<PAGE>
As filed with the Securities and Exchange
Commission on February 11, 2000
333-47027
---------
811-08377
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No.
Post-Effective Amendment No. 3
-
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 12
PFL ENDEAVOR TARGET ACCOUNT
---------------------------
(Exact Name of Registrant)
PFL Life Insurance Company
--------------------------
(Name of Insurance Company)
4333 Edgewood Road, N.E.
Cedar Rapids, Iowa 52499-0001
800-525-6205
Name and Address of Agent for Service: Copy to:
Frank A. Camp, Esquire Frederick R. Bellamy, Esquire
PFL Life Insurance Company Sutherland, Asbill & Brennan LLP
4333 Edgewood Road, N.E. 1275 Pennsylvania Avenue, N.W.
Cedar Rapids, Iowa 52499 Washington, D.C. 20004-2404
Title of Securities Being Registered:
Flexible Premium Variable Annuity Policies
Approximate Date of Proposed Public Offering: As soon as practicable after the
effective date.
It is proposed that this filing will become effective:
____________ immediately upon filing pursuant to paragraph (b) of Rule 485
____________ on ___________ pursuant to paragraph (b) of Rule 485
____________ 60 days after filing pursuant to paragraph (a)(1) of Rule 485
X
____________ on May 1, 2000 pursuant to paragraph (a)(1) of Rule 485
____________ 75 days after filing pursuant to paragraph (a)(2)
____________ on ____________ pursuant to paragraph (a)(2) 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 ENDEAVOR
VARIABLE ANNUITY
Issued Through
PFL ENDEAVOR VA SEPARATE ACCOUNT
and
PFL ENDEAVOR TARGET ACCOUNT
by
PFL LIFE INSURANCE COMPANY
Prospectus
May 1, 2000
This prospectus and the mutual fund prospectuses give you important information
about the policies and the mutual funds. Please read them carefully before you
invest and keep them for future reference.
If you would like more information about The Endeavor Variable Annuity policy,
you can obtain a free copy of the Statement of Additional Information (SAI)
dated May 1, 2000. Please call us at (800) 525-6205 or write us at: PFL Life
Insurance Company, Financial Markets Division, Variable Annuity Department, 4333
Edgewood Road N.E., Cedar Rapids, Iowa, 52499-0001. A registration statement,
including the SAI, has been filed with the Securities and Exchange Commission
(SEC) and is incorporated herein by reference. Information about the variable
annuity can be reviewed and copied at the SEC's Public Reference Room in
Washington, D.C. You may obtain information about the operation of the public
reference room by calling the SEC at 1-800-SEC-0330. The SEC also maintains a
web site (http://www.sec.gov) that contains the prospectus, the SAI, material
incorporated by reference, and other information. The table of contents of the
SAI is included at the end of this prospectus.
Please note that the policies and the mutual funds:
. are not bank deposits
. are not federally insured
. are not endorsed by any bank or government agency
. are not guaranteed to achieve their goal
. are subject to risks, including loss of premium
The Securities and Exchange Commission has not approved or disapproved these
securities, or passed upon the adequacy of this prospectus. Any representation
to the contrary is a criminal offense.
This flexible premium deferred annuity policy has many investment choices. There
are two separate accounts: (1) a mutual fund account; and (2) a target account.
The mutual fund subaccounts and the target series subaccounts are listed below.
You bear the entire investment risk for all amounts you put in either separate
account. There is also a fixed account, which offers interest at rates that are
guaranteed by PFL Life Insurance Company (PFL). You can choose any combination
of these investment choices.
ENDEAVOR SERIES TRUST
Dreyfus Small Cap Value Portfolio
Dreyfus U.S. Government Securities Portfolio
Endeavor Asset Allocation Portfolio
Endeavor Money Market Portfolio
Endeavor Enhanced Index Portfolio
Endeavor High Yield Portfolio
Endeavor Janus Growth Portfolio
Endeavor Opportunity Value Portfolio
Endeavor Value Equity Portfolio
Endeavor Select 50 Portfolio
T. Rowe Price Equity Income Portfolio
T. Rowe Price Growth Stock Portfolio
T. Rowe Price International Stock Portfolio
TRANSAMERICA VARIABLE
INSURANCE FUND, INC.
Transamerica VIF Growth Portfolio
VARIABLE INSURANCE PRODUCTS FUND
(VIP) - SERVICE CLASS 2
Fidelity - VIP Equity-Income Portfolio
VARIABLE INSURANCE PRODUCTS FUND II
(VIP II) - SERVICE CLASS 2
Fidelity - VIP II Contrafund Portfolio
VARIABLE INSURANCE PRODUCTS FUND III
(VIP III) - SERVICE CLASS 2
Fidelity - VIP III Growth Opportunities Portfolio
Fidelity - VIP III Mid Cap Portfolio
WRL SERIES FUND, INC.
WRL Alger Aggressive Growth
WRL Goldman Sachs Growth
WRL Janus Global
WRL NWQ Value Equity
WRL Pilgrim Baxter Mid Cap Growth
WRL Salomon All Cap
WRL T. Rowe Price Dividend Growth
WRL T. Rowe Price Small Cap
THE TARGET ACCOUNT
The Dow(SM) Target 10 (January Series)
The Dow(SM) Target 5 (January Series)
The Dow(SM) Target 10 (July Series)
The Dow(SM) Target 5 (July Series)
<PAGE>
TABLE OF CONTENTS Page
GLOSSARY OF TERMS .....................................................
SUMMARY ...............................................................
ANNUITY POLICY FEE TABLE ..............................................
EXAMPLES ..............................................................
1. THE ANNUITY POLICY ...............................................
2. ANNUITY PAYMENTS
(THE INCOME PHASE) ...............................................
Annuity Payment Options ..........................................
3. PURCHASE .........................................................
Policy Issue Requirements ........................................
Premium Payments .................................................
Initial Premium Requirements .....................................
Additional Premium Payments ......................................
Maximum Total Premium Payments ...................................
Allocation of Premium Payments ...................................
Policy Value .....................................................
4. INVESTMENT CHOICES ...............................................
The Separate Accounts ............................................
The Mutual Fund Account ..........................................
The Target Account ...............................................
The Fixed Account ................................................
Transfers ........................................................
Family Income Protector ..........................................
Dollar Cost Averaging Program ....................................
Asset Rebalancing ................................................
Telephone Transactions ...........................................
5. EXPENSES .........................................................
Surrender Charges ................................................
Excess Interest Adjustment .......................................
Mortality and Expense Risk Fee ...................................
Administrative Charges ...........................................
Premium Taxes ....................................................
Federal, State and Local Taxes ...................................
Transfer Fee .....................................................
Family Income Protector ..........................................
Portfolio Management Fees ........................................
Target Account Fees ..............................................
6. TAXES ............................................................
Annuity Policies in General ......................................
Qualified and Nonqualified Policies ..............................
Withdrawals - Nonqualified Policies ..............................
Withdrawals - Qualified Policies .................................
Withdrawals - 403(b) Policies ....................................
Tax Status of the Policy .........................................
Taxation of Death Benefit Proceeds ...............................
Annuity Payments .................................................
Transfers, Assignments or Exchanges of Policies ..................
Possible Tax Law Changes .........................................
7. ACCESS TO YOUR MONEY .............................................
Surrenders .......................................................
Delay of Payment and Transfers ...................................
Excess Interest Adjustment .......................................
Systematic Payout Option .........................................
Nursing Care and Terminal Condition ..............................
Withdrawal Option .............................................
Unemployment Waiver ..............................................
8. PERFORMANCE ......................................................
The Mutual Fund Account ..........................................
The Target Account ...............................................
9. DEATH BENEFIT ....................................................
When We Pay A Death Benefit ......................................
When We Do Not Pay A Death Benefit ...............................
Amount of Death Benefit ..........................................
Guaranteed Minimum Death Benefit .................................
Adjusted Partial Withdrawal ......................................
10. OTHER INFORMATION ................................................
Ownership ........................................................
Assignment .......................................................
PFL Life Insurance Company .......................................
The Mutual Fund Account ..........................................
The Target Account ...............................................
Mixed and Shared Funding .........................................
Reinstatements ...................................................
Voting Rights ....................................................
Distributor of the Policies ......................................
Non-participating Policy .........................................
Variations in Policy Provisions ..................................
IMSA .............................................................
Legal Proceedings ................................................
Financial Statements .............................................
TABLE OF CONTENTS OF THE
STATEMENT OF ADDITIONAL
INFORMATION ...........................................................
APPENDIX A
Condensed Financial Information
The Mutual Fund Account .............................................
Condensed Financial Information
The Target Account ..................................................
APPENDIX B
Historical Performance Data
The Mutual Fund Account .............................................
Historical Performance Data
The Target Strategies and the
Dow Jones Industrial Average(SM) ...................................
APPENDIX C
Policy Variations .....................................................
2
<PAGE>
GLOSSARY OF TERMS
Accumulation Unit--An accounting unit of measure used in calculating the policy
value in the mutual fund account and the target account before the annuity
commencement date.
Annual Stock Selection Date--The last business day of a specified 12-month
period.
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 annual service charge, and less any applicable surrender
charge, premium taxes and family income protector rider fee.
DJIA--The Dow Jones Industrial Average(SM). Thirty stocks chosen by the editors
of The Wall Street Journal as representative of the broad market and of American
industry.
Excess Interest Adjustment--A positive or negative adjustment to amounts
withdrawn upon partial withdrawals, full surrenders, or transfers from the
guaranteed period options, or to amounts applied to annuity payment options.
The adjustment reflects changes in the interest rates declared by PFL since the
date any payment was received by, or an amount was transferred to, the
guaranteed period option. The excess interest adjustment can either decrease or
increase the amount to be received by the owner upon full surrender or
commencement of annuity payments, depending upon whether there has been an
increase or decrease in interest rates, respectively.
Fixed Account--One or more investment choices under the policy that are part of
the general assets of PFL and are not in the mutual fund account or the target
account.
Guaranteed Period Options--The various guaranteed interest rate periods of the
fixed account which PFL may offer and into which premium payments may be paid or
amounts transferred.
Initial Stock Selection Date--The date is June 30, 1998 for the July Series. The
date is December 31, 1998 for the January Series.
Mutual Fund Account--PFL Endeavor VA Separate Account, 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.
Mutual Fund Subaccount--A subdivision within the mutual fund account, the assets
of which are invested in specified portfolios of the underlying funds.
Owner--Depending upon the state of issue, owner means either:
. the individual or entity that owns a certificate under a group contract; or
. the individual or entity that owns an individual policy.
Policy--Depending upon the state of issue, policy means either:
. the individual certificate under a group contract; or
. the individual policy.
Policy Value--On or before the annuity commencement date, the policy value is
equal to the owner's:
. premium payments; minus
. partial withdrawals (including the net effect of any applicable excess
interest adjustments and/or surrender charges on such withdrawals); plus
. interest credited in the fixed account; plus
. accumulated gains or losses in the mutual fund account and the target
account; minus
. service charges, rider fees, premium taxes, and transfer fees, if any.
Policy Year--A policy year begins on the policy date and on each policy
anniversary.
Target Account--A separate account established and registered as a management
investment company under the 1940 Act to which premium payments under the
policies may be allocated.
Target Series Subaccount--A subdivision within the target account, the assets of
which are invested in common stocks selected according to a specified investment
strategy, with a specific stock selection date.
(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. Words printed in italics in this prospectus
are defined in the Glossary.
