of its
insurance policies in accordance with their terms. Claims-paying ability
ratings do not refer to an insurer's ability to meet non-policy obligations
such as debt or commercial paper obligations.
STATE REGULATION OF PFL
PFL is subject to the laws of Iowa governing insurance companies and to
regulation by the Iowa Division of Insurance. An annual statement, in a
prescribed form, is filed with the Division of Insurance each year covering the
operation of PFL for the preceding year and its financial condition as of the
end of such year. Regulation by the Division of Insurance includes periodic
examination to determine PFL's contract liabilities and reserves so that the
Division may determine the items are correct. PFL's books and accounts are
subject to review by the Division of Insurance at all times and a full
examination of its operations is conducted periodically by the National
Association of Insurance Commissioners. In addition, PFL is subject to
regulation under the insurance laws of other jurisdictions in which it may
operate.
ADMINISTRATION
PFL performs administrative services for the policies. These services include
issuance of the policies, maintenance of records concerning the policies, and
certain valuation services.
RECORDS AND REPORTS
All records and accounts relating to the separate account will be maintained by
PFL. As presently required by the 1940 Act and regulations promulgated
thereunder, PFL will mail to all owners at their
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<PAGE>
last known address of record, at least annually, reports containing such
information as may be required under that Act or by any other applicable law or
regulation. Owners will also receive confirmation of each financial transaction
and any other reports required by law or regulation.
DISTRIBUTION OF THE POLICIES
The policies are offered to the public through 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 do so.
AFSG Securities Corporation, an affiliate of PFL, is the principal underwriter
of the policies and may enter into agreements with broker-dealers for the
distribution of the policies. During 1999, 1998 and 1997 the amount paid to
AFSG Securities Corporation, AEGON USA Securities, Inc. and/or the broker-
dealers for their services was $5,583,369.34, $3,918,406.04, and $628,439.24
respectively. Prior to April 30, 1998, AEGON USA Securities, Inc. (also an
affiliate of PFL) was the principal underwriter.
VOTING RIGHTS
To the extent required by law, PFL will vote the underlying funds' 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, although none of the underlying funds hold
regular annual shareholder meetings. If, however, the 1940 Act or any
regulation thereunder should be amended or if the present interpretation
thereof should change, and as a result PFL determines that it is permitted to
vote the underlying funds shares in its own right, it may elect to do so.
Before the annuity commencement date, you hold the voting interest in the
selected portfolios. The number of votes that you have the right to instruct
will be calculated separately for each subaccount. The number of votes that you
have the right to instruct for a particular subaccount will be determined by
dividing your policy value in the subaccount by the net asset value per share
of the corresponding portfolio in which the subaccount invests. Fractional
shares will be counted.
After the annuity commencement date, the person receiving annuity payments has
the voting interest, and the number of votes decreases as annuity payments are
made and as the reserves for the policy decrease. The person's number of votes
will be determined by dividing the reserve for the policy allocated to the
applicable subaccount by the net asset value per share of the corresponding
portfolio. Fractional shares will be counted.
The number of votes that you or the person receiving income payments has the
right to instruct will be determined as of the date established by the
underlying fund for determining shareholders eligible to vote at the meeting of
the underlying fund. PFL will solicit voting instructions by sending you, or
other persons entitled to vote, written requests for instructions prior to that
meeting in accordance with procedures established by the underlying fund.
Portfolio shares as to which no timely instructions are received and shares
held by PFL in which you, or other persons entitled to vote, have no beneficial
interest will be voted in proportion to the voting instructions that are
received with respect to all policies participating in the same subaccount.
Each person having a voting interest in a subaccount will receive proxy
material, reports, and other materials relating to the appropriate portfolio.
-26-
<PAGE>
OTHER PRODUCTS
PFL makes other variable annuity policies available that may also be funded
through the separate account. These variable annuity policies may have
different features, such as different investment choices or charges.
CUSTODY OF ASSETS
PFL holds assets of each of the subaccounts of the separate account. The assets
of each of the subaccounts of the separate account are segregated and held
separate and apart from the assets of the other subaccounts and from PFL's
general account assets. PFL maintains records of all purchases and redemptions
of shares of the underlying funds held by each of the subaccounts. Additional
protection for the assets of the separate account is afforded by PFL's fidelity
bond, presently in the amount of $5,000,000, covering the acts of officers and
employees of PFL.
LEGAL MATTERS
Sutherland Asbill & Brennan LLP, of Washington D.C.has provided legal advice to
PFL relating to certain matters under the federal securities laws applicable to
the issue and sale of the policies.
INDEPENDENT AUDITORS
The statutory-basis financial statements and schedules of PFL as of December
31, 1999 and 1998, and for each of the three years in the period ended December
31, 1999, and the financial statements of subaccounts of PFL Life Variable
Annuity Account A,which are available for investment by the Atlas Portfolio
Builder Variable Annuity contract owners as of December 31, 1999, and for each
of the two years in the period then ended, included in this SAI 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 SEC, under the Securities Act
of 1933 as amended, with respect to the policies discussed in this SAI. Not all
of the information set forth in the Registration Statement, amendments and
exhibits thereto has been included in the prospectus or this SAI. Statements
contained in the prospectus and this SAI concerning the content of the policies
and other legal instruments are intended to be summaries. For a complete
statement of the terms of these documents, reference should be made to the
instruments filed with the SEC.
FINANCIAL STATEMENTS
The values of the interest of owners in the separate account will be affected
solely by the investment results of the selected subaccount(s). The statutory-
basis financial statements and schedules of PFL, which are included in this
SAI, should be considered only as bearing on the ability of PFL to meet its
obligations under the policies. They should not be considered as bearing on the
investment performance of the assets held in the separate account.
-27-
<PAGE>
Financial Statements--Statutory Basis
PFL Life Insurance Company
Years ended December 31, 1999, 1998 and 1997
with Report of Independent Auditors
<PAGE>
PFL Life Insurance Company
Financial Statements--Statutory Basis
Years ended December 31, 1999, 1998 and 1997
Contents
<TABLE>
<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
Statutory-Basis Financial Statement Schedules
Summary of Investments--Other Than Investments in Related Parties......... 28
Supplementary Insurance Information....................................... 29
Reinsurance............................................................... 31
</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, an indirect wholly-owned subsidiary of AEGON N.V., as of
December 31, 1999 and 1998, 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, 1999. 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 auditing standards generally
accepted in the United States. 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 accounting principles generally accepted in
the United States. The variances between such practices and accounting
principles generally accepted in the United States 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 effect of the matter described in the preceding
paragraph, the financial statements referred to above do not present fairly,
in conformity with accounting principles generally accepted in the United
States, the financial position of PFL Life Insurance Company at December 31,
1999 and 1998, or the results of its operations or its cash flows for each of
the three years in the period ended December 31, 1999.
1
<PAGE>
However, in our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of PFL Life Insurance
Company at December 31, 1999 and 1998, and the results of its operations and
its cash flows for each of the three years in the period ended December 31,
1999, in conformity with accounting practices prescribed or permitted by the
Insurance Division, Department of Commerce, of the State of Iowa. Also, in our
opinion, the related financial statement schedules, when considered in
relation to the basic statutory-basis financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
/s/ Ernst & Young LLP
Des Moines, Iowa
February 18, 2000
2
<PAGE>
PFL Life Insurance Company
Balance Sheets--Statutory Basis
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
December 31
1999 1998
----------- ----------
<S> <C> <C>
Admitted Assets
Cash and invested assets:
Cash and short-term investments........................ $ 53,695 $ 83,289
Bonds.................................................. 4,892,156 4,822,442
Stocks:
Preferred............................................ 17,074 14,754
Common (cost: 1999--$61,813; 1998--$34,731).......... 71,658 49,448
Affiliated entities (cost: 1999--$10,318; 1998--
$8,060)............................................. 6,764 5,613
Mortgage loans on real estate.......................... 1,339,202 1,012,433
Real estate, at cost less accumulated depreciation
($10,891 in 1999; $9,500 in 1998):
Home office properties............................... 7,829 8,056
Properties acquired in satisfaction of debt.......... 16,336 11,778
Investment properties................................ 33,707 44,325
Policy loans........................................... 59,871 60,058
Other invested assets.................................. 123,722 76,482
----------- ----------
Total cash and invested assets..................... 6,622,014 6,188,678
Premiums deferred and uncollected....................... 14,656 15,318
Accrued investment income............................... 65,364 65,308
Receivable from affiliate............................... -- 643
Federal income taxes recoverable........................ 1,335 639
Transfers from separate accounts due or accrued......... 92,309 70,866
Other assets............................................ 30,119 29,511
Separate account assets................................. 4,905,374 3,348,611
----------- ----------
Total admitted assets................................... $11,731,171 $9,719,574
=========== ==========
</TABLE>
3
<PAGE>
PFL Life Insurance Company
Balance Sheets--Statutory Basis
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
December 31
1999 1998
----------- ----------
<S> <C> <C>
Liabilities and Capital and Surplus
Liabilities:
Aggregate reserves for policies and contracts:
Life................................................. $ 1,552,781 $1,357,175
Annuity.............................................. 4,036,751 3,925,293
Accident and health.................................. 254,571 205,736
Policy and contract claim reserves:
Life................................................. 8,681 9,101
Accident and health.................................. 37,466 48,906
Other policyholders' funds............................. 172,774 162,266
Remittances and items not allocated.................... 33,020 19,690
Asset valuation reserve................................ 103,193 91,588
Interest maintenance reserve........................... 36,120 50,575
Short-term notes payable to affiliates................. 144,500 9,421
Other liabilities...................................... 70,717 76,766
Payable for securities................................. 15,136 57,645
Payable to affiliates.................................. 11,517 --
Separate account liabilities........................... 4,899,289 3,342,884
----------- ----------
Total liabilities....................................... 11,376,516 9,357,046
Commitments and contingencies (Note 10)
Capital and surplus:
Common stock, $10 par value, 500,000 shares autho-
rized, 266,000 issued and outstanding................. 2,660 2,660
Paid-in surplus........................................ 154,282 154,282
Unassigned surplus..................................... 197,713 205,586
----------- ----------
Total capital and surplus............................... 354,655 362,528
----------- ----------
Total liabilities and capital and surplus............... $11,731,171 $9,719,574
=========== ==========
</TABLE>
See accompanying notes.
4
<PAGE>
PFL Life Insurance Company
Statements of Operations--Statutory Basis
(Dollars in thousands)
<TABLE>
<CAPTION>
Year ended December 31
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Premiums and other considerations, net of
reinsurance:
Life.................................... $ 227,510 $ 516,111 $ 202,435
Annuity................................. 1,413,049 667,920 657,695
Accident and health..................... 160,570 178,593 207,982
Net investment income..................... 437,549 446,984 446,424
Amortization of interest maintenance re-
serve.................................... 7,588 8,656 3,645
Commissions and expense allowances on
reinsurance ceded........................ 24,741 32,781 49,859
Separate account fee income............... 49,826 37,137 --
---------- ---------- ----------
2,320,833 1,888,182 1,568,040
Benefits and expenses:
Benefits paid or provided for:
Life and accident and health benefits... 115,621 135,184 146,583
Surrender benefits...................... 1,046,611 732,796 658,071
Other benefits.......................... 169,479 152,209 126,495
Increase (decrease) in aggregate
reserves for policies and contracts:
Life.................................... 195,606 473,158 149,575
Annuity................................. 111,427 (278,665) (203,139)
Accident and health..................... 48,835 36,407 30,059
Other................................... 10,480 17,550 16,998
---------- ---------- ----------
1,698,059 1,268,639 924,642
Insurance expenses:
Commissions............................... 167,146 136,569 157,300
General insurance expenses................ 54,191 48,018 57,571
Taxes, licenses and fees.................. 12,382 19,166 8,715
Net transfers to separate accounts........ 309,307 302,839 297,480
Other expenses............................ 229 1,016 119
---------- ---------- ----------
543,255 507,608 521,185
---------- ---------- ----------
2,241,314 1,776,247 1,445,827
---------- ---------- ----------
Gain from operations before federal income
tax expense and net realized capital gains
on investments............................. 79,519 111,935 122,213
Federal income tax expense.................. 25,316 49,835 43,381
---------- ---------- ----------
Gain from operations before net realized
capital gains on investments............... 54,203 62,100 78,832
Net realized capital gains on investments
(net of related federal income taxes and
amounts transferred to interest maintenance
reserve)................................... 6,365 3,398 7,159
---------- ---------- ----------
Net income.................................. $ 60,568 $ 65,498 $ 85,991
========== ========== ==========
</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 Paid-in Unassigned and
Stock Surplus Surplus Surplus
------ -------- ---------- --------
<S> <C> <C> <C> <C>
Balance at January 1, 1997 $2,660 $154,129 $261,558 $418,347
Capital contribution.................... -- 153 -- 153
Net income.............................. -- -- 85,991 85,991
Change in net unrealized capital gains.. -- -- 3,592 3,592
Change in non-admitted assets........... -- -- (481) (481)
Change in asset valuation reserve....... -- -- (14,974) (14,974)
Dividend to stockholder................. -- -- (62,000) (62,000)
Surplus effect of sale of a division.... -- -- (161) (161)
Surplus effect of ceding commissions
associated with the sale of a
division............................... -- -- 5 5
Amendment of reinsurance agreement...... -- -- 389 389
Surplus effect of reinsurance
agreement.............................. -- -- 402 402
Change in liability for reinsurance in
unauthorized companies................. -- -- (1,901) (1,901)
------ -------- -------- --------
Balance at December 31, 1997 2,660 154,282 272,420 429,362
Net income.............................. -- -- 65,498 65,498
Change in net unrealized capital gains.. -- -- 4,504 4,504
Change in non-admitted assets........... -- -- (260) (260)
Change in asset valuation reserve....... -- -- (21,763) (21,763)
Dividend to stockholder................. -- -- (120,000) (120,000)
Increase in liability for reinsurance in
unauthorized companies................. -- -- 2,036 2,036
Tax benefit on stock options exercised.. -- -- 2,476 2,476
Change in surplus in separate accounts.. -- -- 675 675
------ -------- -------- --------
Balance at December 31, 1998 2,660 154,282 205,586 362,528
Net income.............................. -- -- 60,568 60,568
Change in net unrealized capital gains.. -- -- (20,217) (20,217)
Change in non-admitted assets........... -- -- (980) (980)
Change in asset valuation reserve....... -- -- (11,605) (11,605)
Dividend to stockholder................. -- -- (40,000) (40,000)
Tax benefit on stock options exercised.. -- -- 1,305 1,305
Change in surplus in separate accounts.. -- -- 245 245
Settlement of prior period tax returns
and other tax-related adjustments...... -- -- 2,811 2,811
------ -------- -------- --------
Balance at December 31, 1999.............. $2,660 $154,282 $197,713 $354,655
====== ======== ======== ========
</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
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Operating activities
Premiums and other considerations, net
of reinsurance......................... $ 1,830,365 $ 1,396,428 $ 1,119,936
Net investment income................... 441,737 469,246 452,091
Life and accident and health claims..... (124,178) (138,249) (154,383)
Surrender benefits and other fund
withdrawals............................ (1,046,611) (732,796) (658,071)
Other benefits to policyholders......... (169,476) (152,167) (126,462)
Commissions, other expenses and other
taxes.................................. (238,192) (197,135) (225,042)
Net transfers to separate accounts...... (280,923) (276,375) (319,146)
Federal income taxes.................... (24,709) (72,176) (47,909)
Cash paid in conjunction with an
amendment of a reinsurance agreement... -- -- (4,826)
Cash received in connection with a
reinsurance agreement.................. -- -- 1,477
Other, net.............................. (23,047) (93,095) 89,693
----------- ----------- -----------
Net cash provided by operating
activities............................. 364,966 203,681 127,358
Investing activities
Proceeds from investments sold, matured
or repaid:
Bonds and preferred stocks............ 3,283,038 3,347,174 3,284,095
Common stocks......................... 60,293 34,564 34,004
Mortgage loans on real estate......... 158,739 192,210 138,162
Real estate........................... 13,367 5,624 6,897
Policy loans.......................... 186 -- --
Cash received from ceding commissions
associated with the sale of a
division............................. -- -- 8
Other................................. 6,133 7,210 57,683
----------- ----------- -----------
3,521,756 3,586,782 3,520,849
Cost of investments acquired:
Bonds and preferred stocks............ (3,398,158) (3,251,822) (3,411,442)
Common stocks......................... (76,200) (36,379) (37,339)
Mortgage loans on real estate......... (480,750) (257,039) (159,577)
Real estate........................... (7,568) (11,458) (2,013)
Policy loans.......................... -- (2,922) (2,922)
Cash paid in association with the sale
of a division........................ -- -- (591)
Other................................. (48,719) (44,514) (15,674)
----------- ----------- -----------
(4,011,395) (3,604,134) (3,629,558)
----------- ----------- -----------
Net cash used in investing activities... (489,639) (17,352) (108,709)
</TABLE>
7
<PAGE>
PFL Life Insurance Company
Statements of Cash Flows--Statutory Basis
(Dollars in thousands)
<TABLE>
<CAPTION>
Year ended December 31
1999 1998 1997
-------- -------- -------
<S> <C> <C> <C>
Financing activities
Issuance (repayment) of short-term intercompany
notes payable................................... $135,079 $ (6,979) $16,400
Capital contribution............................. -- -- 153
Dividends to stockholder......................... (40,000) (120,000) (62,000)
-------- -------- -------
Net cash provided by (used in) financing
activities...................................... 95,079 (126,979) (45,447)
-------- -------- -------
Increase (decrease) in cash and short-term
investments..................................... (29,594) 59,350 (26,798)
Cash and short-term investments at beginning of
year............................................ 83,289 23,939 50,737
-------- -------- -------
Cash and short-term investments at end of year... $ 53,695 $ 83,289 $23,939
======== ======== =======
</TABLE>
See accompanying notes.
8
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis
(Dollars in thousands)
December 31, 1999
1. Organization and Summary of Significant Accounting Policies
Organization
PFL Life Insurance Company ("the Company") is a stock life insurance company
and is a wholly-owned subsidiary of First AUSA Life Insurance Company ("First
AUSA"), which, in turn, is a wholly-owned subsidiary of AEGON USA, Inc.
("AEGON"). AEGON is an indirect wholly-owned subsidiary of AEGON N.V., a
holding company organized under the laws of The Netherlands.
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 and Guam. Sales of the Company's products
are primarily through the Company's agents and financial institutions.
Basis of Presentation
The preparation of financial statements of insurance companies requires
management to make estimates and assumptions that affect amounts reported in
the financial statements and accompanying notes. Actual results could differ
from those estimates.
Significant estimates and assumptions are utilized in the calculation of
aggregate policy reserves, policy and contract claim reserves, guaranty fund
assessment accruals and valuation allowances on investments. It is reasonably
possible that actual experience could differ from the estimates and
assumptions utilized which could have a material impact on the financial
statements.
The accompanying financial statements have been prepared on the basis of
accounting practices prescribed or permitted by the Insurance Division,
Department of Commerce, of the State of Iowa ("Insurance Department"), which
practices differ in some respects from generally accepted accounting
principles. The more significant of these differences are as follows: (a)
bonds are generally reported at amortized cost rather than segregating the
portfolio into held-to-maturity (reported at amortized cost), available-for-
sale (reported at fair value), and trading (reported at fair value)
classifications; (b) acquisition costs of acquiring new business are charged
to current operations as incurred rather than deferred and amortized over the
life of the policies; (c) policy reserves on traditional life products
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)
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; (l) stock options settled in cash are recorded as expense of
the Company's indirect parent rather than charged to current operations; (m)
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; (n) 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 (o) a liability is
established for "unauthorized reinsurers" and changes in this liability are
charged or credited directly to unassigned surplus. The effects of these
variances have not been determined by the Company but are presumed to be
material.
In 1998, the National Association of Insurance Commissioners ("NAIC") adopted
codified statutory accounting principles ("Codification") effective January 1,
2001. Codification will likely change, to some extent, prescribed statutory
accounting practices and may result in changes to the accounting practices
that the Company uses to prepare its statutory-basis financial statements.
Codification will require adoption by the various states before it becomes the
prescribed statutory basis of accounting for insurance companies domesticated
within those states. Accordingly, before Codification becomes effective for
the Company, the State of Iowa must adopt Codification as the prescribed basis
of accounting on which domestic insurers must report their statutory-basis
results to the Insurance Department. At this time, it is anticipated that the
State of Iowa will adopt Codification. However, based on current guidance,
management believes that the impact of Codification will not be material to
the Company's statutory-basis financial statements.
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)
Cash and Short-Term Investments
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 short-term investments.
Investments
Investments in bonds (except those to which the Securities Valuation Office of
the NAIC has ascribed a value), mortgage loans on real estate and short-term
investments are reported at cost adjusted for amortization of premiums and
accrual of discounts. Amortization is computed using methods which result in a
level yield over the expected life of the investment. The Company reviews its
prepayment assumptions on mortgage and other asset-backed securities at
regular intervals and adjusts amortization rates retrospectively when such
assumptions are changed due to experience and/or expected future patterns.
Investments in preferred stocks in good standing are reported at cost.
Investments in preferred stocks not in good standing are reported at the lower
of cost or market. Common stocks of unaffiliated and affiliated companies,
which includes shares of mutual funds and real estate investment trusts, are
carried at market value. Real estate is reported at cost less allowances for
depreciation. Depreciation is computed principally by the straight-line
method. Policy loans are reported at unpaid principal. Other invested assets
consist principally of investments in various joint ventures and are recorded
at equity in underlying net assets. Other "admitted assets" are valued,
principally at cost, as required or permitted by Iowa Insurance Laws.
Net realized capital gains and losses are determined on the basis of specific
identification and are recorded net of related federal income taxes. The Asset
Valuation Reserve ("AVR") is established by the Company to provide for
potential losses in the event of default by issuers of certain invested
assets. These amounts are determined using a formula prescribed by the NAIC
and are reported as a liability. The formula for the AVR provides for a
corresponding adjustment for realized gains and losses. Under 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. During 1999, 1998 and 1997, the Company
excluded investment income due and accrued of $530, $102 and $177,
respectively, with respect to such practices.
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)
The Company uses interest rate swaps and caps as part of its overall interest
rate risk management strategy for certain life insurance and annuity products.
The Company entered into several interest rate swap contracts to modify the
interest rate characteristics of the underlying liabilities. The net interest
effect of such swap transactions is reported as an adjustment of interest
income from the hedged items as incurred.
The Company has entered into an interest rate cap agreement to hedge the
exposure of changing interest rates. The cash flows from the interest rate cap
will help offset losses that might occur from changes in interest rates. The
cost of such agreement is included in interest expense ratably during the life
of the agreement. Income received as a result of the cap agreement will be
recognized in investment income as earned. Unamortized cost of the agreement
is included in other invested assets.
Aggregate Policy Reserves
Life, annuity and accident and health benefit reserves are developed by
actuarial methods and are determined based on published tables based on
statutorily specified interest rates and valuation methods that will provide,
in the aggregate, reserves that are greater than or equal to the minimum
required by law.
The aggregate policy reserves for life insurance policies are based
principally upon the 1941, 1958 and 1980 Commissioners' Standard Ordinary
Mortality and American Experience Mortality Tables. The reserves are
calculated using interest rates ranging from 2.00 to 6.00 percent and are
computed principally on the Net Level Premium Valuation and the Commissioners'
Reserve Valuation Methods. Reserves for universal life policies are based on
account balances adjusted for the Commissioners' Reserve Valuation Method.
Deferred annuity reserves are calculated according to the Commissioners'
Annuity Reserve Valuation Method including excess interest reserves to cover
situations where the future interest guarantees plus the decrease in surrender
charges are in excess of the maximum valuation rates of interest. Reserves for
immediate annuities and supplementary contracts with life contingencies are
equal to the present value of future payments assuming interest rates ranging
from 2.50 to 11.25 percent and mortality rates, where appropriate, from a
variety of tables.
Accident and health policy reserves are equal to the greater of the gross
unearned premiums or any required midterminal reserves plus net unearned
premiums and the present value of amounts not yet due on both reported and
unreported claims.
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)
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 contract owners 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 contract owners. The Company received variable contract
premiums of $486,282, $345,319 and $281,095 in 1999, 1998 and 1997,
respectively. All variable account contracts are subject to discretionary
withdrawal by the contract owner at the market value of the underlying assets
less the current surrender charge.
Stock Option Plan
AEGON N.V. sponsors a stock option plan for eligible employees of the Company.
Under this plan, certain employees have indicated a preference to immediately
sell shares received as a result of their exercise of the stock options; in
these situations, AEGON N.V. has settled such options in cash rather than
issuing stock to these employees. These cash settlements are paid by the
Company, and AEGON N.V. subsequently reimburses the Company for such payments.
Under statutory accounting principles, the Company does not record any expense
related to this plan, as the expense is recognized by AEGON N.V. However, the
Company is allowed to record a deduction in the consolidated tax return filed
by the Company and certain affiliates. The tax benefit of this deduction has
been credited directly to surplus.
Reclassifications
Certain reclassifications have been made to the 1998 and 1997 financial
statements to conform to the 1999 presentation.
13
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
2. Fair Values of Financial Instruments
Statement of Financial Accounting Standard ("SFAS") No. 107, Disclosures about
Fair Value of Financial Instruments, requires disclosure of fair value
information about financial instruments, whether or not recognized in the
statutory-basis balance sheet, for which it is practicable to estimate that
value. SFAS No. 119, Disclosures about Derivative Financial Instruments and
Fair Value of Financial Instruments, requires additional disclosure about
derivatives. In cases where quoted market prices are not available, fair
values are based on estimates using present value or other valuation
techniques. Those techniques are significantly affected by the assumptions
used, including the discount rate and estimates of future cash flows. In that
regard, the derived fair value estimates cannot be substantiated by
comparisons to independent markets and, in many cases, could not be realized
in immediate settlement of the instrument. SFAS No. 107 and No. 119 exclude
certain financial instruments and all nonfinancial instruments from their
disclosure requirements and allow companies to forego the disclosures when
those estimates can only be made at excessive cost. Accordingly, the aggregate
fair value amounts presented do not represent the underlying value of the
Company.
The following methods and assumptions were used by the Company in estimating
its fair value disclosures for financial instruments:
Cash and short-term investments: The carrying amounts reported in the
balance sheet for these instruments approximate their fair values.
Investment securities: Fair values for fixed maturity securities (including
redeemable preferred stocks) are based on quoted market prices, where
available. For fixed maturity securities not actively traded, fair values
are estimated using values obtained from independent pricing services or,
in the case of private placements, are estimated by discounting expected
future cash flows using a current market rate applicable to the yield,
credit quality, and maturity of the investments. The fair values for equity
securities, including affiliated mutual funds and real estate investment
trusts, are based on quoted market prices.
Mortgage loans and policy loans: The fair values for mortgage loans are
estimated utilizing discounted cash flow analyses, using interest rates
reflective of current market conditions and the risk characteristics of the
loans. The fair value of policy loans is assumed to equal their carrying
amount.
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.
14
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
2. Fair Values of Financial Instruments (continued)
Interest rate cap and interest rate swaps: Estimated fair value of the
interest rate cap is based upon the latest quoted market price. Estimated
fair value of interest rate swaps are based upon the pricing differential
for similar swap agreements.
Short-term notes payable to affiliates: The fair values for short-term
notes payable to affiliates are assumed to equal their carrying amount.
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 amounts
of the Company's financial instruments subject to the provisions of SFAS No.
107 and No. 119:
<TABLE>
<CAPTION>
December 31
1999 1998
--------------------- ---------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Admitted assets
Cash and short-term investments... $ 53,695 $ 53,695 $ 83,289 $ 83,289
Bonds............................. 4,892,156 4,757,325 4,822,442 4,900,516
Preferred stocks.................. 17,074 15,437 14,754 14,738
Common stocks..................... 71,658 71,658 49,448 49,448
Affiliated common stock........... 6,764 6,764 5,613 5,613
Mortgage loans on real estate..... 1,339,202 1,299,160 1,012,433 1,089,315
Policy loans...................... 59,871 59,871 60,058 60,058
Interest rate cap................. 4,959 1,784 4,445 725
Interest rate swaps............... 8,134 10,609 1,916 6,667
Separate account assets........... 4,905,374 4,905,374 3,348,611 3,348,611
Liabilities
Investment contract liabilities... 4,207,369 4,059,842 4,084,683 4,017,509
Separate account liabilities...... 4,377,676 4,212,615 3,271,005 3,213,251
Short-term notes payable to
affiliates....................... 144,500 144,500 9,421 9,421
</TABLE>
15
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
3. Investments
The carrying amounts and estimated fair values of investments in debt
securities were as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Carrying Unrealized Unrealized Fair
Amount Gains Losses Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
December 31, 1999
Bonds:
United States Government and
agencies........................ $ 141,390 $ 142 $ 4,520 $ 137,012
State, municipal and other
government...................... 137,745 5,168 1,627 141,286
Public utilities................. 219,791 1,148 6,777 214,162
Industrial and miscellaneous..... 2,078,145 20,042 84,919 2,013,268
Mortgage and other asset-backed
securities...................... 2,315,085 24,214 87,702 2,251,597
---------- -------- -------- ----------
4,892,156 50,714 185,545 4,757,325
Preferred stocks................... 17,074 2 1,639 15,437
---------- -------- -------- ----------
$4,909,230 $ 50,716 $187,184 $4,772,762
========== ======== ======== ==========
December 31, 1998
Bonds:
United States Government and
agencies........................ $ 150,085 $ 2,841 $ 321 $ 152,605
State, municipal and other
government...................... 62,948 918 1,651 62,215
Public utilities................. 139,732 5,053 2,555 142,230
Industrial and miscellaneous..... 2,068,086 78,141 34,493 2,111,734
Mortgage and other asset-backed
securities...................... 2,401,591 45,185 15,044 2,431,732
---------- -------- -------- ----------
4,822,442 132,138 54,064 4,900,516
Preferred stocks................... 14,754 75 91 14,738
---------- -------- -------- ----------
$4,837,196 $132,213 $ 54,155 $4,915,254
========== ======== ======== ==========
</TABLE>
The carrying amounts and estimated fair values of bonds at December 31, 1999,
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
Amount Fair Value
---------- ----------
<S> <C> <C>
Due in one year or less............................... $ 194,654 $ 192,453
Due after one year through five years................. 1,151,170 1,121,353
Due after five years through ten years................ 908,926 873,402
Due after ten years................................... 322,321 318,520
---------- ----------
2,577,071 2,505,728
Mortgage and other asset-backed securities............ 2,315,085 2,251,597
---------- ----------
$4,892,156 $4,757,325
========== ==========
</TABLE>
16
<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
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Interest on bonds and preferred stock............... $347,639 $374,478 $373,496
Dividends on equity investments..................... 734 1,357 1,460
Interest on mortgage loans.......................... 92,325 77,960 80,266
Rental income on real estate........................ 7,322 6,553 7,501
Interest on policy loans............................ 4,141 4,080 3,400
Other investment income............................. 7,978 2,576 613
-------- -------- --------
Gross investment income............................. 460,139 467,004 466,736
Less investment expenses............................ 22,590 20,020 20,312
-------- -------- --------
Net investment income............................... $437,549 $446,984 $446,424
======== ======== ========
</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
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Proceeds.................................... $3,283,038 $3,347,174 $3,284,095
========== ========== ==========
Gross realized gains........................ $ 21,171 $ 48,760 $ 30,094
Gross realized losses....................... (32,259) (8,072) (17,265)
---------- ---------- ----------
Net realized gains (losses)................. $ (11,088) $ 40,688 $ 12,829
========== ========== ==========
</TABLE>
At December 31, 1999, investments with an aggregate carrying value of
$6,346,831 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.
17
<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
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Debt securities......... $(11,088) $ 40,688 $ 12,829
Equity securities....... 11,433 (879) 6,972
Mortgage loans on real
estate................. 4,661 12,637 2,252
Real estate............. 900 3,176 4,252
Short-term investments.. (1,407) 1,533 (19)
Other invested assets... 534 (2,523) 1,632
-------- -------- --------
5,033 54,632 27,918
Tax effect.............. (5,535) (22,290) (10,572)
Transfer from (to)
interest maintenance
reserve................ 6,867 (28,944) (10,187)
-------- -------- --------
Net realized gains...... $ 6,365 $ 3,398 $ 7,159
======== ======== ========
<CAPTION>
Change in Unrealized
----------------------------
Year ended December 31
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Bonds................... $(12,711) $ (836) $ 2,498
Preferred stocks........ (2,753) -- --
Common stocks........... (3,980) 3,751 1,097
Mortgage loans.......... (147) (150) --
Other invested assets... (626) 1,739 (3)
-------- -------- --------
Change in unrealized.... $(20,217) $ 4,504 $ 3,592
======== ======== ========
Gross unrealized gains and gross unrealized losses on equity securities are as
follows:
<CAPTION>
December 31
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Unrealized gains........ $ 11,369 $ 15,980 $ 10,356
Unrealized losses....... (5,078) (3,710) (3,836)
-------- -------- --------
Net unrealized gains.... $ 6,291 $ 12,270 $ 6,520
======== ======== ========
</TABLE>
18
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
3. Investments (continued)
During 1999, the Company issued mortgage loans with interest rates ranging
from 6.42% to 8.67%. The maximum percentage of any one mortgage loan to the
value of the underlying real estate at origination was 84%. Mortgage loans
with a carrying value of $248 were non-income producing for the previous
twelve months. Accrued interest of $95 related to these mortgage loans was
excluded from investment income. The Company requires all mortgaged properties
to carry fire insurance equal to the value of the underlying property.