1. THE ANNUITY POLICY
The flexible premium variable annuity policy offered by PFL Life Insurance
Company (PFL, we, us, or our) provides a way for you to invest on a tax-deferred
basis in the following investment choices: twenty-six subaccounts of the mutual
fund account, four subaccounts of the target 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 thirty subaccounts in both the mutual fund account and the
target account that are listed in Section 4. Each mutual fund subaccount invests
exclusively in shares of one of the portfolios of the underlying funds. Each
target series subaccount invests directly in individual stocks according to its
specific investment strategy. 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. We reserve the
right to impose a $10 fee for each transfer in excess of 12 transfers per policy
year.
The policy, like all deferred annuity policies, has two phases: the
"accumulation phase" and the "income phase." During the accumulation phase,
earnings accumulate on a tax-deferred basis and are taxed as ordinary income
when you take them out of the policy. The income phase occurs when you begin
receiving regular payments from your policy. The money you can accumulate during
the accumulation phase will largely determine the income payments you receive
during the income phase.
2. ANNUITY PAYMENTS
(THE INCOME PHASE)
The policy allows you to receive income under one of five annuity payment
options. You may choose from fixed payment options, variable payment options, or
a combination of both. If you select a variable payment option, the dollar
amount of your payments may go up or down.
3. PURCHASE
You can buy a nonqualified policy with $5,000 or more, and a qualified policy
with $1,000 or more, under most circumstances. You can add as little as $50 at
any time during the accumulation phase.
4. INVESTMENT CHOICES
You can allocate your premium payments to one or more of the investment choices
listed below.
The following twenty-six mutual fund portfolios are described in the underlying
fund prospectuses:
Dreyfus Small Cap Value Portfolio
Dreyfus U.S. Government Securities Portfolio
Endeavor Asset Allocation Portfolio
Endeavor Money Market Portfolio
Endeavor Enhanced Index Portfolio
Endeavor High Yield Portfolio
Endeavor Janus Growth Portfolio
Endeavor Opportunity Value Portfolio
Endeavor Value Equity Portfolio
Endeavor Select 50 Portfolio
T. Rowe Price Equity Income Portfolio
T. Rowe Price Growth Stock Portfolio
T. Rowe Price International Stock Portfolio
Transamerica VIF Growth Portfolio
Fidelity - VIP Equity-Income Portfolio
Fidelity - VIP II Contrafund Portfolio
Fidelity - VIP III Growth Opportunities Portfolio
Fidelity - VIP III Mid Cap Portfolio
WRL Alger Aggressive Growth
WRL Goldman Sachs Growth
WRL Janus Global
WRL NWQ Value Equity
4
<PAGE>
WRL Pilgrim Baxter Mid Cap Growth
WRL Salomon All Cap
WRL T. Rowe Price Dividend Growth
WRL T. Rowe Price Small Cap
The following four target series subaccounts are described later in this
prospectus:
The Dow(SM) Target 10 (January Series)
The Dow(SM) Target 5 (January Series)
The Dow(SM) Target 10 (July Series)
The Dow(SM) Target 5 (July Series)
Depending upon their investment performance, you can make or lose money in any
of the mutual fund subaccounts or target series subaccounts.
You can also allocate your premium payments to the fixed account.
5. EXPENSES
No deductions are made from premium payments at the time you buy the policy so
that the full amount of each premium payment is invested in one or more of your
investment choices.
We may deduct a surrender charge of up to 7% of premium payments withdrawn
within seven years after the premium is paid. To calculate surrender charges, we
consider the premium you paid to come out before any earnings.
Full surrenders, partial withdrawals, and transfers from a guaranteed period
option of the fixed account may also be subject to an excess interest
adjustment, which may increase or decrease the amount you receive. This
adjustment may also apply to amounts applied to an annuity payment option from a
guaranteed period option of the fixed account.
We deduct daily mortality and expense risk fees and administrative charges at an
annual rate of of 1.40% (if you choose the "Return of Premium Death Benefit") or
1.55% (if you choose any other death benefit option) from the assets in each
mutual fund subaccount and target series subaccount.
During the accumulation phase, we deduct an annual service charge of no more
than $35 from the policy value on each policy anniversary and at the time of
surrender. The charge is waived if either the policy value or the sum of all
premium payments, minus all partial withdrawals, is at least $50,000.
We will deduct state premium taxes, which currently range from 0% to 3.50%, upon
total surrender, payment of a death benefit, or when annuity payments begin.
If you elect the "family income protector" rider, then there is an annual fee
during the accumulation phase of 0.30% of the minimum annuitization value. If
you annuitize under the rider, then there is a guaranteed payment fee at an
annual rate of 1.25% of the daily net asset value in the separate account.
The value of the net assets of the mutual fund subaccounts will reflect the
management fee and other expenses incurred by the underlying portfolios. The
value of the net assets of the target series subaccounts will reflect the
management fee and other expenses incurred by the manager in operating each
target series subaccount.
6. TAXES
Your earnings, if any, are not taxed until you take them out. If you take money
out during the accumulation phase, earnings come out first for federal tax
purposes, and are taxed as ordinary income. If you are younger than 59 1/2 when
you take money out, you may be charged a 10% federal penalty tax on the
earnings. Payments during the income phase may be considered partly a return of
your original investment so that part of each payment would not be taxable as
income.
7. ACCESS TO YOUR MONEY
You can take out $500 or more anytime during the accumulation phase (except
under certain qualified policies). After one year, you may take out the greater
of:
. up to 10% of your premium; and
. any gains in the policy.
These amounts may be taken free of surrender charges once each policy year. The
gains in the policy are the amount equal to the policy value, minus the sum of
all premium payments, reduced by all prior partial withdrawals.
If you have policy value in the fixed account, you may take the 10% free of
surrender charges and excess interest adjustments. Amounts withdrawn in the
first year, or in
5
<PAGE>
excess of the amount taken free of surrender charges described above, may be
subject to a surrender charge and/or excess interest adjustment. You may also
have to pay income tax and a tax penalty on any money you take out.
8. PERFORMANCE
The value of the policy will vary up or down depending upon the investment
performance of the mutual fund subaccounts or target series subaccounts you
choose. We provide performance information in Appendix B and in the SAI. This
data is not intended to indicate future performance.
9. DEATH BENEFIT
If you are both the owner and the annuitant and you die before the income phase
begins, then your beneficiary will receive a death benefit.
Naming different persons as owner and annuitant can affect whether the death
benefit is payable and to whom amounts will be paid. Use care when naming
owners, annuitants and beneficiaries, and consult your agent if you have
questions.
You generally may choose one of the following guaranteed minimum death benefits:
. 5% Annually Compounding
. Greater of 5% Annually Compounding through age 80 or Annual Step-Up through
age 80
. Monthly Step-Up through age 80
. Return of Premium
Charges are lower for the the Return of Premium Death Benefit than they are for
the other three.
These choices are restricted for annuitants and owners over age 74.
If the owner is not the annuitant, no death benefit is paid if the owner dies.
10. OTHER INFORMATION
Right to Cancel Period. You may return your policy for a refund. The amount of
time you have to return the policy will depend on the state where the policy was
issued. It is generally only 10 days. The amount of the refund will generally
be the policy value. 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. In some states you may have more than 10 days to return a
policy, or receive a refund of more (or less) than the policy value.
No Probate. Usually, when the annuitant dies, the person you choose as your
beneficiary will receive the death benefit under this policy without going
through probate. State laws vary on how the amount that may be paid is treated
for estate tax purposes.
Who should purchase the Policy? This policy is designed for people seeking long-
term tax-deferred accumulation of assets, generally for retirement or other
long-term purposes; and for persons who have maximized their use of other
retirement savings methods, such as 401(k) plans. The tax-deferred feature is
most attractive to people in high federal and state tax brackets. The tax
deferral features of variable annuities are unnecessary when purchased to fund a
qualified plan. You should not buy this policy if you are looking for a short-
term investment or if you cannot take the risk of losing money that you put in.
There are various fees and charges associated with variable annuities. You
should consider whether the features and benefits unique to variable annuities,
such as the opportunity for lifetime income payments, a guaranteed death benefit
and the guaranteed level of certain charges, are appropriate for your needs.
Financial Statements. Financial Statements for PFL, the mutual fund subaccounts,
and the target series subaccounts are in the SAI.
Additional Features. This policy has additional features that might interest
you. These include the following:
. You can arrange to have money automatically sent to you monthly, quarterly,
semi-annually or annually while your policy is in the accumulation phase.
This feature is referred to as the "systematic payout option." Amounts you
receive may be included in your gross income, and in certain circumstances,
may be subject to penalty taxes.
. You can elect an optional rider that guarantees you a minimum annuitization
value. This feature is called the
6
<PAGE>
"family income protector." There is an extra charge for this rider and the
rider may vary by state.
. Under certain medically related circumstances, we will allow you to
surrender or partially withdraw your policy value without a surrender
charge and excess interest adjustment. This feature is called the "nursing
care and terminal condition withdrawal option."
. Under certain unemployment circumstances, you may withdraw all or a portion
of the policy value free of surrender charges and excess interest
adjustments. This feature is called the "unemployment waiver."
. You may make transfers and/or change the allocation of additional premium
payments by telephone.
. You can arrange to have a certain amount of money (at least $500)
automatically transferred from the fixed account, the Endeavor Money Market
Subaccount, or the Dreyfus U.S. Government Securities Subaccount, either
monthly or quarterly, into your choice of mutual fund subaccounts or target
series subaccounts. This feature is called "dollar cost averaging."
. We will, upon your request, automatically transfer amounts among the mutual
fund subaccounts or target series subaccounts on a regular basis to
maintain a desired allocation of the policy value among the various mutual
fund subaccounts or target series subaccounts. This feature is called
"asset rebalancing."
The dollar cost averaging and asset rebalancing features are inconsistent with
the target series subaccounts' investment strategy.
These features are not available in all states and may not be suitable for your
particular situation.
Inquiries
If you need more information, please contact us at:
Administrative and Service Office
Financial Markets Division
Variable Annuity Department
PFL Life Insurance Company
4333 Edgewood Road N.E.
P.O. Box 3183
Cedar Rapids, IA 52406-3183
7
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
ANNUITY POLICY FEE TABLE
====================================================================================================================================
Separate Account Annual Expenses
Policy Owner Transaction Expenses (as a percentage of average account value)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales Load On Purchase Payments............ 0 Mortality and Expense Risk Fee(4) ............. 1.40%
-----
Maximum Surrender Charge Administrative Charge ......................... 0.15%
-----
(as a % of premium payments surrendered)(1)(2) ...... 7%
Surrender Fees ................................. 0 TOTAL SEPARATE ACCOUNT
Annual Service Charge (1) .................... $35 Per Policy ANNUAL EXPENSES ............................... 1.55%
Transfer Fee (1) .................. Currently No Fee
Family Income Protector (optional) (3)
Rider Fee................................. 0.30%
<CAPTION>
====================================================================================================================================
Portfolio Annual Expenses (5)
(as a percentage of average net assets and after expense reimbursements)
- ------------------------------------------------------------------------------------------------------------------------------------
Total
Total Account
Rule Portfolio and
Management Other 12b-1 Annual Portfolio
Fees Expenses Fees (6) Expenses Expenses
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Dreyfus Small Cap Value (7)
Dreyfus U.S. Government Securities (7)(8)
Endeavor Asset Allocation (7)
Endeavor Money Market (7)
Endeavor Enhanced Index (7)
Endeavor High Yield (7)(9)
Endeavor Janus Growth (7)(10)
Endeavor Value Equity (7)
Endeavor Opportunity Value (7)
Endeavor Select 50 (7)(11)
T. Rowe Price Equity Income (7)
T. Rowe Price Growth Stock (7)
T. Rowe Price International Stock (7)(12)
Transamerica VIF Growth (13)
Fidelity - VIP Equity-Income
Fidelity - VIP II Contrafund
Fidelity - VIP III Growth Opportunities
Fidelity - VIP III Mid Cap
WRL Alger Aggressive Growth
WRL Goldman Sachs Growth (14)
WRL Janus Global (15)
WRL NWQ Value Equity
WRL Pilgrim Baxter Mid Cap Growth (14)
WRL Salomon All Cap (14)
WRL T. Rowe Price Dividend Growth (14)
WRL T. Rowe Price Small Cap (14)
The DowSM Target 10 (January) (16)(17)
The DowSM Target 5 (January) (16)(17)
The DowSM Target 10 (July) (16)(17)
The DowSM Target 5 (July) (16)(17)
====================================================================================================================================
</TABLE>
<PAGE>
(1) The surrender charge and transfer fee, if any are imposed, apply to each
policy, regardless of how policy value is allocated among the mutual fund
account, the target account and the fixed account. The service charge
applies to the fixed account, the mutual fund account, and the target
account, and is assessed on a pro rata basis relative to each account's
policy value as a percentage of the policy's total policy value. The
service charge is deducted on each policy anniversary and at the time of
surrender, if surrender occurs during a policy year. There is no fee for
the first 12 transfers per year. For additional transfers, PFL may charge a
fee of $10 per transfer, but currently does not charge for any transfers.
(2) The surrender charge is decreased based on the number of years since the
premium payment was made, from 7% in the year in which the premium payment
was made, to 0% in the eighth year after the premium payment was made. If
applicable a surrender charge will only be applied to withdrawals that
exceed the amount available under certain listed exceptions.
(3) The annual rider fee for the optional family income protector rider (only
deducted during the accumulation phase) is currently equal to 0.30% of the
minimum annuitization value on the previous policy anniversary; PFL may, at
its discretion, change the rate in the future, but the rate will never be
greater than 0.50% per year. The guaranteed payment fee is only charged if
you annuitize under the family income protector rider, and then only after
annuitization. This fee is reflected in the amount of the variable
payments. The guaranteed payment fee is currently equal to an effective
annual rate of 1.25% of the daily net asset value in the variable
investment options. PFL may, at its discretion, change the rate in the
future, but the rate will never be greater than 2.25% per year. Once the
family income protector rider is added to your policy, neither the rider
fee nor the guaranteed payment fee that is in effect at that time will
change during the life of that family income protector rider. They could
change if you upgrade.
(4) Mortality and expense risk fees shown (1.40%) are for the "5% Annually
Compounding Death Benefit," the "Greater of 5% Annually Compounding through
age 80 Death Benefit or Annual Step-Up through age 80 Death Benefit," and
the "Monthly Step-Up through age 80 Death Benefit." This reflects a fee
that is 0.15% per year higher than the 1.25% corresponding fee for the
"Return of Premium Death Benefit."
(5) The fee table information relating to the underlying funds was provided to
PFL by the underlying funds, their investment advisers or managers, and PFL
has not independently verified such information. Actual future expenses of
the portfolios may be greater or less than those shown in the Table.
(6) The Board of Trustees of Endeavor Series Trust (the "Trust") and the Board
of Managers of the target account have authorized an arrangement whereby,
subject to best price and execution, executing brokers will share
commissions with the Trust's or the target account's affiliated broker.
Under supervision of the Trustees and the Managers, the affiliated broker
will use the "recaptured commissions" to promote marketing of the Trust's
shares and investments in the target account. The staff of the Securities
and Exchange Commission believes that, through the use of these recaptured
commissions, the Trust and the target account are indirectly paying for
distribution expenses and such amounts are shown as 12b-1 fees in the above
table. This use of recaptured commissions to promote the sale of the
Trust's shares and investments in the target account involves no additional
costs to the Trust, to the target account or any owner. Endeavor Series
Trust and the target account, based on advice of counsel, do 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. For more information on the target
account's Brokerage Enhancement Plan, see the target account's section of
this prospectus.
(7) Endeavor Management Co. has agreed, until further notice, to assume
expenses of the portfolios that exceed the following rates: Dreyfus Small
Cap Value--1.30%; Dreyfus U.S. Government Securities--1.00%; Endeavor Asset
Allocation--1.25%; Endeavor Money Market--0.99%; Endeavor Enhanced Index--
1.30%; Endeavor High Yield--1.30%; Endeavor Opportunity Value--1.30%;
Endeavor Value Equity--1.30%; Endeavor Select 50--1.50%; T. Rowe Price
Equity Income--1.30%; T. Rowe Price Growth Stock--1.30%; T. Rowe Price
International Stock--1.53%. Endeavor Management Co. has agreed to assume
the expenses of the Endeavor Janus Growth Portfolio that exceed 0.87% until
April 30, 2000. Expenses shown for the Endeavor Janus Growth Portfolio are
annualized for 1999.
(8) For the Dreyfus U.S. Government Securities Portfolio, the management fees
before waivers/reimbursements
9
<PAGE>
were 0.65% and other expenses after credits allowed by the custodian were
_____%. Therefore, Total Portfolio Annual Expenses before
waivers/reimbursements and after credits allowed by the custodian for the
period ended December 31, 1999 were _____%.
(9) For the Endeavor High Yield Portfolio, the management fees before
waivers/reimbursements were 0.775% and other expenses after credits allowed
by the custodian were _____%. Therefore, Total Portfolio Annual Expenses
before waivers/reimbursements and after credits allowed by the custodian
for the period ended December 31, 1999 were _____%.
(10) For the Endeavor Janus Growth Portfolio, the management fees before
waivers/reimbursements were _____% and other expenses after credits allowed
by the custodian were _____%. Therefore, Total Portfolio Annual Expenses
before waivers/reimbursements and after credits allowed by the custodian
for the period ended December 31, 1999 were _____% annualized.
(11) For the Endeavor Select 50 Portfolio, the management fees before
waivers/reimbursements were 1.10% and other expenses after credits allowed
by the custodian were _____%. Therefore, Total Portfolio Annual Expenses
before waivers/reimbursements and after credits allowed by the custodian
for the period ended December 31, 1999 were _____%.
(12) For the T. Rowe Price International Stock Portfolio, the management fees
before waivers/reimbursements were 0.90% and other expenses after credits
allowed by the custodian were ____%. Therefore, Total Portfolio Annual
Expenses before waivers/reimbursements and after credits allowed by the
custodian for the period ended December 31, 1999 were ____%.
(13) From time to time, the Transamerica VIF Growth Portfolio's investment
adviser, in its own discretion, may voluntarily waive all or part of its
fees and/or voluntarily assume certain portfolio expenses. The expenses
shown in the fee table are the expenses paid for 1999. The expenses shown
in that table reflect the portfolio's adviser's waivers of fees or
reimbursement of expenses, if applicable. It is anticipated that such
waivers or reimbursements will continue for calendar year 2000. Without
such waivers or reimbursements, the annual expenses for the portfolio would
have been as follows: Management Fee -_____%; Other Expenses - _____%; and
Total Portfolio Annual Expenses - _____%.
(14) Because WRL Goldman Sachs Growth, WRL Pilgrim Baxter Mid Cap Growth, WRL
Salomon All Cap, WRL T. Rowe Price Dividend Growth and WRL T. Rowe Price
Small Cap commenced operations on May 3, 1999, the percentages set forth as
"Other Expenses" and "Total Portfolio Annual Expenses" are estimates.
(15) For WRL Janus Global, the investment adviser will waive 0.025% of its
advisory fee one portfolio average daily net assets reach $2 billion (net
fee - 0.775%). This waiver is voluntary and may be terminated at any time
upon 90 days written notice to the WRL Series Fund, Inc.
(16) For the target account, 0.15% of the administrative charge included under
"Total Separate Account Annual Expenses" in this table is deducted pursuant
to a 12b-1 plan./
(17) In addition to the management fees, the target account pays all expenses
not assumed by the manager. The manager has agreed to limit each target
series subaccount's management fee and operating expenses during its first
year of operations to an annual rate of 1.30% of the target series
subaccount's average net assets. (This limit does not include other fees
and deductions such as the mortality and expense risk fee and
administrative charge.) (See the SAI for more details.) Without this
limitation, the management fees and operating expenses for the July Series
were _____%. Without this limitation, the management fees and operating
expenses for the January Series were ____%.
10
<PAGE>
EXAMPLES
You would pay the following expenses on a $1,000 investment, assuming a
hypothetical 5% annual return on assets, assuming the entire policy value is in
the applicable mutual fund subaccount or target series subaccount, and assuming
the family income protector rider has been selected:
The expenses reflect different mortality and expense risk fees depending on
which death benefit you select:
A = Return of Premium Death Benefit (1.25%)
B = 5% Annually Compounding Death Benefit, Greater of 5% Annually Compounding
through age 80 Death Benefit or Annual Step-Up through age 80 Death
Benefit, or Monthly Step-Up through age 80 Death Benefit (1.40%)
<TABLE>
<CAPTION>
========================================================================================================================
If the Policy is annuitized at
If the Policy is surrendered the end of the applicable time period
at the end of the applicable or if the Policy is not surrendered
time period. or annuitized.
=========================================================================
<S> <C><C> <C> <C> <C> <C> <C> <C> <C>
Subaccounts 1 3 5 10 1 3 5 10
Year Years Years Years Year Years Years Years
=========================================================================
Dreyfus Small Cap Value A
-------------------------------------------------------------------------
B
- -----------------------------------------------------------------------------------------------------------------------
Dreyfus U.S. Government Securities A
-------------------------------------------------------------------------
B
- -----------------------------------------------------------------------------------------------------------------------
Endeavor Asset Allocation A
-------------------------------------------------------------------------
B
- -----------------------------------------------------------------------------------------------------------------------
Endeavor Money Market A
-------------------------------------------------------------------------
B
- -----------------------------------------------------------------------------------------------------------------------
Endeavor Enhanced Index A
-------------------------------------------------------------------------
B
- -----------------------------------------------------------------------------------------------------------------------
Endeavor High Yield A
-------------------------------------------------------------------------
B
- -----------------------------------------------------------------------------------------------------------------------
Endeavor Janus Growth A
-------------------------------------------------------------------------
B
- -----------------------------------------------------------------------------------------------------------------------
Endeavor Opportunity Value A
-------------------------------------------------------------------------
B
- -----------------------------------------------------------------------------------------------------------------------
Endeavor Value Equity A
-------------------------------------------------------------------------
B
- -----------------------------------------------------------------------------------------------------------------------
Endeavor Select 50 A
-------------------------------------------------------------------------
B
- -----------------------------------------------------------------------------------------------------------------------
T. Rowe Price Equity Income A
-------------------------------------------------------------------------
B
- -----------------------------------------------------------------------------------------------------------------------
T. Rowe Price Growth Stock A
-------------------------------------------------------------------------
B
- -----------------------------------------------------------------------------------------------------------------------
T. Rowe Price International Stock A
-------------------------------------------------------------------------
B
- -----------------------------------------------------------------------------------------------------------------------
Transamerica VIF Growth A
-------------------------------------------------------------------------
B
- -----------------------------------------------------------------------------------------------------------------------
Fidelity - VIP Equity-Income A
-------------------------------------------------------------------------
B
- -----------------------------------------------------------------------------------------------------------------------
Fidelity - VIP II Contrafund A
-------------------------------------------------------------------------
B
- -----------------------------------------------------------------------------------------------------------------------
Fidelity - VIP III Growth Opportunities A
-------------------------------------------------------------------------
B
- -----------------------------------------------------------------------------------------------------------------------
Fidelity - VIP III Mid Cap A
-------------------------------------------------------------------------
B
- -----------------------------------------------------------------------------------------------------------------------
WRL Alger Aggressive Growth A
-------------------------------------------------------------------------
B
=======================================================================================================================
</TABLE>
11
<PAGE>
EXAMPLES continued.........