At December 31, 1999 and 1998, the Company held a mortgage loan loss reserve
in the asset valuation reserve of $15,173 and $16,104, respectively. The
mortgage loan portfolio is diversified by geographic region and specific
collateral property type as follows:
Geographic Distribution
<TABLE>
<CAPTION>
December 31
1999 1998
----- -----
<S> <C> <C>
South Atlantic.......... 27% 32%
Pacific................. 18 15
E. North Central........ 17 16
Middle Atlantic......... 15 10
Mountain................ 9 10
W. South Central........ 6 6
W. North Central........ 4 5
E. South Central........ 3 3
New England............. 1 3
</TABLE>
<TABLE>
<CAPTION>
Property Type Distribution
December 31
1999 1998
----- -----
<S> <C> <C>
Office.................. 39% 30%
Retail.................. 28 35
Industrial.............. 18 21
Apartment............... 11 12
Other................... 4 2
</TABLE>
At December 31, 1999, the Company had no investments (excluding U. S.
Government guaranteed or insured issues) which individually represented more
than ten percent of capital and surplus and the asset valuation reserve,
collectively.
19
<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. These
instruments include interest rate swaps and caps. 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, 1999 and 1998, 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
1999 1998
-------- --------
<S> <C> <C>
Derivative securities:
Interest rate swaps:
Receive fixed--pay floating............................... $115,000 $100,000
Receive floating--pay fixed............................... 64,017 --
Receive floating (uncapped)--pay floating (capped)........ 41,617 53,011
Receive floating (LIBOR--pay floating (S&P)............... 60,000 60,000
Interest rate cap agreements................................ 500,000 500,000
</TABLE>
4. Reinsurance
The Company reinsures portions of risk on certain insurance policies which
exceed its established limits, thereby providing a greater diversification of
risk and minimizing exposure on larger risks. The Company remains contingently
liable with respect to any insurance ceded, and this would become an actual
liability in the event that the assuming insurance company became unable to
meet its obligation under the reinsurance treaty.
20
<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>
Year ended December 31
----------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Direct premiums.......................... $1,942,716 $1,533,822 $1,312,446
Reinsurance assumed...................... 2,723 2,366 2,038
Reinsurance ceded........................ (144,310) (173,564) (246,372)
---------- ---------- ----------
Net premiums earned...................... $1,801,129 $1,362,624 $1,068,112
========== ========== ==========
</TABLE>
The Company received reinsurance recoveries in the amount of $139,138,
$173,297 and $183,638 during 1999, 1998 and 1997, respectively. At December
31, 1999 and 1998, estimated amounts recoverable from reinsurers that have
been deducted from policy and contract claim reserves totaled $35,511 and
$47,956, respectively. The aggregate reserves for policies and contracts were
reduced for reserve credits for reinsurance ceded at December 31, 1999 and
1998 of $1,870,190 and $2,163,905, respectively.
At December 31, 1999, amounts recoverable from unauthorized reinsurers of
$39,996 (1998--$55,379) and reserve credits for reinsurance ceded of $48,297
(1998--$49,835) were associated with a single reinsurer and its affiliates.
The Company holds collateral under these reinsurance agreements in the form of
trust agreements totaling $85,431 at December 31, 1999, 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.
21
<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 federal
income tax expense and net realized capital gains (losses) on investments for
the following reasons:
<TABLE>
<CAPTION>
Year ended December 31
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Computed tax at federal statutory rate (35%)..... $27,832 $39,177 $42,775
IMR amortization................................. (2,656) (3,030) (1,276)
Tax reserve adjustment........................... 1,390 607 2,004
Excess tax depreciation.......................... (219) (223) (392)
Deferred acquisition costs-- tax basis........... 5,979 11,827 4,308
Prior year under (over) accrual ................. (3,492) 1,750 (1,016)
Dividend received deduction...................... (1,666) (1,053) (941)
Charitable contributions......................... -- -- (848)
Other items--net................................. (1,852) 780 (1,233)
------- ------- -------
Federal income tax expense....................... $25,316 $49,835 $43,381
======= ======= =======
</TABLE>
Federal income tax expense differs from the amount computed by applying the
statutory federal income tax rate to realized gains (losses) due to the
differences in book and tax asset bases at the time certain investments are
sold.
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, 1999). 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.
In 1999, the Company reached a final settlement with the Internal Revenue
Service for 1990 and 1991, resulting in a tax refund of $904 and interest
received of $548. These amounts were credited directly to unassigned surplus.
The Company also corrected an error in 1999 which related to the 1997 tax-
sharing agreement between the Company and various affiliates. This resulted in
a credit to unassigned surplus of $1,359.
The Company's federal income tax returns have been examined and closing
agreements have been executed with the Internal Revenue Service through 1992.
An examination is underway for years 1993 through 1997.
22
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
6. Policy and Contract Attributes
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 annuity and deposit fund products. 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
1999 1998
------------------- ------------------
Percent Percent
of of
Amount Total Amount Total
----------- ------- ---------- -------
<S> <C> <C> <C> <C>
Subject to discretionary withdrawal with
market value adjustment................ $ 114,544 1% $ 82,048 1%
Subject to discretionary withdrawal at
book value less surrender charge....... 828,490 8 515,778 5
Subject to discretionary withdrawal at
market value........................... 4,313,445 41 3,211,896 34
Subject to discretionary withdrawal at
book value (minimal or no charges or
adjustments)........................... 5,021,762 48 5,519,265 58
Not subject to discretionary withdrawal
provision.............................. 248,444 2 228,030 2
----------- --- ---------- ---
10,526,685 100% 9,557,017 100%
Less reinsurance ceded.................. 1,863,810 2,124,769
----------- ----------
Total policy reserves on annuities and
deposit fund liabilities............... $ 8,662,875 $7,432,248
=========== ==========
</TABLE>
A reconciliation of the amounts transferred to and from the separate accounts
is presented below:
<TABLE>
<CAPTION>
Year ended December 31
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Transfers as reported in the summary of
operations of the separate accounts statement:..
Transfers to separate accounts................. $486,282 $345,319 $281,095
Transfers from separate accounts............... (175,822) (42,671) (9,819)
-------- -------- --------
Net transfers to separate accounts............... 310,460 302,648 271,276
Reconciling adjustments--change in miscellaneous
income.......................................... (1,153) 191 26,204
-------- -------- --------
Transfers as reported in the summary of
operations of the life, accident and health
annual statement................................ $309,307 $302,839 $297,480
======== ======== ========
</TABLE>
23
<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, 1999 and 1998, 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, 1999
Life and annuity:
Ordinary direct first year business................ $ 2,823 $2,085 $ 738
Ordinary direct renewal business................... 20,950 6,289 14,661
Group life direct business......................... 638 243 395
Reinsurance ceded.................................. (1,269) (16) (1,253)
------- ------ -------
23,142 8,601 14,541
Accident and health:
Direct............................................. 138 -- 138
Reinsurance ceded.................................. (23) -- (23)
------- ------ -------
Total accident and health............................ 115 -- 115
------- ------ -------
$23,257 $8,601 $14,656
======= ====== =======
December 31, 1998
Life and annuity:
Ordinary direct first year business................ $ 3,346 $2,500 $ 846
Ordinary direct renewal business................... 21,435 6,365 15,070
Group life direct business......................... 1,171 536 635
Reinsurance ceded.................................. (1,367) (44) (1,323)
------- ------ -------
24,585 9,357 15,228
Accident and health:
Direct............................................. 108 -- 108
Reinsurance ceded.................................. (18) -- (18)
------- ------ -------
Total accident and health............................ 90 -- 90
------- ------ -------
$24,675 $9,357 $15,318
======= ====== =======
</TABLE>
At December 31, 1999 and 1998, the Company had insurance in force aggregating
$41,720 and $44,233, 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 $871 and $998 to cover these
deficiencies at December 31, 1999 and 1998, respectively.
24
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
7. Dividend Restrictions
The Company is subject to limitations, imposed by the State of Iowa, on the
payment of dividends to its parent company. Generally, dividends during any
twelve-month period may not be paid, without prior regulatory approval, in
excess of the greater of (a) 10 percent of statutory capital and surplus as of
the preceding December 31, or (b) statutory gain from operations before net
realized capital gains (losses) on investments for the preceding year. Subject
to the availability of unassigned surplus at the time of such dividend, the
maximum payment which may be made in 2000, without the prior approval of
insurance regulatory authorities, is $54,203.
The Company paid dividends to its parent of $40,000, $120,000 and $62,000 in
1999, 1998 and 1997, respectively.
8. Retirement and Compensation Plans
The Company's employees participate in a qualified benefit pension plan
sponsored by AEGON. The Company has no legal obligation for the plan. The
Company recognizes pension expense equal to its allocation from AEGON. The
pension expense is allocated among the participating companies based on the
SFAS 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 $408, $380 and $422 for the
years ended December 31, 1999, 1998 and 1997, 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 $267, $233 and $226 for
the years ended December 31, 1999, 1998 and 1997, respectively.
25
<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 are charged to affiliates in accordance with an
intercompany cost sharing arrangement. The Company expensed $28, $62 and $62
for the years ended December 31, 1999, 1998 and 1997, 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 1999,
1998 and 1997, the Company paid $19,983, $18,706 and $18,705, respectively,
for these services, which approximates their costs to the affiliates.
Payables to affiliates bear interest at the thirty-day commercial paper rate
of 5.7% at December 31, 1999. During 1999, 1998 and 1997, the Company paid net
interest of $1,994, $1,491 and $1,188, respectively, to affiliates.
During 1997, the Company received a capital contribution of $153 in cash from
its parent.
At December 31, 1999 and 1998, the Company has short-term notes payable to an
affiliate of $144,500 and $9,421, respectively. Interest on these notes
accrues at rates ranging from 4.85% to 5.90% at December 31, 1999 and 5.13% to
5.52% at December 31, 1998.
26
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
9. Related Party Transactions (continued)
During 1998, the Company issued life insurance policies to certain affiliated
companies, covering the lives of certain employees of those affiliates.
Premiums of $174,000 related to these policies were recognized during the
year, and aggregate reserves for policies and contracts are $190,299 and
$181,720 at December 31, 1999 and 1998, respectively.
10. Commitments and Contingencies
The Company has issued Trust (synthetic) GIC contracts to plan sponsors
totaling $374,124 at December 31, 1999, pursuant to terms under which the plan
sponsor retains ownership of the assets related to these contracts. The
Company guarantees benefit responsiveness in the event that plan benefit
requests and other contractual commitments exceed plan cash flows. The plan
sponsor agrees to reimburse the Company for such benefit payments with
interest, either at a fixed or floating rate, from future plan and asset cash
flows. In return for this guarantee, the Company receives a premium which
varies based on such elements as benefit responsive exposure and contract
size. The Company underwrites the plans for the possibility of having to make
benefit payments and also must agree to the investment guidelines to ensure
appropriate credit quality and cash flow matching. The assets relating to such
contracts are not recognized in the Company's statutory-basis financial
statements.
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 $19,662 and $17,901 and an offsetting
premium tax benefit of $7,429 and $7,631 at December 31, 1999 and 1998,
respectively, for its estimated share of future guaranty fund assessments
related to several major insurer insolvencies. The guaranty fund expense
(benefit) was $1,994, $1,985 and $(975) for the years ended December 31, 1999,
1998 and 1997, respectively.
27
<PAGE>
PFL Life Insurance Company
Summary of Investments--Other than
Investments in Related Parties
(Dollars in thousands)
December 31, 1999
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............... $ 195,119 $ 189,752 $ 195,119
States, municipalities and political
subdivisions........................... 545,562 535,945 545,562
Foreign governments..................... 134,584 138,767 134,584
Public utilities........................ 219,791 214,162 219,791
All other corporate bonds............... 3,797,100 3,678,699 3,797,100
Redeemable preferred stock................ 17,074 15,437 17,074
---------- --------- ----------
Total fixed maturities.................... 4,909,230 4,772,762 4,909,230
Equity securities
Common stocks:
Banks, trust and insurance.............. 2,676 2,809 2,809
Industrial, miscellaneous and all
other.................................. 59,137 68,849 68,849
---------- --------- ----------
Total equity securities................... 61,813 71,658 71,658
Mortgage loans on real estate............. 1,339,202 1,339,202
Real estate............................... 41,536 41,536
Real estate acquired in satisfaction of
debt..................................... 16,336 16,336
Policy loans.............................. 59,871 59,871
Other long-term investments............... 123,722 123,722
Cash and short-term investments........... 53,695 53,695
---------- ----------
Total investments......................... $6,605,405 $6,615,250
========== ==========
</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.
28
<PAGE>
PFL Life Insurance Company
Supplementary Insurance Information
(Dollars in thousands)
SCHEDULE III
<TABLE>
<CAPTION>
Future
Policy Policy
Benefits and
and Unearned Contract
Expenses Premiums Liabilities
---------- -------- -----------
<S> <C> <C> <C>
Year ended December 31, 1999
Individual life................................. $1,550,188 $ -- $ 8,607
Individual health............................... 133,214 10,311 10,452
Group life and health........................... 105,035 8,604 27,088
Annuity......................................... 4,036,751 -- --
---------- ------- -------
$5,825,188 $18,915 $46,147
========== ======= =======
Year ended December 31, 1998
Individual life................................. $1,355,283 $ -- $ 8,976
Individual health............................... 94,294 9,631 12,123
Group life and health........................... 93,405 10,298 36,908
Annuity......................................... 3,925,293 -- --
---------- ------- -------
$5,468,275 $19,929 $58,007
========== ======= =======
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
========== ======= =======
</TABLE>
29
<PAGE>
PFL Life Insurance Company
Supplementary Insurance Information
(Dollars in thousands)
SCHEDULE III
<TABLE>
<CAPTION>
Benefits,
Claims
Net Losses and Other
Premium Investment Settlement Operating Premiums
Revenue Income* Expenses Expenses* Written
---------- ---------- ---------- --------- --------
<S> <C> <C> <C> <C> <C>
Year ended December 31,
1999
Individual life........... $ 226,456 $104,029 $ 274,730 $141,030 $ --
Individual health......... 77,985 10,036 58,649 35,329 77,716
Group life and health..... 83,639 10,422 61,143 38,075 81,918
Annuity................... 1,413,049 313,062 1,303,537 278,995 --
---------- -------- ---------- --------
$1,801,129 $437,549 $1,698,059 $493,429
========== ======== ========== ========
Year ended December 31,
1998
Individual life........... $ 514,194 $ 85,258 $ 545,720 $ 87,455 $ --
Individual health......... 68,963 8,004 48,144 30,442 68,745
Group life and health..... 111,547 11,426 82,690 54,352 108,769
Annuity................... 667,920 342,296 592,085 298,222 --
---------- -------- ---------- --------
$1,362,624 $446,984 $1,268,639 $470,471
========== ======== ========== ========
Year ended December 31,
1997
Individual life........... $ 200,175 $ 75,914 $ 211,921 $ 36,185 $ --
Individual health......... 63,548 5,934 37,706 29,216 63,383
Group life and health..... 146,694 11,888 103,581 91,568 143,580
Annuity................... 657,695 352,688 571,434 364,216 --
---------- -------- ---------- --------
$1,068,112 $446,424 $ 924,642 $521,185
========== ======== ========== ========
</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.
30
<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,
1999
Life insurance in
force.................. $6,538,901 $(500,192) $415,910 $6,454,619 6.4%
========== ========= ======== ========== ===
Premiums:
Individual life....... $ 227,363 $ 3,967 $ 2,723 $ 226,119 1.2%
Individual health..... 83,489 5,504 -- 77,985 --
Group life and
health............... 205,752 122,113 -- 83,639 --
Annuity............... 1,426,112 12,726 -- 1,413,386 --
---------- --------- -------- ---------- ---
$1,942,716 $ 144,310 $ 2,723 $1,801,129 0.2%
========== ========= ======== ========== ===
Year ended December 31,
1998
Life insurance in
force.................. $6,384,095 $ 438,590 $ 39,116 $5,984,621 .6%
========== ========= ======== ========== ===
Premiums:
Individual life....... $ 515,164 $ 3,692 $ 2,366 $ 513,838 .5%
Individual health..... 76,438 7,475 -- 68,963 --
Group life and
health............... 255,848 144,301 -- 111,547 --
Annuity............... 686,372 18,096 -- 668,276 --
---------- --------- -------- ---------- ---
$1,533,822 $ 173,564 $ 2,366 $1,362,624 .2%
========== ========= ======== ========== ===
Year ended December 31,
1997
Life insurance in
force.................. $5,025,027 $ 420,519 $ 35,486 $4,639,994 .8%
========== ========= ======== ========== ===
Premiums:
Individual life....... $ 201,691 $ 3,554 $ 2,038 $ 200,175 1.0%
Individual health..... 73,593 10,045 -- 63,548 --
Group life and
health............... 339,269 192,575 -- 146,694 --
Annuity............... 697,893 40,198 -- 657,695 --
---------- --------- -------- ---------- ---
$1,312,446 $ 246,372 $ 2,038 $1,068,112 .2%
========== ========= ======== ========== ===
</TABLE>
31
<PAGE>
Audited Financial Statements
PFL Life Variable Annuity Account A -
Atlas Portfolio Builder Variable Annuity
Year ended December 31, 1999
with Report of Independent Auditors
<PAGE>
PFL Life Variable Annuity Account A -
Atlas Portfolio Builder Variable Annuity
Financial Statements
Year ended December 31, 1999
Contents
<TABLE>
<S> <C>
Report of Independent Auditors......................................... 1
Financial Statements
Balance Sheets......................................................... 2
Statements of Operations............................................... 6
Statements of Changes in Contract Owners' Equity....................... 10
Notes to Financial Statements.......................................... 16
</TABLE>
<PAGE>
Report of Independent Auditors
The Board of Directors and Contract Owners
of the Atlas Portfolio Builder Variable Annuity,
PFL Life Insurance Company
We have audited the accompanying balance sheets of PFL Life Variable Annuity
Account A (comprised of the Balanced Growth, Small Cap, Capital Appreciation,
Disciplined Stock, Growth & Income, Quality Bond, Utility Fund II, High Income
Bond Fund II, Global, Growth, Emerging Growth, Dreyfus Small Cap Value, Endeavor
Value Equity, T. Rowe Price Equity Income, and T. Rowe Price Growth Stock
subaccounts), which are available for investment by contract owners of the Atlas
Portfolio Builder Variable Annuity, as of December 31, 1999, and the related
statements of operations for the year then ended and changes in contract owners'
equity for each of the two years in the period then ended. These financial
statements are the responsibility of the Separate Account's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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,
1999, by correspondence with the mutual funds' transfer agents. 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.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of each of the respective
subaccounts of PFL Life Variable Annuity Account A which are available for
investment by contract owners of the Atlas Portfolio Builder Variable Annuity at
December 31, 1999, and the results of their operations for the year then ended
and changes in their contract owners' equity for each of the two years in the
period then ended in conformity with accounting principles generally accepted in
the United States.
/s/Ernst & Young LLP
Des Moines, Iowa
January 28, 2000
1
<PAGE>
PFL Life Variable Annuity Account A -
Atlas Portfolio Builder Variable Annuity
Balance Sheets
December 31, 1999
<TABLE>
<CAPTION>
Balanced
Growth
Subaccount
--------------------
<S> <C>
Assets
Cash $ -
Investments in mutual funds, at current market value:
Atlas Insurance Trust:
Balanced Growth Portfolio 15,630,334
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 -
Endeavor Value Equity Portfolio -
T. Rowe Price Equity Income Portfolio -
T. Rowe Price Growth Stock Portfolio -
--------------------
Total investments in mutual funds 15,630,334
--------------------
Total assets $ 15,630,334
====================
Liabilities and contract owners' equity
Liabilities:
Contract terminations payable $ 132
--------------------
132
Contract owners' equity:
Deferred annuity contracts terminable by owners 15,630,202
--------------------
Total liabilities and contract owners' equity $ 15,630,334
====================
</TABLE>
See accompanying notes.
2
<PAGE>
<TABLE>
<CAPTION>
Capital Disciplined Growth & Utility
Small Cap Appreciation Stock Income Quality Fund II
Subaccount Subaccount Subaccount Subaccount Bond Subaccount Subaccount
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ - $ - $ - $ - $ - $ -
- - - - - -
2,919,690 - - - - -
11,831,618 - - - -
15,301,679 - - -
6,068,611 - -
5,464,945 -
- - - - - 4,462,179
- - - - - -
- - - - - -
- - - - - -
- - - - - -
- - - - - -
- - - - - -
- - - - - -
- - - - - -
- -----------------------------------------------------------------------------------------------------------------
2,919,690 11,831,618 15,301,679 6,068,611 5,464,945 4,462,179
- -----------------------------------------------------------------------------------------------------------------
$2,919,690 $11,831,618 $15,301,679 $6,068,611 $5,464,945 $4,462,179
=================================================================================================================
$ 42 $ 36 $ 81 $ 59 $ 50 $ 37
- -----------------------------------------------------------------------------------------------------------------
42 36 81 59 50 37
2,919,648 11,831,582 15,301,598 6,068,552 5,464,895 4,462,142
- -----------------------------------------------------------------------------------------------------------------
$2,919,690 $11,831,618 $15,301,679 $6,068,611 $5,464,945 $4,462,179
=================================================================================================================
</TABLE>
3
<PAGE>
PFL Life Variable Annuity Account A -
Atlas Portfolio Builder Variable Annuity
Balance Sheets (continued)
<TABLE>
<CAPTION>
High Income
Bond Fund II Global
Subaccount Subaccount
---------------------------------------
<S> <C> <C>
Assets
Cash $ 1 $ -
Investments in mutual funds, at current market value:
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 3,149,665 -
WRL Series Fund, Inc.:
Global Portfolio - 15,495,329
Growth Portfolio - -
Emerging Growth Portfolio - -
Endeavor Series Trust:
Dreyfus Small Cap Value Portfolio - -
Endeavor Value Equity Portfolio - -
T. Rowe Price Equity Income Portfolio - -
T. Rowe Price Growth Stock Portfolio - -
---------------------------------------
Total investments in mutual funds 3,149,665 15,495,329
---------------------------------------
Total assets $3,149,666 $15,495,329
=======================================
Liabilities and contract owners' equity
Liabilities:
Contract terminations payable $ - $ 207
---------------------------------------
- 207
Contract owners' equity:
Deferred annuity contracts terminable by owners 3,149,666 15,495,122
---------------------------------------
Total liabilities and contract owners' equity $3,149,666 $15,495,329
=======================================
</TABLE>
See accompanying notes.
4
<PAGE>
<TABLE>
<CAPTION>
Endeavor T. Rowe Price T. Rowe Price
Emerging Dreyfus Small Value Equity Growth
Growth Growth Cap Value Equity Income Stock
Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 116 $ - $ - $ - $ - $ -
- - - - - -
- - - - - -
- - - - - -
- - - - - -
- - - - - -
- - - - - -
- - - - - -
- - - - - -
- - - - - -
46,490,899 - - - - -
- 9,327,343 - - - -
- - 1,064,684 - - -
- - - 1,070,845 - -
- - - - 5,601,561 -
- - - - - 8,693,337
- ------------------------------------------------------------------------------------------------------------------
46,490,899 9,327,343 1,064,684 1,070,845 5,601,561 8,693,337
- ------------------------------------------------------------------------------------------------------------------
$46,491,015 $9,327,343 $1,064,684 $1,070,845 $5,601,561 $8,693,337
==================================================================================================================
$ - $ 127 $ 23 $ 13 $ 32 $ 69
- ------------------------------------------------------------------------------------------------------------------
- 127 23 13 32 69
46,491,015 9,327,216 1,064,661 1,070,832 5,601,529 8,693,268
- ------------------------------------------------------------------------------------------------------------------
$46,491,015 $9,327,343 $1,064,684 $1,070,845 $5,601,561 $8,693,337
==================================================================================================================
</TABLE>
5
<PAGE>
PFL Life Variable Annuity Account A -
Atlas Portfolio Builder Variable Annuity
Statements of Operations
Year ended December 31, 1999
<TABLE>
<CAPTION>
Balanced Growth
Subaccount
--------------------
<S> <C>
Net investment income (loss)
Income:
Dividends $1,885,357
Expenses
Administrative, mortality and expense risk charge 176,850
--------------------
Net investment income (loss) 1,708,507
Net realized and unrealized capital gain (loss) from investments
Net realized capital gain (loss) from sales of investments:
Proceeds from sales 2,443,031
Cost of investments sold 2,224,387
--------------------
Net realized capital gain (loss) from sales of investments 218,644
Net change in unrealized appreciation/depreciation of investments:
Beginning of period 388,839
End of period 1,823,457
--------------------
Net change in unrealized appreciation/depreciation of investments 1,434,618
Net realized and unrealized capital gain (loss) from investments 1,653,262
--------------------
Increase (decrease) from operations $3,361,769
====================
</TABLE>
See accompanying notes.
6
<PAGE>
<TABLE>
<CAPTION>
Small Capital Disciplined Growth & Quality Utility
Cap Appreciation Stock Income Bond Fund II
Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 1,651 $ 106,352 $ 147,628 $211,404 $ 296,791 $ 188,694
33,524 113,401 143,992 61,313 73,078 48,582
- ----------------------------------------------------------------------------------------------------------------
(31,873) (7,049) 3,636 150,091 223,713 140,112
763,033 642,869 876,208 792,763 1,661,743 676,240
805,808 464,947 671,601 751,285 1,746,509 668,356
- ----------------------------------------------------------------------------------------------------------------
(42,775) 177,922 204,607 41,478 (84,766) 7,884
(202,088) 537,910 593,524 127,028 (139,686) 117,341
345,506 1,150,901 2,168,427 615,743 (333,822) 13,399
- ----------------------------------------------------------------------------------------------------------------
547,594 612,991 1,574,903 488,715 (194,136) (103,942)
504,819 790,913 1,779,510 530,193 (278,902) (96,058)
- ----------------------------------------------------------------------------------------------------------------
$ 472,946 $ 783,864 $1,783,146 $680,284 $ (55,189) $ 44,054
================================================================================================================
</TABLE>
7
<PAGE>
PFL Life Variable Annuity Account A -
Atlas Portfolio Builder Variable Annuity
Statements of Operations (continued)
<TABLE>
<CAPTION>
High Income
Bond Fund II Global
Subaccount Subaccount
------------------------------------
<S> <C> <C>
Net investment income (loss)
Income:
Dividends $ 236,361 $ 919,816
Expenses:
Administrative, mortality and expense risk charge 42,714 101,635
------------------------------------
Net investment income (loss) 193,647 818,181
Net realized and unrealized capital gain (loss) from investments
Net realized capital gain (loss) from sales of investments:
Proceeds from sales 936,218 451,557
Cost of investments sold 990,763 357,582
------------------------------------
Net realized capital gain (loss) from sales of investments (54,545) 93,975
Net change in unrealized appreciation/depreciation of investments:
Beginning of period (14,216) 210,579
End of period (133,251) 4,490,586
------------------------------------
Net change in unrealized appreciation/depreciation of investments (119,035) 4,280,007
Net realized and unrealized capital gain (loss) from investments (173,580) 4,373,982
------------------------------------
Increase (decrease) from operations $ 20,067 $5,192,163
====================================
</TABLE>
See accompanying notes.
8
<PAGE>
<TABLE>
<CAPTION>
Dreyfus Endeavor T. Rowe Price T. Rowe Price
Emerging Small Cap Value Equity Growth
Growth Growth Value Equity Income Stock
Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 7,391,720 $1,181,628 $ 85,211 $ 51,906 $ 277,835 $ 422,022
321,729 50,169 12,603 14,488 65,655 78,864
- ----------------------------------------------------------------------------------------------------------------------
7,069,991 1,131,459 72,608 37,418 212,180 343,158
406,673 139,788 329,054 302,110 671,724 386,285
228,002 90,157 383,627 330,688 661,203 323,833
- ----------------------------------------------------------------------------------------------------------------------
178,671 49,631 (54,573) (28,578) 10,521 62,452
1,551,799 208,727 (90,729) (3,653) 40,900 324,131
7,136,773 2,658,817 99,752 (72,564) (168,719) 1,220,726
- ----------------------------------------------------------------------------------------------------------------------
5,584,974 2,450,090 190,481 (68,911) (209,619) 896,595
5,763,645 2,499,721 135,908 (97,489) (199,098) 959,047
- ----------------------------------------------------------------------------------------------------------------------
$ 12,833,636 $3,631,180 $208,516 $(60,071) $ 13,082 $1,302,205
======================================================================================================================
</TABLE>
9
<PAGE>
PFL Life Variable Annuity Account A -
Atlas Portfolio Builder Variable Annuity
Statements of Changes in Contract Owners' Equity
Years ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
Balanced Growth Small Cap
Subaccount Subaccount
----------------------------------- --------------------------------
1999 1998 1999 1998
----------------------------------- --------------------------------
<S> <C> <C> <C> <C>
Operations:
Net investment income (loss) $ 1,708,507 $ 176,471 $ (31,873) $ 19,297
Net realized capital gain (loss) 218,644 (18,343) (42,775) (48,876)
Net change in unrealized appreciation/
depreciation of investments 1,434,618 561,674 547,594 (177,194)
----------------------------------- --------------------------------
Increase (decrease) from operations 3,361,769 719,802 472,946 (206,773)
Contract transactions:
Net contract purchase payments 1,082,243 8,804,499 490,529 2,303,051
Transfer payments from (to) other
subaccounts or general account (726,343) (280,649) (354,907) (33,004)
Contract terminations, withdrawals, and
other deductions (540,506) (203,945) (118,433) (7,920)
Increase (decrease) from contract
transactions (184,606) 8,319,905 17,189 2,262,127
----------------------------------- --------------------------------
Net increase in contract owners' equity 3,177,163 9,039,707 490,135 2,055,354
Contract owners' equity:
Beginning of period 12,453,039 3,413,332 2,429,513 374,159
----------------------------------- --------------------------------
End of period $15,630,202 $12,453,039 $2,919,648 $2,429,513
=================================== ================================
</TABLE>
See accompanying notes.
10
<PAGE>
<TABLE>
<CAPTION>
Capital Appreciation Disciplined Stock Growth & Income
Subaccount Subaccount Subaccount
- ---------------------------------- ------------------------------------- -------------------------------------
1999 1998 1999 1998 1999 1998
- ---------------------------------- ------------------------------------- -------------------------------------
<S> <C> <C> <C> <C> <C>
$ (7,049) $ (10,559) $ 3,636 $ (5,647) $ 150,091 $ 13,148
177,922 11,061 204,607 1,861 41,478 (14,102)
612,991 534,020 1,574,903 602,144 488,715 134,682
- ---------------------------------- ------------------------------------- -------------------------------------
783,864 534,522 1,783,146 598,358 680,284 133,728
3,704,552 3,081,714 5,070,427 5,020,243 1,619,153 3,112,980
3,246,461 104,661 2,935,398 214,952 495,889 32,218
(217,958) (17,608) (465,013) (107,875) (191,627) (14,220)
- ---------------------------------- ------------------------------------- -------------------------------------
6,733,055 3,168,767 7,540,812 5,127,320 1,923,415 3,130,978
- ---------------------------------- ------------------------------------- -------------------------------------
7,516,919 3,703,289 9,323,958 5,725,678 2,603,699 3,264,706
4,314,663 611,374 5,977,640 251,962 3,464,853 200,147
- ---------------------------------- ------------------------------------- -------------------------------------
$11,831,582 $4,314,663 $15,301,598 $5,977,640 $6,068,552 $3,464,853
================================== ===================================== =====================================
</TABLE>
11
<PAGE>
PFL Life Variable Annuity Account A -
Atlas Portfolio Builder Variable Annuity
Statements of Changes in Contract Owners' Equity (continued)
<TABLE>
<CAPTION>
Quality Bond Utility Fund II
Subaccount Subaccount
------------------------------------- -------------------------------------
1999 1998 1999 1998
------------------------------------- -------------------------------------
<S> <C> <C> <C> <C>
Operations:
Net investment income (loss) $ 223,713 $ 194,587 $ 140,112 $ 5,530
Net realized capital gain (loss) (84,766) 791 7,884 6,270
Net change in unrealized appreciation/
depreciation of investments (194,136) (139,633) (103,942) 112,360
------------------------------------- -------------------------------------
Increase (decrease) from operations (55,189) 55,745 44,054 124,160
Contract transactions:
Net contract purchase payments 754,261 4,547,507 1,432,005 1,606,782
Transfer payments from (to) other
subaccounts or general account (185,038) 364,597 1,243,206 92,665
Contract terminations, withdrawals, and
other deductions (315,762) (88,246) (144,868) (8,841)
------------------------------------- -------------------------------------
Increase (decrease) from contract
transactions 253,461 4,823,858 2,530,343 1,690,606
------------------------------------- -------------------------------------
Net increase in contract owners' equity 198,272 4,879,603 2,574,397 1,814,766
Contract owners' equity:
Beginning of period 5,266,623 387,020 1,887,745 72,979
------------------------------------- -------------------------------------
End of period $5,464,895 $5,266,623 $4,462,142 $1,887,745
===================================== =====================================
</TABLE>
See accompanying notes.
12
<PAGE>
<TABLE>
<CAPTION>
High Income Bond Fund II Global Growth
Subaccount Subaccount Subaccount
- ------------------------------------ --------------------------------------- ---------------------------------------
1999 1998 1999 1998 1999 1998
- ------------------------------------ --------------------------------------- ---------------------------------------
<S> <C> <C> <C> <C> <C>
$ 193,647 $ 4,397 $ 818,181 $ 111,447 $ 7,069,991 $ (11,454)
(54,545) (2,418) 93,975 (12,659) 178,671 15,818
(119,035) (16,520) 4,280,007 292,526 5,584,974 1,575,373
- ------------------------------------ --------------------------------------- ---------------------------------------
20,067 (14,541) 5,192,163 391,314 12,833,636 1,579,737
539,724 2,706,003 3,967,049 2,626,206 16,016,289 5,403,806
(47,454) 53,801 2,467,165 357,747 10,289,926 558,687
(266,150) (22,854) (155,886) (23,460) (396,090) (36,407)
- ------------------------------------ --------------------------------------- ---------------------------------------
226,120 2,736,950 6,278,328 2,960,493 25,910,125 5,926,086
- ------------------------------------ --------------------------------------- ---------------------------------------
246,187 2,722,409 11,470,491 3,351,807 38,743,761 7,505,823
2,903,479 181,070 4,024,631 672,824 7,747,254 241,431
- ------------------------------------ --------------------------------------- ---------------------------------------
$3,149,666 $2,903,479 $15,495,122 $4,024,631 $46,491,015 $7,747,254
==================================== ======================================= =======================================
</TABLE>
13
<PAGE>
PFL Life Variable Annuity Account A -
Atlas Portfolio Builder Variable Annuity
Statements of Changes in Contract Owners' Equity (continued)
<TABLE>
<CAPTION>
Emerging Growth Dreyfus Small Cap Value
Subaccount Subaccount
----------------------------------- -----------------------------------
1999 1998 1999 1998
----------------------------------- -----------------------------------
<S> <C> <C> <C> <C>
Operations:
Net investment income (loss) $1,131,459 $ 37,897 $ 72,608 $ 63,914
Net realized capital gain (loss) 49,631 (1,900) (54,573) (15,798)
Net change in unrealized appreciation/
depreciation of investments 2,450,090 219,585 190,481 (87,056)
----------------------------------- -----------------------------------
Increase (decrease) from operations 3,631,180 255,582 208,516 (38,940)
Contract transactions:
Net contract purchase payments 2,638,570 1,149,335 114,065 818,381
Transfer payments from (to) other
subaccounts or general account 1,694,531 (14,394) (136,651) (27,208)
Contract terminations, withdrawals, and
other deductions (143,642) (2,919) (30,488) (9,380)
----------------------------------- -----------------------------------
Increase (decrease) from contract
transactions 4,189,459 1,132,022 (53,074) 781,793
----------------------------------- -----------------------------------
Net increase in contract owners' equity 7,820,639 1,387,604 155,442 742,853
Contract owners' equity:
Beginning of period 1,506,577 118,973 909,219 166,366
----------------------------------- -----------------------------------
End of period $9,327,216 $1,506,577 $1,064,661 $909,219
=================================== ===================================
</TABLE>
See accompanying notes.
14
<PAGE>
<TABLE>
<CAPTION>
T. Rowe Price T. Rowe Price
Endeavor Value Equity Equity Income Growth Stock
Subaccount Subaccount Subaccount
- ------------------------------- ------------------------------ -----------------------------
1999 1998 1999 1998 1999 1998
- ------------------------------- ------------------------------ -----------------------------
<S> <C> <C> <C> <C> <C>
$ 37,418 $ 6,170 $ 212,180 $ 63,344 $ 343,158 $ 46,654
(28,578) 5,225 10,521 (1,314) 62,452 8,986
(68,911) (5,083) (209,619) 33,228 896,595 319,697
- ------------------------------- ------------------------------ -----------------------------
(60,071) 6,312 13,082 95,258 1,302,205 375,337
291,551 876,577 1,200,805 3,213,492 2,488,224 2,800,519
(89,894) (9,968) 1,033,084 (62,904) 1,508,607 170,517
(29,409) (6,992) (153,162) (40,260) (128,285) (25,918)
- ------------------------------- ------------------------------ -----------------------------
172,248 859,617 2,080,727 3,110,328 3,868,546 2,945,118
- ------------------------------- ------------------------------ -----------------------------
112,177 865,929 2,093,809 3,205,586 5,170,751 3,320,455
958,655 92,726 3,507,720 302,134 3,522,517 202,062
- ------------------------------- ------------------------------ -----------------------------
$1,070,832 $958,655 $5,601,529 $3,507,720 $8,693,268 $3,522,517
=============================== ============================== =============================
</TABLE>
<PAGE>
PFL Life Variable Annuity Account A -
Atlas Portfolio Builder Variable Annuity
Notes to Financial Statements
December 31, 1999
1. Organization and Summary of Significant Accounting Policies
Organization
The PFL Life Variable Annuity Account A (the "Mutual Fund Account") is a
segregated investment account of PFL Life Insurance Company ("PFL Life"), an
indirect, wholly-owned subsidiary of AEGON N.V., a holding company organized
under the laws of The Netherlands.
The Mutual Fund Account is registered with the Securities and Exchange
Commission as a Unit Investment Trust pursuant to provisions of the Investment
Company Act of 1940. The Mutual Fund Account consists of fifteen investment
subaccounts (each a "Series Fund" and collectively "the Series Funds"), one of
which is invested in the Balanced Growth Portfolio of the Atlas Insurance Trust,
five of which are invested in specified portfolios of the Dreyfus Variable
Investment Fund, two of which are invested in specified portfolios of the
Federated Insurance Series, three of which are invested in specified portfolios
of the WRL Series Fund, Inc., and four of which are invested in specified
portfolios of the Endeavor Series Trust. Activity in these fifteen subaccounts
is available to contract owners of the Atlas Portfolio Builder Variable Annuity.
Investments
Net purchase payments received by the Mutual Fund Account for Atlas Portfolio
Builder Variable Annuity are invested in the portfolios of the Series Funds, as
selected by the contract owner. Investments are stated at the closing net asset
values per share on December 31, 1999.
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.
16
<PAGE>
PFL Life Variable Annuity Account A -
Atlas Portfolio Builder Variable Annuity
Notes to Financial Statements (continued)
2. Investments
A summary of the mutual fund investments at December 31, 1999 follows:
<TABLE>
<CAPTION>
Number of Shares Net Asset Value Market Value
Held Per Share Cost
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Atlas Insurance Trust
Balanced Growth Portfolio 1,338,213.518 $ 11.68 $15,630,334 $13,806,877
Dreyfus Variable Investment Fund:
Small Cap Portfolio 44,011.002 66.34 2,919,690 2,574,184
Capital Appreciation Portfolio 296,754.906 39.87 11,831,618 10,680,717
Disciplined Stock Portfolio 568,413.055 26.92 15,301,679 13,133,252
Growth & Income Portfolio 238,171.555 25.48 6,068,611 5,452,868
Quality Bond Portfolio 501,831.527 10.89 5,464,945 5,798,767
Federated Insurance Series:
Utility Fund II Portfolio 310,953.230 14.35 4,462,179 4,448,780
High Income Bond Fund II Portfolio 307,584.502 10.24 3,149,665 3,282,916
WRL Series Fund, Inc.:
Global Portfolio 413,636.299 37.461242 15,495,329 11,004,743
Growth Portfolio 596,067.237 77.996065 46,490,899 39,354,126
Emerging Growth Portfolio 202,739.628 46.006511 9,327,343 6,668,526
Endeavor Series Trust:
Dreyfus Small Cap Value Portfolio 64,487.197 16.51 1,064,684 964,932
Endeavor Value Equity Portfolio 53,569.017 19.99 1,070,845 1,143,409
T. Rowe Price Equity Income Portfolio 287,259.514 19.50 5,601,561 5,770,280
T. Rowe Price Growth Stock Portfolio 302,482.145 28.74 8,693,337 7,472,611
The aggregate cost of purchases and proceeds from sales of investments were as
follows:
<CAPTION>
Period ended December 31
1999 1998
-------------------------------------- -----------------------------------------
Purchases Sales Purchases Sales
-------------------------------------- -----------------------------------------
<S> <C> <C> <C> <C>
Atlas Insurance Trust:
Balanced Growth Portfolio $3,966,893 $2,443,031 $9,617,580 $1,121,067
Dreyfus Variable Investment Fund:
Small Cap Portfolio 748,287 763,033 2,498,685 217,161
Capital Appreciation Portfolio 7,368,897 642,869 3,296,396 138,180
Disciplined Stock Portfolio 8,420,695 876,208 5,282,983 161,271
Growth & Income Portfolio 2,866,294 792,763 3,332,932 188,775
Quality Bond Portfolio 2,138,848 1,661,743 5,284,067 265,502
</TABLE>
17
<PAGE>
PFL Life Variable Annuity Account A -
Atlas Portfolio Builder Variable Annuity
Notes to Financial Statements (continued)
2. Investments (continued)
<TABLE>
<CAPTION>
Period ended December 31
1999 1998
-------------------------------------- -----------------------------------------
Purchases Sales Purchases Sales
-------------------------------------- -----------------------------------------
<S> <C> <C> <C> <C>
Federated Insurance Series:
Utility Fund II Portfolio $ 3,346,715 $676,240 $1,906,823 $210,674
High Income Bond Fund II Portfolio 1,355,979 936,218 2,987,583 246,232
WRL Series Fund, Inc.:
Global Portfolio 7,548,248 451,557 3,338,289 266,327
Growth Portfolio 33,386,613 406,673 6,078,842 164,152
Emerging Growth Portfolio 5,460,790 139,788 1,294,323 124,363
Endeavor Series Trust:
Dreyfus Small Cap Value Portfolio 348,561 329,054 923,196 77,439
Endeavor Value Equity Portfolio 511,762 302,110 1,038,855 173,042
T. Rowe Price Equity Income Portfolio 2,964,633 671,724 3,341,065 167,369
T. Rowe Price Growth Stock Portfolio 4,598,003 386,285 3,122,535 130,712
</TABLE>
3. Contract Owners' Equity
A summary of deferred annuity contracts terminable by owners at December 31,
1999 follows:
<TABLE>
<CAPTION>
Accumulation Units Accumulation Unit Total
Subaccount Owned Value Contract Value
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balanced Growth 11,200,977.172 $ 1.395432 $15,630,202
Small Cap 2,680,811.514 1.089091 2,919,648
Capital Appreciation 8,301,390.397 1.425253 11,831,582
Disciplined Stock 10,277,509.233 1.488843 15,301,598
Growth & Income 4,806,549.375 1.262559 6,068,552
Quality Bond 5,188,912.039 1.053187 5,464,895
Utility Fund II 3,517,145.195 1.268683 4,462,142
High Income Bond Fund II 3,030,970.070 1.039161 3,149,666
Global 7,496,165.763 2.067073 15,495,122
Growth 925,560.693 50.230109 46,491,015
Emerging Growth 3,607,865.342 2.585245 9,327,216
Dreyfus Small Cap Value 467,184.374 2.278888 1,064,661
Endeavor Value Equity 506,137.294 2.115695 1,070,832
T. Rowe Price Equity Income 2,657,573.292 2.107761 5,601,529
T. Rowe Price Growth Stock 2,781,922.330 3.124914 8,693,268
</TABLE>
20
<PAGE>
PFL Life Variable Annuity Account A -
Atlas Portfolio Builder Variable Annuity
Notes to Financial Statements (continued)
3. Contract Owners' Equity (continued)
A summary of changes in contract owners' account units follows:
<TABLE>
<CAPTION>
Balanced Small Capital Disciplined Growth &
Growth Cap Appreciation Stock Income
Subaccount Subaccount Subaccount Subaccount Subaccount
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Units outstanding at January 1,
1998 3,469,694 397,321 605,502 247,060 201,500
Units purchased 8,384,682 2,390,495 2,654,205 4,432,868 2,956,559
Units redeemed and transferred (465,075) (78,540) 67,816 10,102 5,327
-----------------------------------------------------------------------------------------
Units outstanding at December 31,
1998 11,389,301 2,709,276 3,327,523 4,690,030 3,163,386
Units purchased 953,704 522,324 2,790,405 3,807,662 1,418,739
Units redeemed and transferred (1,142,028) (550,788) 2,183,462 1,779,817 224,424
-----------------------------------------------------------------------------------------
Units outstanding at December 31,
1999 11,200,977 2,680,812 8,301,390 10,277,509 4,806,549
=========================================================================================
<CAPTION>
Quality Utility High Income
Bond Fund II Bond Fund II Global Growth
Subaccount Subaccount Subaccount Subaccount Subaccount
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Units outstanding at January 1,
1998 377,687 64,830 178,055 704,270 12,277
Units purchased 4,312,150 1,379,655 2,608,850 2,371,648 216,033
Units redeemed and transferred 250,464 47,783 32,119 209,608 14,563
-----------------------------------------------------------------------------------------
Units outstanding at December 31,
1998 4,940,301 1,492,268 2,819,024 3,285,526 242,873
Units purchased 728,673 1,166,440 528,445 2,698,195 424,330
Units redeemed and transferred (480,062) 858,437 (316,499) 1,512,445 258,358
-----------------------------------------------------------------------------------------
Units outstanding at December 31,
1999 5,188,912 3,517,145 3,030,970 7,496,166 925,561
=========================================================================================
</TABLE>
19
<PAGE>
PFL Life Variable Annuity Account A -
Atlas Portfolio Builder Variable Annuity
Notes to Financial Statements (continued)
3. Contract Owners' Equity (continued)
<TABLE>
<CAPTION>
Dreyfus Endeavor Value T. Rowe Price T. Rowe Price
Emerging Growth Small Cap Value Equity Equity Income Growth Stock
Subaccount Subaccount Subaccount Subaccount Subaccount
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Units outstanding at January 1,
1998 126,110 89,868 44,449 156,951 98,881
Units purchased 1 ,075,045 441,102 396,010 1,600,641 1,202,211
Units redeemed and transferred (22,032) (21,869) (7,252) (59,450) 57,316
------------------------------------------------------------------------------------------------
Units outstanding at December 31,
1998 1,179,123 509,101 433,207 1,698,142 1,358,408
Units purchased 1,531,806 55,748 132,948 569,135 933,441
Units redeemed and transferred 896,936 (97,665) (60,018) 390,296 490,073
------------------------------------------------------------------------------------------------
Units outstanding at December 31,
1999 3,607,865 467,184 506,137 2,657,573 2,781,922
================================================================================================
</TABLE>
4. Administrative, Mortality and Expense Risk Charge
PFL Life deducts a daily charge equal to an annual rate of 1.25% of the value of
the contract owner's 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 owner's 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.
20
<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.
(3)(a)(2) Termination of Principal Distribution Agreement by and
between PFL Life Insurance Company on its own behalf and or
the behalf of the Mutual Fund Account, and AEGON USA
Securities, Inc. Note 5.
(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.
(8) (e) (3) Amendment No. 12 to Participation Agreement among WRL
Series Fund, Inc., PFL Life Insurance Company, AUSA Life
Insurance Company, Inc., and Peoples Benefit Life
Insurance Company. Note 6
(8) (f) Participation Agreement by and among AIM Variable
Insurance Funds, Inc., PFL Life Insurance Company, and
AFSG Securities Corporation. Note 7
(8) (f) (1) Amendment No. 4 to Participation Agreement by and among
AIM Variable Insurance Funds, Inc., PFL Life Insurance
Company, AFSG Securities Corporation. Note 7
(8) (g) Participation Agreement by and among Alliance Variable
Products Series Fund, Inc., PFL Life Insurance Company,
AFSG Securities Corporation. Note 7
(8) (h) Participation Agreement by and among Janus Aspen Series
and PFL Life Insurance Company. Note 7
(9) Opinion and Consent of Counsel. Note 3.
(10) (a) Consent of Independent Auditors. Note 7.
(b) Opinion and Consent of Actuary. Note 4.
(11) Not applicable.
(12) Not applicable.
(13) Performance Data Calculations. Note 5.
(14) Powers of Attorney. Note 1. (Patrick S. Baird, Craig D.
Vermie, William L. Busler, Douglas C. Kolsrud, Robert J.
Kontz, Brenda K. Clancy.) Note 5. Larry N. Norman
</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 with Post-Effective Amendment No. 1 on Form N-4 (File
No. 333-26209) on April 29, 1998.
Note 5. Filed with Post-Effective Amendment No. 2 on Form N-4 (File
No. 333-26209) on April 28, 1999.
Note 6. Filed with the Initial filing of Form N-4 Registration
Statement for the Access Variable Annuity (File No.
333-94489) on January 12, 2000.
Note 7. 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 General Counsel
Cedar Rapids, Iowa
52499-0001
Douglas C. Kolsrud Director, Senior Vice President Chief
4333 Edgewood Road N.E. Investment Officer and Corporate
Cedar Rapids, Iowa Actuary
52499-0001
Larry N. Norman Director and Executive Vice
4333 Edgewood Road N.E. President
Cedar Rapids, Iowa
52499-0001
Robert J. Kontz Vice President and Corporate
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>
Jurisdiction of Percent of Voting
Name Incorporation Securities Owned Business
- ---- --------------- ----------------- --------
<S> <C> <C> <C>
AEGON N.V. Netherlands 51.16% of Vereniging Holding company
AEGON Netherlands
Membership Association
Groninger Financieringen B.V. Netherlands 100% AEGON N.V. Holding company
AEGON Netherland N.V. Netherlands 100% AEGON N.V. Holding company
AEGON Nevak Holding B.V. Netherlands 100% AEGON N.V. Holding company
AEGON International N.V. Netherlands 100% AEGON N.V. Holding company
Voting Trust Trustees: Delaware Voting Trust
K.J. Storm
Donald J. Shepard H.B.
Van Wijk Dennis Hersch
AEGON U.S. Holding Corporation Delaware 100% Voting Trust Holding company
Short Hills Management Company New Jersey 100% AEGON U.S. Holding company
Holding Corporation
CORPA Reinsurance Company New York 100% AEGON U.S. Holding company
Holding Corporation
AEGON Management Company Indiana 100% AEGON U.S. Holding company
Holding Corporation
RCC North America Inc. Delaware 100% AEGON U.S. Holding company
Holding Corporation
AEGON USA, Inc. Iowa 100% AEGON U.S. Holding company
Holding Corporation
Transamerica Holding Company Delaware 100% AEGON USA, Inc. Holding Company
AEGON Funding Corp. Delaware 100% Transamerica Issue debt securities-net
Holding Company proceeds used to make
loans to affiliates
First AUSA Life Insurance Maryland 100% AEGON USA, Inc. Insurance holding company
Company
AUSA Life Insurance New York 82.33% First AUSA Life Insurance
Company, Inc. Insurance Company
17.67% Veterans Life
Insurance Company
Life Investors Insurance Iowa 100% First AUSA Life Ins. Co. Insurance
Company of America
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Life Investors Alliance, LLC Delaware 100% LIICA Purchase, own, and hold the
equity interest of other entities
Great American Insurance Iowa 100% LIICA Marketing
Agency, Inc.
Bankers United Life Iowa 100% Life Investors Ins. Insurance
Assurance Company Company of America
PFL Life Insurance Company Iowa 100% First AUSA Life Ins. Co. Insurance
AEGON Financial Services Minnesota 100% PFL Life Insurance Co. Marketing
Group, Inc.
AEGON Assignment Corporation Kentucky 100% AEGON Financial Administrator of structured
of Kentucky Services Group, Inc. settlements
AEGON Assignment Corporation Illinois 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 Co. Arizona 100% of Common Voting Stock Insurance
First AUSA Life Ins. Co.
Western Reserve Life Assurance Ohio 100% First AUSA Life Ins. Co. Insurance
Co. of Ohio
WRL Series Fund, Inc. Maryland Various Mutual fund
WRL Investment Services, Inc. Florida 100% Western Reserve Life Provides administration for
Assurance Co. of Ohio affiliated mutual fund
WRL Investment Florida 100% Western Reserve Life Registered investment advisor
Management, Inc. Assurance Co. of Ohio
ISI Insurance Agency, Inc. California 100% Western Reserve Life Insurance agency
And Subsidiaries Assurance Co. of Ohio
ISI Insurance Agency Alabama 100% ISI Insurance Agency, Inc. Insurance Agency
of Alabama, Inc.
ISI Insurance Agency Ohio 100% ISI Insurance Agency, Inc. Insurance agency
of Ohio, Inc.
ISI Insurance Agency Massachusetts 100% ISI Insurance Agency Inc. Insurance Agency
of Massachusetts, Inc.
ISI Insurance Agency Texas 100% ISI Insurance Agency, Inc. Insurance agency
of Texas, Inc.
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
ISI Insurance Agency Hawaii 100% ISI Insurance Insurance agency
of Hawaii, Inc. Agency, Inc.
ISI Insurance Agency New Mexico 100% ISI Insurance Insurance agency
New Mexico, Inc. Agency, Inc.
AEGON Equity Group, Inc. Florida 100% Western Reserve Life Insurance Agency
Assurance Co. of Ohio
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
Monumental General Life Puerto Rico 51% First AUSA Life Insurance
Insurance Company of Insurance Company
Puerto Rico 49% Baldrich & Associates
of Puerto Rico
AUSA Holding Company Maryland 100% AEGON USA, Inc. Holding company
Monumental General Insurance Maryland 100% AUSA Holding Co. Holding company
Group, Inc.
Trip Mate Insurance Agency, Inc. Kansas 100% Monumental General Sale/admin. of travel
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
AUSA Financial Markets, Inc. Iowa 100% AUSA Holding Co. Marketing
Transamerica Capital, Inc. California 100% AUSA Holding Co. Broker/Dealer
Endeavor Management Company California 100% AUSA Holding Co. Investment Management
Universal Benefits Corporation Iowa 100% AUSA Holding Co. Third party administrator
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Investors Warranty of Iowa 100% AUSA Holding Co. Provider of automobile
America, Inc. extended maintenance
contracts
Massachusetts Fidelity Trust Co. Iowa 100% AUSA Holding Co. Trust company
Money Services, Inc. Delaware 100% AUSA Holding Co. Provides financial counseling
for employees and agents of
affiliated companies
ADB Corporation Delaware 100% Money Services, Inc. Special purpose limited
Liability company
ORBA Insurance Services, Inc. California 10.56% Money Services, Inc. Insurance agency
Zahorik Company, Inc. California 100% AUSA Holding Co. Broker-Dealer
ZCI, Inc. Alabama 100% Zahorik Company, Inc. Insurance agency
Zahorik Texas, Inc. Texas 100% Zahorik Company, Inc. Insurance agency
Long, Miller & Associates, L.L.C. California 33-1/3% AUSA Holding Co. Insurance agency
AEGON Asset Management Delaware 100% AUSA Holding Co. Registered investment advisor
Services, Inc.
InterSecurities, Inc. Delaware 100% AUSA Holding Co. Broker-Dealer
Associated Mariner Financial Michigan 100% InterSecurities, Inc. Holding co./management
Group, Inc. services
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.
Idex Investor Services, Inc. Florida 100% AUSA Holding Co. Shareholder services
Idex Management, Inc. Delaware 100% AUSA Holding Investment advisor
IDEX Mutual Funds Massachusetts Various Mutual fund
Diversified Investment Delaware 100% AUSA Holding Co. Registered investment advisor
Advisors, Inc.
Diversified Investors Securities Delaware 100% Diversified Investment Broker-Dealer
Corp. Advisors, Inc.
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
George Beram & Company, Inc. Massachusetts 100% Diversified Investment Employee benefit and
Advisors, Inc. actuarial consulting
AEGON USA Securities, Inc. Iowa 100% AUSA Holding Co. Broker-Dealer (De-registered)
Creditor Resources, Inc. Michigan 100% AUSA Holding Co. Credit insurance
CRC Creditor Resources Canada 100% Creditor Resources, Inc. Insurance agency
Canadian Dealer Network Inc.
Weiner Agency, Inc. Maryland 100% Creditor Resources, Inc. Insurance agency
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
AEGON USA Real Estate Delaware 100% AEGON USA Realty Real estate and mortgage
Services, Inc. Advisors, Inc. holding company
QSC Holding, Inc. Delaware 100% AEGON USA Realty Real estate and financial
Advisors, Inc. software production and sales
LRA, Inc. Iowa 100% AEGON USA Realty Real estate counseling
Advisors, Inc.
Landauer Associates, Inc. Delaware 100% AEGON USA Realty Real estate counseling
Advisors, Inc.
Landauer Realty Associates, Inc. Texas 100% Landauer Associates, Inc. Real estate counseling
Realty Information Systems, Inc. Iowa 100% AEGON USA Realty Information Systems for
Advisors, Inc. real estate investment
management
USP Real Estate Investment Trust Iowa 12.89% First AUSA Life Ins. Co. Real estate investment trust
13.11% PFL Life Ins. Co.
4.86% Bankers United Life
Assurance Co.
RCC Properties Limited Iowa AEGON USA Realty Advisors, Limited Partnership
Partnership Inc. is General Partner and 5%
owner.
Commonwealth General Delaware 100% AEGON USA, Inc. Holding company
Corporation ("CGC")
AFSG Securities Corporation Pennsylvania 100% CGC Broker-Dealer
Benefit Plans, Inc. Delaware 100% CGC TPA for Peoples Security Life
Insurance Company
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Durco Agency, Inc. Virginia 100% Benefit Plans, Inc. General agent
Capital 200 Block Corporation Delaware 100% CGC Real estate holdings
Capital Real Estate Delaware 100% CGC Furniture and equipment
Development Corporation lessor
Commonwealth General. Kentucky 100% CGC Administrator of structured
Assignment Corporation settlements
Diversified Financial Products Inc. Delaware 100% CGC Provider of investment,
marketing and admin. services
to ins. cos.
Monumental Agency Group, Inc. Kentucky 100% CGC Provider of srvcs. to ins. cos.
PB Investment Advisors, Inc. Delaware 100% CGC Registered investment advisor
(de-registered)
Southlife, Inc. Tennessee 100% CGC Investment subsidiary
Commonwealth General LLC Turks & 100% CGC Special-purpose subsidiary
Caicos Islands
Ampac Insurance Agency, Inc. Pennsylvania 100% CGC Provider of management
(EIN 23-1720755) support services
Compass Rose Development Pennsylvania 100% Ampac Insurance Special-purpose subsidiary
Corporation Agency, Inc.
Financial Planning Services, Inc. Dist. Columbia 100% Ampac Insurance Special-purpose subsidiary
Agency, Inc.
Frazer Association Illinois 100% Ampac Insurance TPA license-holder
Consultants, Inc. Agency, Inc.
National Home Life Corporation Pennsylvania 100% Ampac Insurance Special-purpose subsidiary
Agency, Inc.
Valley Forge Associates, Inc. Pennsylvania 100% Ampac Insurance Furniture & equipment lessor
Agency, Inc.
Veterans Benefits Plans, Inc. Pennsylvania 100% Ampac Insurance Administrator of group
Agency, Inc. insurance programs
Veterans Insurance Services, Inc. Delaware 100% Ampac Insurance Special-purpose subsidiary
Agency, Inc.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
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 Life Insurance company
Company of America Insurance Company
FED Financial, 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.
Force Financial Group, Inc. Delaware 100% Academy Insurance Special-purpose subsidiary
Group, Inc.
Force Financial Services, Inc. Massachusetts 100% Force Fin. Group, Special-purpose subsidiary
Inc.
Military Associates, Inc. Pennsylvania 100% Academy Insurance Special-purpose subsidiary
Group, Inc.
NCOAA Management Company Texas 100% Academy Insurance Special-purpose subsidiary
Group, Inc.
NCOA Motor Club, Inc. Georgia 100% Academy Insurance Automobile club
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. services
Services, GmbH Services, Inc.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Capital General Development Delaware 100% CGC Holding company
Corporation
Monumental Life Maryland 73.23% Capital General Insurance company
Insurance Company Development Company
26.77% First AUSA Life
Insurance Company
AEGON Special Markets Maryland 100% Monumental Life Marketing company
Group, Inc. Insurance Company
Peoples Benefit Life Missouri 3.7% CGC Insurance company
Insurance Company 20.0% Capital Liberty, L.P.
76.3% Monumental Life
Insurance Company
Veterans Life Insurance Co. Illinois 100% Peoples Benefit Insurance company
Life Insurance Company
Peoples Benefit Services, Inc. Pennsylvania 100% Veterans Life Ins. Co. Special-purpose subsidiary
Coverna Direct Insurance Maryland 100% Peoples Benefit Insurance agency
Insurance Services, Inc. Life Insurance Company
Ammest Realty Corporation Texas 100% Monumental Life Special purpose subsidiary
Insurance Company
JMH Operating Company, Inc. Mississippi 100% Monumental Life Real estate holdings
Insurance Company
Capital Liberty, L.P. Delaware 99.0% Monumental Life Holding Company
Insurance Company
1.0% CGC
Transamerica Corporation Delaware 100% AEGON NV Major interest in insurance
and finance
Transamerica Pacific Insurance Hawaii 100% Transamerica Corp. Life insurance
Company, Ltd.
TREIC Enterprises, Inc. Delaware 100% Transamerica Corp. Investments
ARC Reinsurance Corporation Hawaii 100% Transamerica Corp. Property & Casualty Ins.
Transamerica Management, Inc. Delaware 100% ARC Reinsurance Corp. Asset management
Inter-America Corporation California 100% Transamerica Corp. Insurance Broker
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Pyramid Insurance Company, Ltd. Hawaii 100% Transamerica Corp. Property & Casualty Ins.
Pacific Cable Ltd. Bmda. 100% Pyramid Ins. Co., Ltd. Sold 25% of TC Cable, Inc.
stock in 1998
Transamerica Business Tech Corp. Delaware 100% Transamerica Corp. Telecommunications and
data processing
Transamerica CBO I, Inc. Delaware 100% Transamerica Corp. Owns and manages a pool of
high-yield bonds
Transamerica Corporation (Oregon) Oregon 100% Transamerica Corp. Name holding only-Inactive
Transamerica Finance Corp. Delaware 100% Transamerica Corp. Commercial & Consumer
Lending & equip. leasing
TA Leasing Holding Co., Inc. Delaware 100% Transamerica Fin. Corp. Holding company
Trans Ocean Ltd. Delaware 100% TA Leasing Hldg Co. Inc. Holding company
Trans Ocean Container Corp. Delaware 100% Trans Ocean Ltd. Intermodal Leasing
("TOCC")
SpaceWise Inc. Delaware 100% TOCC Intermodal leasing
Trans Ocean Container Finance Corp. Delaware 100% TOCC Intermodal leasing
Trans Ocean Leasing Deutschland GmbH Germany 100% TOCC Intermodal leasing
Trans Ocean Leasing PTY Ltd. Austria 100% TOCC Intermodal leasing
Trans Ocean Management S.A. Switzerland 100% TOCC Intermodal leasing
Trans Ocean Regional
Corporate Holdings California 100% TOCC Holding company
Trans Ocean Tank Services Corp. Delaware 100% TOCC Intermodal leasing
Transamerica Leasing Inc. Delaware 100% TA Leasing Holding Co. Leases & Services intermodal
equipment
Transamerica Leasing Holdings Delaware 100% Transamerica Leasing Inc. Holding Company
Inc. ("TLHI")
Greybox Logistics Services Inc. Delaware 100% TLHI Intermodal Leasing
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Greybox L.L.C. Delaware 100% TLHI Intermodal freight container
interchange facilitation
service
Transamerica Trailer France 100% Greybox L.L.C. Leasing
Leasing S.N.C.