<TABLE>
<CAPTION>
=======================================================================================================================
<S> <C>
WRL Goldman Sachs Growth A
-------------------------------------------------------------------------
B
- -----------------------------------------------------------------------------------------------------------------------
WRL Janus Global A
-------------------------------------------------------------------------
B
- -----------------------------------------------------------------------------------------------------------------------
WRL NWQ Value Equity A
-------------------------------------------------------------------------
B
- -----------------------------------------------------------------------------------------------------------------------
WRL Pilgrim Baxter Mid Cap Growth A
-------------------------------------------------------------------------
B
- -----------------------------------------------------------------------------------------------------------------------
WRL Salomon All Cap A
-------------------------------------------------------------------------
B
- -----------------------------------------------------------------------------------------------------------------------
WRL T. Rowe Price Dividend Growth A
-------------------------------------------------------------------------
B
- -----------------------------------------------------------------------------------------------------------------------
WRL T. Rowe Price Small Cap A
-------------------------------------------------------------------------
B
- -----------------------------------------------------------------------------------------------------------------------
The DowSM Target 10 (January Series) A
-------------------------------------------------------------------------
B
- -----------------------------------------------------------------------------------------------------------------------
The DowSM Target 5 (January Series) A
-------------------------------------------------------------------------
B
- -----------------------------------------------------------------------------------------------------------------------
The DowSM Target 10 (July Series) A
-------------------------------------------------------------------------
B
- -----------------------------------------------------------------------------------------------------------------------
The DowSM Target 5 (July Series) A
-------------------------------------------------------------------------
B
=======================================================================================================================
</TABLE>
The above tables will assist you in understanding the costs and expenses that
you will bear, directly or indirectly. These include the 1999 expenses of the
underlying portfolios, except for Endeavor Janus Growth, WRL Goldman Sachs
Growth, WRL Pilgrim Baxter Mid Cap Growth, WRL Salomon All Cap, WRL T. Rowe
Price Dividend Growth and WRL T. Rowe Price Small Cap (whose expenses listed
above are annualized for the first full year of operations). In addition to the
expenses listed above, premium taxes may be applicable.
These 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.
In the examples, the $35 annual service charge is reflected as a charge of
_______% based on average policy value of $____________.
These examples also reflect the annual fee of 0.30% for the family income
protector rider. Expenses would be lower if you do not elect that rider.
Financial Information. Condensed financial information for the mutual fund
subaccounts and target series subaccounts are in Appendix A to this prospectus.
12
<PAGE>
1. THE ANNUITY POLICY
This prospectus describes The Endeavor Variable Annuity policy offered by PFL
Life Insurance Company.
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 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 Endeavor Variable Annuity consists of either:
. a group annuity contract that we, PFL Life Insurance Company, issue to the
contract holder and an individual certificate that we issue to you; or
. an individual policy that we issue to you.
This prospectus describes your individual certificate or policy (both are
referred to as the policy in this prospectus). 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. Your individual investment and your
rights are determined primarily by your own policy.
The policy is a "flexible premium" policy because after you purchase it, you can
generally make additional investments of any amount of $50 or more, until the
annuity commencement date. But you are not required to make any additional
investments.
The policy is a "variable" annuity because the value of your investments can go
up or down based on the performance of your investment choices. If you invest in
the mutual fund account or the target account, 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 mutual fund account or the target
account also depends upon the investment performance of your investment choices
for the income phase. However, if you annuitize under the family income
protector rider, then PFL will guarantee a minimum amount of your annuity
payments. There is an extra charge for this rider.
The policy also contains a fixed account. The fixed account offers interest at
rates that we guarantee will not decrease during the selected guaranteed period.
There may be different interest rates for each different guaranteed period that
you select.
2. ANNUITY PAYMENTS
(THE INCOME PHASE)
You choose the annuity commencement date. You can change this date by giving us
30 days written notice before the current annuity commencement date. The new
annuity commencement date must be at least 30 days after we receive notice of
the change. The latest annuity commencement date generally cannot be after the
policy month following the month in which the annuitant attains age 85 (in
certain cases, we may allow the date to be up to the last day of the 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 annuity
payments monthly, quarterly, semi-annually, or annually. (We reserve the right
to change the frequency if payments would be less than $50.)
13
<PAGE>
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 mutual
fund subaccount(s) and/or target series subaccount(s). The dollar amount of each
variable payment after the first may increase, decrease, or remain constant. If
the actual investment performance exactly matched the assumed investment return
of 5% at all times, the amount of each variable annuity payment would remain
equal. If actual investment performance exceeds the assumed investment return,
the amount of the variable annuity payments would increase. Conversely, if
actual investment performance is lower than the assumed investment return, the
amount of the variable annuity payments would decrease.
A charge for premium taxes and an excess interest adjustment may be made when
annuity payments begin.
The annuity payment options are explained below. Options 1, 2, and 4 are fixed
only. Options 3 and 5 can be fixed or variable.
Payment Option 1--Interest Payments. We will pay the interest on the amount we
use to provide annuity payments in equal payments, or this amount may be left to
accumulate for a period of time you and PFL agree to. You and PFL will agree on
withdrawal rights when you elect this option.
Payment Option 2--Income for a Specified Period. We will make level payments
only for the fixed period you choose. No funds will remain at the end.
Payment Option 3--Life Income. You may choose between:
Fixed Payments
. No Period Certain--We will make level payments only during the annuitant's
lifetime.
. 10 Years Certain--We will make level payments for the longer of the
annuitant's lifetime or ten years.
. Guaranteed Return of Policy Proceeds-- We will make level payments for the
longer of the annuitant's lifetime or until the total dollar amount of
payments we made to you equals the amount applied to this option.
Variable Payments
. No Period Certain--Payments will be made only during the lifetime of the
annuitant.
. 10 Years Certain--Payments will be made for the longer of the annuitant's
lifetime or ten years.
Payment Option 4--Income of a Specified Amount. Payments are made for any
specified amount until the amount applied to this option, with interest, is
exhausted. This will be a series of level payments followed by a smaller final
payment.
Payment Option 5--Joint and Survivor Annuity. You may choose between:
Fixed Payments
. Payments are made during the joint lifetime of the payee and a joint payee
of your selection. Payments will be made as long as either person is
living.
Variable Payments
. Payments are made as long as either the payee or the joint payee is living.
Other annuity payment options may be arranged by agreement with PFL. Certain
annuity payment options may not be available in all states.
Family Income Protector
The optional "family income protector" rider assures you of a minimum level of
income in the future by guaranteeing a minimum annuitization value (discussed
below) after 10 years. You may elect to purchase this benefit, which guarantees
the total amount you will have to apply to a family income protector payment
option and which guarantees the amounts of those payments once you begin to
receive them. By electing this benefit, you can participate in the gains of the
underlying variable investment options you select while knowing that you are
guaranteed a minimum level of income in the future, regardless of the
performance of the underlying variable investment options.
You can annuitize under the family income protector (subject to the conditions
described below) at the greater of the adjusted policy value or the minimum
annuitization value.
Minimum Annuitization Value. The minimum annuitization value is:
. the policy value on the date the rider is issued; plus
14
<PAGE>
. any additional premium payments; minus
. an adjustment for any withdrawals made after the date the rider is issued;
. accumulated at the annual growth rate written on page one of the rider;
minus
. any premium taxes.
The annual growth rate is currently 6% per year. PFL may, at its discretion,
change the rate in the future, but the rate will never be less than 3% per year.
Once the rider is added to your policy, the annual growth rate will not vary
during the life of that rider. Withdrawals may reduce the minimum annuitization
value on a basis greater than dollar-for-dollar. See the SAI for more
information.
The minimum annuitization value may only be used to annuitize using the family
income protector payment options and may not be used with any of the annuity
payment options listed in Section 2 of this prospectus. The family income
protector payment options are:
. Life Income--An election may be made for "No Period Certain" or "10 Years
Certain". In the event of the death of the annuitant prior to the end of
the chosen period certain, the remaining period certain payments will be
continued to the beneficiary.
. Joint and Full Survivor--An election may be made for "No Period Certain" or
"10 Years Certain". Payments will be made as long as either the annuitant
or joint annuitant is living. In the event of the death of both the
annuitant and joint annuitant prior to the end of the chosen period
certain, the remaining period certain payments will be continued to the
beneficiary.
The minimum annuitization value is used to calculate the family income protector
payment and does not establish or guarantee a policy value or guarantee
performance of any investment option.
In addition to the annual growth rate, other benefits and fees under the rider
(the rider fee, the fee waiver threshold, the guaranteed payment fee, and the
waiting period before the family income protector can be exercised) are also
guaranteed not to change after the rider is added. However, all of these benefit
specifications may change if you elect to upgrade the minimum annuitization
value.
Minimum Annuitization Value Upgrade. You can upgrade your minimum annuitization
value to the policy value within 30 days after any policy anniversary before
your 85/th/ birthday (earlier if required by state law). For your convenience,
we will put the last date to upgrade on page one of the rider.
If you upgrade:
. the current rider will terminate and a new one will be issued with its own
specified guaranteed benefits and fees;
. the new rider's specified benefits and fees may not be as advantageous as
before; and
. you will have a new ten year waiting period before you can exercise the
family income protector.
It generally will not be to your advantage to upgrade unless your policy value
exceeds your minimum annuitization value on the applicable policy anniversary.
Conditions of Exercise of the Family Income Protector. You can only annuitize
using the family income protector within the 30 days after the tenth or later
policy anniversary after the family income protector is elected or, in the case
of an upgrade of the minimum annuitization value, the tenth or later policy
anniversary following the upgrade; PFL may, at its discretion, change the
waiting period before the family income protector can be exercised in the
future. You cannot, however, annuitize using the family income protector after
the policy anniversary after your 94/th/ birthday (earlier if required by state
law). For your convenience, we will put the first and last date to annuitize
using the family income protector on page one of the rider.
Note Carefully--If you annuitize at any time other than indicated above, you
cannot use the family income protector.
Guaranteed Minimum Stabilized Payments. Annuity payments under the family income
protector are guaranteed to never be less than the initial payment. See the SAI
for information concerning the calculation of the initial payment. The payments
will also be "stabilized" or held constant during each policy year.
During the first policy year after annuitizing using the family income
protector, each stabilized payment will equal the initial payment. On each
policy anniversary thereafter, the stabilized payment will increase or decrease
depending on the performance of the investment options you selected, and then be
held constant at that amount for that policy year. The stabilized payment on
each policy anniversary will
15
<PAGE>
equal the greater of the initial payment or the payment supportable by the
annuity units in the selected investment options. See the SAI for additional
information concerning stabilized payments.
Family Income Protector Rider Fee. A rider fee, currently 0.30% of the minimum
annuitization value on the policy anniversary, is charged annually prior to
annuitization. We will also charge this fee if you take a complete withdrawal.
PFL may change the rider fee percentage in the future, but it will never be
greater than 0.50%. The rider fee is deducted from each variable investment
option in proportion to the amount of policy value in each mutual fund
subaccount and target series subaccount.
The rider fee on any given policy anniversary will be waived if the policy value
exceeds the fee waiver threshold. The fee waiver threshold currently is two
times the minimum annuitization value. PFL may, at its discretion, change the
fee waiver threshold in the future, but it will never be greater than two and
one-half times the minimum annuitization value.
Guaranteed Payment Fee. A guaranteed payment fee, currently equal to an
effective annual rate of 1.25% of the daily net asset value in the mutual fund
account and/or the target account, is reflected in the amount of the variable
payments you receive if you annuitize under the family income protector rider.