Greybox Services Limited U.K. 100% TLHI Intermodal Leasing
Intermodal Equipment, Inc. Delaware 100% TLHI Intermodal leasing
Transamerica Leasing N.V. Belg. 100% Intermodal Equipment Inc. Leasing
Transamerica Leasing SRL ` Italy 100% Intermodal Equipment Inc. Leasing
Transamerica Distribution Delaware 100% TLHI Provided door-to-door
Services, Inc. services for the domestic
transportation of temperature-
sensitive products
Transamerica Leasing Belg. 100% TLHI Leasing
Coordination Center
Transamerica Leasing do Braz. 100% TLHI Container Leasing
Brasil Ltda.
Transamerica Leasing GmbH Germany 100% TLHI Leasing
Transamerica Leasing Limited U.K. 100% TLHI Leasing
ICS Terminals (UK) Limited U.K. 100% Transamerica. Leasing
Leasing Limited
Transamerica Leasing Pty. Ltd. Australia 100% TLHI Leasing
Transamerica Leasing (Canada) Inc. Canada 100% TLHI Leasing
Transamerica Leasing (HK) Ltd. H.K. 100% TLHI Leasing
Transamerica Leasing S. Africa 100% TLHI Intermodal leasing
(Proprietary) Limited
Transamerica Tank Container Australia 100% TLHI The Australian (domestic)
Leasing Pty. Limited leasing of tank containers
Transamerica Trailer Holdings I Inc. Delaware 100% TLHI Holding company
Transamerica Trailer Holdings II, Inc. Delaware 100% TLHI Holding company
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Transamerica Trailer Holdings III, Inc. Delaware 100% TLHI Holding company
Transamerica Trailer Leasing AB Swed. 100% TLHI Leasing
Transamerica Trailer Leasing AG Switzerland 100% TLHI Leasing
Transamerica Trailer Leasing A/S Denmark 100% TLHI Leasing
Transamerica Trailer Leasing GmbH Germany 100% TLHI Leasing
Transamerica Trailer Leasing Belgium 100% TLHI Leasing
(Belgium) N.V.
Transamerica Trailer Leasing Netherlands 100% TLHI Leasing
(Netherlands) B.V.
Transamerica Trailer Spain S.A. Spain 100% TLHI Leasing
Transamerica Transport Inc. New Jersey 100% TLHI Dormant
Transamerica Commercial Delaware 100% Transamerica Fin. Corp. Holding company for
Finance Corporation, I ("TCFCI") Commercial/consumer
finance subsidiaries
Transamerica Equipment Financial Delaware 100% TCFCI
Services Corporation
BWAC Credit Corporation Delaware 100% TCFCI
BWAC International Corporation Delaware 100% TCFCI
BWAC Twelve, Inc. Delaware 100% TCFCI Holding company for
premium finance subsidiaries
TIFCO Lending Corporation Illinois 100% BWAC Twelve, Inc. General financing & other
services in the US & elsewhere
Transamerica Insurance Finance Maryland 100% BWAC Twelve, Inc. Provides insurance premium
Corporation ("TIFC") financing in the US with the
exception of CA and HI
Transamerica Insurance Finance Maryland 100% TIFC Provides Insurance premium
Company (Europe) financing in California
Transamerica Insurance Finance California 100% TIFC Disability ins. & holding co.
Corporation, California for various insurance
subsidiaries of Transamerica
Corporation
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Transamerica Insurance Finance ON 100% TIFC Provides ins. premium
Corporation, Canada financing in Canada
Transamerica Business Credit Delaware 100% TCFCI Provides asset based lending
Corporation ("TBCC") leasing & equip. financing
Transamerica Mezzanine Delaware 100% TBCC Holds investments in several
Financing, Inc. joint ventures/partnerships
Transamerica Business Advisory Grp. Delaware 100% TBCC
Bay Capital Corporation Delaware 100% TBCC Special purpose company for
the purchase of real estate tax
liens
Coast Funding Corporation Delaware 100% TBCC Special purpose company for
the purchase of real estate tax
liens
Transamerica Small Business Delaware 100% TBCC
Capital, Inc. ("TSBC")
Emergent Business Capital Delaware 100% TSBC
Holdings, Inc.
Gulf Capital Corporation Delaware 100% TBCC Special purpose company for
the purchase of real estate tax
liens
Direct Capital Equity Investment, Inc. Delaware 100% TBCC Small business loans
TA Air East, Corp Delaware 100% TBCC Special purpose corp. which
hold an ownership interest
or leases aircraft
TA Air I, Corp. Delaware 100% TBCC Special purpose corp. which
hold an ownership interest
or leases aircraft
TA Air II, Corp. Delaware 100% TBCC Special purpose corp. which
hold an ownership interest
or leases aircraft
TA Air III, Corp. Delaware 100% TBCC special purpose corp. which
hold an ownership interest
or leases aircraft
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
TA Air IV, Corp. Delaware 100% TBCC Special purpose corp. which
hold an ownership interest
or leases aircraft
TA Air V, Corp. Delaware 100% TBCC Special purpose corp. which
hold an ownership interest
or leases aircraft
TA Air VI, Corp. Delaware 100% TBCC Special purpose corp. which
hold an ownership interest
or leases aircraft
TA Air VII, Corp. Delaware 100% TBCC Special purpose corp. which
hold an ownership interest or
leases aircraft
TA Air VIII, Corp. Delaware 100% TBCC Special purpose corp. which
hold an ownership interest or
leases aircraft
TA Air IX, Corp. Delaware 100% TBCC Special purpose corp. which
hold an ownership interest
or leases aircraft
TA Air X, Corp. Delaware 100% TBCC Special purpose corp. which
hold an ownership interest
or leases aircraft
TA Air XI, Corp. Delaware 100% TBCC Special purpose corp. which
hold an ownership interest
or leases aircraft
TA Air XII, Corp. Delaware 100% TBCC Special purpose corp. which
hold an ownership interest
or leases aircraft
TA Air XIII, Corp. Delaware 100% TBCC Special purpose corp. which
hold an ownership interest
or leases aircraft
TA Air XIV, Corp. Delaware 100% TBCC Special purpose corp. which
hold an ownership interest
or leases aircraft
TA Air XV, Corp. Delaware 100% TBCC Special purpose corp. which
hold an ownership interest
or leases aircraft
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
TA Marine I Corp. Delaware 100% TBCC Special purpose corp. which
hold an ownership interest or
leases barges or ships
TA Marine II Corp. Delaware 100% TBCC Special purpose corp. which
hold an ownership interest or
leases barges or ships
TBC I, Inc. Delaware 100% TBCC Special purpose corp.
TBC II, Inc. Delaware 100% TBCC Special purpose corp.
TBC III, Inc. Delaware 100% TBCC Special purpose corp.
TBC IV, Inc. Delaware 100% TBCC Special purpose corp.
TBC V, Inc. Delaware 100% TBCC Special purpose corp.
TBC VI, Inc. Delaware 100% TBCC Special purpose corp.
TBC Tax I, Inc. Delaware 100% TBCC Special purpose co. for the
purchase of real estate tax lien
TBC Tax II, Inc. Delaware 100% TBCC Special purpose co. for the
purchase of real estate tax lien
TBC Tax III, Inc. Delaware 100% TBCC Special purpose co. for the
purchase of real estate tax lien
TBC Tax IV, Inc. Delaware 100% TBCC Special purpose co. for the
purchase of real estate tax lien
TBC Tax V, Inc. Delaware 100% TBCC Special purpose co. for the
purchase or real estate tax lien
TBC Tax VI, Inc. Delaware 100% TBCC Special purpose co. for the
purchase or real estate tax lien
TBC Tax VII, Inc. Delaware 100% TBCC Special purpose co. for the
purchase or real estate tax lien
TBC Tax VIII, Inc. Delaware 100% TBCC Special purpose co. for the
purchase of real estate tax lien
TBC Tax IX, Inc. Delaware 100% TBCC Special purpose co. for the
purchase of real estate tax lien
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
The Plain Company Delaware 100% TBCC Special purpose corp. which
hold an ownership interest or
leases aircraft.
Transamerica Distribution Delaware 100% TCFCI Holding corp. for inventory,
Finance Corporation ("TDFC") comm. Leasing, retail finance
comm. Recovery service and
accounts
Transamerica Accounts Holding Corp. Delaware 100% TDFC
Transamerica Commercial Delaware 100% TDFC Wholesale floor plan for
Finance Corporation ("TCFC") appliances, electronics,
computers, office equip. and
marine equipment.
Transamerica Acquisition Canada 100% TCFC Holding company
Corporation, Canada
Transamerica Distribution Finance Delaware 100% TCFC
Corporation - Overseas, Inc.
("TDFCO")
TDF Mauritius Limited Mauritius 100% TDFCO Mauritius holding company
of our Indian Joint Venture
Inventory Funding Trust Delaware 100% TCFC
Inventory Funding Company, LLC Delaware 100% Inventory Funding Trust
TCF Asset Management Corporation Colorado 100% TCFC A depository for foreclosed
real and personal property
Transamerica Joint Ventures, Inc. Delaware 100% TCFC To enter into general partner-
ships for the ownership of
comm. & finance business
Transamerica Inventory Delaware 100% TDFC Holding co. for inventory
Finance Corporation ("TIFC") finance subsidiaries
Transamerica GmbH, Inc. Delaware 100% TIFC Commercial lending in
Germany
Transamerica Fincieringsmaatschappij
B.V. Netherlands 100% Trans. GmbH, Inc. Commercial lending in
Europe
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
BWAC Seventeen, Inc. Delaware 100% TIFC Holding co. for principal
Canadian operation, Trans-
America Comm. Finance
Corp, Canada
Transamerica Commercial ON 100% BWAC Seventeen, Inc. Shell corp.- Dormant
Finance Canada, Limited
Transamerica Commercial Canada 100% BWAC Seventeen, Inc. Commercial finance
Finance Corporation, Canada
BWAC Twenty-One, Inc. Delaware 100% TIFC Holding co. for United
Kingdom operation, Trans-
America Comm. Finance
Limited
Transamerica Commercial U.K. 100% BWAC Twenty-One Inc. Commercial lending in the
Finance Limited ("TCFL") United Kingdom.
Whirlpool Financial Corporation 100% TCFL Inactive commercial finance
Polska Spzoo Company in Poland
Transamerica Commercial U.K. 100% BWAC Twenty-One Inc. Holding Company
Holdings Limited
Transamerica Commercial Finance U.K. 100% Trans. Commercial
Limited Holdings Limited
Transamerica Commercial Finance France 100% BWAC Twenty-One Inc. Carries out factoring trans-
France S.A. actions in France & abroad
Transamerica GmbH Inc. Delaware 100% BWAC Twenty-One Inc. Holding co. for Transamerica
Financieringsmaatschappij
B.V.
Transamerica Retail Financial Delaware 100% TIFC Provides retail financing
Services Corporation ("TRFSC")
Transamerica Bank, NA Delaware 100% TRFSC Bank (Credit Cards)
Transamerica Consumer Finance Delaware 100% TRFSC Consumer finance holding
Holding Company ("TCFHC") company
Transamerica Mortgage Company Delaware 100% TCFHC Consumer mortgages
Transamerica Consumer Mortgage Delaware 100% TCFHC Securitization company
Receivables Company
Metropolitan Mortgage Company Florida 100% TCFHC Consumer mortgages
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Easy Yes Mortgage, Inc. Florida 100% Metropolitan Mtg. Co. No active business/Name
holding only
Easy Yes Mortgage, Inc. Georgia 100% Metropolitan Mtg. Co. No active business/Name
holding only
First Florida Appraisal Services, Inc. Georgia 100% Metropolitan Mtg. Co. Appraisal and inspection
services
First Georgia Appraisal Services, Inc. Georgia 100% First FL App. Srvc, Inc. Appraisal services
Freedom Tax Services, Inc. Florida 100% Metropolitan Mtg. Co. Property tax information
services
J.J. & W. Advertising, Inc. Florida 100% Metropolitan Mtg. Co. Advertising and marketing
services
J.J. & W. Realty Corporation Florida 100% Metropolitan Mtg. Co. To hold problem REO
properties
Liberty Mortgage Company of Florida 100% Metropolitan Mtg. Co. No active business/Name
Ft. Myers, Inc. holding only
Metropolis Mortgage Company Florida 100% Metropolitan Mtg. Co. No active business/Name
holding only
Perfect Mortgage Company Florida 100% Metropolitan Mtg. Co. No active business/Name
holding only
Transamerica Vendor Financial Srvc. Delaware 100% TDFC Provides commercial lease
Transamerica Distribution Finance 100% TCFCI
Corporation de Mexico ("TDFCM")
TDF de Mexico Mexico 100% TDFCM
Transamerica Corporate Services 100% TDFCM
De Mexico
Transamerica Home Loan California 100% TFC Consumer mortgages
Transamerica Lending Company Delaware 100% TFC Consumer lending
Transamerica Financial Products, Inc. California 100% Transamerica Corp. Service investments
Transamerica Insurance Corporation California 100% Transamerica Corp. Provides insurance premium
of California ("TICC") financing in California
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Arbor Life Insurance Company Arizona 100% TICC Life insurance, disability
insurance
Plaza Insurance Sales Inc. California 100% TICC Casualty insurance placement
Transamerica Advisors, Inc. California 100% TICC Retail sale of investment
advisory services
Transamerica Annuity Services Corp. New Mexico 100% TICC Performs services required for
structured settlements
Transamerica Financial Resources, Inc. Delaware 100% TICC Retail sale of securities
products
Financial Resources Insurance Texas 100% Transamerica Fin. Res. Retail sale of securities
Agency of Texas products
TBK Insurance Agency of Ohio, Inc. Ohio 100% Transamerica Fin. Res. Variable insurance contract
sales in state of Ohio
Transamerica Financial Resources Alabama 100% Transamerica Fin. Res. Insurance agent & broker
Agency of Alabama, Inc.
Transamerica Financial Resources Ins. Massachusetts 100% Transamerica Fin. Res. Insurance agent & broker
Agency of Massachusetts, Inc.
Transamerica International Insurance Delaware 100% TICC Holding & administering
Services, Inc. ("TIIS") foreign operations
Home Loans and Finance Ltd. U.K. 100% TIIS Inactive
Transamerica Occidental Life California 100% TICC Licensed in all forms of life
Insurance Company ("TOLIC") insurance, accident and
sickness insurance
NEF Investment Company California 100% TOLIC Real estate development
Transamerica Life Insurance and N. Carolina 100%TOLIC Writes life and pension ins.
Annuity Company ("TLIAC") originally incorporated in CA
April 14, 1966
Transamerica Assurance Company Missouri 100% TLIAC Life and disability insurance
Gemini Investments, Inc. Delaware 100% TLIAC Investment subsidiary
Transamerica Life Insurance Company Canada 100% TOLIC Sells individual life insurance
of Canada & investment products in all
provinces and territories of
Canada
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Transamerica Life Insurance Company New York 100% TOLIC Licensed in NY to market life
of New York insurance, annuities and
health insurance
Transamerica South Park Delaware 100% TOLIC Provide market analysis of
Resources, Inc. certain undeveloped land
holdings held by TOLIC
Transamerica Variable Insurance Maryland 100% TOLIC Mutual Fund
Fund, Inc.
USA Administration Services, Inc. Kansas 100% TOLIC Third party administrator
Transamerica Products. Inc. California 100% TICC Parent co. of various
subsidiary corp. which are
formed to be co-general
partners of proprietary limited
Transamerica Securities Sales Corp. Maryland 100% Transamerica Prod. Inc. Retail sale of the variable life
ins. and variable annuity
products of the Transamerica
life companies
Transamerica Service Company Delaware 100% Transamerica Prod. Inc. Passive loss tax service for
Lloyd's U.S. names
Transamerica Intellitech, Inc. Delaware 100% TICC Real estate information and
technology services
Transamerica International Delaware 100% TICC Investments
Holdings, Inc.
Transamerica Investment Services, Inc. Delaware 100% TICC Investment adviser
Transamerica Income Shares, Inc. Maryland 100% Trans. Invest. Srvc. Inc. Transamerica investment
services
Transamerica LP Holdings Corp. Delaware 100% TICC Limited partnership
Investment (initial limited
partner of Transamerica
Delaware, L.P.)
Transamerica Real Estate Tax Service N/A 100% TICC Real estate tax reporting and
(A Division of Transamerica Corp) processing services
Transamerica Realty Services, Inc. Delaware 100% TICC Responsible for real estate
investments for Transamerica
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Bankers Mortgage Company of CA California 100% Transamerica Realty Srv. Holds bank account and owns
certain residual investments in
certain French real estate
projects which are managed
special purpose company for
the purchase of real estate tax
liens.
Pyramid Investment Corporation Delaware 100% Transamerica Realty Srv. Owns office buildings in San
Francisco and other properties
The Gilwell Company California 100% Transamerica Realty Srv. Ground lessee of 517
Washington Street,
San Francisco
Transamerica Affordable Housing, Inc. California 100% Transamerica Realty Srv. Owns general partnership
interests in low-income
housing tax credit
partnerships
Transamerica Minerals Company California 100% Transamerica Realty Srv. Owner and lessor of oil and
gas properties
Transamerica Oakmont Corporation California 100% Transamerica Realty Srv. General partner in
Transamerica/Oakmont
Retirement Associates
Transamerica Senior Properties, Inc. Delaware 100% TICC Owns congregate care and
assisted living retirement
Properties
Transamerica Senior Living, Inc. Delaware 100% Trans. Sr. Prop. Inc. Manages congregate care and
assisted living retirement
properties.
</TABLE>
<PAGE>
Item 27. Number of Contract Owners.
As of December 31, 1999, there were 4,464 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 Ann Spaes
Director and President Director and Vice President
Frank A. Camp Darin Smith
Secretary Assistant Vice President and Assistant
Secretary
Lisa Wachendorf Linda Gilmer
Director, Vice President and Treasurer/Controller
Chief Compliance Officer
Thomas R. Moriarty Robert Warner
Vice President Assistant Compliance Officer
Priscilla Hechler Emily Bates
Assistant Vice President and Assistant Treasurer
Assistant Secretary
Thomas Pierpar Clifton Flenniken
Assistant Vice President and Assistant Treasurer
Assistant Secretary
- --------------------
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.
- --------------------------------------------------------------------
AFSG Securities Corporation, the broker/dealer, received $5,583,369.34 and
$2,463,152.13 from the Registrant for the year ending December 31, 1999 and for
May 1, 1998 through December 31, 1998, respectively, for its services in
distributing the Policies. AEGON USA Securities, Inc., its predecessor, received
$1,455,253.91 from the Registrant from January 1, 1998 through April 30, 1998,
for its services in distributing the Policies. No other commission or
compensation was received by the principal underwriter, directly or indirectly,
from the Registrant during the fiscal year.
AFSG Securities Corporation serves as the principal underwriter for the PFL
Endeavor Variable Annuity Account, the PFL Endeavor Platinum Variable Annuity
Account, the PFL Retirement Builder Variable Annuity Account, the PFL Life
Variable Annuity Account A, the PFL Life Variable Annuity Account C, the PFL
Life Variable Annuity Account D, 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. AFSG Securities
Corporation also serves as principal underwriter for Separate Account I,
Separate Account II, Separate Account IV and Separate Account V of Peoples
Benefit Life Insurance Company, and for Separate Account B and Separate Account
C of AUSA Life Insurance Company, Inc.
Item 30. Location of Accounts and Records
The records required to be maintained by Section 31(a) of the Investment Company
Act of 1940 and Rules 31a-1 to 31a-3 promulgated thereunder, are maintained by
PFL Life Insurance Company at 4333 Edgewood Road, N.E., Cedar Rapids, Iowa
52499-0001.
Item 31. Management Services.
All management Contracts are discussed in Part A or Part B.
Item 32. Undertakings
(a) Registrant undertakes that it will file a post-effective amendment to this
registration statement as frequently as necessary to ensure that the
audited financial statements in the registration statement are never more
than 16 months old for so long as Premiums under the 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 27th day of April, 2000.
PFL LIFE VARIABLE
ANNUITY ACCOUNT A
PFL LIFE INSURANCE COMPANY
Depositor
/s/ William L. Busler
---------------------
William L. Busler
President
As required by the Securities Act of 1933, this Registration Statement has been
signed by the following persons in the capacities and on the duties indicated.
<TABLE>
<CAPTION>
Signatures Title Date
- ---------- ----- ----
<S> <C> <C>
/s/ Patrick S. Baird Director April 27, 2000
- ------------------------- --------------
Patrick S. Baird
/s/ Craig D. Vermie Director April 27, 2000
- ------------------------- --------------
Craig D. Vermie
/s/ William L. Busler Director April 27, 2000
- ------------------------- (Principal Executive Officer) --------------
William L. Busler
/s/ Larry N. Norman Director April 27, 2000
- ------------------------- --------------
Larry N. Norman
/s/ Douglas C. Kolsrud Director April 27, 2000
- ------------------------- --------------
Douglas C. Kolsrud
/s/ Robert J. Kontz Vice President and April 27, 2000
- ------------------------- Corporate Controller --------------
Robert J. Kontz
/s/ Brenda K. Clancy Treasurer April 27, 2000
- ------------------------- --------------
Brenda K. Clancy
</TABLE>
<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>
(8)(e)(3) Amendment No. 12 to Participation Agreement among WRL
Series Fund, Inc., PFL Life Insurance Company, AUSA Life
Insurance Company, Inc., and Peoples Benefit Life
Insurance Company
(8)(f) Participation Agreement by and among AIM Variable Funds,
Inc., PFL Life Insurance Company, and AFSG Securities
Corporation
(8)(f)(1) Amendment No. 4 to Participation Agreement by and among
AIM Variable Insurance Funds, Inc., PFL Life Insurance
Company, AFSG Securities Corporation
(8)(g) Participation Agreement by and among Alliance Variable
Products Series Fund, Inc., PFL Life Insurance Company,
AFSG Securities Corporation
(8)(h) Participation Agreement by and among Janus Aspen Series
and PFL Life Insurance Company
(10)(a) Consent of Independent Auditors
</TABLE>
- ----------
* Page numbers included only in manually executed original.
<PAGE>
EXHIBIT (8)(e)(3)
-----------------
AMENDMENT NO. 12 TO PARTICIPATION AGREEMENT AMONG WRL
SERIES FUND, INC., PFL LIFE INSURANCE COMPANY, AUSA LIFE
INSURANCE COMPANY, INC., AND PEOPLES BENEFIT LIFE INSURANCE
COMPANY
<PAGE>
ADDENDUM NO. 12 TO
PARTICIPATION AGREEMENT
AMONG
WRL SERIES FUND, INC.,
PFL LIFE INSURANCE COMPANY,
AUSA LIFE INSURANCE COMPANY, INC.,
AND PEOPLES BENEFIT LIFE INSURANCE COMPANY
Amendment No. 12 to the Participation Agreement among WRL Series Fund,
Inc., (the "Fund"), PFL Life Insurance Company ("PFL"), AUSA Life Insurance
Company, Inc. ("AUSA"), and Peoples Benefit Life Insurance Company ("Peoples")
dated July 1, 1992, as amended ("Participation Agreement").
WHEREAS, PFL has established PFL Life Variable Annuity Account C and PFL
Life Variable Annuity Account D, separate accounts for purposes of selling
variable annuity products, which are to be funded in part by the WRL Series
Fund, Inc.
NOW, THEREFORE, IT IS HEREBY AGREED that PFL, through its separate
accounts, PFL Life Variable Annuity Account C and PFL Life Variable Annuity
Account D, is authorized to acquire shares issued by WRL Series Fund, Inc.,
subject to the terms and conditions of the Participation Agreement.
IN WITNESS WHEREOF, each of the parties has caused this Addendum to be
executed in its name and on its behalf by its duly authorized representative as
of September 27, 1999.
PFL LIFE INSURANCE COMPANY WRL SERIES FUND, INC.
By its authorized officer By its authorized officer
By: /s/ William L. Busler By: /s/ Thomas E. Pierpan
------------------------ --------------------------------
William L. Busler Thomas E. Pierpan
Title: President Title: Vice President, Secretary and
--------------------- ------------------------------
Associate General Counsel
------------------------------
AUSA LIFE INSURANCE PEOPLES BENEFIT LIFE
COMPANY, INC. INSURANCE COMPANY
By its authorized officer By its authorized officer
By: /s/ William L. Busler By: /s/ Frank A. Camp
------------------------ ---------------------------------
William L. Busler Frank A. Camp
Title: Vice President Title: Vice President and
--------------------- -----------------------------
Division General Counsel
-----------------------------
<PAGE>
AMENDED
SCHEDULE A
Effective September 27, 1999
Account(s), Policy(ies) and Portfolio(s)
Subject to the Participation Agreement
--------------------------------------
Account(s): PFL Endeavor Variable Annuity Account
PFL Endeavor Platinum Variable Annuity Account
Mutual Fund Account
PFL Life Variable Annuity Account A
PFL Life Variable Annuity Account C
PFL Life Variable Annuity Account D
PFL Retirement Builder Variable Annuity Account
AUSA Life Insurance Company, Inc. Separate Account C
Peoples Benefit Life Insurance Company Separate Account V
Legacy Builder Variable Life Separate Account
AUSA Series Life Account
Policy(ies): PFL Endeavor Variable Annuity
PFL Endeavor Platinum Variable Annuity
AUSA Endeavor Variable Annuity
Atlas Portfolio Builder Variable Annuity
Extra Variable Annuity
Access Variable Annuity
Retirement Income Builder II Variable Annuity
AUSA & Peoples - Advisor's Edge Variable Annuity
Peoples - Advisor's Edge Select Variable Annuity
Legacy Builder II
Legacy Builder Plus
AUSA Freedom Financial Builder
Portfolio(s): WRL Series Fund, Inc.
WRL Janus Growth
WRL AEGON Bond
WRL J.P. Morgan Money Market
WRL Janus Global
WRL LKCM Strategic Total Return
WRL VKAM Emerging Growth
WRL Alger Aggressive Growth
WRL AEGON Balanced
WRL Federated Growth & Income
WRL C.A.S.E. Growth
WRL NWQ Value Equity
WRL GE/Scottish Equitable International Equity
WRL GE U.S. Equity
WRL J.P. Morgan Real Estate Securities
WRL T. Rowe Price Dividend Growth
WRL T. Rowe Price Small Cap
WRL Goldman Sachs Growth
WRL Goldman Sachs Small Cap
WRL Pilgrim Baxter Mid Cap Growth
WRL Salomon All Cap
WRL Dreyfus Mid Cap
WRL Third Avenue Value
WRL Dean Asset Allocation
<PAGE>
EXHIBIT (8)(f)
--------------
PARTICIPATION AGREEMENT
BY AND AMONG
AIM VARIABLE INSURANCE PRODUCTS FUNDS, INC.
PFL LIFE INSURANCE COMPANY, AND
AFSG SECURITIES CORPORATION.
<PAGE>
PARTICIPATION AGREEMENT
BY AND AMONG
AIM VARIABLE INSURANCE FUNDS, INC.,
A I M DISTRIBUTORS, INC.,
PFL LIFE INSURANCE COMPANY,
ON BEHALF OF ITSELF AND
ITS SEPARATE ACCOUNTS,
AND
AFSG SECURITIES CORPORATION, AS UNDERWRITER
OF VARIABLE CONTRACTS AND POLICIES
<PAGE>
TABLE OF CONTENTS
Description Page
- ----------- ----
Section 1. Available Funds ...................................................2
1.1 Availability ...................................................2
1.2 Addition, Deletion or Modification of Funds ....................2
1.3 No Sales to the General Public .................................2
Section 2. Processing Transactions ...........................................2
2.1 Timely Pricing and Orders ......................................2
2.2 Timely Payments ................................................3
2.3 Applicable Price ...............................................3
2.4 Dividends and Distributions ....................................4
2.5 Book Entry .....................................................4
Section 3. Costs and Expenses ................................................4
3.1 General ........................................................4
3.2 Parties To Cooperate ...........................................4
Section 4. Legal Compliance ..................................................4
4.1 Tax Laws .......................................................4
4.2 Insurance and Certain Other Laws ...............................7
4.3 Securities Laws ................................................7
4.4 Notice of Certain Proceedings and Other Circumstances ..........8
4.5 LIFE COMPANY To Provide Documents; Information About AVIF ......9
4.6 AVIF To Provide Documents; Information About LIFE COMPANY .....10
Section 5. Mixed and Shared Funding .........................................12
5.1 General .......................................................12
5.2 Disinterested Directors .......................................12
5.3 Monitoring for Material Irreconcilable Conflicts ..............12
5.4 Conflict Remedies .............................................13
5.5 Notice to LIFE COMPANY ........................................14
5.6 Information Requested by Board of Directors ...................14
5.7 Compliance with SEC Rules .....................................15
5.8 Other Requirements ............................................15
Section 6. Termination ......................................................15
6.1 Events of Termination .........................................15
i
<PAGE>
Description Page
- ----------- ----
6.2 Notice Requirement for Termination ............................16
6.3 Funds To Remain Available .....................................17
6.4 Survival of Warranties and Indemnifications ...................17
6.5 Continuance of Agreement for Certain Purposes .................17
Section 7. Parties To Cooperate Respecting Termination ......................17
Section 8. Assignment .......................................................17
Section 9. Notices ..........................................................18
Section 10. Voting Procedures ...............................................18
Section 11. Foreign Tax Credits .............................................19
Section 12. Indemnification .................................................19
12.1 Of AVIF and AIM by LIFE COMPANY and UNDERWRITER ...............19
12.2 Of LIFE COMPANY and UNDERWRITER by AVIF and AIM ...............21
12.3 Effect of Notice ..............................................24
12.4 Successors ....................................................24
Section 13. Applicable Law ..................................................24
Section 14. Execution in Counterparts .......................................24
Section 15. Severability ....................................................24
Section 16. Rights Cumulative ...............................................24
Section 17. Headings ........................................................25
Section 18. Confidentiality .................................................25
Section 19. Trademarks and Fund Names .......................................25
Section 20. Parties to Cooperate ............................................27
ii
<PAGE>
PARTICIPATION AGREEMENT
THIS AGREEMENT, made and entered into as of the 1ST day of May ,
----- --------------
1998 ("Agreement"), by and among AIM Variable Insurance Funds, Inc., a Maryland
corporation ("AVIF"), A I M Distributors, Inc., a Delaware corporation ("AIM"),
PFL Life Insurance Company, an Iowa life insurance company ("LIFE COMPANY"), on
behalf of itself and each of its segregated asset accounts listed in Schedule A
hereto, as the parties hereto may amend from time to time (each, an "Account,"
and collectively, the "Accounts"); and AFSG Securities Corporation, an affiliate
of LIFE COMPANY and the principal underwriter of the Contracts ("UNDERWRITER")
(collectively, the "Parties").
WITNESSETH THAT:
WHEREAS, AVIF is registered with the Securities and Exchange Commission
("SEC") as an open-end management investment company under the Investment
Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, AVIF currently consists of nine separate series ("Series"), shares
("Shares") of each of which are registered under the Securities Act of 1933, as
amended (the "1933 Act") and are currently sold to one or more separate accounts
of life insurance companies to fund benefits under variable annuity contracts
and variable life insurance contracts; and
WHEREAS, AVIF will make Shares of each Series listed on Schedule A hereto
as the Parties hereto may amend from time to time (each a "Fund"; reference
herein to "AVIF" includes reference to each Fund, to the extent the context
requires) available for purchase by the Accounts; and
WHEREAS, LIFE COMPANY will be the issuer of certain variable annuity
contracts and variable life insurance contracts ("Contracts") as set forth on
Schedule A hereto, as the Parties hereto may amend from time to time, which
Contracts (hereinafter collectively, the "Contracts"), if required by applicable
law, will be registered under the 1933 Act; and
WHEREAS, LIFE COMPANY will fund the Contracts through the Accounts, each of
which may be divided into two or more subaccounts ("Subaccounts"; reference
herein to an "Account" includes reference to each Subaccount thereof to the
extent the context requires); and
WHEREAS, LIFE COMPANY will serve as the depositor of the Accounts, each of
which is registered as a unit investment trust investment company under the 1940
Act (or exempt therefrom), and the security interests deemed to be issued by the
Accounts under the Contracts will be registered as securities under the 1933 Act
(or exempt therefrom); and
1
<PAGE>
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, LIFE COMPANY intends to purchase Shares in one or more of the Funds
on behalf of the Accounts to fund the Contracts; and
WHEREAS, UNDERWRITER is a broker-dealer registered with the SEC under the
Securities Exchange Act of 1934 ("1934 Act") and a member in good standing of
the National Association of Securities Dealers, Inc. ("NASD");
NOW, THEREFORE, in consideration of the mutual benefits and promises
contained herein, the Parties hereto agree as follows:
Section 1. Available Funds
--------------------------
1.1 Availability.
------------
AVIF will make Shares of each Fund available to LIFE COMPANY for purchase
and redemption at net asset value and with no sales charges, subject to the
terms and conditions of this Agreement. The Board of Directors of AVIF may
refuse to sell Shares of any Fund to any person, or suspend or terminate the
offering of Shares of any Fund if such action is required by law or by
regulatory authorities having jurisdiction or if, in the sole discretion of the
Directors acting in good faith and in light of their fiduciary duties under
federal and any applicable state laws, such action is deemed in the best
interests of the shareholders of such Fund.