PFL may change the guaranteed payment fee in the future, but it will never be
greater than 2.25%. The guaranteed payment fee is included on page one of the
rider.
Termination. The family income protector is irrevocable. You have the option not
to use the benefit but you will not receive a refund of any fees you have paid.
The family income protector will terminate upon the earliest of the following:
. annuitization (you will still get guaranteed minimum stabilized payments if
you annuitize using the minimum annuitization value under the family income
protector),
. upgrade of the minimum annuitization value (although a new rider will be
issued),
. termination of your policy, or
. 30 days after the policy anniversary after your 94/th/ birthday (earlier if
required by state law).
The family income protector does not establish or guarantee policy value or
guarantee performance of any investment option. Because this benefit is based on
conservative actuarial factors, the level of lifetime income that it guarantees
may be less than the level that would be provided by application of the policy
value at otherwise applicable annuity factors. Therefore, the family income
protector should be regarded as a safety net. The costs of annuitizing under
the family income protector include the guaranteed payment fee, and also the
lower payout levels inherent in the annuity tables used for those minimum
payouts. These costs should be balanced against the benefits of a minimum
payout level.
The family income protector may vary by state and may not be available in all
states.
NOTE CAREFULLY:
IF:
. you choose Life Income with No Period Certain or a Joint and Survivor
Annuity; and
. the annuitant(s) dies before the due date of the second annuity payment;
THEN:
. we may make only one annuity payment.
IF:
. you choose Income for a Specified Period, Life Income with 10 years
Certain, Life Income with Guaranteed Return of Policy Proceeds, or Income
of a Specified Amount; and
. the person receiving payments dies prior to the end of the guaranteed
period;
THEN:
. the remaining guaranteed payments will be continued to that person's
beneficiary, or their present value may be paid in a single sum.
We will not pay interest on amounts represented by uncashed annuity payment
checks if the postal or other delivery service is unable to deliver checks to
the payee's address of record. The person receiving payments is responsible to
keep PFL informed of their current address.
3. PURCHASE
Policy Issue Requirements
PFL will not issue a policy unless:
. PFL receives all information needed to issue the policy;
16
<PAGE>
. PFL receives a minimum initial premium payment; and
. You (annuitant and any joint owner) are age 84 or younger.
Premium Payments
You should make checks for premium payments payable only to PFL Life Insurance
Company and send them to the administrative and service office. Your check must
be honored in order for PFL to pay any associated payments and benefits due
under the policy.
Initial Premium Requirements
The initial premium payment for nonqualified policies must be at least $5,000,
and at least $1,000 for qualified policies. There is no minimum initial premium
payment for policies issued under section 403(b) of the Internal Revenue Code;
however, your premium must be received within 90 days of the policy date or your
policy will be canceled. We will credit your initial premium payment to your
policy within two business days after the day we receive it and your complete
policy information. If we are unable to credit your initial premium payment, we
will contact you within five business days and explain why. We will also return
your initial premium payment at that time unless you tell us to keep it and
credit it as soon as possible.
The date on which we credit your initial premium payment to your policy is the
policy date. The policy date is used to determine policy years, policy months
and policy anniversaries.
Additional Premium Payments
You are not required to make any additional premium payments. However, you can
make additional premium payments as often as you like during the lifetime of the
annuitant and during the accumulation phase. Additional premium payments must be
at least $50. We will credit additional premium payments to your policy as of
the business day we receive your premium and required information. Additional
premium payments must be received before the New York Stock Exchange closes to
get same-day pricing of the additional premium payment.
Maximum Total Premium Payments
We allow premium payments up to a total of $1,000,000 without prior approval.
Allocation of Premium Payments
When you purchase a policy, we will allocate your premium payment to the
investment choices you select. Your allocation must be in whole percentages and
must total 100%. We will allocate additional premium payments the same way,
unless you request a different allocation.
If you allocate premium payments to the dollar cost averaging fixed account, you
must give us directions regarding the mutual fund subaccount(s) and/or target
series subaccount(s) to which transfers are to be made or we cannot accept your
premium payment.
You may change allocations for future additional premium payments by sending us
written instructions or by telephone, subject to the limitations described 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.
4. INVESTMENT CHOICES
The Separate Accounts
There are currently thirty variable subaccounts available under the policies.
There are twenty-six subaccounts of the mutual fund account (which is a portion
of the PFL Endeavor VA Separate Account) and four subaccounts of the target
account (the PFL Endeavor Target Account).
17
<PAGE>
The Mutual Fund Account
The mutual fund subaccounts invest in shares of the various underlying fund
portfolios. The companies that provide investment advice and administrative
services for the underlying fund portfolios offered through this policy are
listed below. The following mutual fund investment choices are currently offered
through this policy:
ENDEAVOR SERIES TRUST
Subadvised by The Dreyfus Corporation
Dreyfus U.S. Government Securities Portfolio
Dreyfus Small Cap Value Portfolio
Subadvised by Morgan Stanley Asset Management Inc.
Endeavor Asset Allocation Portfolio
Endeavor Money Market Portfolio
Subadvised by J.P. Morgan Investment Management Inc.
Endeavor Enhanced Index Portfolio
Subadvised by Massachusetts Financial Services Company
Endeavor High Yield Portfolio
Subadvised by Janus Capital Corporation
Endeavor Janus Growth Portfolio
Subadvised by OpCap Advisors
Endeavor Opportunity Value Portfolio
Endeavor Value Equity Portfolio
Subadvised by Montgomery Asset Management, LLC
Endeavor Select 50 Portfolio
Subadvised by T. Rowe Price Associates, Inc.
T. Rowe Price Equity Income Portfolio
T. Rowe Price Growth Stock Portfolio
Subadvised by Rowe Price-Fleming International, Inc.
T. Rowe Price International Stock Portfolio
TRANSAMERICA VARIABLE
INSURANCE FUND, INC.
Subadvised by Transamerica Investment Services, Inc.
Transamerica VIF Growth Portfolio
VARIABLE INSURANCE PRODUCTS FUND -
SERVICE CLASS 2
Managed by Fidelity Management & Research Company
Fidelity - VIP Equity-Income Portfolio
VARIABLE INSURANCE PRODUCTS FUND II -
SERVICE CLASS 2
Managed by Fidelity Management & Research Company
Fidelity - VIP II Contrafund
VARIABLE INSURANCE PRODUCTS FUND III -
SERVICE CLASS 2
Managed by Fidelity Management & Research Company
Fidelity - VIP III Growth Opportunities Portfolio
Fidelity - VIP III Mid Cap Portfolio
WRL SERIES FUND, INC.
Subadvised by Fred Alger Management, Inc.
WRL Alger Aggressive Growth
Subadvised by Goldman Sachs Asset Management
WRL Goldman Sachs Growth
Subadvised by Janus Capital Corporation
WRL Janus Global
Subadvised by NWQ Investment Management
Company, Inc.
WRL NWQ Value Equity
Subadvised by Pilgrim Baxter & Associates, Ltd.
WRL Pilgrim Baxter Mid Cap Growth
Subadvised by Salomon Brothers Asset Management Inc.
WRL Salomon All Cap
Subadvised by T. Rowe Price Associates, Inc.
WRL T. Rowe Price Dividend Growth
WRL T. Rowe Price Small Cap
The general public may not purchase shares of these underlying fund portfolios.
The investment objectives and policies may be similar to other portfolios and
mutual funds managed by the same investment adviser or manager that are sold
directly to the public. You should not expect the investment results of the
underlying fund portfolios to be the same as those of other portfolios or mutual
funds.
More detailed information, including an explanation of the portfolio's
investment objectives, may be found in the current prospectus for the underlying
funds, which are attached to this prospectus. You should read the prospectuses
for 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 based on the amount of assets that PFL or the mutual fund account invests
in the underlying fund portfolios.
We do not guarantee that any of the mutual fund subaccounts will always be
available for premium payments, allocations, or transfers. See the SAI for more
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information concerning the possible addition, deletion or substitution of
investments.
The Target Account
This section gives information on the target account, including the management
and investment strategies, and policies. The following target account investment
choices are currently offered through this policy:
THE TARGET ACCOUNT
Subadvised by First Trust Advisors, L.P.
The Dow(SM) Target 10 (January Series)
The Dow(SM) Target 5 (January Series)
The Dow(SM) Target 10 (July Series)
The Dow(SM) Target 5 (July Series)
General. The target account is a managed separate account and is currently
divided into four target series subaccounts. Each Series is a separate
subaccount, so there are currently two Target 10 subaccounts (January and July
Series) and two Target 5 subaccounts (January and July Series). Additional
target series subaccounts may be established in the future at the discretion of
PFL. Each target series subaccount invests according to specific investment
strategies.
Under Iowa law, the assets of the target account are owned by PFL, but they are
held separately from the other assets of PFL. To the extent that these assets
are attributable to the policy value of the policies, these assets are not
chargeable with liabilities incurred in any other business operation of PFL.
Income, gains, and losses incurred on the assets in a target series subaccount,
whether or not realized, are credited to or charged against that target series
subaccount without regard to other income, gains or losses of any other account
or subaccount of PFL. Each target series subaccount operates as a separate
investment fund. Therefore, the investment performance of any target series
subaccount should be entirely independent of the investment performance of PFL's
general account assets or any other account or subaccount maintained by PFL.
Management of the Target Account. The investments and administration of each
managed target series subaccount are under the direction of a Board of Managers.
The Board of Managers for each target series subaccount annually selects an
independent public accountant, reviews the terms of the management and
investment advisory agreements, recommends any changes in the fundamental
investment policies, and takes any other actions necessary in connection with
the operation and management of the target series subaccounts.
Endeavor Management Co., an investment adviser registered with the SEC under the
Investment Advisers Act of 1940, and an affiliate of PFL, is the target
account's manager. The manager performs administerial and managerial functions
for the target account. First Trust Advisors L.P., an Illinois limited
partnership formed in 1991, and an investment adviser registered with the SEC
under the Investment Advisers Act of 1940, is the target account's investment
adviser. The adviser is responsible for selecting the investments of each target
series subaccount consistent with the investment objectives and policies of that
target series subaccount, and will conduct securities trading for the target
series subaccount. The manager has the ultimate responsibility to oversee the
adviser and recommend its hiring, termination and replacement.
In response to an exemptive application filed by the manager, the SEC has issued
an exemptive order that will permit the manager, subject to certain conditions,
and without the approval of owners who have an interest in a target series
subaccount to: (a) employ a new unaffiliated investment adviser for a target
series subaccount pursuant to the terms of a new investment advisory agreement,
in each case either as a replacement for an existing investment adviser or as an
additional investment adviser; (b) change the terms of any investment advisory
agreement; and (c) continue the employment of an existing investment adviser on
the same advisory contract terms where a contract has been assigned because of a
change in control of the investment adviser. In such circumstances, owners who
have an interest in a target series subaccount would receive notice of such
action, including the information concerning the investment adviser that
normally is provided in a proxy statement. The exemptive order also permits
disclosure of fees paid to multiple unaffiliated investment advisers on an
aggregate basis only.
Portfolio Manager. There is no one individual primarily responsible for
portfolio management decisions for the target account. Investments are made
according to the prescribed strategy under the direction of a committee.
Investment Strategy. Each of the Dow SM Target 10 Subaccounts will invest in the
common stock of the ten
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companies in the DJIA that have the highest dividend yield as of a specified
business day and hold those stocks for the following 12- month period.
Each of the Dow SM Target 5 Subaccounts will invest in the common stock of the
five companies with the lowest per share stock price of the ten companies in the
DJIA that have the highest dividend yield as of a specified business day and
hold those stocks for the following 12-month period.