1.2 Addition, Deletion or Modification of Funds.
-------------------------------------------
The Parties hereto may agree, from time to time, to add other Funds to
provide additional funding media for the Contracts, or to delete, combine, or
modify existing Funds, by amending Schedule A hereto. Upon such amendment to
Schedule A, any applicable reference to a Fund, AVIF, or its Shares herein shall
include a reference to any such additional Fund. Schedule A, as amended from
time to time, is incorporated herein by reference and is a part hereof.
1.3 No Sales to the General Public.
------------------------------
AVIF represents and warrants that no Shares of any Fund have been or will
be sold to the general public.
Section 2. Processing Transactions
----------------------------------
2.1 Timely Pricing and Orders.
-------------------------
(a) AVIF or its designated agent will use its best efforts to provide LIFE
COMPANY with the net asset value per Share for each Fund by 6:00 p.m. Central
Time on each Business Day. As used herein, "Business Day" shall mean any day on
which (i) the New York Stock
2
<PAGE>
Exchange is open for regular trading, (ii) AVIF calculates the Fund's net asset
value, and (iii) LIFE COMPANY is open for business.
(b) LIFE COMPANY will use the data provided by AVIF each Business Day
pursuant to paragraph (a) immediately above to calculate Account unit values and
to process transactions that receive that same Business Day's Account unit
values. LIFE COMPANY will perform such Account processing the same Business
Day, and will place corresponding orders to purchase or redeem Shares with AVIF
by 9:00 a.m. Central Time the following Business Day; provided, however, that
AVIF shall provide additional time to LIFE COMPANY in the event that AVIF is
unable to meet the 6:00 p.m. time stated in paragraph (a) immediately above.
Such additional time shall be equal to the additional time that AVIF takes to
make the net asset values available to LIFE COMPANY.
(c) With respect to payment of the purchase price by LIFE COMPANY and of
redemption proceeds by AVIF, LIFE COMPANY and AVIF shall net purchase and
redemption orders with respect to each Fund and shall transmit one net payment
per Fund in accordance with Section 2.2, below.
(d) If AVIF provides materially incorrect Share net asset value
information (as determined under SEC guidelines), LIFE COMPANY shall be entitled
to an adjustment to the number of Shares purchased or redeemed to reflect the
correct net asset value per Share. Any material error in the calculation or
reporting of net asset value per Share, dividend or capital gain information
shall be reported promptly upon discovery to LIFE COMPANY.
2.2 Timely Payments.
---------------
LIFE COMPANY will wire payment for net purchases to a custodial account
designated by AVIF by 1:00 p.m. Central Time on the same day as the order for
Shares is placed, to the extent practicable. AVIF will wire payment for net
redemptions to an account designated by LIFE COMPANY by 1:00 p.m. Central Time
on the same day as the Order is placed, to the extent practicable, but in any
event within five (5) calendar days after the date the order is placed in order
to enable LIFE COMPANY to pay redemption proceeds within the time specified in
Section 22(e) of the 1940 Act or such shorter period of time as may be required
by law.
2.3 Applicable Price.
----------------
(a) Share purchase payments and redemption orders that result from
purchase payments, premium payments, surrenders and other transactions under
Contracts (collectively, "Contract transactions") and that LIFE COMPANY receives
prior to the close of regular trading on the New York Stock Exchange on a
Business Day will be executed at the net asset values of the appropriate Funds
next computed after receipt by AVIF or its designated agent of the orders. For
purposes of this Section 2.3(a), LIFE COMPANY shall be the designated agent of
AVIF for receipt of orders relating to Contract transactions on each Business
Day and receipt by such designated agent shall constitute receipt by AVIF;
provided that AVIF receives notice of such
3
<PAGE>
orders by 9:00 a.m. Central Time on the next following Business Day or such
later time as computed in accordance with Section 2.1(b) hereof.
(b) All other Share purchases and redemptions by LIFE COMPANY will be
effected at the net asset values of the appropriate Funds next computed after
receipt by AVIF or its designated agent of the order therefor, and such orders
will be irrevocable.
2.4 Dividends and Distributions.
---------------------------
AVIF will furnish notice by wire or telephone (followed by written
confirmation) on or prior to the payment date to LIFE COMPANY of any income
dividends or capital gain distributions payable on the Shares of any Fund. LIFE
COMPANY hereby elects to reinvest all dividends and capital gains distributions
in additional Shares of the corresponding Fund at the ex-dividend date net asset
values until LIFE COMPANY otherwise notifies AVIF in writing, it being agreed by
the Parties that the ex-dividend date and the payment date with respect to any
dividend or distribution will be the same Business Day. LIFE COMPANY reserves
the right to revoke this election and to receive all such income dividends and
capital gain distributions in cash.
2.5 Book Entry.
----------
Issuance and transfer of AVIF Shares will be by book entry only. Stock
certificates will not be issued to LIFE COMPANY. Shares ordered from AVIF will
be recorded in an appropriate title for LIFE COMPANY, on behalf of its Account.
Section 3. Costs and Expenses
-----------------------------
3.1 General.
-------
Except as otherwise specifically provided in Schedule C, attached
hereto and made a part hereof, each Party will bear all expenses incident to its
performance under this Agreement.
3.2 Parties To Cooperate.
--------------------
Each Party agrees to cooperate with the others, as applicable, in arranging
to print, mail and/or deliver, in a timely manner, combined or coordinated
prospectuses or other materials of AVIF and the Accounts.
Section 4. Legal Compliance
---------------------------
4.1 Tax Laws .
--------
(a) AVIF represents and warrants that each Fund is currently qualified as
a regulated investment company ("RIC") under Subchapter M of the Internal
Revenue Code of 1986, as
4
<PAGE>
amended (the "Code"), and represents that it will use its best efforts to
qualify and to maintain qualification of each Fund as a RIC. AVIF will notify
LIFE COMPANY immediately upon having a reasonable basis for believing that a
Fund has ceased to so qualify or that it might not so qualify in the future.
(b) AVIF represents that it will use its best efforts to comply and to
maintain each Fund's compliance with the diversification requirements set forth
in Section 817(h) of the Code and Section 1.817-5(b) of the regulations under
the Code. AVIF will notify LIFE COMPANY immediately upon having a reasonable
basis for believing that a Fund has ceased to so comply or that a Fund might not
so comply in the future. In the event of a breach of this Section 4.1(b) by
AVIF, it will take all reasonable steps to adequately diversify the Fund so as
to achieve compliance within the grace period afforded by Section 1.817-5 of the
regulations under the Code.
(c) LIFE COMPANY agrees that if the Internal Revenue Service ("IRS")
asserts in writing in connection with any governmental audit or review of LIFE
COMPANY or, to LIFE COMPANY's knowledge, of any Participant, that any Fund has
failed to comply with the diversification requirements of Section 817(h) of the
Code or LIFE COMPANY otherwise becomes aware of any facts that could give rise
to any claim against AVIF or its affiliates as a result of such a failure or
alleged failure:
(I) LIFE COMPANY shall promptly notify AVIF of such assertion or
potential claim (subject to the Confidentiality provisions of
Section 18 as to any Participant);
(ii) LIFE COMPANY shall consult with AVIF as to how to minimize any
liability that may arise as a result of such failure or alleged
failure;
(iii) LIFE COMPANY shall use its best efforts to minimize any
liability of AVIF or its affiliates resulting from such failure,
including, without limitation, demonstrating, pursuant to
Treasury Regulations Section 1.817-5(a)(2), to the Commissioner
of the IRS that such failure was inadvertent;
(iv) LIFE COMPANY shall permit AVIF, its affiliates and their legal
and accounting advisors to participate in any conferences,
settlement discussions or other administrative or judicial
proceeding or contests (including judicial appeals thereof) with
the IRS, any Participant or any other claimant regarding any
claims that could give rise to liability to AVIF or its
affiliates as a result of such a failure or alleged failure;
provided, however, that LIFE COMPANY will retain control of the
conduct of such conferences discussions, proceedings, contests
or appeals;
(v) any written materials to be submitted by LIFE COMPANY to the
IRS, any Participant or any other claimant in connection with
any of the foregoing proceedings or contests (including, without
limitation, any such materials to be submitted to the IRS
pursuant to Treasury Regulations Section 1.817-
5
<PAGE>
5(a)(2)), (a) shall be provided by LIFE COMPANY to AVIF (together
with any supporting information or analysis); subject to the
confidentiality provisions of Section 18, at least ten (10)
business days or such shorter period to which the Parties hereto
agree prior to the day on which such proposed materials are to be
submitted, and (b) shall not be submitted by LIFE COMPANY to any
such person without the express written consent of AVIF which
shall not be unreasonably withheld;
(vi) LIFE COMPANY shall provide AVIF or its affiliates and their
accounting and legal advisors with such cooperation as AVIF shall
reasonably request (including, without limitation, by permitting
AVIF and its accounting and legal advisors to review the relevant
books and records of LIFE COMPANY) in order to facilitate review
by AVIF or its advisors of any written submissions provided to it
pursuant to the preceding clause or its assessment of the
validity or amount of any claim against its arising from such a
failure or alleged failure;
(vii) LIFE COMPANY shall not with respect to any claim of the IRS or
any Participant that would give rise to a claim against AVIF or
its affiliates (a) compromise or settle any claim, (b) accept any
adjustment on audit, or (c) forego any allowable administrative
or judicial appeals, without the express written consent of AVIF
or its affiliates, which shall not be unreasonably withheld,
provided that LIFE COMPANY shall not be required, after
exhausting all administrative penalties, to appeal any adverse
judicial decision unless AVIF or its affiliates shall have
provided an opinion of independent counsel to the effect that a
reasonable basis exists for taking such appeal; and provided
further that the costs of any such appeal shall be borne equally
by the Parties hereto; and
(viii) AVIF and its affiliates shall have no liability as a result of
such failure or alleged failure if LIFE COMPANY fails to comply
with any of the foregoing clauses (I) through (vii), and such
failure could be shown to have materially contributed to the
liability.
Should AVIF or any of its affiliates refuse to give its written consent to
any compromise or settlement of any claim or liability hereunder, LIFE COMPANY
may, in its discretion, authorize AVIF or its affiliates to act in the name of
LIFE COMPANY in, and to control the conduct of, such conferences, discussions,
proceedings, contests or appeals and all administrative or judicial appeals
thereof, and in that event AVIF or its affiliates shall bear the fees and
expenses associated with the conduct of the proceedings that it is so authorized
to control; provided, that in no event shall LIFE COMPANY have any liability
resulting from AVIF's refusal to accept the proposed settlement or compromise
with respect to any failure caused by AVIF. As used in this Agreement, the term
"affiliates" shall have the same meaning as "affiliated person" as defined in
Section 2(a)(3) of the 1940 Act.
6
<PAGE>
(d) LIFE COMPANY represents and warrants that the Contracts currently are
and will be treated as annuity contracts or life insurance contracts under
applicable provisions of the Code and that it will use its best efforts to
maintain such treatment; LIFE COMPANY will notify AVIF immediately upon having a
reasonable basis for believing that any of the Contracts have ceased to be so
treated or that they might not be so treated in the future.
(e) LIFE COMPANY represents and warrants that each Account is a "segregated
asset account" and that interests in each Account are offered exclusively
through the purchase of or transfer into a "variable contract," within the
meaning of such terms under Section 817 of the Code and the regulations
thereunder. LIFE COMPANY will use its best efforts to continue to meet such
definitional requirements, and it will notify AVIF immediately upon having a
reasonable basis for believing that such requirements have ceased to be met or
that they might not be met in the future.
4.2 Insurance and Certain Other Laws.
--------------------------------
(a) AVIF will use its best efforts to comply with any applicable state
insurance laws or regulations, to the extent specifically requested in writing
by LIFE COMPANY, including, the furnishing of information not otherwise
available to LIFE COMPANY which is required by state insurance law to enable
LIFE COMPANY to obtain the authority needed to issue the Contracts in any
applicable state.
(b) LIFE COMPANY represents and warrants that (i) it is an insurance
company duly organized, validly existing and in good standing under the laws of
the State of Iowa and has full corporate power, authority and legal right to
execute, deliver and perform its duties and comply with its obligations under
this Agreement, (ii) it has legally and validly established and maintains each
Account as a segregated asset account under the Iowa Insurance Code and the
regulations thereunder, and (iii) the Contracts comply in all material respects
with all other applicable federal and state laws and regulations.
(c) AVIF represents and warrants that it is a corporation duly organized,
validly existing, and in good standing under the laws of the State of Maryland
and has full power, authority, and legal right to execute, deliver, and perform
its duties and comply with its obligations under this Agreement.
4.3 Securities Laws.
---------------
(a) LIFE COMPANY represents and warrants that (i) interests in each Account
pursuant to the Contracts will be registered under the 1933 Act to the extent
required by the 1933 Act, (ii) the Contracts will be duly authorized for
issuance and sold in compliance with all applicable federal and state laws,
including, without limitation, the 1933 Act, the 1934 Act, the 1940 Act and Iowa
law, (iii) each Account is and will remain registered under the 1940 Act, to the
extent required by the 1940 Act, (iv) each Account does and will comply in all
material respects with the requirements of the 1940 Act and the rules
thereunder, to the extent required, (v) each Account's 1933 Act registration
statement relating to the Contracts, together with any
7
<PAGE>
amendments thereto, will at all times comply in all material respects with the
requirements of the 1933 Act and the rules thereunder, (vi) LIFE COMPANY will
amend the registration statement for its Contracts under the 1933 Act and for
its Accounts under the 1940 Act from time to time as required in order to effect
the continuous offering of its Contracts or as may otherwise be required by
applicable law, and (vii) each Account Prospectus will at all times comply in
all material respects with the requirements of the 1933 Act and the rules
thereunder.
(b) AVIF represents and warrants that (i) Shares sold pursuant to this
Agreement will be registered under the 1933 Act to the extent required by the
1933 Act and duly authorized for issuance and sold in compliance with Maryland
law, (ii) AVIF is and will remain registered under the 1940 Act to the extent
required by the 1940 Act, (iii) AVIF will amend the registration statement for
its Shares under the 1933 Act and itself under the 1940 Act from time to time as
required in order to effect the continuous offering of its Shares, (iv) AVIF
does and will comply in all material respects with the requirements of the 1940
Act and the rules thereunder, (v) AVIF's 1933 Act registration statement,
together with any amendments thereto, will at all times comply in all material
respects with the requirements of the 1933 Act and rules thereunder, and (vi)
AVIF's Prospectus will at all times comply in all material respects with the
requirements of the 1933 Act and the rules thereunder.
(c) AVIF will at its expense register and qualify its Shares for sale in
accordance with the laws of any state or other jurisdiction if and to the extent
reasonably deemed advisable by AVIF.
(d) AVIF 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 reserves the right to make such payments in the future. To the
extent that it decides to finance distribution expenses pursuant to Rule 12b-1,
AVIF undertakes to have its Board of Directors, a majority of whom are not
"interested" persons of the Fund, formulate and approve any plan under Rule 12b-
1 to finance distribution expenses.
(e) AVIF represents and warrants that all of its trustees, officers,
employees, investment advisers, and other individuals/entities having access to
the funds and/or securities of the Fund are and 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
Rule 17g-(1) of the 1940 Act or related provisions as may be promulgated from
time to time. The aforesaid bond includes coverage for larceny and embezzlement
and is issued by a reputable bonding company.
4.4 Notice of Certain Proceedings and Other Circumstances.
-----------------------------------------------------
(a) AVIF will immediately notify LIFE COMPANY of (i) the issuance by any
court or regulatory body of any stop order, cease and desist order, or other
similar order with respect to AVIF's registration statement under the 1933 Act
or AVIF Prospectus, (ii) any request by the SEC for any amendment to such
registration statement or AVIF Prospectus that may affect the offering of Shares
of AVIF, (iii) the initiation of any proceedings for that purpose or for any
other
8
<PAGE>
purpose relating to the registration or offering of AVIF's Shares, or (iv) any
other action or circumstances that may prevent the lawful offer or sale of
Shares of any Fund in any state or jurisdiction, including, without limitation,
any circumstances in which (a) such Shares are not registered and, in all
material respects, issued and sold in accordance with applicable state and
federal law, or (b) such law precludes the use of such Shares as an underlying
investment medium of the Contracts issued or to be issued by LIFE COMPANY. AVIF
will make every reasonable effort to prevent the issuance, with respect to any
Fund, of any such stop order, cease and desist order or similar order and, if
any such order is issued, to obtain the lifting thereof at the earliest possible
time.
(b) LIFE COMPANY will immediately notify AVIF of (i) the issuance by any
court or regulatory body of any stop order, cease and desist order, or other
similar order with respect to each Account's registration statement under the
1933 Act relating to the Contracts or each Account Prospectus, (ii) any request
by the SEC for any amendment to such registration statement or Account
Prospectus that may affect the offering of Shares of AVIF, (iii) the initiation
of any proceedings for that purpose or for any other purpose relating to the
registration or offering of each Account's interests pursuant to the Contracts,
or (iv) any other action or circumstances that may prevent the lawful offer or
sale of said interests in any state or jurisdiction, including, without
limitation, any circumstances in which said interests are not registered and, in
all material respects, issued and sold in accordance with applicable state and
federal law. LIFE COMPANY will make every reasonable effort to prevent the
issuance of any such stop order, cease and desist order or similar order and, if
any such order is issued, to obtain the lifting thereof at the earliest possible
time.
4.5 LIFE COMPANY To Provide Documents; Information About AVIF.
---------------------------------------------------------
(a) LIFE COMPANY will provide to AVIF or its designated agent at least one
(1) complete copy of all SEC registration statements, Account Prospectuses,
reports, any preliminary and final voting instruction solicitation material,
applications for exemptions, requests for no-action letters, and all amendments
to any of the above, that relate to each Account or the Contracts,
contemporaneously with the filing of such document with the SEC or other
regulatory authorities.
(b) LIFE COMPANY will provide to AVIF or its designated agent at least one
(1) complete copy of each piece of sales literature or other promotional
material in which AVIF or any of its affiliates is named, at least five (5)
Business Days prior to its use or such shorter period as the Parties hereto may,
from time to time, agree upon. No such material shall be used if AVIF or its
designated agent objects to such use within five (5) Business Days after receipt
of such material or such shorter period as the Parties hereto may, from time to
time, agree upon. AVIF hereby designates AIM as the entity to receive such
sales literature, until such time as AVIF appoints another designated agent by
giving notice to LIFE COMPANY in the manner required by Section 9 hereof.
9
<PAGE>
(c) Neither LIFE COMPANY nor any of its affiliates, will give any
information or make any representations or statements on behalf of or concerning
AVIF or its affiliates in connection with the sale of the Contracts other than
(i) the information or representations contained in the registration statement,
including the AVIF Prospectus contained therein, relating to Shares, as such
registration statement and AVIF Prospectus may be amended from time to time; or
(ii) in reports or proxy materials for AVIF; or (iii) in published reports for
AVIF that are in the public domain and approved by AVIF for distribution; or
(iv) in sales literature or other promotional material approved by AVIF, except
with the express written permission of AVIF.
(d) LIFE COMPANY shall adopt and implement procedures reasonably designed
to ensure that information concerning AVIF and its affiliates that is intended
for use only by brokers or agents selling the Contracts (i.e., information that
is not intended for distribution to Participants) ("broker only materials") is
so used, and neither AVIF nor any of its affiliates shall be liable for any
losses, damages or expenses relating to the improper use of such broker only
materials.
(e) For the purposes of this Section 4.5, the phrase "sales literature or
other promotional material" includes, but is not limited to, advertisements
(such as material published, or designed for use in, a newspaper, magazine, or
other periodical, radio, television, telephone or tape recording, videotape
display, signs or billboards, motion pictures, or other public media, (e.g., on-
line networks such as the Internet or other electronic messages), 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, registration statements,
prospectuses, statements of additional information, shareholder reports, and
proxy materials and any other material constituting sales literature or
advertising under the NASD rules, the 1933 Act or the 1940 Act.
4.6 AVIF To Provide Documents; Information About LIFE COMPANY.
---------------------------------------------------------
(a) AVIF will provide to LIFE COMPANY at least one (1) complete copy of
all SEC registration statements, AVIF Prospectuses, reports, any preliminary and
final proxy material, applications for exemptions, requests for no-action
letters, and all amendments to any of the above, that relate to AVIF or the
Shares of a Fund, contemporaneously with the filing of such document with the
SEC or other regulatory authorities.
(b) AVIF will provide to LIFE COMPANY camera ready or computer diskette
copies of all AVIF prospectuses and printed copies, in an amount specified by
LIFE COMPANY, of AVIF statements of additional information, proxy materials,
periodic reports to shareholders and other materials required by law to be sent
to Participants who have allocated any Contract value to a Fund. AVIF will
provide such copies to LIFE COMPANY in a timely manner so as to enable LIFE
COMPANY, as the case may be, to print and distribute such materials within the
time required by law to be furnished to Participants.
10
<PAGE>
(c) AVIF will provide to LIFE COMPANY or its designated agent at least one
(1) complete copy of each piece of sales literature or other promotional
material in which LIFE COMPANY, or any of its respective affiliates is named, or
that refers to the Contracts, at least five (5) Business Days prior to its use
or such shorter period as the Parties hereto may, from time to time, agree upon.
No such material shall be used if LIFE COMPANY or its designated agent objects
to such use within five (5) Business Days after receipt of such material or such
shorter period as the Parties hereto may, from time to time, agree upon. LIFE
COMPANY shall receive all such sales literature until such time as it appoints a
designated agent by giving notice to AVIF in the manner required by Section 9
hereof.
(d) Neither AVIF nor any of its affiliates will give any information or
make any representations or statements on behalf of or concerning LIFE COMPANY,
each Account, or the Contracts other than (i) the information or representations
contained in the registration statement, including each Account Prospectus
contained therein, relating to the Contracts, as such registration statement and
Account Prospectus may be amended from time to time; or (ii) in published
reports for the Account or the Contracts that are in the public domain and
approved by LIFE COMPANY for distribution; or (iii) in sales literature or other
promotional material approved by LIFE COMPANY or its affiliates, except with the
express written permission of LIFE COMPANY.
(e) AVIF shall cause its principal underwriter to adopt and implement
procedures reasonably designed to ensure that information concerning LIFE
COMPANY, and its respective affiliates that is intended for use only by brokers
or agents selling the Contracts (i.e., information that is not intended for
distribution to Participants) ("broker only materials") is so used, and neither
LIFE COMPANY, nor any of its respective affiliates shall be liable for any
losses, damages or expenses relating to the improper use of such broker only
materials.
(f) For purposes of this Section 4.6, the phrase "sales literature or
other promotional material" includes, but is not limited to, advertisements
(such as material published, or designed for use in, a newspaper, magazine, or
other periodical, radio, television, telephone or tape recording, videotape
display, signs or billboards, motion pictures, or other public media, (e.g., on-
line networks such as the Internet or other electronic messages), 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, registration statements,
prospectuses, statements of additional information, shareholder reports, and
proxy materials and any other material constituting sales literature or
advertising under the NASD rules, the 1933 Act or the 1940 Act.
11
<PAGE>
Section 5. Mixed and Shared Funding
------------------------------------
5.1 General.
-------
The SEC has granted an order to AVIF exempting it from certain provisions
of the 1940 Act and rules thereunder so that AVIF may be available for
investment by certain other entities, including, without limitation, separate
accounts funding variable annuity contracts or variable life insurance
contracts, separate accounts of insurance companies unaffiliated with LIFE
COMPANY, and trustees of qualified pension and retirement plans (collectively,
"Mixed and Shared Funding"). AVIF will provide a complete copy of such order to
LIFE COMPANY upon execution of this Agreement. The Parties recognize that the
SEC has imposed terms and conditions for such orders that are substantially
identical to many of the provisions of this Section 5. Sections 5.2 through 5.8
below shall apply pursuant to such an exemptive order granted to AVIF. AVIF
hereby notifies LIFE COMPANY that, in the event that AVIF implements Mixed and
Shared Funding, it may be appropriate to include in the prospectus pursuant to
which a Contract is offered disclosure regarding the potential risks of Mixed
and Shared Funding.
5.2 Disinterested Directors.
-----------------------
AVIF agrees that its Board of Directors shall at all times consist of
directors a majority of whom (the "Disinterested Directors") are not interested
persons of AVIF within the meaning of Section 2(a)(19) of the 1940 Act and the
rules thereunder and as modified by any applicable orders of the SEC, except
that if this condition is not met by reason of the death, disqualification, or
bona fide resignation of any director, then the operation of this condition
shall be suspended (a) for a period of forty-five (45) days if the vacancy or
vacancies may be filled by the Board; (b) for a period of sixty (60) days if a
vote of shareholders is required to fill the vacancy or vacancies; or (c) for
such longer period as the SEC may prescribe by order upon application.
5.3 Monitoring for Material Irreconcilable Conflicts.
------------------------------------------------
AVIF agrees that its Board of Directors will monitor for the existence of
any material irreconcilable conflict between the interests of the Participants
in all separate accounts of life insurance companies utilizing AVIF
("Participating Insurance Companies"), including each Account, and participants
in all qualified retirement and pension plans investing in AVIF ("Participating
Plans"). LIFE COMPANY agrees to inform the Board of Directors of AVIF of the
existence of or any potential for any such material irreconcilable conflict of
which it is aware. The concept of a "material irreconcilable conflict" is not
defined by the 1940 Act or the rules thereunder, but the Parties recognize that
such a conflict may arise for a variety of reasons, including, without
limitation:
(a) an action by any state insurance or other 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;
12
<PAGE>
(c) an administrative or judicial decision in any relevant proceeding;
(d) the manner in which the investments of any Fund are being managed;
(e) a difference in voting instructions given by variable annuity
contract and variable life insurance contract Participants or by Participants of
different Participating Insurance Companies;
(f) a decision by a Participating Insurance Company to disregard the
voting instructions of Participants; or
(g) a decision by a Participating Plan to disregard the voting
instructions of Plan participants.
Consistent with the SEC's requirements in connection with exemptive orders
of the type referred to in Section 5.1 hereof, LIFE COMPANY will assist the
Board of Directors in carrying out its responsibilities by providing the Board
of Directors with all information reasonably necessary for the Board of
Directors to consider any issue raised, including information as to a decision
by LIFE COMPANY to disregard voting instructions of Participants.
5.4 Conflict Remedies.
-----------------
(a) It is agreed that if it is determined by a majority of the members of
the Board of Directors or a majority of the Disinterested Directors that a
material irreconcilable conflict exists, LIFE COMPANY will, if it is a
Participating Insurance Company for which a material irreconcilable conflict is
relevant, at its own expense and to the extent reasonably practicable (as
determined by a majority of the Disinterested Directors), take whatever steps
are necessary to remedy or eliminate the material irreconcilable conflict, which
steps may include, but are not limited to:
(i) withdrawing the assets allocable to some or all of the Accounts
from AVIF or any Fund and reinvesting such assets in a different
investment medium, including another Fund of AVIF, or submitting
the question whether such segregation should be implemented to a
vote of all affected Participants and, as appropriate, segregating
the assets of any particular group (e.g., annuity Participants,
life insurance Participants or all Participants) that votes in
favor of such segregation, or offering to the affected Participants
the option of making such a change; and
(ii) establishing a new registered investment company of the type
defined as a "management company" in Section 4(3) of the 1940 Act
or a new separate account that is operated as a management company.
13
<PAGE>
(b) If the material irreconcilable conflict arises because of LIFE
COMPANY's decision to disregard Participant voting instructions and that
decision represents a minority position or would preclude a majority vote, LIFE
COMPANY may be required, at AVIF's election, to withdraw each Account's
investment in AVIF or any Fund. No charge or penalty will be imposed as a
result of such withdrawal. Any such withdrawal must take place within six (6)
months after AVIF gives notice to LIFE COMPANY that this provision is being
implemented, and until such withdrawal AVIF shall continue to accept and
implement orders by LIFE COMPANY for the purchase and redemption of Shares of
AVIF.
(c) If a material irreconcilable conflict arises because a particular state
insurance regulator's decision applicable to LIFE COMPANY conflicts with the
majority of other state regulators, then LIFE COMPANY will withdraw each
Account's investment in AVIF within six (6) months after AVIF's Board of
Directors informs LIFE COMPANY that it has determined that such decision has
created a material irreconcilable conflict, and until such withdrawal AVIF shall
continue to accept and implement orders by LIFE COMPANY for the purchase and
redemption of Shares of AVIF. No charge or penalty will be imposed as a result
of such withdrawal.
(d) LIFE COMPANY agrees that any remedial action taken by it in resolving
any material irreconcilable conflict will be carried out at its expense and with
a view only to the interests of Participants.
(e) For purposes hereof, a majority of the Disinterested Directors will
determine whether or not any proposed action adequately remedies any material
irreconcilable conflict. In no event, however, will AVIF or any of its
affiliates be required to establish a new funding medium for any Contracts.
LIFE COMPANY will not be required by the terms hereof to establish a new funding
medium for any Contracts if an offer to do so has been declined by vote of a
majority of Participants materially adversely affected by the material
irreconcilable conflict.
5.5 Notice to LIFE COMPANY.
----------------------
AVIF will promptly make known in writing to LIFE COMPANY the Board of
Directors' determination of the existence of a material irreconcilable conflict,
a description of the facts that give rise to such conflict and the implications
of such conflict.
5.6 Information Requested by Board of Directors.
-------------------------------------------
LIFE COMPANY and AVIF (or its investment adviser) will at least annually
submit to the Board of Directors of AVIF such reports, materials or data as the
Board of Directors may reasonably request in writing so that the Board of
Directors may fully carry out the obligations imposed upon it by the provisions
hereof or any exemptive order granted by the SEC to permit Mixed and Shared
Funding, and said reports, materials and data will be submitted at any
reasonable time deemed appropriate by the Board of Directors. All reports
received by the Board of Directors of potential or existing conflicts, and all
Board of Directors actions with regard to determining the existence of a
conflict, notifying Participating Insurance Companies and Participating Plans of
a conflict, and determining whether any proposed action adequately
14
<PAGE>
remedies a conflict, will be properly recorded in the minutes of the Board of
Directors or other appropriate records, and such minutes or other records will
be made available to the SEC upon request.
5.7 Compliance with SEC Rules.
-------------------------
If, at any time during which AVIF is serving as an investment medium for
variable life insurance contracts, 1940 Act Rules 6e-3(T) or, if applicable, 6e-
2 are amended or Rule 6e-3 is adopted to provide exemptive relief with respect
to Mixed and Shared Funding, AVIF agrees that it will comply with the terms and
conditions thereof and that the terms of this Section 5 shall be deemed modified
if and only to the extent required in order also to comply with the terms and
conditions of such exemptive relief that is afforded by any of said rules that
are applicable.
5.8 Other Requirements.
------------------
AVIF will require that each Participating Insurance Company and
Participating Plan enter into an agreement with AVIF that contains in substance
the same provisions as are set forth in Sections 4.1(b), 4.1(d), 4.3(a), 4.4(b),
4.5(a), 5, and 10 of this Agreement.
Section 6. Termination
-----------------------
6.1 Events of Termination.
---------------------
Subject to Section 6.4 below, this Agreement will terminate as to a Fund:
(a) at the option of any party, with or without cause with respect to
the Fund, upon six (6) months advance written notice to the other parties, or,
if later, upon receipt of any required exemptive relief from the SEC, unless
otherwise agreed to in writing by the parties; or
(b) at the option of AVIF upon institution of formal proceedings against
LIFE COMPANY or its affiliates by the NASD, the SEC, any state insurance
regulator or any other regulatory body regarding LIFE COMPANY's obligations
under this Agreement or related to the sale of the Contracts, the operation of
each Account, or the purchase of Shares, if, in each case, AVIF reasonably
determines that such proceedings, or the facts on which such proceedings would
be based, have a material likelihood of imposing material adverse consequences
on the Fund with respect to which the Agreement is to be terminated; or
(c) at the option of LIFE COMPANY upon institution of formal proceedings
against AVIF, its principal underwriter, or its investment adviser by the NASD,
the SEC, or any state insurance regulator or any other regulatory body regarding
AVIF's obligations under this Agreement or related to the operation or
management of AVIF or the purchase of AVIF Shares, if, in each case, LIFE
COMPANY reasonably determines that such proceedings, or the facts on which such
proceedings would be based, have a material likelihood of imposing material
adverse
15
<PAGE>
consequences on LIFE COMPANY, or the Subaccount corresponding to the Fund with
respect to which the Agreement is to be terminated; or
(d) at the option of any Party in the event that (i) the Fund's Shares
are not registered and, in all material respects, issued and sold in accordance
with any applicable federal or state law, or (ii) such law precludes the use of
such Shares as an underlying investment medium of the Contracts issued or to be
issued by LIFE COMPANY; or
(e) upon termination of the corresponding Subaccount's investment in the
Fund pursuant to Section 5 hereof; or
(f) at the option of LIFE COMPANY if the Fund ceases to qualify as a RIC
under Subchapter M of the Code or under successor or similar provisions, or if
LIFE COMPANY reasonably believes that the Fund may fail to so qualify; or
(g) at the option of LIFE COMPANY if the Fund fails to comply with
Section 817(h) of the Code or with successor or similar provisions, or if LIFE
COMPANY reasonably believes that the Fund may fail to so comply; or
(h) at the option of AVIF if the Contracts issued by LIFE COMPANY cease
to qualify as annuity contracts or life insurance contracts under the Code
(other than by reason of the Fund's noncompliance with Section 817(h) or
Subchapter M of the Code) or if interests in an Account under the Contracts are
not registered, where required, and, in all material respects, are not issued or
sold in accordance with any applicable federal or state law; or
(i) upon another Party's breach of any material provision of this
Agreement.
6.2 Notice Requirement for Termination.
----------------------------------
No termination of this Agreement will be effective unless and until the
Party terminating this Agreement gives prior written notice to the other Party
to this Agreement of its intent to terminate, and such notice shall set forth
the basis for such termination. Furthermore:
(a) in the event that any termination is based upon the provisions of
Sections 6.1(a) or 6.1(e) hereof, such prior written notice shall be given at
least six (6) months in advance of the effective date of termination unless a
shorter time is agreed to by the Parties hereto;
(b) in the event that any termination is based upon the provisions of
Sections 6.1(b) or 6.1(c) hereof, such prior written notice shall be given at
least ninety (90) days in advance of the effective date of termination unless a
shorter time is agreed to by the Parties hereto; and
(c) in the event that any termination is based upon the provisions of
Sections 6.1(d), 6.1(f), 6.1(g), 6.1(h) or 6.1(i) hereof, such prior written
notice shall be given as soon as possible within twenty-four (24) hours after
the terminating Party learns of the event causing termination to be required.
16
<PAGE>
6.3 Funds To Remain Available.
-------------------------
Notwithstanding any termination of this Agreement, AVIF will, at the option
of LIFE COMPANY, continue to make available additional shares of the Fund
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 will be permitted to reallocate investments in
the Fund (as in effect on such date), redeem investments in the Fund and/or
invest in the Fund upon the making of additional purchase payments under the
Existing Contracts. The parties agree that this Section 6.3 will not apply to
any terminations under Section 5 and the effect of such terminations will be
governed by Section 5 of this Agreement.
6.4 Survival of Warranties and Indemnifications.
-------------------------------------------
All warranties and indemnifications will survive the termination of this
Agreement.
6.5 Continuance of Agreement for Certain Purposes.
---------------------------------------------
If any Party terminates this Agreement with respect to any Fund pursuant to
Sections 6.1(b), 6.1(c), 6.1(d), 6.1(f), 6.1(g), 6.1(h) or 6.1(i) hereof, this
Agreement shall nevertheless continue in effect as to any Shares of that Fund
that are outstanding as of the date of such termination (the "Initial
Termination Date"). This continuation shall extend to the earlier of the date
as of which an Account owns no Shares of the affected Fund or a date (the "Final
Termination Date") six (6) months following the Initial Termination Date, except
that LIFE COMPANY may, by written notice shorten said six (6) month period in
the case of a termination pursuant to Sections 6.1(d), 6.1(f), 6.1(g), 6.1(h) or
6.1(i).
Section 7. Parties To Cooperate Respecting Termination
------------------------------------------------------
The Parties hereto agree to cooperate and give reasonable assistance to one
another in taking all necessary and appropriate steps for the purpose of
ensuring that an Account owns no Shares of a Fund after the Final Termination
Date with respect thereto, or, in the case of a termination pursuant to Section
6.1(a), the termination date specified in the notice of termination. Such steps
may include combining the affected Account with another Account, substituting
other mutual fund shares for those of the affected Fund, or otherwise
terminating participation by the Contracts in such Fund.
Section 8. Assignment
---------------------
This Agreement may not be assigned by any Party, except with the written
consent of each other Party.
17
<PAGE>
Section 9. Notices
------------------
Notices and communications required or permitted by Section 9 hereof will
be given by means mutually acceptable to the Parties concerned. Each other
notice or communication required or permitted by this Agreement will be given to
the following persons at the following addresses and facsimile numbers, or such
other persons, addresses or facsimile numbers as the Party receiving such
notices or communications may subsequently direct in writing:
AIM Variable Insurance Funds, Inc.
11 Greenway Plaza, Suite 100
Houston, Texas 77046
Facsimile: (713) 993-9185
Attn: Nancy L. Martin, Esq.
PFL Life Insurance Company
AFSG Securities Corporation
4333 Edgewood Road NE
Cedar Rapids, Iowa 52499-0001
Facsimile: (319) 297-8290
Attn: Frank A. Camp, Esq.
Financial Markets Division General Counsel
Section 10. Voting Procedures
-----------------------------
Subject to the cost allocation procedures set forth in Section 3 hereof,
LIFE COMPANY will distribute all proxy material furnished by AVIF to
Participants to whom pass-through voting privileges are required to be extended
and will solicit voting instructions from Participants. LIFE COMPANY will vote
Shares in accordance with timely instructions received from Participants. LIFE
COMPANY will vote Shares that are (a) not attributable to Participants to whom
pass-through voting privileges are extended, or (b) attributable to
Participants, but for which no timely instructions have been received, in the
same proportion as Shares for which said instructions have been received from
Participants, so long as and to the extent that the SEC continues to interpret
the 1940 Act to require pass through voting privileges for Participants.
Neither LIFE COMPANY nor any of its affiliates will in any way recommend action
in connection with or oppose or interfere with the solicitation of proxies for
the Shares held for such Participants. LIFE COMPANY reserves the right to vote
shares held in any Account in its own right, to the extent permitted by law.
LIFE COMPANY shall be responsible for assuring that each of its Accounts holding
Shares calculates voting privileges in a manner consistent with that of other
Participating Insurance Companies or in the manner required by the Mixed and
Shared Funding exemptive
18
<PAGE>
order obtained by AVIF. AVIF will notify LIFE COMPANY of any changes of
interpretations or amendments to Mixed and Shared Funding exemptive order it has
obtained. AVIF will comply with all provisions of the 1940 Act requiring voting
by shareholders, and in particular, AVIF either will provide for annual meetings
(except insofar as the SEC may interpret Section 16 of the 1940 Act not to
require such meetings) or will comply with Section 16(c) of the 1940 Act
(although AVIF 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, AVIF
will act in accordance with the SEC's interpretation of the requirements of
Section 16(a) with respect to periodic elections of directors and with whatever
rules the SEC may promulgate with respect thereto.
Section 11. Foreign Tax Credits
-------------------------------
AVIF agrees to consult in advance with LIFE COMPANY concerning any decision
to elect or not to elect pursuant to Section 853 of the Code to pass through the
benefit of any foreign tax credits to its shareholders.
Section 12. Indemnification
---------------------------
12.1 Of AVIF and AIM by LIFE COMPANY and UNDERWRITER.
-----------------------------------------------
(a) Except to the extent provided in Sections 12.1(b) and 12.1(c),
below, LIFE COMPANY and UNDERWRITER agree to indemnify and hold harmless AVIF,
its affiliates, and each person, if any, who controls AVIF or its affiliates
within the meaning of Section 15 of the 1933 Act and each of their respective
directors and officers, (collectively, the "Indemnified Parties" for purposes of
this Section 12.1) against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of LIFE COMPANY
and UNDERWRITER) or actions in respect thereof (including, to the extent
reasonable, legal and other expenses), to which the Indemnified Parties may
become subject under any statute, regulation, at common law or otherwise;
provided, the Account owns shares of the Fund and insofar as such losses,
claims, damages, liabilities or actions:
(I) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in
any Account's 1933 Act registration statement, any Account
Prospectus, the Contracts, or sales literature or advertising
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 LIFE COMPANY or UNDERWRITER by or on
behalf of AVIF or AIM for use in any Account's 1933 Act
registration statement, any Account Prospectus, the
19
<PAGE>
Contracts, or sales literature or advertising or otherwise
for use in connection with the sale of Contracts or Shares
(or any amendment or supplement to any of the foregoing); or
(ii) arise out of or as a result of any other statements or
representations (other than statements or representations
contained in AVIF's 1933 Act registration statement, AVIF
Prospectus, sales literature or advertising of AVIF, or any
amendment or supplement to any of the foregoing, not supplied
for use therein by or on behalf of LIFE COMPANY, UNDERWRITER
or their respective affiliates and on which such persons have
reasonably relied) or the negligent, illegal or fraudulent
conduct of LIFE COMPANY, UNDERWRITER or their respective
affiliates or persons under their control (including, without
limitation, their employees and "Associated Persons," as that
term is defined in paragraph (m) of Article I of the NASD's
By-Laws), in connection with the sale or distribution of the
Contracts or Shares; or
(iii) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in
AVIF's 1933 Act registration statement, AVIF Prospectus,
sales literature or advertising of AVIF, or any amendment or
supplement to any of the foregoing, 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 and in conformity with information furnished to
AVIF or its affiliates by or on behalf of LIFE COMPANY,
UNDERWRITER or their respective affiliates for use in AVIF's
1933 Act registration statement, AVIF Prospectus, sales
literature or advertising of AVIF, or any amendment or
supplement to any of the foregoing; or
(iv) arise as a result of any failure by LIFE COMPANY or
UNDERWRITER to perform the obligations, provide the services
and furnish the materials required of them under the terms of
this Agreement, or any material breach of any representation
and/or warranty made by LIFE COMPANY or UNDERWRITER in this
Agreement or arise out of or result from any other material
breach of this Agreement by LIFE COMPANY or UNDERWRITER; or
(v) arise as a result of failure by the Contracts issued by LIFE
COMPANY to qualify as annuity contracts or life insurance
contracts under the Code, otherwise than by reason of any
Fund's failure to comply with Subchapter M or Section 817(h)
of the Code.
(b) Neither LIFE COMPANY nor UNDERWRITER shall be liable under this
Section 12.1 with respect to any losses, claims, damages, liabilities or actions
to which an Indemnified Party would otherwise be subject by reason of willful
misfeasance, bad faith, or gross negligence
20
<PAGE>
in the performance by that Indemnified Party of its duties or by reason of that
Indemnified Party's reckless disregard of obligations or duties (i) under this
Agreement, or (ii) to AVIF.
(c) Neither LIFE COMPANY nor UNDERWRITER shall be liable under this
Section 12.1 with respect to any action against an Indemnified Party unless AVIF
or AIM shall have notified LIFE COMPANY and UNDERWRITER in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the action 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 LIFE COMPANY and
UNDERWRITER of any such action shall not relieve LIFE COMPANY and UNDERWRITER
from any liability which they may have to the Indemnified Party against whom
such action is brought otherwise than on account of this Section 12.1. Except as
otherwise provided herein, in case any such action is brought against an
Indemnified Party, LIFE COMPANY and UNDERWRITER shall be entitled to
participate, at their own expense, in the defense of such action and also shall
be entitled to assume the defense thereof, with counsel approved by the
Indemnified Party named in the action, which approval shall not be unreasonably
withheld. After notice from LIFE COMPANY or UNDERWRITER to such Indemnified
Party of LIFE COMPANY's or UNDERWRITER's election to assume the defense thereof,
the Indemnified Party will cooperate fully with LIFE COMPANY and UNDERWRITER and
shall bear the fees and expenses of any additional counsel retained by it, and
neither LIFE COMPANY nor UNDERWRITER will be liable to such Indemnified Party
under this Agreement for any legal or other expenses subsequently incurred by
such Indemnified Party independently in connection with the defense thereof,
other than reasonable costs of investigation.
12.2 Of LIFE COMPANY and UNDERWRITER by AVIF and AIM.
-----------------------------------------------
(a) Except to the extent provided in Sections 12.2(c), 12.2(d) and
12.2(e), below, AVIF and AIM agree to indemnify and hold harmless LIFE COMPANY,
UNDERWRITER, their respective affiliates, and each person, if any, who controls
LIFE COMPANY, UNDERWRITER or their respective affiliates within the meaning of
Section 15 of the 1933 Act and each of their respective directors and officers,
(collectively, the "Indemnified Parties" for purposes of this Section 12.2)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of AVIF and/or AIM) or actions in respect
thereof (including, to the extent reasonable, legal and other expenses), to
which the Indemnified Parties may become subject under any statute, regulation,
at common law, or otherwise; provided, the Account owns shares of the Fund and
insofar as such losses, claims, damages, liabilities or actions:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in
AVIF's 1933 Act registration statement, AVIF Prospectus or
sales literature or advertising of AVIF (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
21
<PAGE>
or omission was made in reliance upon and in conformity with
information furnished to AVIF or its affiliates by or on
behalf of LIFE COMPANY, UNDERWRITER or their respective
affiliates for use in AVIF's 1933 Act registration statement,
AVIF Prospectus, or in sales literature or advertising or
otherwise for use in connection with the sale of Contracts or
Shares (or any amendment or supplement to any of the
foregoing); or
(ii) arise out of or as a result of any other statements or
representations (other than statements or representations
contained in any Account's 1933 Act registration statement,
any Account Prospectus, sales literature or advertising for
the Contracts, or any amendment or supplement to any of the
foregoing, not supplied for use therein by or on behalf of
AVIF, AIM, or its affiliates and on which such persons have
reasonably relied) or the negligent, illegal or fraudulent
conduct of AVIF, AIM, or its affiliates or persons under its
control (including, without limitation, their employees and
"Associated Persons" as that term is defined in Section (n)
of Article I of the NASD By-Laws), in connection with the
sale or distribution of AVIF Shares; or
(iii) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in
any Account's 1933 Act registration statement, any Account
Prospectus, sales literature or advertising covering the
Contracts, or any amendment or supplement to any of the
foregoing, 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 and in
conformity with information furnished to LIFE COMPANY,
UNDERWRITER or their respective affiliates by or on behalf of
AVIF or AIM for use in any Account's 1933 Act registration
statement, any Account Prospectus, sales literature or
advertising covering the Contracts, or any amendment or
supplement to any of the foregoing; or
(iv) arise as a result of any failure by AVIF to perform the
obligations, provide the services and furnish the materials
required of it under the terms of this Agreement, or any
material breach of any representation and/or warranty made by
AVIF in this Agreement or arise out of or result from any
other material breach of this Agreement by AVIF.
(b) Except to the extent provided in Sections 12.2(c), 12.2(d) and
12.2(e) hereof, AVIF and AIM agree to indemnify and hold harmless the
Indemnified Parties from and against any and all losses, claims, damages,
liabilities (including amounts paid in settlement thereof with, the written
consent of AVIF and/or AIM) or actions in respect thereof (including, to the
extent reasonable, legal and other expenses) to which the Indemnified Parties
may become subject directly or indirectly under any statute, at common law or
otherwise, insofar as such losses, claims, damages, liabilities or actions
directly or indirectly result from or arise out of the failure of any Fund to
operate as a regulated investment company in compliance with (i) Subchapter M
22
<PAGE>
of the Code and regulations thereunder, or (ii) Section 817(h) of the Code and
regulations thereunder, including, without limitation, any income taxes and
related penalties, rescission charges, liability under state law to Participants
asserting liability against LIFE COMPANY pursuant to the Contracts, the costs of
any ruling and closing agreement or other settlement with the IRS, and the cost
of any substitution by LIFE COMPANY of Shares of another investment company or
portfolio for those of any adversely affected Fund as a funding medium for each
Account that LIFE COMPANY reasonably deems necessary or appropriate as a result
of the noncompliance.
(c) Neither AVIF nor AIM shall be liable under this Section 12.2 with
respect to any losses, claims, damages, liabilities or actions to which an
Indemnified Party would otherwise be subject by reason of willful misfeasance,
bad faith, or gross negligence in the performance by that Indemnified Party of
its duties or by reason of such Indemnified Party's reckless disregard of its
obligations and duties (i) under this Agreement, or (ii) to LIFE COMPANY,
UNDERWRITER, each Account or Participants.
(d) Neither AVIF nor AIM shall be liable under this Section 12.2 with
respect to any action against an Indemnified Party unless the Indemnified Party
shall have notified AVIF and/or AIM in writing within a reasonable time after
the summons or other first legal process giving information of the nature of the
action 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 AVIF or AIM of any such action shall not relieve
AVIF or AIM from any liability which it may have to the Indemnified Party
against whom such action is brought otherwise than on account of this Section
12.2. Except as otherwise provided herein, in case any such action is brought
against an Indemnified Party, AVIF and/or AIM will be entitled to participate,
at its own expense, in the defense of such action and also shall be entitled to
assume the defense thereof (which shall include, without limitation, the conduct
of any ruling request and closing agreement or other settlement proceeding with
the IRS), with counsel approved by the Indemnified Party named in the action,
which approval shall not be unreasonably withheld. After notice from AVIF
and/or AIM to such Indemnified Party of AVIF's or AIM's election to assume the
defense thereof, the Indemnified Party will cooperate fully with AVIF and AIM
and shall bear the fees and expenses of any additional counsel retained by it,
and AVIF will not be liable to such Indemnified Party under this Agreement for
any legal or other expenses subsequently incurred by such Indemnified Party
independently in connection with the defense thereof, other than reasonable
costs of investigation.
(e) In no event shall either AVIF or AIM be liable under the
indemnification provisions contained in this Agreement to any individual or
entity, including, without limitation, LIFE COMPANY, UNDERWRITER or any other
Participating Insurance Company or any Participant, with respect to any losses,
claims, damages, liabilities or expenses that arise out of or result from (i) a
breach of any representation, warranty, and/or covenant made by LIFE COMPANY or
UNDERWRITER hereunder or by any Participating Insurance Company under an
agreement containing substantially similar representations, warranties and
covenants; (ii) the failure by LIFE COMPANY or any Participating Insurance
Company to maintain its segregated asset account (which invests in any Fund) as
a legally and validly established segregated asset account under
23
<PAGE>
applicable state law and as a duly registered unit investment trust under the
provisions of the 1940 Act (unless exempt therefrom); or (iii) the failure by
LIFE COMPANY or any Participating Insurance Company to maintain its variable
annuity or life insurance contracts (with respect to which any Fund serves as an
underlying funding vehicle) as annuity contracts or life insurance contracts
under applicable provisions of the Code.
12.3 Effect of Notice.
----------------
Any notice given by the indemnifying Party to an Indemnified Party referred
to in Sections 12.1(c) or 12.2(d) above of participation in or control of any
action by the indemnifying Party will in no event be deemed to be an admission
by the indemnifying Party of liability, culpability or responsibility, and the
indemnifying Party will remain free to contest liability with respect to the
claim among the Parties or otherwise.
12.4 Successors.
----------
A successor by law of any Party shall be entitled to the benefits of the
indemnification contained in this Section 12.
Section 13. Applicable Law
--------------------------
This Agreement will be construed and the provisions hereof interpreted
under and in accordance with Maryland law, without regard for that state's
principles of conflict of laws.
Section 14. Execution in Counterparts
-------------------------------------
This Agreement may be executed simultaneously in two or more counterparts,
each of which taken together will constitute one and the same instrument.
Section 15. Severability
------------------------
If any provision of this Agreement is held or made invalid by a court
decision, statute, rule or otherwise, the remainder of this Agreement will not
be affected thereby.
Section 16. Rights Cumulative
-----------------------------
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, that the Parties are entitled to under federal and state
laws.
24
<PAGE>
Section 17. Headings
--------------------
The Table of Contents and headings used in this Agreement are for purposes
of reference only and shall not limit or define the meaning of the provisions of
this Agreement.
Section 18. Confidentiality
---------------------------
AVIF acknowledges that the identities of the customers of LIFE COMPANY or
any of its affiliates (collectively, the "LIFE COMPANY Protected Parties" for
purposes of this Section 18), information maintained regarding those customers,
and all computer programs and procedures or other information developed by the
LIFE COMPANY Protected Parties or any of their employees or agents in connection
with LIFE COMPANY's performance of its duties under this Agreement are the
valuable property of the LIFE COMPANY Protected Parties. AVIF agrees that if it
comes into possession of any list or compilation of the identities of or other
information about the LIFE COMPANY Protected Parties' customers, or any other
information or property of the LIFE COMPANY Protected Parties, other than such
information as may be independently developed or compiled by AVIF from
information supplied to it by the LIFE COMPANY Protected Parties' customers who
also maintain accounts directly with AVIF, AVIF will hold such information or
property in confidence and refrain from using, disclosing or distributing any of
such information or other property except: (a) with LIFE COMPANY's prior written
consent; or (b) as required by law or judicial process. LIFE COMPANY
acknowledges that the identities of the customers of AVIF or any of its
affiliates (collectively, the "AVIF Protected Parties" for purposes of this
Section 18), information maintained regarding those customers, and all computer
programs and procedures or other information developed by the AVIF Protected
Parties or any of their employees or agents in connection with AVIF's
performance of its duties under this Agreement are the valuable property of the
AVIF Protected Parties. LIFE COMPANY agrees that if it comes into possession of
any list or compilation of the identities of or other information about the AVIF
Protected Parties' customers or any other information or property of the AVIF
Protected Parties, other than such information as may be independently developed
or compiled by LIFE COMPANY from information supplied to it by the AVIF
Protected Parties' customers who also maintain accounts directly with LIFE
COMPANY, LIFE COMPANY will hold such information or property in confidence and
refrain from using, disclosing or distributing any of such information or other
property except: (a) with AVIF's prior written consent; or (b) as required by
law or judicial process. Each party acknowledges that any breach of the
agreements in this Section 18 would result in immediate and irreparable harm to
the other parties for which there would be no adequate remedy at law and agree
that in the event of such a breach, the other parties will be entitled to
equitable relief by way of temporary and permanent injunctions, as well as such
other relief as any court of competent jurisdiction deems appropriate.
Section 19. Trademarks and Fund Names
-------------------------------------
(a) A I M Management Group Inc. ("AIM" or "licensor"), an affiliate of
AVIF, owns all right, title and interest in and to the name, trademark and
service mark "AIM" and such other
25
<PAGE>
trade names, trademarks and service marks as may be set forth on Schedule B, as
amended from time to time by written notice from AIM to LIFE COMPANY (the "AIM
licensed marks" or the "licensor's licensed marks") and is authorized to use and
to license other persons to use such marks. LIFE COMPANY and its affiliates are
hereby granted a non-exclusive license to use the AIM licensed marks in
connection with LIFE COMPANY's performance of the services contemplated under
this Agreement, subject to the terms and conditions set forth in this Section
19.
(b) The grant of license to LIFE COMPANY and its affiliates ( the
"licensee") shall terminate automatically upon termination of this Agreement.
Upon automatic termination, the licensee shall cease to use the licensor's
licensed marks, except that LIFE COMPANY shall have the right to continue to
service any outstanding Contracts bearing any of the AIM licensed marks. Upon
AIM's elective termination of this license, LIFE COMPANY and its affiliates
shall immediately cease to issue any new annuity or life insurance contracts
bearing any of the AIM licensed marks and shall likewise cease any activity
which suggests that it has any right under any of the AIM licensed marks or that
it has any association with AIM, except that LIFE COMPANY shall have the right
to continue to service outstanding Contracts bearing any of the AIM licensed
marks.
(c) The licensee shall obtain the prior written approval of the licensor
for the public release by such licensee of any materials bearing the licensor's
licensed marks. The licensor's approvals shall not be unreasonably withheld.
(d) During the term of this grant of license, a licensor may request
that a licensee submit samples of any materials bearing any of the licensor's
licensed marks which were previously approved by the licensor but, due to
changed circumstances, the licensor may wish to reconsider. If, on
reconsideration, or on initial review, respectively, any such samples fail to
meet with the written approval of the licensor, then the licensee shall
immediately cease distributing such disapproved materials. The licensor's
approval shall not be unreasonably withheld, and the licensor, when requesting
reconsideration of a prior approval, shall assume the reasonable expenses of
withdrawing and replacing such disapproved materials. The licensee shall obtain
the prior written approval of the licensor for the use of any new materials
developed to replace the disapproved materials, in the manner set forth above.
(e) The licensee hereunder: (i) acknowledges and stipulates that, to the
best of the knowledge of the licensee, the licensor's licensed marks are valid
and enforceable trademarks and/or service marks and that such licensee does not
own the licensor's licensed marks and claims no rights therein other than as a
licensee under this Agreement; (ii) agrees never to contend otherwise in legal
proceedings or in other circumstances; and (iii) acknowledges and agrees that
the use of the licensor's licensed marks pursuant to this grant of license shall
inure to the benefit of the licensor.
26
<PAGE>
Section 20. Parties to Cooperate
--------------------------------
Each party to this Agreement will cooperate with each other party and all
appropriate governmental authorities (including, without limitation, the SEC,
the NASD and state insurance regulators) and will permit each other and such
authorities reasonable access to its books and records (including copies
thereof) in connection with any investigation or inquiry relating to this
Agreement or the transactions contemplated hereby.
-----------------------------------------------------
27
<PAGE>
IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed
in their names and on their behalf by and through their duly authorized officers
signing below.
AIM VARIABLE INSURANCE FUNDS, INC.
Attest: /s/ Nancy L. Martin By: /s/ Robert H. Graham
---------------------- ---------------------------------
Nancy L. Martin Name: Robert H. Graham
Assistant Secretary ---------------------------------
Title: President
---------------------------------
A I M DISTRIBUTORS, INC.
Attest: /s/ Nancy L. Martin By: /s/ Michael J. Cemo
---------------------- ---------------------------------
Nancy L. Martin Name: Michael J. Cemo
Assistant Secretary ---------------------------------
Title: President
---------------------------------
PFL Life Insurance Company, on behalf of
itself and its separate accounts
Attest: /s/ Ronald L. Ziegler By: /s/ William L. Busler
--------------------------- ---------------------------------
Name: Ronald L. Ziegler Name: William L. Busler
--------------------------- ---------------------------------
Title: Vice President & Actuary Title: President
--------------------------- ---------------------------------
AFSG Securities Corporation
Attest: /s/ Frank A. Camp By: /s/ Larry N. Norman
--------------------------- ---------------------------------
Name: Frank A. Camp Name: Larry N. Norman
--------------------------- ---------------------------------
Title: Secretary Title: President
--------------------------- ---------------------------------
28
<PAGE>
SCHEDULE A
FUNDS AVAILABLE UNDER THE CONTRACTS
- -----------------------------------
. AIM VARIABLE INSURANCE FUNDS, INC.
AIM V.I. Value Fund
AIM V.I. International Equity Fund
AIM V.I. Growth & Income Fund
SEPARATE ACCOUNTS UTILIZING THE FUNDS
- -------------------------------------
PFL Retirement Builder Variable Annuity Account
CONTRACTS FUNDED BY THE SEPARATE ACCOUNTS
- -----------------------------------------
PFL Life Insurance Company
Policy Form No. AV288-101-95-796
(including successor forms, addenda and endorsements
may vary by state under marketing names:
"Retirement Income Builder Variable Annuity,"
"First Union Variable Annuity" or
successor marketing names.)
29
<PAGE>
SCHEDULE B
. AIM VARIABLE INSURANCE FUNDS, INC.
AIM_________________________ Fund
. AIM and Design
[LOGO OF AIM]
30
<PAGE>
Schedule C
<TABLE>
<CAPTION>
Life Company AVIF / AIM
<S> <C>
preparing and filing the Account's preparing and filing the Fund's registration statement
registration statement
text composition for Account prospectuses text composition for Fund prospectuses and supplements
and supplements
text alterations of prospectuses (Account) and text alterations of prospectuses (Fund) and supplements
supplements (Account) (Fund)
printing Account and Fund prospectuses and a camera ready Fund prospectus;
supplements printing costs of Fund prospectus to existing policy
owners with amounts allocated to the Fund
text composition and printing Account SAIs text composition and printing Fund SAIs
mailing and distributing Account SAIs to policy mailing and distributing Fund SAIs to policy owners
owners upon request by policy owners upon request by policy owners
mailing and distributing prospectuses
(Account and Fund) and supplements
(Account and Fund) to policy owners of
record as required by Federal Securities
Laws and to prospective purchasers
text composition (Account), printing, text composition of annual and semi-annual reports
mailing, and distributing annual and (Fund)
semi-annual reports for Account (Fund and
Account as, applicable)
text composition, printing, mailing, text composition, printing, mailing,
distributing, and tabulation of proxy distributing, and tabulation of proxy
statements and voting instruction statements and voting instruction solicitation
solicitation materials to policy owners with materials to policy owners with respect to
respect to proxies related to the Account proxies related to the Fund
preparation, printing and distributing sales
material and advertising relating to the
Funds, insofar as such materials relate to
the Contracts and filing such materials with
and obtaining approval from, the SEC, the
NASD, any state insurance regulatory
authority, and any other appropriate
regulatory authority, to the extent required
</TABLE>
31
<PAGE>
EXHIBIT (8)(f)(1)
-----------------
AMENDMENT NO. 4 TO PARTICIPATION AGREEMENT BY AND AMONG AIM
VARIABLE INSURANCE FUNDS, INC., PFL LIFE INSURANCE COMPANY, AFSG
SECURITIES CORPORATION
<PAGE>
AMENDMENT NO. 4
---------------
PARTICIPATION AGREEMENT
-----------------------
The Participation Agreement (the "Agreement"), dated as of May 1, 1998, by and
among AIM Variable Insurance Funds, Inc., a Maryland corporation, A I M
Distributors, Inc., a Delaware corporation, PFL Life Insurance Company, an Iowa
life insurance company, and AFSG Securities Corporation, a Pennsylvania
corporation, is hereby amended as follows:
Schedule A of the Agreement is hereby deleted in its entirety and replaced with
the following:
SCHEDULE A
----------
<TABLE>
<CAPTION>
FUNDS AVAILABLE SEPARATE ACCOUNTS POLICIES FUNDED
--------------- ----------------- ---------------
UNDER THE UTILIZING THE FUNDS BY THE
--------- ------------------- ------
POLICIES SEPARATE ACCOUNTS
-------- -----------------
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
AIM V.I. Capital Appreciation Fund PFL Retirement Builder Variable PFL Life Insurance Company Policy Form
AIM V.I. Government Securities Fund Annuity Account No. AV288-101-95-796
AIM V.I. Growth Fund (including successors forms, addenda and
AIM V.I. Growth & Income Fund Legacy Builder Variable Life endorsements may vary by state under
AIM V.I. International Equity Fund Separate Account marketing names: "Retirement Income
AIM V.I. Value Fund Builder Variable Annuity," "Portfolio
AIM V.I. Dent Demographics Trends Fund PFL Variable Life Select Variable Annuity")
Account A
PFL Life Insurance Company Policy Form
PFL Life Variable Annuity No.'s VL20 & JL20 under the marketing
Account A name "Legacy Builder II"
PFL Life Insurance Company Policy Form
No. WL851 136 58 699 under the marketing
name "Legacy Builder Plus"
PFL Life Insurance Company Policy Form
No. APUL0600 699 under the marketing
name "Variable Protector"
PFL Life Insurance Company Policy Form
No. AV337 101 100397
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
All other terms and provisions of the Agreement not amended herein shall remain
in full force and effect.
Effective date: May 1, 2000
AIM VARIABLE INSURANCE FUNDS, INC.
Attest: /s/ Nancy L. Martin By: /s/ Robert H. Graham
--------------------------- ---------------------------
Name: Nancy L. Martin Name: Robert H. Graham
Title: Assistant Secretary Title: President
<PAGE>
A I M DISTRIBUTORS, INC.
Attest: /s/ Nancy L. Martin By: /s/ Michael J. Cemo
--------------------------- ---------------------------
Name: Nancy L. Martin Name: Michael J. Cemo
Title: Assistant Secretary Title: President
PFL LIFE INSURANCE COMPANY
Attest: /s/ Frank A. Camp By: /s/ William L. Busler
--------------------------- ---------------------------
Name: Frank A. Camp Name: William L. Busler
Title: Vice President & Division Title: President
General Counsel
AFSG SECURITIES CORPORATION
Attest: /s/ Frank A. Camp By: /s/ Larry N. Norman
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Name: Frank A. Camp Name: Larry N. Norman
Title: Secretary Title: President
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EXHIBIT (8)(g)
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FORM OF PARTICIPATION AGREEMENT BY AND AMONG ALLIANCE VARIABLE
PRODUCTS SERIES FUND, INC., PFL LIFE INSURANCE COMPANY, AFSG
SECURITIES CORPORATION
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PARTICIPATION AGREEMENT
AMONG
PFL INSURANCE COMPANY,
AFSG SECURITIES CORPORATION
ALLIANCE CAPITAL MANAGEMENT L.P.