The objective of each target series subaccount is to provide an above-average
total return through a combination of dividend income and capital appreciation.
Each target series subaccount will function in a similar manner. Each target
series subaccount will initially invest in substantially equal amounts in the
common stock of the companies described above for each target series subaccount
(as held in a target series subaccount, such common stock is referred to as the
common shares) determined as of the initial stock selection date.
Each target series subaccount may have different investment series running
simultaneously for different 12-month periods. For example, within The Dow SM
Target 10 Subaccount there may be more than one series, each with a different
initial stock selection date. At the initial stock selection date, a percentage
relationship among the number of common shares in a series will be established.
When additional funds are deposited into the series, additional common shares
will be purchased in such numbers reflecting as nearly as practicable the
percentage relationship of the number of common shares established at the
initial purchase. Sales of common shares by the series will likewise attempt to
replicate the percentage relationship of common shares. The percentage
relationship among the number of common shares in the series should therefore
remain stable. However, given the fact that the market price of such common
shares will vary throughout the year, the value of the common shares of each of
the companies as compared to the total assets of the series will fluctuate
during the year, above and below the proportion established on a stock
selection.
As of the annual stock selection date, a new percentage relationship will be
established among the number of common shares described below for each series on
such date. Common shares may be sold or new equity securities bought each year
so that the series is equally invested in the common stock of each company
meeting the series' investment criteria. Thus the series may or may not hold
equity securities of the same companies as the previous year. Any purchase or
sale of additional common shares during the year will duplicate, as nearly as
practicable, the percentage relationship among the number of common shares as of
the annual stock selection date since the relationship among the value of the
common shares on the date of any subsequent transactions may be different
than the original relationship among their value. The adviser may depart from
the specified strategy to meet tax diversification requirements. (See Section 6,
"TAXES--Diversification and Distribution Requirements").
There are currently four target series subaccounts. There are two "The Dow/SM/
Target 10 Subaccounts," which contain a January Series (a December 31, 1998
initial stock selection date) and a July Series (a June 30, 1998 initial stock
selection date). Similarly, there are two "The Dow/SM/ Target 5 Subaccounts,"
which contain a January Series (December 31, 1998 initial stock selection date)
and a July Series (June 30, 1998 initial stock selection date).
The target account may determine to offer additional target series subaccounts
in the future, which may have different selection criteria or stock selection
dates (or both).
The Dow/SM/ Target 10 Subaccounts and The Dow/SM/ Target 5 Subaccounts have not
been designed so that their prices will parallel or correlate with movements in
the DJIA. It is expected that their prices will not do so.
An investment in a target series subaccount is an investment in a portfolio of
equity securities with high dividend yields in one convenient purchase.
Investing in the stocks of the DJIA with the highest dividend yields amounts to
a contrarian strategy because these shares are often out of favor. Such strategy
may be effective in achieving a target series subaccount's investment objectives
because regular dividends are common for established companies and dividends
have accounted for a substantial portion of the total return on stocks of the
DJIA as a group. However, there is no guarantee that either a target series
subaccount's objective will be achieved or that a target series subaccount will
provide for capital appreciation in excess of such target series subaccount's
expenses.
Each target series subaccount may also invest in futures and options, hold
warrants, and lend its common shares.
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The Dow Jones Industrial Average(SM). The DJIA consists of 30 stocks. The stocks
are chosen by the editors of The Wall Street Journal as representative of the
broad market and of American industry. The companies are major factors in their
industries and their stocks are widely held by individuals and institutional
investors. Changes in the components of the DJIA are made entirely by the
editors of The Wall Street Journal without consultation with the companies, the
New York Stock Exchange or any official agency. For the sake of continuity,
changes are made rarely. Most substitutions have been the result of mergers, but
from time to time, changes may be made. The components of the DJIA may be
changed at any time, for any reason. Any changes in the components of the
DJIA made after the initial stock selection date of any series will not cause a
change in the identity of the common shares included in that series, including
any equity securities deposited in that series, except on an annual stock
selection date. The following is a list of the companies that currently comprise
the DJIA as of __________________. [UPDATE]
AT&T Corporation
Allied Signal
Aluminum Company of America
American Express Company
Boeing Company
Caterpillar Inc.
Chevron Corporation
Coca Cola Company
Walt Disney Company
International Business Machines Corporation
International Paper Company
Johnson & Johnson
McDonald's Corporation
Merck & Company, Inc.
Minnesota Mining & Manufacturing Company
E.I. du Pont de Nemours & Company
Eastman Kodak Company
Exxon Corporation
General Electric Company
General Motors Corporation
Goodyear Tire & Rubber Company
Hewlett Packard Company
J.P. Morgan & Company, Inc.
Philip Morris Companies, Inc.
Procter & Gamble Company
Sears, Roebuck & Company
Travelers Group
Union Carbide Corporation
United Technologies Corporation
Wal Mart Stores Inc.
The target account is not sponsored, endorsed, sold or promoted by Dow Jones.
Dow Jones makes no representation or warranty, express or implied, to the owners
of the target account or any member of the public regarding the advisability of
purchasing the target account. Dow Jones' only relationship to First Trust
Advisors, Endeavor and PFL is the licensing of certain copyrights, trademarks,
service marks and service names of Dow Jones. Dow Jones has no obligation to
take the needs of First Trust Advisors, Endeavor, PFL or the owners of the
target account into consideration in determining, composing or calculating the
Dow Jones Industrial Average/SM/. Dow Jones is not responsible for and has not
participated in the determination of the terms and conditions of the target
account to be issued, including the pricing or the amount payable under the
policy. Dow Jones has no obligation or liability in connection with the
administration or marketing of the target account.
Dow Jones does not guarantee the accuracy and/or the completeness of the Dow
Jones Industrial Average/SM/ or any data included therein and Dow Jones shall
have no liability for any errors, omission, or interruptions therein. Dow Jones
makes no warranty, express or implied, as to results to be obtained by First
Trust Advisors, Endeavor, PFL, owners of the target account or any other person
or entity from the use of the Dow Jones Industrial Average/SM/ or any data
included therein. Dow Jones makes no express or implied warranties, and
expressly disclaims all warranties of merchantability or fitness for a
particular purpose or use with respect to the Dow Jones Industrial Average/SM/
or any data included therein. Without limiting any of the foregoing, in no event
shall Dow Jones have any liability for any lost profits or indirect, punitive,
special or consequential damages (including lost profits), even if notified of
the possibility of such damages.
Investment Risks. There is no assurance that any target series subaccount will
achieve its stated objective. More detailed information, including a description
of each target series subaccount's investment objective and policies and a
description of risks involved in investing in each of the target series
subaccounts and of each target series subaccount's fees and expenses is
contained in the SAI. You
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should read the SAI carefully before investing in a target series subaccount.
Each subaccount consists of different issues of equity securities, all of which
are listed on a securities exchange. In addition, each of the companies whose
equity securities are included in a subaccount are actively traded, well-
established corporations.
Common shares may be sold under certain circumstances. Common shares, however,
will not be sold by a target series subaccount to take advantage of market
fluctuations or changes in anticipated rates of appreciation or depreciation, or
if the common shares no longer meet the criteria by which they were selected.
However, common shares will be sold on or about each annual stock selection date
in accordance with the adviser's stock selection strategy.
Even though the common shares are listed on a securities exchange, the principal
trading market for the common shares may be in the over-the-counter market. As a
result, the existence of a liquid trading market for the common shares may
depend on whether dealers will make a market in the common shares. There can be
no guarantee that a market will be made for any of the common shares, that any
market for the common shares will be maintained or that there will be sufficient
liquidity of the common shares in any markets made. The price at which the
common shares may be sold to meet transfers, partial withdrawals or surrenders
and the value of a target series subaccount will be adversely affected if
trading markets for the common shares are limited or absent.
Investors should consider the following before making a decision to invest in a
target series subaccount:
. The value of the common shares will fluctuate over the life of a target
series subaccount and may be more or less than the price at which they were
purchased by such target series subaccount.
. The common shares may appreciate or depreciate in value (or pay dividends)
depending on the full range of economic and market influences affecting
these securities, including the impact of the target series subaccounts'
purchase and sale of the common shares and other factors.
. Transfers between the target account investment portfolios during the 12-
month period from stock selection date to stock selection date run counter
to the investment strategy of the target account investment portfolios,
namely holding the applicable stocks for a 12-month period, and may
adversely impact your investment performance. Similarly, using dollar cost
averaging and asset rebalancing for the target account investment
portfolios also runs counter to their investment strategies.
. The investment policies of each target series subaccount are narrow and
innovative, and the Internal Revenue Service has not addressed them. If you
are deemed to have investment control of the assets in a target series
subaccount, then you could be treated as the owner of those assets. If so,
income and gains from the subaccount's assets would be includable (pro
rata) in your taxable income each year.
You should understand the risks of investing in common stocks before making an
investment in a target series subaccount. In general, the value of your
investment will fall if the financial condition of the issuers of the common
stocks becomes impaired or if the general condition of the relevant stock market
worsens. Common stocks are especially susceptible to general stock market
movements and to volatile increases and decreases of value, as market confidence
in and perceptions of the issuers change. These perceptions are based on
unpredictable factors including:
. expectations regarding government,;
. economic, monetary and fiscal policies;
. inflation and interest rates;
. economic expansion or contraction; and
. global or regional political, economic or banking crises.
At times, due to the objective nature of the investment selection criteria,
target series subaccounts may be considered concentrated in various industries.
PFL cannot predict the direction or scope of any of these factors. Generally,
common stocks do not receive payments until all obligations of the issuer have
been paid. Unlike debt securities, common stocks do not offer any assurance of
income or provide guaranteed protection of capital.
An investment in The Dow(SM) Target 5 Subaccount may subject you to greater
market risk than other target series subaccounts that contain a more diversified
portfolio of securities since it contains only five stocks.
No target series subaccount is actively managed and common shares will not be
sold to take advantage of market fluctuations or changes in anticipated rates of
appreciation.
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Please note that each strategy has previously under-performed the DJIA.
Neither PFL nor the manager shall be liable in any way for any default, failure
or defect in any common share.
The target account is also available as an investment option in other types of
variable annuity policies sold by PFL. Those other policies may have different
features and different charges than The Endeavor Variable Annuity described in
this prospectus, and therefor are accounted for through a different class of
accumulation or annuity units. PFL does not believe there are any disadvantages
to this arrangement; rather, it leads to larger pools of assets which can result
in economies of scale.
Legislation. Legislation may be enacted at any time that could negatively affect
the common shares in the target series subaccounts or the issuers of the common
shares. Changing approaches to regulation, particularly with respect to the
environment or with respect to the petroleum industry, may have a negative
impact on certain companies represented in the target series subaccounts. There
can be no assurance that future legislation, regulation or deregulation will not
have a material adverse effect on the target series subaccounts or will not
impair the ability of the issuers of the common shares to achieve their business
goals.
Portfolio Turnover. It is anticipated that each target series subaccount's
annual rate of portfolio turnover normally will not exceed 100%. Portfolio
turnover for each target series subaccount will vary from year to year, and
depending on market conditions, the portfolio turnover rate could be greater in
periods of unusual market movement. A higher turnover rate would result in
heavier brokerage commissions or other transactional expenses which must be
borne, directly or indirectly by each target series subaccount, and ultimately
by you.