AND
ALLIANCE FUND DISTRIBUTORS, INC.
DATED AS OF
MAY 1, 2000
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PARTICIPATION AGREEMENT
THIS AGREEMENT, made and entered into as of the first day of May, 2000
("Agreement"), by and PFL Life Insurance Company, an Iowa life insurance company
("Insurer") (on behalf of itself and its "Separate Account," defined below);
AFSG Securities Corporation a Pennsylvania corporation ("Contracts
Distributor"), the principal underwriter with respect to the Contracts referred
to below; Alliance Capital Management L.P., a Delaware limited partnership
("Adviser"), the investment adviser of the Fund referred to below; and Alliance
Fund Distributors, Inc., a Delaware corporation ("Distributor"), the Fund's
principal underwriter (collectively, the "Parties"),
WITNESSETH THAT:
WHEREAS Insurer, the Distributor, and Alliance Variable Products Series
Fund, Inc. (the "Fund") desire that Class B shares of the Fund's Growth
Portfolio, Premier Growth Portfolio and Technology Portfolio (the "Portfolios";
reference herein to the "Fund" includes reference to each Portfolio to the
extent the context requires) be made available by Distributor to serve as
underlying investment media for those combination fixed and variable annuity
contracts of Insurer that are the subject of Insurer's Form N-4 registration
statement filed with the Securities and Exchange Commission (the "SEC"), 33 Act
File No. 333-26209; 40 Act File No. 811-08197 (the "Contracts"), to be offered
through Contracts Distributor and other registered broker-dealer firms as agreed
to by Insurer and Contracts Distributor; and
WHEREAS the Contracts provide for the allocation of net amounts received by
Insurer to separate series (the "Divisions"; reference herein to the "Separate
Account" includes reference to each Division to the extent the context requires)
of the Separate Account for investment in Class B
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shares of corresponding Portfolios of the Fund that are made available through
the Separate Account to act as underlying investment media,
NOW, THEREFORE, in consideration of the mutual benefits and promises
contained herein, the Fund and Distributor will make Class B shares of the
Portfolios available to Insurer for this purpose at net asset value and with no
sales charges, all subject to the following provisions:
Section 1. Additional Portfolios
---------------------------------
The Fund has and may, from time to time, add additional Portfolios, and the
Insurer may, from time to time, add additional Contracts, which will become
subject to this Agreement, upon the written consent of each of the Parties
hereto.
Section 2. Processing Transactions
-----------------------------------
2.1 Timely Pricing and Orders.
-------------------------
The Adviser or its designated agent will provide closing net asset value,
dividend and capital gain information for each Portfolio to Insurer at the close
of trading on each day (a "Business Day") on which (a) the New York Stock
Exchange is open for regular trading, (b) the Fund calculates the Portfolio's
net asset value and (c) Insurer is open for business. The Fund or its
designated agent will use its best efforts to provide this information by 6:00
p.m., Eastern time. Insurer will use these data to calculate unit values, which
in turn will be used to process transactions that receive that same Business
Day's Separate Account Division's unit values. Such Separate Account processing
will be done the same evening, and corresponding orders with
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respect to Fund shares will be placed the morning of the following Business Day.
Insurer will use its best efforts to place such orders with the Fund by 10:00
a.m., Eastern time.
2.2 Timely Payments.
---------------
Insurer will transmit orders for purchases and redemptions of Fund shares
to Distributor, and will wire payment for net purchases to a custodial account
designated by the Fund on the day the order for Fund shares is placed, to the
extent practicable. Payment for net redemptions will be wired by the Fund to an
account designated by Insurer on the same day as the order is placed, to the
extent practicable, and in any event be made within six calendar days after the
date the order is placed in order to enable Insurer to pay redemption proceeds
within the time specified in Section 22(e) of the Investment Company Act of
1940, as amended (the "1940 Act").
2.3 Redemption in Kind.
------------------
The Fund reserves the right to pay any portion of a redemption in kind of
portfolio securities, if the Fund's board of directors (the "Board of
Directors"), acting pursuant to the Mixed and Shared Funding Order, hereinafter
defined, determines that it would be detrimental to the best interests of
shareholders to make a redemption wholly in cash. The Fund may also make
redemptions in kind by mutual agreement of the parties.
2.4 Applicable Price.
----------------
The Parties agree that Portfolio share purchase and redemption orders
resulting from Contract owner purchase payments, surrenders, partial
withdrawals, routine withdrawals of charges, or other transactions under
Contracts will be executed at the net asset values as determined as of the close
of regular trading on the New York Stock Exchange on the Business Day that
Insurer receives such orders and processes such transactions, which, Insurer
agrees shall occur not earlier than the
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Business Day prior to Distributor's receipt of the corresponding orders for
purchases and redemptions of Portfolio shares. For the purposes of this section,
Insurer shall be deemed to be the agent of the Fund for receipt of such orders
from holders or applicants of contracts, and receipt by Insurer shall constitute
receipt by the Fund. All other purchases and redemptions of Portfolio shares by
Insurer, will be effected at the net asset values next computed after receipt by
Distributor of the order therefor, and such orders will be irrevocable. Insurer
hereby elects to reinvest all dividends and capital gains distributions in
additional shares of the corresponding Portfolio at the record-date net asset
values until Insurer otherwise notifies the Fund in writing, it being agreed by
the Parties that the record date and the payment date with respect to any
dividend or distribution will be the same Business Day. The Adviser shall give
Insurer at least two Business Days' advance notice of any dividends or
distributions.
Section 3. Costs and Expenses
------------------------------
3.1 General.
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Except as otherwise specifically provided herein, each Party will bear all
expenses incident to its performance under this Agreement.
3.2 Registration.
------------
The Fund will bear the cost of its registering as a management investment
company under the 1940 Act and registering its shares under the Securities Act
of 1933, as amended (the "1933 Act"), and keeping such registrations current and
effective; including, without limitation, the preparation of and filing with the
SEC of Forms N-SAR and Rule 24f-2 Notices respecting the Fund and its shares and
payment of all applicable registration or filing fees with respect to any of the
foregoing. Insurer
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will bear the cost of registering the Separate Account as a unit investment
trust under the 1940 Act and registering units of interest under the Contracts
under the 1933 Act and keeping such registrations current and effective;
including, without limitation, the preparation and filing with the SEC of Forms
N-SAR and Rule 24f-2 Notices respecting the Separate Account and its units of
interest and payment of all applicable registration or filing fees with respect
to any of the foregoing.
3.3 Other (Non-Sales-Related) Expenses.
----------------------------------
The Fund will bear the costs of preparing, filing with the SEC and setting
for printing the Fund's prospectus, statement of additional information and any
amendments or supplements thereto (collectively, the "Fund Prospectus"),
periodic reports to shareholders, Fund proxy material and other shareholder
communications and any related requests for voting instructions from
Participants (as defined below). Insurer will bear the costs of preparing,
filing with the SEC and setting for printing, the Separate Account's prospectus,
statement of additional information and any amendments or supplements thereto
(collectively, the "Separate Account Prospectus"), any periodic reports to
owners, annuitants or participants under the Contracts (collectively,
"Participants"), and other Participant communications. The Fund and Insurer
each will bear the costs of printing in quantity and delivering to existing
Participants the documents as to which it bears the cost of preparation as set
forth above in this Section 3.3, it being understood that reasonable cost
allocations will be made in cases where any such Fund and Insurer documents are
printed or mailed on a combined or coordinated basis. If requested by Insurer,
---------
the Fund will provide annual Prospectus text to Insurer on diskette for printing
and binding with the Separate Account Prospectus.
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3.4 Other Sales-Related Expenses.
----------------------------
Expenses of distributing the Portfolio's shares and the Contracts will be
paid by Insurer and other parties, as they shall determine by separate
agreement.
3.5 Parties to Cooperate.
--------------------
The Adviser, Insurer, Contracts Distributor, and Distributor each agrees to
cooperate with the others, as applicable, in arranging to print, mail and/or
deliver combined or coordinated prospectuses or other materials of the Fund and
Separate Account.
Section 4. Legal Compliance
----------------------------
4.1 Tax Laws.
--------
(a) The Adviser represents and warrants that it will qualify and maintain
qualification of each Portfolio as a regulated investment company ("RIC")
under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"), and the Adviser or Distributor will notify Insurer immediately upon
having a reasonable basis for believing that a Portfolio has ceased to so
qualify or that it might not so qualify in the future.
(b) Insurer represents that it believes, in good faith, that the Contracts
will be treated as annuity contracts under applicable provisions of the Code and
that it will make every effort to maintain such treatment. Insurer will notify
the Fund and Distributor immediately upon having a reasonable basis for
believing that any of the Contracts have ceased to be so treated or that they
might not be so treated in the future.
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(c) The Fund represents and warrants that it will comply and to maintain
each Portfolio's compliance with the diversification requirements set forth in
Section 817(h) of the Code and Section 1.817-5(b) of the regulations under the
Code, and the Fund, Adviser or Distributor will notify Insurer immediately upon
having a reasonable basis for believing that a Portfolio has ceased to so comply
or that a Portfolio might not so comply in the future, and they will immediately
take all steps to adequately diversify the Portfolio to achieve compliance
within the grace period afforded by Treasury Regulation 1.817-5.
(d) Insurer represents that it believes, in good faith, that the Separate
Account is a "segregated asset account" and that interests in the Separate
Account are offered exclusively through the purchase of or transfer into a
"variable contract," within the meaning of such terms under Section 817(h) of
the Code and the regulations thereunder. Insurer will make every effort to
continue to meet such definitional requirements, and it will notify the Fund and
Distributor immediately upon having a reasonable basis for believing that such
requirements have ceased to be met or that they might not be met in the future.
(e) The Adviser will manage the Fund as a RIC in compliance with Subchapter
M of the Code and with Section 817(h) of the Code and regulations thereunder.
The Fund has adopted and will maintain procedures for ensuring that the Fund is
managed in compliance with Subchapter M and Section 817(h) and regulations
thereunder.
(f) Should the Distributor or Adviser become aware of a failure of Fund, or
any of its Portfolios, to be in compliance with Subchapter M of the Code or
Section 817(h) of the Code and regulations thereunder, they represent and agree
that they will immediately notify Insurer of such in writing.
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4.2 Insurance and Certain Other Laws.
--------------------------------
(a) The Adviser will use its best efforts to cause the Fund to comply with
any applicable state insurance laws or regulations, to the extent specifically
requested in writing by Insurer. If it cannot comply, it will so notify Insurer
in writing.
(b) Insurer represents and warrants that (i) it is an insurance company
duly organized, validly existing and in good standing under the laws of the
State of Iowa and has full corporate power, authority and legal right to
execute, deliver and perform its duties and comply with its obligations under
this Agreement, (ii) it has legally and validly established and maintains the
Separate Account as a segregated asset account under Iowa, and (iii) the
Contracts comply in all material respects with all other applicable federal and
state laws and regulations.
(c) Insurer and Contracts Distributor represent and warrant that Contracts
Distributor is a business corporation duly organized, validly existing, and in
good standing under the laws of the State of Pennsylvania and has full
corporate power, authority and legal right to execute, deliver, and perform its
duties and comply with its obligations under this Agreement.
(d) Distributor represents and warrants that it is a business corporation
duly organized, validly existing, and in good standing under the laws of the
State of Delaware and has full corporate power, authority and legal right to
execute, deliver, and perform its duties and comply with its obligations under
this Agreement.
(e) Distributor represents and warrants that the Fund is a corporation duly
organized, validly existing, and in good standing under the laws of the State of
Maryland and has full power,
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authority, and legal right to execute, deliver, and perform its duties and
comply with its obligations under this Agreement.
(f) Adviser represents and warrants that it is a limited partnership, duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has full power, authority, and legal right to execute, deliver, and
perform its duties and comply with its obligations under this Agreement.
4.3 Securities Laws.
---------------
(a) Insurer represents and warrants that (i) interests in the Separate
Account pursuant to the Contracts will be registered under the 1933 Act to the
extent required by the 1933 Act and the Contracts will be duly authorized for
issuance and sold in compliance with federal and applicable state law, (ii) the
Separate Account is and will remain registered under the 1940 Act to the extent
required by the 1940 Act, (iii) the Separate Account does and will comply in all
material respects with the requirements of the 1940 Act and the rules
thereunder, (iv) the Separate Account's 1933 Act registration statement relating
to the Contracts, together with any amendments thereto, will, at all times
comply in all material respects with the requirements of the 1933 Act and the
rules thereunder, and (v) the Separate Account Prospectus will at all times
comply in all material respects with the requirements of the 1933 Act and the
rules thereunder.
(b) The Adviser and Distributor represent and warrant that (i) Fund shares
sold pursuant to this Agreement will be registered under the 1933 Act to the
extent required by the 1933 Act and duly authorized for issuance and sold in
compliance with Maryland law, (ii) the Fund is and will remain registered under
the 1940 Act to the extent required by the 1940 Act, (iii) the Fund will amend
the registration statement for its shares under the 1933 Act and itself under
the 1940 Act from time to
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time as required in order to effect the continuous offering of its shares, (iv)
the Fund does and will comply in all material respects with the requirements of
the 1940 Act and the rules thereunder, (v) the Fund's 1933 Act registration
statement, together with any amendments thereto, will at all times comply in all
material respects with the requirements of the 1933 Act and rules thereunder,
and (vi) the Fund Prospectus will at all times comply in all material respects
with the requirements of the 1933 Act and the rules thereunder.
(c) The Fund will register and qualify its shares for sale in accordance
with the laws of any state or other jurisdiction only if and to the extent
reasonably deemed advisable by the Fund, Insurer or any other life insurance
company utilizing the Fund.
(d) Distributor and Contracts Distributor each represents and warrants that
it is registered as a broker-dealer with the SEC under the Securities Exchange
Act of 1934, as amended, and is a member in good standing of the National
Association of Securities Dealers Inc. (the "NASD").
4.4 Notice of Certain Proceedings and Other Circumstances.
-----------------------------------------------------
(a) Distributor or the Fund shall immediately notify Insurer of (i) the
issuance by any court or regulatory body of any stop order, cease and desist
order, or other similar order with respect to the Fund's registration statement
under the 1933 Act or the Fund Prospectus, (ii) any request by the SEC for any
amendment to such registration statement or Fund Prospectus, (iii) the
initiation of any proceedings for that purpose or for any other purpose relating
to the registration or offering of the Fund's shares, or (iv) any other action
or circumstances that may prevent the lawful offer or sale of Fund shares in any
state or jurisdiction, including, without limitation, any circumstances in which
(x) the Fund's shares are not registered and, in all material respects, issued
and sold in accordance with applicable state and federal law or (y) such law
precludes the use of such shares as an underlying
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investment medium of the Contracts issued or to be issued by Insurer.
Distributor and the Fund will make every reasonable effort to prevent the
issuance of any such stop order, cease and desist order or similar order and, if
any such order is issued, to obtain the lifting thereof at the earliest possible
time.
(b) Insurer and Contracts Distributor shall immediately notify the Fund of
(i) the issuance by any court or regulatory body of any stop order, cease and
desist order or similar order with respect to the Separate Account's
registration statement under the 1933 Act relating to the Contracts or the
Separate Account Prospectus, (ii) any request by the SEC for any amendment to
such registration statement or Separate Account Prospectus, (iii) the initiation
of any proceedings for that purpose or for any other purpose relating to the
registration or offering of the Separate Account interests pursuant to the
Contracts, or (iv) any other action or circumstances that may prevent the lawful
offer or sale of said interests in any state or jurisdiction, including, without
limitation, any circumstances in which said interests are not registered and, in
all material respects, issued and sold in accordance with applicable state and
federal law. Insurer and Contracts Distributor will make every reasonable
effort to prevent the issuance of any such stop order, cease and desist order or
similar order and, if any such order is issued, to obtain the lifting thereof at
the earliest possible time.
4.5 Insurer to Provide Documents.
----------------------------
Upon request, Insurer will provide the Fund and the Distributor one
complete copy of SEC registration statements, Separate Account Prospectuses,
reports, any preliminary and final voting instruction solicitation material,
applications for exemptions, requests for no-action letters, and amendments to
any of the above, that relate to the Separate Account or the Contracts,
contemporaneously with the filing of such document with the SEC or other
regulatory authorities.
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4.6 Fund to Provide Documents.
-------------------------
Upon request, the Fund will provide to Insurer one complete copy of SEC
registration statements, Fund Prospectuses, reports, any preliminary and final
proxy material, applications for exemptions, requests for no-action letters, and
all amendments to any of the above, that relate to the Fund or its shares,
contemporaneously with the filing of such document with the SEC or other
regulatory authorities.
Section 5. Mixed and Shared Funding
------------------------------------
5.1 General.
--------
The Fund has obtained an order exempting it from certain provisions of the
1940 Act and rules thereunder so that the Fund is available for investment by
certain other entities, including, without limitation, separate accounts funding
variable life insurance policies and separate accounts of insurance companies
unaffiliated with Insurer ("Mixed and Shared Funding Order"). The Parties
recognize that the SEC has imposed terms and conditions for such orders that are
substantially identical to many of the provisions of this Section 5.
5.2 Disinterested Directors.
-----------------------
The Fund agrees that its Board of Directors shall at all times consist of
directors a majority of whom (the "Disinterested Directors") are not interested
persons of Adviser or Distributor within the meaning of Section 2(a)(19) of the
1940 Act.
5.3 Monitoring for Material Irreconcilable Conflicts.
------------------------------------------------
The Fund agrees that its Board of Directors will monitor for the existence
of any material irreconcilable conflict between the interests of the
participants in all separate accounts of life
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insurance companies utilizing the Fund, including the Separate Account. Insurer
agrees to inform the Board of Directors of the Fund of the existence of or any
potential for any such material irreconcilable conflict of which it is aware.
The concept of a "material irreconcilable conflict" is not defined by the 1940
Act or the rules thereunder, but the Parties recognize that such a conflict may
arise for a variety of reasons, including, without limitation:
(a) an action by any state insurance or other 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 participants or by participants of
different life insurance companies utilizing the Fund; or
(f) a decision by a life insurance company utilizing the Fund to disregard
the voting instructions of participants.
Insurer will assist the Board of Directors in carrying out its
responsibilities by providing the Board of Directors with all information
reasonably necessary for the Board of Directors to consider any issue raised,
including information as to a decision by Insurer to disregard voting
instructions of Participants.
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5.4 Conflict Remedies.
-----------------
(a) It is agreed that if it is determined by a majority of the members of
the Board of Directors or a majority of the Disinterested Directors that a
material irreconcilable conflict exists, Insurer and the other life insurance
companies utilizing the Fund will, at their own expense and to the extent
reasonably practicable (as determined by a majority of the Disinterested
Directors), take whatever steps are necessary to remedy or eliminate the
material irreconcilable conflict, which steps may include, but are not limited
to:
(i) withdrawing the assets allocable to some or all of the separate
accounts from the Fund or any Portfolio and reinvesting such assets in
a different investment medium, including another Portfolio of the
Fund, or submitting the question whether such segregation should be
implemented to a vote of all affected participants and, as
appropriate, segregating the assets of any particular group (e.g.,
annuity contract owners or participants, life insurance contract
owners or all contract owners and participants of one or more life
insurance companies utilizing the Fund) that votes in favor of such
segregation, or offering to the affected contract owners or
participants the option of making such a change; and
(ii) establishing a new registered investment company of the type defined
as a "Management Company" in Section 4(3) of the 1940 Act or a new
separate account that is operated as a Management Company.
(b) If the material irreconcilable conflict arises because of Insurer's
decision to disregard Participant voting instructions and that decision
represents a minority position or would preclude a majority vote, Insurer may be
required, at the Fund's election, to withdraw the Separate Account's
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investment in the Fund. No charge or penalty will be imposed as a result of such
withdrawal. Any such withdrawal must take place within six months after the Fund
gives notice to Insurer that this provision is being implemented, and until such
withdrawal Distributor and the Fund shall continue to accept and implement
orders by Insurer for the purchase and redemption of shares of the Fund.
(c) If a material irreconcilable conflict arises because a particular state
insurance regulator's decision applicable to Insurer conflicts with the majority
of other state regulators, then Insurer will withdraw the Separate Account's
investment in the Fund within six months after the Fund's Board of Directors
informs Insurer that it has determined that such decision has created a material
irreconcilable conflict, and until such withdrawal Distributor and Fund shall
continue to accept and implement orders by Insurer for the purchase and
redemption of shares of the Fund.
(d) Insurer agrees that any remedial action taken by it in resolving any
material irreconcilable conflict will be carried out at its expense and with a
view only to the interests of Participants.
(e) For purposes hereof, a majority of the Disinterested Directors will
determine whether or not any proposed action adequately remedies any material
irreconcilable conflict. In no event, however, will the Fund or Distributor be
required to establish a new funding medium for any Contracts. Insurer will not
be required by the terms hereof to establish a new funding medium for any
Contracts if an offer to do so has been declined by vote of a majority of
Participants materially adversely affected by the material irreconcilable
conflict.
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5.5 Notice to Insurer.
-----------------
The Fund will promptly make known in writing to Insurer the Board of
Directors' determination of the existence of a material irreconcilable conflict,
a description of the facts that give rise to such conflict and the implications
of such conflict.
5.6 Information Requested by Board of Directors.
-------------------------------------------
Insurer and the Fund will at least annually submit to the Board of
Directors of the Fund such reports, materials or data as the Board of Directors
may reasonably request so that the Board of Directors may fully carry out the
obligations imposed upon it by the provisions hereof, and said reports,
materials and data will be submitted at any reasonable time deemed appropriate
by the Board of Directors. All reports received by the Board of Directors of
potential or existing conflicts, and all Board of Directors actions with regard
to determining the existence of a conflict, notifying life insurance companies
utilizing the Fund of a conflict, and determining whether any proposed action
adequately remedies a conflict, will be properly recorded in the minutes of the
Board of Directors or other appropriate records, and such minutes or other
records will be made available to the SEC upon request.
5.7 Compliance with SEC Rules.
-------------------------
If, at any time during which the Fund is serving as an investment medium
for variable life insurance policies, 1940 Act Rules 6e-3(T) or, if applicable,
6e-2 are amended or Rule 6e-3 is adopted to provide exemptive relief with
respect to mixed and shared funding, the Parties agree that they will comply
with the terms and conditions thereof and that the terms of this Section 5 shall
be deemed modified if and only to the extent required in order also to comply
with the terms and conditions of such exemptive relief that is afforded by any
of said rules that are applicable.
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Section 6. Termination
-----------------------
6.1 Events of Termination.
---------------------
Subject to Section 6.4 below, this Agreement will terminate as to a
Portfolio:
(a) at the option of Insurer or Distributor upon at least six months
advance written notice to the other Parties, or
(b) at the option of the Fund upon (i) at least sixty days advance written
notice to the other parties, and (ii) approval by (x) a majority of the
disinterested Directors upon a finding that a continuation of this Contract is
contrary to the best interests of the Fund, or (y) a majority vote of the shares
of the affected Portfolio in the corresponding Division of the Separate Account
(pursuant to the procedures set forth in Section 11 of this Agreement for voting
Trust shares in accordance with Participant instructions).
(c) at the option of the Fund upon institution of formal proceedings
against Insurer or Contracts Distributor by the NASD, the SEC, any state
insurance regulator or any other regulatory body regarding Insurer's obligations
under this Agreement or related to the sale of the Contracts, the operation of
the Separate Account, or the purchase of the Fund shares, if, in each case, the
Fund reasonably determines that such proceedings, or the facts on which such
proceedings would be based, have a material likelihood of imposing material
adverse consequences on the Portfolio to be terminated; or
(d) at the option of Insurer upon institution of formal proceedings against
the Fund, Adviser, or Distributor by the NASD, the SEC, or any state insurance
regulator or any other regulatory body regarding the Fund's, Adviser's or
Distributor's obligations under this Agreement or
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related to the operation or management of the Fund or the purchase of Fund
shares, if, in each case, Insurer reasonably determines that such proceedings,
or the facts on which such proceedings would be based, have a material
likelihood of imposing material adverse consequences on Insurer, Contracts
Distributor or the Division corresponding to the Portfolio to be terminated; or
(e) at the option of any Party in the event that (i) the Portfolio's shares
are not registered and, in all material respects, issued and sold in accordance
with any applicable state and federal law or (ii) such law precludes the use of
such shares as an underlying investment medium of the Contracts issued or to be
issued by Insurer; or
(f) upon termination of the corresponding Division's investment in the
Portfolio pursuant to Section 5 hereof; or
(g) at the option of Insurer if the Portfolio ceases to qualify as a RIC
under Subchapter M of the Code or under successor or similar provisions; or
(h) at the option of Insurer if the Portfolio fails to comply with Section
817(h) of the Code or with successor or similar provisions; or
(i) at the option of Insurer if Insurer reasonably believes that any change
in a Fund's investment adviser or investment practices will materially increase
the risks incurred by Insurer.
6.2 Funds to Remain Available.
-------------------------
Except (i) as necessary to implement Participant-initiated transactions,
(ii) as required by state insurance laws or regulations, (iii) as required
pursuant to Section 5 of this Agreement, or (iv) with respect to any Portfolio
as to which this Agreement has terminated, Insurer shall not (x) redeem Fund
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shares attributable to the Contracts, or (y) prevent Participants from
allocating payments to or transferring amounts from a Portfolio that was
otherwise available under the Contracts, until, in either case, 90 calendar days
after Insurer shall have notified the Fund or Distributor of its intention to do
so.
6.3 Survival of Warranties and Indemnifications.
-------------------------------------------
All warranties and indemnifications will survive the termination of this
Agreement.
6.4 Continuance of Agreement for Certain Purposes.
---------------------------------------------
Notwithstanding any termination of this Agreement, the Distributor shall
continue to make available shares of the Portfolios pursuant to the terms and
conditions of this Agreement, for all Contracts in effect on the effective date
of termination of this Agreement (the "Existing Contracts"), except as otherwise
provided under Section 5 of this Agreement. Specifically, and without
limitation, the Distributor shall facilitate the sale and purchase of shares of
the Portfolios as necessary in order to process premium payments, surrenders and
other withdrawals, and transfers or reallocations of values under Existing
Contracts.
Section 7. Parties to Cooperate Respecting Termination
-------------------------------------------------------
The other Parties hereto agree to cooperate with and give reasonable
assistance to Insurer in taking all necessary and appropriate steps for the
purpose of ensuring that the Separate Account owns no shares of a Portfolio
after the Final Termination Date with respect thereto.
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Section 8. Assignment
---------------------
This Agreement may not be assigned by any Party, except with the
written consent of each other Party.
Section 9. Class B Distribution Payments
----------------------------------------
From time to time during the term of this Agreement the Distributor may
make payments to the Contracts Distributor pursuant to a distribution plan
adopted by the Fund with respect to the Class B shares of the Portfolios
pursuant to Rule 12b-1 under the 1940 Act (the "Rule 12b-1 Plan) in
consideration of the Contracts Distributor's furnishing distribution services
relating to the Class B shares of the Portfolios and providing administrative,
accounting and other services, including personal service and/or the maintenance
of Participant accounts, with respect to such shares. The Distributor has no
obligation to make any such payments, and the Contracts Distributor waives any
such payment, until the Distributor receives monies therefor from the Fund. Any
such payments made pursuant to this Section 9 shall be subject to the following
terms and conditions:
(a) Any such payments shall be in such amounts as the Distributor may from
time to time advise the Contracts Distributor in writing but in any event not in
excess of the amounts permitted by the Rule 12b-1 Plan. Such payments may
include a service fee in the amount of .25 of 1% per annum of the average daily
net assets of the Fund attributable to the Class B shares of a Portfolio held by
clients of the Contracts Distributor. Any such service fee shall be paid solely
for personal service and/or the maintenance of Participant accounts.
(b) The provisions of this Section 9 relate to a plan adopted by the Fund
pursuant to Rule 12b-1. In accordance with Rule 12b-1, any person authorized to
direct the disposition of
20
<PAGE>
monies paid or payable by the Fund pursuant to this Section 9 shall provide the
Fund's Board of Directors, and the Directors shall review, at least quarterly, a
written report of the amounts so expended and the purposes for which such
expenditures were made.
(c) The provisions of this Section 9 shall remain in effect for not more
than a year and thereafter for successive annual periods only so long as such
continuance is specifically approved at least annually in conformity with Rule
12b-1 and the 1940 Act. The provisions of this Section 9 shall automatically
terminate in the event of the assignment (as defined by the 1940 Act) of this
Agreement, in the event the Rule 12b-1 Plan terminates or is not continued or in
the event this Agreement terminates or ceases to remain in effect. In addition,
the provisions of this Section 9 may be terminated at any time, without penalty,
by either the Distributor or the Contracts Distributor with respect to any
Portfolio on not more than 60 days' nor less than 30 days' written notice
delivered or mailed by registered mail, postage prepaid, to the other party.
Section 10. Notices
--------------------
Notices and communications required or permitted by Section 2 hereof will
be given by means mutually acceptable to the Parties concerned. Each other
notice or communication required or permitted by this Agreement will be given to
the following persons at the following addresses and facsimile numbers, or such
other persons, addresses or facsimile numbers as the Party receiving such
notices or communications may subsequently direct in writing:
PFL Life Insurance Company
Financial Markets Division
4333 Edgewood Road NE
Cedar Rapids, Iowa 52499-0001
21
<PAGE>
AFSG Securities Corporation
Financial Markets Division
4333 Edgewood Road NE
Cedar Rapids, Iowa 52499-0001
Alliance Fund Distributors, Inc.
1345 Avenue of the Americas
New York NY 10105
Attn.: Edmund P. Bergan
FAX: (212) 969-2290
Alliance Capital Management L.P.
1345 Avenue of the Americas
New York NY 10105
Attn: Edmund P. Bergan
FAX: (212) 969-2290
Section 11. Voting Procedures
-----------------------------
Subject to the cost allocation procedures set forth in Section 3 hereof,
Insurer will distribute all proxy material furnished by the Fund to Participants
and will vote Fund shares in accordance with instructions received from
Participants. Insurer will vote Fund shares that are (a) not attributable to
Participants or (b) attributable to Participants, but for which no instructions
have been received, in the same proportion as Fund shares for which said
instructions have been received from Participants. Insurer agrees that it will
disregard Participant voting instructions only to the extent it would be
permitted to do so pursuant to Rule 6e-3 (T)(b)(15)(iii) under the 1940 Act if
the Contracts were variable life insurance policies subject to that rule. Other
participating life insurance companies utilizing the Fund will be responsible
for calculating voting privileges in a manner consistent with that of Insurer,
as prescribed by this Section 11.
22
<PAGE>
Section 12. Foreign Tax Credits
-------------------------------
The Adviser agrees to consult in advance with Insurer concerning any
decision to elect or not to elect pursuant to Section 853 of the Code to pass
through the benefit of any foreign tax credits to the Fund's shareholders.
Section 13. Indemnification
----------------------------
13.1 Indemnification of Fund, Distributor and Adviser by Insurer.
-----------------------------------------------------------
(a) Except to the extent provided in Sections 13.1(b) and 13.1(c), below,
Insurer agrees to indemnify and hold harmless the Fund, Distributor and Adviser,
each of their directors and officers, and each person, if any, who controls the
Fund, Distributor or Adviser within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 13. 1)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of Insurer) or actions in respect thereof
(including, to the extent reasonable, 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
actions are related to the sale, acquisition, or holding of the Fund's shares
and:
(i) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the Separate Account's
1933 Act registration statement, the Separate Account Prospectus, the
Contracts or, to the extent prepared by Insurer or Contracts
Distributor, sales literature or advertising 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
23
<PAGE>
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 Insurer or
Contracts Distributor by or on behalf of the Fund, Distributor or
Adviser for use in the Separate Account's 1933 Act registration
statement, the Separate Account Prospectus, the Contracts, or sales
literature or advertising (or any amendment or supplement to any of
the foregoing); or
(ii) arise out of or as a result of any other statements or representations
(other than statements or representations contained in the Fund's 1933
Act registration statement, Fund Prospectus, sales literature or
advertising of the Fund, or any amendment or supplement to any of the
foregoing, not supplied for use therein by or on behalf of Insurer or
Contracts Distributor) or the negligent, illegal or fraudulent conduct
of Insurer or Contracts Distributor or persons under their control
(including, without limitation, their employees and "Associated
Persons," as that term is defined in paragraph (m) of Article I of the
NASD's By-Laws), in connection with the sale or distribution of the
Contracts or Fund shares; or
(iii)arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the Fund's 1933 Act
registration statement, Fund Prospectus, sales literature or
advertising of the Fund, or any amendment or supplement to any of the
foregoing, or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
24
<PAGE>
statements therein not misleading if such a statement or omission was
made in reliance upon and in conformity with information furnished to
the Fund, Adviser or Distributor by or on behalf of Insurer or
Contracts Distributor for use in the Fund's 1933 Act registration
statement, Fund Prospectus, sales literature or advertising of the
Fund, or any amendment or supplement to any of the foregoing; or
(iv) arise as a result of any failure by Insurer or Contracts Distributor
to perform the obligations, provide the services and furnish the
materials required of them under the terms of this Agreement.