Brokerage Enhancement Plan. The target account has adopted, but is not
currently participating in, a Brokerage Enhancement Plan (the "Plan") for each
of its subaccounts in accordance with the substantive provisions of Rule 12b-1
under the 1940 Act. The Plan uses available brokerage commissions to promote the
sale and distribution of interests in the subaccount's shares. Under the Plan,
the target account may use recaptured commissions to pay for distribution
expenses. Except for recaptured commissions (unlike asset based charges imposed
by many mutual funds for sales expenses) the subaccounts do not incur any asset
based or additional fees or charges under the Plan. Under the Plan, the manager
is authorized to direct investment advisers to use certain broker/dealers for
securities transactions. (The duty of best price and execution still applies to
these transactions.) These broker/dealers have agreed to give a percentage of
their commission from the sale and purchase of securities to Transamerica
Capital, Inc., the target account's disbributor and an affiliate of PFL.
Transamerica Capital, Inc. will not make any profit from participating in the
Plan. It is obligated to use any money given to it under the Plan for
distribution expenses (other than a minimal amount to defray its legal and
administrative costs). The rest will be spent on activities that are meant to
result in the sale of the policies, including:
. holding or participating in seminars and sales meetings promoting the
subaccounts;
. paying marketing fees requested by broker/dealers who sell policies;
. training sales personnel;
. compensating broker/dealers and/or registered representatives in connection
with the allocation of cash values and premiums to the target account;
. printing and mailing prospectuses, statements of additional information and
reports to prospective owners; and
. creating and mailing advertising and sales literature.
The Fixed Account
Premium payments allocated and amounts transferred to the fixed account become
part of PFL's general accounts. Interests in the general account have not been
registered under the Securities Act of 1933 (the "1933 Act"), nor is the general
account registered as an investment company under the 1940 Act. Accordingly,
neither the general account nor any interests therein are generally subject to
the provisions of the 1933 or 1940 Acts. PFL has been advised that the staff of
the SEC has not reviewed the disclosures in this prospectus which relate to the
fixed account.
We guarantee that the interest credited to the fixed account will not be less
than 3% per year. At the end of a guaranteed period option you selected, the
value in that guaranteed period option will automatically be transferred into a
new guaranteed period option of the same length (or the next
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shorter period if the same period is no longer offered) at the current interest
rate for that period. You can transfer to another investment choice by giving us
notice within 30 days before the end of the expiring guaranteed period.
Surrenders or partial withdrawals from a guaranteed period option of the fixed
account are subject to an excess interest adjustment. This adjustment may
increase or decrease the amount of interest credited to your policy. The excess
interest 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 the other
general assets of PFL. The amount of money you are able to accumulate in the
fixed account during the accumulation phase depends upon the total interest
credited. The amount of annuity payments you receive during the income phase
from the fixed portion of your policy will remain level for the entire income
phase.
Transfers
During the accumulation phase, you may make transfers to or from any mutual fund
subaccount, target series subaccount, or the fixed account as often as you wish
within certain limitations.
Transfers from a guaranteed period option of the fixed account are limited to
the following:
. If at the end of a guaranteed period, you must notify us within 30 days
prior to the end of the guaranteed period that you wish to transfer the
amount in that guaranteed period option to another investment choice. No
excess interest adjustment will apply.
. Transfers of amounts equal to interest credited. This may affect your
overall interest-crediting rate, because transfers are deemed to come from
the oldest premium payment first.
. Other than at the end of a guaranteed period, transfers of amounts from the
guaranteed period option in excess of amounts equal to interest credited,
are subject to an excess interest adjustment. If it is a negative
adjustment, the maximum amount you can transfer is 25% of the amount in
that guaranteed period option, less any previous transfers during the
current policy year. If it is a positive adjustment, we do not limit the
amount that you can transfer.
There are no transfers permitted out of the dollar cost averaging fixed account
option except through the dollar cost averaging program.
Transfers out of a mutual fund subaccount or target series subaccount must be at
least $500, or the entire mutual fund subaccount or target series subaccount
value. Transfers of guaranteed period option amounts equal to interest credited
must be at least $50. If less than $500 remains, then we reserve the right to
either deny the transfer or include that amount in the transfer. Transfers must
be received while the New York Stock Exchange is open to get same-day pricing of
the transaction.
During the income phase of your policy, you may transfer values out of any
mutual fund subaccount or target series subaccount up to four times per 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 mutual
fund subaccount or target series subaccount from which the transfer is being
made.
Transfers may be made by telephone, subject to the limitations described below
under "Telephone Transactions."
Currently, there is no charge for transfers 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 per transfer may apply. We
reserve the right to prohibit transfers to the fixed account if we are crediting
an effective annual interest rate of 3.0% (the guaranteed minimum).
The policy you are purchasing was not designed for professional market timing
organizations or other persons that use programmed, large, or frequent
transfers. The use of such transfers may be disruptive to an underlying fund
portfolio. We reserve the right to reject any premium payment or transfer
request from any person, if, in our judgment, an underlying fund portfolio would
be unable to invest effectively in accordance with its investment objectives and
policies or would otherwise be potentially adversely affected.
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Dollar Cost Averaging Program
During the accumulation phase, you may instruct us to automatically transfer
money from the dollar cost averaging fixed account option, the Dreyfus U.S.
Government Securities Subaccount, or, the Endeavor Money Market Subaccount, into
any other mutual fund subaccounts and/or target series subaccounts. You may
specify the dollar amount to be transferred either monthly or quarterly; however
each transfer must be at least $500. A minimum of 6 monthly or 4 quarterly
transfers are required and a maximum of 24 monthly or 8 quarterly transfers are
allowed. Transfers must begin within 30 days. We will make the transfers on the
28th day of the applicable month.
If you choose to allocate additional premium payments to the dollar cost
averaging program, you must complete a separate request for each additional
premium payment. There is no charge for this program.
Dollar cost averaging buys more accumulation units when prices are low and fewer
accumulation units when prices are high. It does not guarantee profits or assure
that you will not experience a loss. You should consider your ability to
continue the dollar cost averaging program during all economic conditions.
We may credit different interest rates for dollar cost averaging programs of
varying time periods. If you discontinue the dollar cost averaging program
before its completion, then the interest credited on amounts in the dollar cost
averaging fixed account may be adjusted downward, but not below the minimum
guaranteed effective annual interest rate of 3%.
Asset Rebalancing
During the accumulation phase you can instruct us to automatically rebalance the
amounts in your mutual fund subaccounts or target series subaccounts to maintain
your desired asset allocation. This feature is called asset rebalancing and can
be started and stopped at any time free of charge. However, we will not
rebalance if you are in the dollar cost averaging program or if any other
transfer is requested. If a transfer is requested, we will honor the requested
transfer and discontinue asset rebalancing. Asset rebalancing ignores amounts
in the fixed account. You can choose to rebalance monthly, quarterly, semi-
annually, or annually.
Telephone Transactions
You may make transfers and change the allocation of additional premium payments
by telephone IF:
. you select the "Telephone Transfer/Reallocation Authorization" box in the
policy enrollment form or enrollment information; or
. you later make this request in writing.
You will be required to provide certain information for identification purposes
when requesting a transaction by telephone and we may record your telephone
call. We may also require written confirmation of your request. We will not be
liable for following telephone requests that we believe are genuine.
Telephone requests must be received while the New York Stock Exchange is open to
get same-day pricing of the transaction. We may discontinue this option at any
time.
5. EXPENSES
There are charges and expenses associated with your policy that reduce the
return on your investment in the policy.
Surrender Charges
During the accumulation phase, you can withdraw part or all of the cash value.
Cash value is the policy value increased or decreased by any excess interest
adjustment, less the annual service charge, and less any applicable surrender
charge, premium taxes, and family income protector rider fees. We may apply a
surrender charge to compensate us for expenses relating to policy sales,
including commissions to registered representatives and other promotional
expenses. After the first year, you can withdraw up to 10% of your policy value
once each year free of surrender charges. This amount is referred to as the free
percentage and is determined at the time of the withdrawal. If you withdraw
money in excess of 10% of your policy value, 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 seven years
following each premium payment:
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Number of Years Since Surrender Charge
Premium Payment Date (as a percentage of
premium withdrawn)
- -------------------------------------------------
0 - 1 7%
- -------------------------------------------------
1 - 2 7%
- -------------------------------------------------
2 - 3 6%
- -------------------------------------------------
3 - 4 6%
- -------------------------------------------------
4 - 5 5%
- -------------------------------------------------
5 - 6 4%
- -------------------------------------------------
6 - 7 2%
- -------------------------------------------------
For example, assume your policy value is $100,000 at the beginning of policy
year 2 and you withdraw $30,000. Since that amount is more than your free
percentage, you would pay a surrender charge of $1,400 on the remaining $20,000
(7% of $30,000 - $10,000).
You receive the full amount of a requested partial withdrawal because we deduct
any applicable surrender charge (and any negative excess interest adjustment)
from your remaining policy value. You receive your cash value upon full
surrender. For surrender charge purposes, the oldest premium is considered to
be withdrawn first.
Keep in mind that withdrawals may be taxable, and if made before age 59 1/2, may
be subject to a 10% federal penalty tax. For tax purposes, withdrawals are
considered to come from earnings first.
Surrender charges are waived if you withdraw money under the nursing care and
terminal condition withdrawal option or the unemployment waiver.
Excess Interest Adjustment
Withdrawals of cash value from the fixed account may be subject to an excess
interest adjustment. This adjustment could retroactively reduce the interest
credited in the fixed account to the guaranteed minimum of 3% per year. See
"Excess Interest Adjustment" in Section 7 of this prospectus.
Mortality and Expense Risk Fee
We charge a fee as compensation for bearing certain mortality and expense risks
under the policy. Examples include a guarantee of annuity rates, the death
benefits, certain expenses of the policy, and assuming the risk that the current
charges will be insufficient in the future to cover costs of administering the
policy. For the Return of Premium Death Benefit the mortality and expense risk
fee is at an annual rate of 1.25% of assets. During the accumulation phase, for
the 5% Annually Compounding Death Benefit, the Greater of 5% Annually
Compounding through age 80 Death Benefit or Annual Step-Up through age 80 Death
Benefit, and the Monthly Step-Up through age 80 Death Benefit, the mortality and
expense risk fee is at an annual rate of 1.40% of assets. During the income
phase, the mortality and expense risk fee for these benefits is at an annual
rate of 1.25% of assets. This annual fee is assessed daily based on the net
asset value of each mutual fund subaccount and target series 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 any profit for any proper
purpose, including distribution expenses.
Administrative Charges
We deduct an administrative charge to cover the costs of administering the
policy. This charge is equal to an annual rate of 0.15% of the daily net asset
value of the mutual fund account and the target account.
In addition, an annual service charge of $35 (but not more than 2% of the policy
value) is charged on each policy anniversary and at surrender. The service
charge is waived if your policy value or the sum of your premiums, less all
partial withdrawals, is at least $50,000.
Premium Taxes
Some states assess premium taxes on the premium payments you make. We currently
do not deduct for these taxes at the time you make a premium payment. However,
we will deduct the total amount of premium taxes, if any, from the policy value
when:
. you elect to begin receiving annuity payments;
. you surrender the policy; or
. you die and a death benefit is paid (you must also be the annuitant for the
death benefit to be paid).
Generally, premium taxes range from 0% to 3.50%, depending on the state.
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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
You are allowed to make 12 free transfers per year before the annuity
commencement date. If you make more than 12 transfers per year, we reserve the
right to charge $10 for each additional transfer. Premium payments, asset
rebalancing and dollar cost averaging transfers are not considered transfers.
All transfer requests made at the same time are treated as a single request.
Family Income Protector
If you elect the family income protector, there is an annual rider fee during
the accumulation phase of 0.30% of the minimum annuitization value, and a
guaranteed payment fee during the income phase of 1.25% of the daily net asset
value if you annuitize under the rider. The annual rider fee is also deducted if
you surrender the policy. We may raise these fees in the future.