(b) Insurer shall not be liable under this Section 13.1 with respect to any
losses, claims, damages, liabilities or actions to which an Indemnified Party
would otherwise be subject by reason of willful misfeasance, bad faith, or gross
negligence in the performance by that Indemnified Party of its duties or by
reason of that Indemnified Party's reckless disregard of obligations or duties
under this Agreement or to Distributor or to the Fund.
(c) Insurer shall not be liable under this Section 13.1 with respect to any
action against an Indemnified Party unless the Fund, Distributor or Adviser
shall have notified Insurer in writing within a reasonable time after the
summons or other first legal process giving information of the nature of the
action 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 Insurer of any such action shall not relieve
Insurer from any liability which it may have to the Indemnified Party against
whom such action is brought otherwise than on account of this Section 13. 1. In
case any such action is brought against an Indemnified Party, Insurer shall be
entitled to participate, at its own expense, in the defense of such action.
Insurer also shall be entitled to assume the defense thereof,
25
<PAGE>
with counsel approved by the Indemnified Party named in the action, which
approval shall not be unreasonably withheld. After notice from Insurer to such
Indemnified Party of Insurer's election to assume the defense thereof, the
Indemnified Party will cooperate fully with Insurer and shall bear the fees and
expenses of any additional counsel retained by it, and Insurer will not be
liable to such Indemnified Party under this Agreement for any legal or other
expenses subsequently incurred by such Indemnified Party independently in
connection with the defense thereof, other than reasonable costs of
investigation.
13.2 Indemnification of Insurer and Contracts Distributor by Adviser.
---------------------------------------------------------------
(a) Except to the extent provided in Sections 13.2(d) and 13.2(e), below,
Adviser agrees to indemnify and hold harmless Insurer and Contracts Distributor,
each of their directors and officers, and each person, if any, who controls
Insurer or Contracts Distributor within the meaning of Section 15 of the 1933
Act (collectively, the "Indemnified Parties" for purposes of this Section 13.2)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of Adviser) or actions in respect thereof
(including, to the extent reasonable, 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 actions are
related to the sale, acquisition, or holding of the Fund's shares and:
(i) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the Fund's 1933 Act
registration statement, Fund Prospectus, sales literature or
advertising of the Fund or, to the extent not prepared by Insurer or
Contracts Distributor, sales literature or advertising for the
Contracts (or any amendment or supplement to any of the foregoing), or
arise out of or are based
26
<PAGE>
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 Distributor,
Adviser or the Fund by or on behalf of Insurer or Contracts
Distributor for use in the Fund's 1933 Act registration statement,
Fund Prospectus, or in sales literature or advertising (or any
amendment or supplement to any of the foregoing); or
(ii) arise out of or as a result of any other statements or representations
(other than statements or representations contained in the Separate
Account's 1933 Act registration statement, Separate Account
Prospectus, sales literature or advertising for the Contracts, or any
amendment or supplement to any of the foregoing, not supplied for use
therein by or on behalf of Distributor, Adviser, or the Fund) or the
negligent, illegal or fraudulent conduct of the Fund, Distributor,
Adviser or persons under their control (including, without limitation,
their employees and Associated Persons), in connection with the sale
or distribution of the Contracts or Fund shares; or
(iii) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the Separate
Account's 1933 Act registration statement, Separate Account
Prospectus, sales literature or advertising covering the Contracts, or
any amendment or supplement to any of the foregoing, 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
27
<PAGE>
in reliance upon and in conformity with information furnished to
Insurer or Contracts Distributor by or on behalf of the Fund,
Distributor or Adviser for use in the Separate Account's 1933 Act
registration statement, Separate Account Prospectus, sales literature
or advertising covering the Contracts, or any amendment or supplement
to any of the foregoing; or
(iv) arise as a result of any failure by the Fund, Adviser or Distributor
to perform the obligations, provide the services and furnish the
materials required of them under the terms of this Agreement;
(b) Except to the extent provided in Sections 13.2(d) and 13.2(e) hereof,
Adviser agrees to indemnify and hold harmless the Indemnified Parties from and
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement thereof with, except as set forth in Section 13.2(c) below, the
written consent of Adviser) or actions in respect thereof (including, to the
extent reasonable, legal and other expenses) to which the Indemnified Parties
may become subject directly or indirectly under any statute, at common law or
otherwise, insofar as such losses, claims, damages, liabilities or actions
directly or indirectly result from or arise out of the failure of any Portfolio
to operate as a regulated investment company in compliance with (i) Subchapter M
of the Code and regulations thereunder and (ii) Section 817(h) of the Code and
regulations thereunder (except to the extent that such failure is caused by
Insurer), including, without limitation, any income taxes and related penalties,
rescission charges, liability under state law to Contract owners or Participants
asserting liability against Insurer or Contracts Distributor pursuant to the
Contracts, the costs of any ruling and closing agreement or other settlement
with the Internal Revenue Service, and the cost of any substitution by Insurer
of shares of another investment company or portfolio for those of any
28
<PAGE>
adversely affected Portfolio as a funding medium for the Separate Account that
Insurer deems necessary or appropriate as a result of the noncompliance.
(c) The written consent of Adviser referred to in Section 13.2(b) above
shall not be required with respect to amounts paid in connection with any ruling
and closing agreement or other settlement with the Internal Revenue Service.
(d) Adviser shall not be liable under this Section 13.2 with respect to any
losses, claims; damages, liabilities or actions to which an Indemnified Party
would otherwise be subject by reason of willful misfeasance, bad faith, or gross
negligence in the performance by that Indemnified Party of its duties or by
reason of such Indemnified Party's reckless disregard of its obligations and
duties under this Agreement or to Insurer, Contracts Distributor or the Separate
Account.
(e) Adviser shall not be liable under this Section 13.2 with respect to any
action against an Indemnified Party unless Insurer or Contracts Distributor
shall have notified Adviser in writing within a reasonable time after the
summons or other first legal process giving information of the nature of the
action 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 Adviser of any such action shall not relieve
Adviser from any liability which it may have to the Indemnified Party against
whom such action is brought otherwise than on account of this Section 13.2. In
case any such action is brought against an Indemnified Party, Adviser will be
entitled to participate, at its own expense, in the defense of such action.
Adviser also shall be entitled to assume the defense thereof (which shall
include, without limitation, the conduct of any ruling request and closing
agreement or other settlement proceeding with the Internal Revenue Service),
with counsel approved by the Indemnified Party named in the action, which
approval shall not be unreasonably
29
<PAGE>
withheld. After notice from Adviser to such Indemnified Party of Adviser's
election to assume the defense thereof, the Indemnified Party will cooperate
fully with Adviser and shall bear the fees and expenses of any additional
counsel retained by it, and Adviser will not be liable to such Indemnified Party
under this Agreement for any legal or other expenses subsequently incurred by
such Indemnified Party independently in connection with the defense thereof,
other than reasonable costs of investigation.
13.3 Effect of Notice.
----------------
Any notice given by the indemnifying Party to an Indemnified Party referred
to in Section 13.1(c) or 13.2(e) above of participation in or control of any
action by the indemnifying Party will in no event be deemed to be an admission
by the indemnifying Party of liability, culpability or responsibility, and the
indemnifying Party will remain free to contest liability with respect to the
claim among the Parties or otherwise.
Section 14. Applicable Law
--------------------------
This Agreement will be construed and the provisions hereof interpreted
under and in accordance with New York law, without regard for that state's
principles of conflict of laws.
Section 15. Execution in Counterparts
-------------------------------------
This Agreement may be executed simultaneously in two or more counterparts,
each of which taken together will constitute one and the same instrument.
30
<PAGE>
Section 16. Severability
------------------------
If any provision of this Agreement is held or made invalid by a court
decision, statute, rule or otherwise, the remainder of this Agreement will not
be affected thereby.
Section 17. Rights Cumulative
-----------------------------
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, that the Parties are entitled to under federal and state
laws.
Section 18. Restrictions on Sales of Fund Shares
------------------------------------------------
Insurer agrees that the Fund will be permitted (subject to the other terms
of this Agreement) to make its shares available to separate accounts of other
life insurance companies.
Section 19. Headings
--------------------
The Table of Contents and headings used in this Agreement are for purposes
of reference only and shall not limit or define the meaning of the provisions of
this Agreement.
31
<PAGE>
IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed
in their names and on their behalf by and through their duly authorized officers
signing below.
PFL LIFE INSURANCE COMPANY
By:
Name:
Title:
AFSG SECURITIES CORPORATION
By:
Name:
Title:
ALLIANCE CAPITAL MANAGEMENT LP
By: Alliance Capital Management Corporation,
its General Partner
By:
Name:
Title:
ALLIANCE FUND DISTRIBUTORS, INC.
By:
Name:
Title:
32
<PAGE>
EXHIBIT (8)(h)
PARTICIPATION AGREEMENT BY AND AMONG
JANUS ASPEN SERIES AND PFL LIFE INSURANCE COMPANY
<PAGE>
JANUS ASPEN SERIES
FUND PARTICIPATION AGREEMENT
(Service Shares)
THIS AGREEMENT is made this 6th day of April, 2000 , between JANUS
--- ---------------------
ASPEN SERIES, an open-end management investment company organized as a Delaware
business trust (the "Trust"), and PFL Life Insurance Company, a life insurance
company organized under the laws of the State of Iowa (the "Company"), on its
own behalf and on behalf of each segregated asset account of the Company set
forth on Schedule A, as may be amended from time to time (the "Accounts").
WITNESSETH:
----------
WHEREAS, the Trust has registered with the Securities and Exchange
Commission as an open-end management investment company under the Investment
Company Act of 1940, as amended (the "1940 Act"), and the beneficial interest in
the Trust is divided into several series of shares, each series representing an
interest in a particular managed portfolio of securities and other assets (the
"Portfolios"); and
WHEREAS, the Trust has registered the offer and sale of a class of shares
designated the Service Shares ("Shares") of each of its Portfolios under the
Securities Act of 1933, as amended (the "1933 Act"); and
WHEREAS, the Trust desires to act as an investment vehicle for separate
accounts established for variable life insurance policies and variable annuity
contracts to be offered by insurance companies that have entered into
participation agreements with the Trust (the "Participating Insurance
Companies"); and
WHEREAS, the Trust has received an order from the Securities and Exchange
Commission granting Participating Insurance Companies and their separate
accounts exemptions from the provisions of Sections 9(a), 13(a), 15(a) and 15(b)
of the 1940 Act, and Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, to the
extent necessary to permit shares of the Trust to be sold to and held by
variable annuity and variable life insurance separate accounts of both
affiliated and unaffiliated life insurance companies and certain qualified
pension and retirement plans (the "Exemptive Order"); and
WHEREAS, the Company has registered or will register (unless registration
is not required under applicable law) certain variable life insurance policies
and/or variable annuity contracts under the 1933 Act (the "Contracts"); and
WHEREAS, the Company has registered or will register each Account as a unit
investment trust under the 1940 Act; and
-1-
<PAGE>
WHEREAS, the Company desires to utilize the Shares of one or more
Portfolios as an investment vehicle of the Accounts;
NOW, THEREFORE, in consideration of their mutual promises, the parties
agree as follows:
ARTICLE I
Sale of Trust Shares
--------------------
1.1 The Trust shall make Shares of its Portfolios available to the
Accounts at the net asset value next computed after receipt of such purchase
order by the Trust (or its agent), as established in accordance with the
provisions of the then current prospectus of the Trust. Shares of a particular
Portfolio of the Trust shall be ordered in such quantities and at such times as
determined by the Company to be necessary to meet the requirements of the
Contracts. The Trustees of the Trust (the "Trustees") may refuse to sell Shares
of any Portfolio to any person, or suspend or terminate the offering of Shares
of any Portfolio if such action is required by law or by regulatory authorities
having jurisdiction or is, in the sole discretion of the Trustees acting in good
faith and in light of their fiduciary duties under federal and any applicable
state laws, necessary in the best interests of the shareholders of such
Portfolio.
1.2 The Trust will redeem any full or fractional Shares of any Portfolio
when requested by the Company on behalf of an Account at the net asset value
next computed after receipt by the Trust (or its agent) of the request for
redemption, as established in accordance with the provisions of the then current
prospectus of the Trust. The Trust shall make payment for such shares in the
manner established from time to time by the Trust, but in no event shall payment
be delayed for a greater period than is permitted by the 1940 Act.
1.3 For the purposes of Sections 1.1 and 1.2, the Trust hereby appoints
the Company as its agent for the limited purpose of receiving and accepting
purchase and redemption orders resulting from investment in and payments under
the Contracts. Receipt by the Company shall constitute receipt by the Trust
provided that i) such orders are received by the Company in good order prior to
the time the net asset value of each Portfolio is priced in accordance with its
prospectus and ii) the Trust receives notice of such orders by 10:00 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 Trust
calculates its net asset value pursuant to the rules of the Securities and
Exchange Commission.
1.4 Purchase orders that are transmitted to the Trust in accordance with
Section 1.3 shall be paid for no later than 12:00 noon New York time on the same
Business Day that the Trust receives notice of the order. Payments shall be
made in federal funds transmitted by wire.
-2-
<PAGE>
1.5 Issuance and transfer of the Trust's Shares will be by book entry
only. Stock certificates will not be issued to the Company or the Account.
Shares ordered from the Trust will be recorded in the appropriate title for each
Account or the appropriate subaccount of each Account.
1.6 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 a Portfolio's Shares in additional Shares of that Portfolio. The Company
reserves the right to revoke this election and to receive all such 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.
1.7 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 and shall use its best efforts to
make such net asset value per Share available by 6 p.m. New York time.
1.8 The Trust agrees that its Shares will be sold only to Participating
Insurance Companies and their separate accounts and to certain qualified pension
and retirement plans to the extent permitted by the Exemptive Order. No Shares
of any Portfolio will be sold directly to the general public. The Company
agrees that Trust Shares will be used only for the purposes of funding the
Contracts and Accounts listed in Schedule A, as amended from time to time.
1.9 The Trust agrees that all Participating Insurance Companies shall have
the obligations and responsibilities regarding pass-through voting and conflicts
of interest corresponding to those contained in Section 2.8 and Article IV of
this Agreement.
ARTICLE II
Obligations of the Parties
--------------------------
2.1 The Trust shall prepare and be responsible for filing with the
Securities and Exchange Commission and any state regulators requiring such
filing all shareholder reports, notices, proxy materials (or similar materials
such as voting instruction solicitation materials), prospectuses and statements
of additional information of the Trust. The Trust shall bear the costs of
registration and qualification of its shares, preparation and filing of the
documents listed in this Section 2.1 and all taxes to which an issuer is subject
on the issuance and transfer of its shares.
2.2 At the option of the Company, the Trust shall either (a) provide the
Company (at the Company's expense) with as many copies of the Trust's Shares'
current prospectus, annual report, semi-annual report and other shareholder
communications, including any
-3-
<PAGE>
amendments or supplements to any of the foregoing, as the Company shall
reasonably request; or (b) provide the Company with a camera ready copy of such
documents in a form suitable for printing. The Trust shall provide the Company
with a copy of the Shares' statement of additional information in a form
suitable for duplication by the Company. The Trust (at its expense) shall
provide the Company with copies of any Trust-sponsored proxy materials in such
quantity as the Company shall reasonably require for distribution to Contract
owners.
2.3 (a) The Company shall bear the costs of printing and distributing the
Trust's Shares' prospectus, statement of additional information, shareholder
reports and other shareholder communications to owners of and applicants for
policies for which Shares of the Trust are serving or are to serve as an
investment vehicle. The Company shall bear the costs of distributing proxy
materials (or similar materials such as voting solicitation instructions) to
Contract owners. The Company assumes sole responsibility for ensuring that such
materials are delivered to Contract owners in accordance with applicable federal
and state securities laws.
(b) If the Company elects to include any materials provided by the
Trust, specifically prospectuses, SAIs, shareholder reports and proxy materials,
on its web site or in any other computer or electronic format, the Company
assumes sole responsibility for maintaining such materials in the form provided
by the Trust and for promptly replacing such materials with all updates provided
by the Trust.
2.4 The Company agrees and acknowledges that the Trust's adviser, Janus
Capital Corporation ("Janus Capital"), is the sole owner of the name and mark
"Janus" and that all use of any designation comprised in whole or part of Janus
(a "Janus Mark") under this Agreement shall inure to the benefit of Janus
Capital. Except as provided in Section 2.5, the Company shall not use any Janus
Mark on its own behalf or on behalf of the Accounts or Contracts in any
registration statement, advertisement, sales literature or other materials
relating to the Accounts or Contracts without the prior written consent of Janus
Capital. Upon termination of this Agreement for any reason, the Company shall
cease all use of any Janus Mark(s) as soon as reasonably practicable.
2.5 (a) The Company shall furnish, or cause to be furnished, to the Trust
or its designee, a copy of each Contract prospectus or statement of additional
information in which the Trust or its investment adviser is named prior to the
filing of such document with the Securities and Exchange Commission. 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 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.
(b) The Trust 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 or its investment adviser is named, at least
fifteen Business Days prior to its use.
-4-
<PAGE>
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.
2.6 The Company shall not give any information or make any representations
or statements on behalf of the Trust or concerning the Trust or its investment
adviser in connection with the sale of the Contracts other than information or
representations contained in and accurately derived from the registration
statement or prospectus for the Trust Shares (as such registration statement and
prospectus may be amended or supplemented from time to time), reports of the
Trust, Trust-sponsored proxy statements, or in sales literature or other
promotional material approved by the Trust or its designee, except as required
by legal process or regulatory authorities or with the written permission of the
Trust or its designee.
2.7 The Trust shall not give any information or make any representations
or statements on behalf of the Company or concerning the Company, the Accounts
or the Contracts other than information or representations contained in and
accurately derived from the registration statement or prospectus for the
Contracts (as such registration statement and prospectus may be amended or
supplemented from time to time), or in materials approved by the Company for
distribution including sales literature or other promotional materials, except
as required by legal process or regulatory authorities or with the written
permission of the Company.
2.8 So long as, and to the extent that the Securities and Exchange
Commission interprets the 1940 Act to require pass-through voting privileges for
variable policyowners, the Company will provide pass-through voting privileges
to owners of policies whose cash values are invested, through the Accounts, in
shares of the Trust. The Trust shall require all Participating Insurance
Companies to calculate voting privileges in the same manner and the Company
shall be responsible for assuring that the Accounts calculate voting privileges
in the manner established by the Trust. With respect to each Account, the
Company will vote Shares of the Trust held by the Account and for which no
timely voting instructions from policyowners are received as well as Shares it
owns that are held by that Account, in the same proportion as those Shares for
which voting instructions are received. The Company and its agents will in no
way recommend or oppose or interfere with the solicitation of proxies for Trust
shares held by Contract owners without the prior written consent of the Trust,
which consent may be withheld in the Trust's sole discretion.
2.9 The Company shall notify the Trust of any applicable state insurance
laws that restrict the Portfolios' investments or otherwise affect the operation
of the Trust and shall notify the Trust of any changes in such laws.
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ARTICLE III
Representations and Warranties
------------------------------
3.1 The Company represents and warrants that it is an insurance company
duly organized and in good standing under the laws of the State of Iowa and that
it has legally and validly established each Account as a segregated asset
account under such law on the date set forth in Schedule A.
3.2 The Company represents and warrants that each Account has been
registered or, prior to any issuance or sale of the Contracts, will be
registered as a unit investment trust in accordance with the provisions of the
1940 Act.
3.3 The Company represents and warrants that the Contracts or interests in
the Accounts (1) are or, prior to issuance, will be registered as securities
under the 1933 Act or, alternatively (2) are not registered because they are
properly exempt from registration under the 1933 Act or will be offered
exclusively in transactions that are properly exempt from registration under the
1933 Act. The Company further represents and warrants that the Contracts will
be issued and sold in compliance in all material respects with all applicable
federal and state laws; and the sale of the Contracts shall comply in all
material respects with state insurance suitability requirements.
3.4 The Trust represents and warrants that it is duly organized and
validly existing under the laws of the State of Delaware.
3.5 The Trust represents and warrants that the Trust Shares offered and
sold pursuant to this Agreement will be registered under the 1933 Act and the
Trust shall be registered under the 1940 Act prior to any issuance or sale of
such Shares. The Trust shall amend its registration statement 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 its
Shares for sale in accordance with the laws of the various states only if and to
the extent deemed advisable by the Trust.
3.6 The Trust represents and warrants that the investments of each
Portfolio will comply with the diversification requirements set forth in Section
817(h) of the Internal Revenue Code of 1986, as amended, and the rules and
regulations thereunder.
3.7 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.
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<PAGE>
3.8 The Trust's Institutional Shares currently do not intend to make
any payments to finance distribution expenses pursuant to Rule 12b-1 under the
1940 Act or otherwise, although they may make such payments in the future. To
the extent that the Trust decides to finance distribution expenses for the
Institutional Shares 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.
3.9 The Trust 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 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.
ARTICLE IV
Potential Conflicts
-------------------
4.1 The parties acknowledge that the Trust's shares may be made available
for investment to other Participating Insurance Companies. In such event, the
Trustees will monitor the Trust for the existence of any material irreconcilable
conflict between the interests of the contract owners of all Participating
Insurance Companies. 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 Trustees shall promptly inform the Company if they determine that an
irreconcilable material conflict exists and the implications thereof.
4.2 The Company agrees to promptly report any potential or existing
conflicts of which it is aware to the Trustees. The Company will assist the
Trustees in carrying out their responsibilities under the Exemptive Order by
providing the Trustees with all information reasonably necessary for the
Trustees to consider any issues raised including, but not limited to,
information as to a decision by the Company to disregard Contract owner voting
instructions.
4.3 If it is determined by a majority of the Trustees, or a majority of
its disinterested Trustees, that a material irreconcilable conflict exists that
affects the interests of Contract owners, the Company shall, in cooperation with
other Participating Insurance Companies whose contract owners are also affected,
at its expense and to the extent reasonably
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<PAGE>
practicable (as determined by the Trustees) take whatever steps are necessary to
remedy or eliminate the irreconcilable material conflict, which steps could
include: (a) withdrawing the assets allocable to some or all of the 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 of whether or not 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 one or more
Participating Insurance Companies) that votes in favor of such segregation, or
offering to the affected Contract owners the option of making such a change; and
(b) establishing a new registered management investment company or managed
separate account.
4.4 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 Trustees. Any such withdrawal and
termination must take place within six (6) months after the Trust gives written
notice that this provision is being implemented. Until the end of such six (6)
month period, the Trust shall continue to accept and implement orders by the
Company for the purchase and redemption of shares of the Trust.
4.5 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 (6) months after the Trustees inform 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
Trustees. Until the end of such six (6) month period, the Trust shall continue
to accept and implement orders by the Company for the purchase and redemption of
shares of the Trust.
4.6 For purposes of Sections 4.3 through 4.6 of this Agreement, a majority
of the disinterested Trustees shall determine whether any proposed action
adequately remedies any irreconcilable material conflict, but in no event will
the Company be required 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 Trustees determine 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 Trustees inform the Company in writing of the foregoing
determination; provided, however, that such
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<PAGE>
withdrawal and termination shall be limited to the extent required by any such
material irreconcilable conflict as determined by a majority of the
disinterested Trustees.
4.7 The Company shall at least annually submit to the Trustees such
reports, materials or data as the Trustees may reasonably request so that the
Trustees may fully carry out the duties imposed upon them by the Exemptive
Order, and said reports, materials and data shall be submitted more frequently
if deemed appropriate by the Trustees.
4.8 If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or
Rule 6e-3 is adopted, to provide exemptive relief from any provision of the 1940
Act or the rules promulgated thereunder with respect to mixed or shared funding
(as defined in the Exemptive Order) on terms and conditions materially different
from those contained in the Exemptive Order, then the Trust and/or the
Participating Insurance Companies, as appropriate, shall take such steps as may
be necessary to comply with Rules 6e-2 and 6e-3(T), as amended, and Rule 6e-3,
as adopted, to the extent such rules are applicable.
ARTICLE V
Indemnification
---------------
5.1 Indemnification By the Company. The Company agrees to indemnify and
------------------------------
hold harmless the Trust and each of its Trustees, officers, employees and agents
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
Article V) against any and all losses, claims, damages, liabilities (including
amounts paid in settlement with the written consent of the Company) or expenses
(including the reasonable costs of investigating or defending any alleged loss,
claim, damage, liability or expense and reasonable legal counsel fees incurred
in connection therewith) (collectively, "Losses"), to which the Indemnified
Parties may become subject under any statute or regulation, or at common law or
otherwise, insofar as such Losses are related to the sale or acquisition of the
Trust's shares or the Contracts and:
(a) arise out of or are based upon any untrue statements or alleged
untrue statements of any material fact contained in a registration
statement or prospectus for the Contracts or in the Contracts themselves or
in sales literature generated or approved by the Company on behalf of the
Contracts or Accounts (or any amendment or supplement to any of the
foregoing) (collectively, "Company Documents" for the purposes of this
Article V), 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
indemnity 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 was accurately derived from written information furnished to the
Company by or on behalf of the Trust for use in Company Documents or
otherwise for use in connection with the sale of the Contracts or Trust
Shares; or
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<PAGE>
(b) arise out of or result from statements or representations (other
than statements or representations contained in and accurately derived from
Trust Documents as defined in Section 5.2(a)) or wrongful conduct of the
Company or persons under its control, with respect to the sale or
acquisition of the Contracts or Trust Shares; or
(c) arise out of or result from any untrue statement or alleged untrue
statement of a material fact contained in Trust Documents as defined in
Section 5.2(a) 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 and accurately derived from written information furnished to
the Trust by or on behalf of the Company; or
(d) arise out of or result from any failure by the Company to provide
the services or furnish the materials required under the terms of this
Agreement; or
(e) 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.
5.2 Indemnification By the Trust. The Trust agrees to indemnify and hold
----------------------------
harmless the Company and each of its directors, officers, employees and agents
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
Article V) against any and all losses, claims, damages, liabilities (including
amounts paid in settlement with the written consent of the Trust) or expenses
(including the reasonable costs of investigating or defending any alleged loss,
claim, damage, liability or expense and reasonable legal counsel fees incurred
in connection therewith) (collectively, "Losses"), to which the Indemnified
Parties may become subject under any statute or regulation, or at common law or
otherwise, insofar as such Losses:
(a) 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 Trust (or any amendment or supplement
thereto), (collectively, "Trust Documents" for the purposes of this Article
V), 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 indemnity
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 was
accurately derived from written information furnished to the Trust by or on
behalf of the Company for use in Trust Documents or otherwise for use in
connection with the sale of the Contracts or Trust Shares; or
(b) arise out of or result from statements or representations (other
than statements or representations contained in and accurately derived from
Company
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<PAGE>
Documents) or wrongful conduct of the Trust or persons under its control,
with respect to the sale or acquisition of the Contracts or Trust Shares;
or
(c) arise out of or result from any untrue statement or alleged untrue
statement of a material fact contained in Company Documents 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 and accurately derived from
written information furnished to the Company by or on behalf of the Trust;
or
(d) arise out of or result from any failure by the Trust to provide
the services or furnish the materials required under the terms of this
Agreement; or
(e) 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.
5.3 Neither the Company nor the Trust shall be liable under the
indemnification provisions of Sections 5.1 or 5.2, as applicable, with respect
to any Losses incurred or assessed against an Indemnified Party that arise from
such Indemnified Party's willful misfeasance, bad faith or 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.
5.4 Neither the Company nor the Trust shall be liable under the
indemnification provisions of Sections 5.1 or 5.2, as applicable, with respect
to any claim made against an Indemnified Party unless such Indemnified Party
shall have notified the other party in writing within a reasonable time after
the summons, or other first written notification, giving information of the
nature of the claim shall have been served upon or otherwise received by such
Indemnified Party (or after such Indemnified Party shall have received notice of
service upon or other notification to any designated agent), but failure to
notify the party against whom indemnification is sought of any such claim shall
not relieve that party from any liability which it may have to the Indemnified
Party in the absence of Sections 5.1 and 5.2.
5.5 In case any such action is brought against the Indemnified Parties,
the indemnifying party shall be entitled to participate, at its own expense, in
the defense of such action. The indemnifying party also shall be entitled to
assume the defense thereof, with counsel reasonably satisfactory to the party
named in the action. After notice from the indemnifying party to the
Indemnified Party of an election to assume such defense, the Indemnified Party
shall bear the fees and expenses of any additional counsel retained by it, and
the indemnifying party will not be liable to the Indemnified 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.
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<PAGE>
ARTICLE VI
Termination
-----------
6.1 (a) This Agreement may be terminated by either party for any reason
by ninety (90) days advance written notice delivered to the other party.
(b) This Agreement may be terminated by the Company immediately upon
written notice to the Trust with respect to any Portfolio:
(i) based upon the Company's determination that shares of such
Portfolio are not reasonably available to meet the requirements of the
Contracts; or
(ii) 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
(iii) 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
(iv) in the event that such Portfolio fails to meet the
diversification requirements specified in this Agreement.
6.2 Notwithstanding any termination of this Agreement, the Trust shall, at
the option of the Company, continue to make available additional shares of the
Trust (or any Portfolio) pursuant to the terms and conditions of this Agreement
for all Contracts in effect on the effective date of termination of this
Agreement, provided that the Company continues to pay the costs set forth in
Section 2.3.
6.3 The provisions of Article V shall survive the termination of this
Agreement, and the provisions of Article IV and Section 2.8 shall survive the
termination of this Agreement as long as Shares of the Trust are held on behalf
of Contract owners in accordance with Section 6.2.
ARTICLE VII
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.
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<PAGE>
If to the Trust:
Janus Aspen Series
100 Fillmore Street
Denver, Colorado 80206
Attention: General Counsel
If to the Company:
PFL Life Insurance Company
4333 Edgewood Road NE
Cedar Rapids, IA 52499-0001
Attention: Financial Markets Division Counsel
ARTICLE VIII
Miscellaneous
-------------
8.1 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.
8.2 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
8.3 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.
8.4 This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of State of Colorado.
8.5 The parties to this Agreement acknowledge and agree that all
liabilities of the Trust arising, directly or indirectly, under this Agreement,
of any and every nature whatsoever, shall be satisfied solely out of the assets
of the Trust and that no Trustee, officer, agent or holder of shares of
beneficial interest of the Trust shall be personally liable for any such
liabilities.
8.6 Each party shall cooperate with each other party and all appropriate
governmental authorities (including without limitation the Securities and
Exchange Commission, the National Association of Securities Dealers, Inc., and
state insurance regulators) and shall permit such authorities reasonable access
to its books and records in connection with any investigation or inquiry
relating to this Agreement or the transactions contemplated hereby.
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<PAGE>
8.7 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.
8.8 The parties to this Agreement acknowledge and agree that this
Agreement shall not be exclusive in any respect.
8.9 Neither this Agreement nor any rights or obligations hereunder may be
assigned by either party without the prior written approval of the other party.
8.10 No provisions of this Agreement may be amended or modified in any
manner except by a written agreement properly authorized and executed by both
parties.
IN WITNESS WHEREOF, the parties have caused their duly authorized officers
to execute this Participation Agreement as of the date and year first above
written.
JANUS ASPEN SERIES
By: /s/ Bonnie Howe
-------------------------------------
Name: Bonnie Howe
-----------------------------------
Title: Vice President
----------------------------------
PFL LIFE INSURANCE COMPANY
By /s/ William L. Busler
-------------------------------------
Name: William L. Busler
----------------------------------
Title: President
---------------------------------
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Schedule A
----------
Separate Accounts and Associated Contracts
------------------------------------------
Contracts Funded
Name of Separate Account By Separate Account
- ------------------------ -------------------
PFL Life Variable Annuity Account A PFL Life Insurance Company Policy
Form No. AV337 101 100397
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<PAGE>
EXHIBIT (10)(a)
CONSENT OF INDEPENDENT AUDITORS
<PAGE>
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Independent Auditors"
in the Statement of Additional Information and to the use of our reports
(1) dated January 28, 2000 with respect to the financial statements of the
subaccounts of PFL Life Variable Annuity Account A, which are available for
investment by the contract owners of The Atlas Portfolio Builder Variable
Annuity, and (2) dated February 18, 2000 with respect to the statutory-basis
financial statements and schedules of PFL Life Insurance Company, included in
Post-Effective Amendment No. 3 to the Registration Statement (Form N-4
No. 333-26209) and related Prospectus of The Atlas Portfolio Builder Variable
Annuity.
/s/ Ernst & Young
Des Moines, Iowa
April 24, 2000