Portfolio Management Fees
The value of the assets in each mutual fund subaccount will reflect the fees and
expenses paid by the underlying fund. A description of these expenses is found
in the prospectuses for the underlying funds.
Target Account Fees
For its services to the target account, the manager is paid a fee of 0.75% of
the average daily net assets of each target series subaccount. For the advisers
services to the target account, the manager pays the adviser a fee equal to
0.35% of the average daily net assets of each target series subaccount.
In addition to the management fees, the target account pays all expenses not
assumed by the manager, including, without limitation, the following:
. legal expenses;
. accounting and auditing services;
. interest;
. taxes;
. costs of printing and distributing reports to shareholders;
. proxy materials and prospectuses;
. custodian, transfer agent, and dividend disbursing agent charges;
. registration fees;
. fees and expenses of the Board of Managers who are not affiliated persons
of the manager or an adviser;
. insurance;
. brokerage costs
. litigation; and
. other extraordinary or nonrecurring expenses.
All general target account expenses are allocated among and charged to the
assets of the target series subaccounts on a basis that the Board of Managers
deems fair and equitable. This may be on the basis of relative net assets of
each target series subaccount or the nature of the services performed and
relative applicability to each target series subaccount.
6. 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.
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When a non-natural person (e.g., corporation or certain other entities other
than tax-qualified trusts) owns a nonqualified policy, the policy will generally
not be treated as an annuity for tax purposes.
Qualified and Nonqualified Policies
If you purchase the policy under an individual retirement annuity, a pension
plan, or specially sponsored program, your policy is referred to as a qualified
policy.
Qualified policies are issued in connection with the following plans:
. Individual Retirement Annuity (IRA): A traditional IRA allows individuals
to make contributions, which may be deductible, to the policy. A Roth IRA
also allows individuals to make contributions to the policy, but it does
not allow a deduction for contributions, and distributions may be tax-free
if the owner meets certain rules.
. Tax-Sheltered Annuity (403(b) Plan): A 403(b) Plan may be made available to
employees of certain public school systems and tax-exempt organizations and
permits contributions to the policy on a pre-tax basis.
. Corporate Pension and Profit-Sharing and H.R. 10 Plan: Employers and self-
employed individuals can establish pension or profit-sharing plans for
their employees or themselves and make contributions to the policy on a
pre-tax basis.
. Deferred Compensation Plan (457 Plan): Certain governmental and tax-exempt
organizations can establish a plan to defer compensation on behalf of their
employees through contributions to the policy.
If you purchase the policy as an individual and not under an individual
retirement annuity, 403(b) plan, 457 plan, or pension or profit sharing plan,
your policy is referred to as a nonqualified policy.
Withdrawals--Qualified Policies
The above information describing the taxation of nonqualified policies does not
apply to qualified policies.
There are special rules that govern with respect to qualified policies.
Generally, these rules restrict:
. the amount that can be contributed to the policy during any year; and
. the time when amounts can be paid from the policy.
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 rule. The terms of the plan may limit the rights
otherwise available to you under the policy.
We have provided more information in the SAI.
You should consult your legal counsel or tax adviser if you are considering
purchasing a policy for use with any retirement plan.
Withdrawals--403(b) Policies
The Internal Revenue Code limits the withdrawal of premium payments from certain
403(b) policies. Withdrawals can generally only be made when an owner:
. reaches age 59 1/2;
. leaves his/her job;
. dies;
. 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.
Tax Status of the Policy
The following discussion is based on the assumption that the policy is a non-
qualified policy that 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 mutual fund subaccounts and the
target series subaccounts. The mutual fund account, through its underlying funds
and their portfolios, and the target account, through its subaccounts, intends
to comply with the diversification requirements of the Treasury. PFL has entered
into agreements with each underlying fund which requires the portfolios to be
operated in compliance with the Treasury regulations. PFL has entered into an
agreement with First Trust Advisers, L.P., the subadviser of the target account,
which requires the
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target series subaccounts to be operated in compliance with the Treasury
regulations. The subadviser reserves the right to depart from either target
series subaccount's investment strategy in order to meet these diversification
requirements. See the SAI for more information concerning diversification
requirements.
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 mutual fund account used to support their contracts. In those circumstances,
income and gains from the mutual fund 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 mutual fund account assets. For example,
you have 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. Moreover, the investment strategies for the target series
subaccounts are narrow and innovative and have not been addressed by the IRS.
These differences could result in you being treated as the owner of the assets
of the target account. PFL reserves the right to modify the policies as
necessary to attempt to prevent you from being considered the owner of a pro
rata share of the assets of the mutual fund account or the target account.
Distribution Requirements. The policy must meet certain distribution
requirements at the death of an owner in order to be treated as an annuity
policy. These distribution requirements are discussed in the SAI. PFL may modify
the policy to attempt to maintain favorable tax treatment.
Withdrawals--Nonqualified Policies
If you make a withdrawal from your policy before the annuity commencement date,
the Internal Revenue Code treats that withdrawal as first coming from earnings
and then from your premium payments. When you make a withdrawal you are taxed on
the amount of the withdrawal that is earnings. (The excess interest adjustment
resulting from the withdrawal may affect the amount on which you are taxed. 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 the taxpayer dies;
. paid if the taxpayer becomes totally disabled (as that term is defined in
the Internal Revenue Code);
. paid in a series of substantially equal payments made annually (or more
frequently) under a lifetime annuity;
. paid under an immediate annuity; or
. which come from premium payments made prior to August 14, 1982.
All deferred non-qualified 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 distributions occurs.
Taxation of Death Benefit Proceeds
Amounts may be distributed from the policy because of the death of an owner or
the annuitant. Generally, such amounts are includable in the income of the
recipient:
. if distributed in a lump sum, these amounts are taxed in the same manner as
a full surrender; or
. 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). The same tax treatment applies to any amounts
distributed after an owner's death.
Annuity Payments
Although the tax consequences may vary depending on the annuity payment option
you select, in general, for nonqualified and certain qualified policies, only a
portion of the annuity payments you receive will be includable in your gross
income.
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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 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.
7. ACCESS TO YOUR MONEY
Surrenders
During the accumulation phase, you can have access to the money in your policy
in several ways:
. by making a withdrawal (either a complete or partial withdrawal);
. by taking systematic payouts; or
. by taking annuity payments.
If you want to make a complete withdrawal, you will receive:
. the value of your policy; plus or minus
. any excess interest adjustment; minus
. surrender charges; minus
. any applicable premium taxes, service charges, and family income protector
rider fees.
If you want to take a partial withdrawal, in most cases it must be for at least
$500. Unless you tell us otherwise, we will take the withdrawal from each of the
investment choices in proportion to the policy value.
Remember that any withdrawal you take will reduce the policy value, and might
reduce the amount of the death benefit. See Section 9, Death Benefit, for more
details. Withdrawals may be subject to a surrender charge. Withdrawals from the
fixed account may also be subject to an excess interest adjustment. Income
taxes, federal tax penalties and certain restrictions may apply to any
withdrawals you make.
Withdrawals from qualified policies may be restricted or prohibited.
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 mutual fund account or target account for a
surrender, a death benefit, or the death of the owner of a nonqualified policy,
will generally
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occur within seven business days from the date all required
information is received by PFL. PFL may be permitted to defer such payment from
the mutual fund account and target account if:
. the New York Stock Exchange is closed other than for usual weekends or
holidays or trading on the Exchange is otherwise restricted;
. 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 mutual fund subaccounts and target
series subaccounts may be deferred under these circumstances.
Pursuant to the requirements of certain state laws, we reserve the right to
defer payment of the cash value from the fixed account for up to six months. We
may 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, all withdrawals from a guaranteed payment option during the first
policy year are subject to an excess interest adjustment. Any amount withdrawn
during a subsequent policy year in excess of 10% of your cumulative premium
payments is also generally subject to an excess interest adjustment. Beginning
in the second policy year, you can, however, withdraw up to 10% of your
cumulative premium payments each policy year, in one or more withdrawals,
without an excess interest adjustment. This is referred to as the "free
percentage."
There will be no excess interest adjustment on any of the following:
. lump sum withdrawals of the free percentage available;
. nursing care and terminal condition withdrawals;
. unemployment waiver;
. withdrawals to satisfy any minimum distribution requirements; and
. systematic payout option payments, which do not exceed 10% of the premium.
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.
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 the greater of:
. up to 10% (annually) of your premium; and
. any gains in the policy, divided by the number of payouts made per year.
This amount may be taken free of surrender charges and excess interest
adjustments. Payments can be made monthly, quarterly, semi-annually, or
annually. Each payment must be at least $50. Monthly and quarterly payments
must be made by electronic funds transfer directly to your checking or savings
account. There is no charge for this benefit.
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 select this benefit at any time (during the accumulation phase) and
there is no charge for this benefit.
This benefit may not be available in all states. See the policy or endorsement
for details and conditions.
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Unemployment Waiver
No surrender charges or excess interest adjustment will apply to withdrawals if
you or your spouse is unemployed. In order to qualify, you (or your spouse,
whichever is applicable) must have been:
. employed full time for at least two years prior to becoming unemployed; and
. employed full time on the policy date; and
. unemployed for at least 60 days in a row at the time of the withdrawal; and
. must have a minimum cash value at the time of withdrawal of $5,000.
You must provide written proof from your State's Department of Labor, which
verifies that you qualify for and are receiving unemployment benefits at the
time of withdrawal.
You can select this benefit at any time (during the accumulation phase) and
there is no charge for this benefit.
This benefit is also available to the annuitant or annuitant's spouse if the
owner is not a natural person. This benefit may not be available in all states.
See the policy for details.
8. PERFORMANCE
The Mutual Fund Account
PFL periodically advertises performance of the various mutual fund subaccounts.
We may disclose at least four different kinds of performance. First, we may
calculate performance by determining the percentage change in the value of an
accumulation unit by dividing the increase (decrease) for that unit by the value
of the accumulation unit at the beginning of the period. This performance number
reflects the deduction of the mortality and expense risk fees and administrative
charges. It does not reflect the deduction of any applicable premium taxes or
surrender charges. The deduction of any applicable premium taxes or surrender
charges would reduce the percentage increase or make greater any percentage
decrease.
Second, any advertisement will also include total return figures, which reflect
the deduction of the mortality and expense risk fees, administrative charges and
surrender charges.
Third, for periods starting prior to the date the policies were first offered,
the performance will be based on the historical performance of the corresponding
investment portfolios for the periods commencing from the date on which the
particular investment portfolio was made available through the mutual fund
account.
Fourth, in addition, for certain investment portfolios, performance may be
shown for the period commencing from the inception date of the investment
portfolio. These figures should not be interpreted to reflect actual historical
performance of the mutual fund account.
We also may, from time to time, include in our advertising and sales materials,
tax deferred compounding charts and other hypothetical illustrations, which may
include comparisons of currently taxable and tax deferred investment programs,
based on selected tax brackets.
Appendix 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.
The Target Account
Performance information regarding the target series subaccounts is in Appendix B
and in the SAI.
9. DEATH BENEFIT
We will pay a death benefit to your beneficiary, under certain circumstances, if
the annuitant dies before the accumulation phase and the annuitant was also an
owner. (If the annuitant was not an owner, a death benefit may or may not be
paid. See below). The beneficiary may choose an annuity payment option, or may
choose to receive a lump sum.
When We Pay A Death Benefit
Before the Annuity Commencement Date
We will pay a death benefit to your beneficiary IF:
. you are both the annuitant and an owner of the policy; and
. you die before the annuity commencement date.
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If the only beneficiary is your surviving spouse, then he or she may elect to
continue the policy as the new annuitant and owner, instead of receiving the
death benefit. All future surrender charges will be waived.
We will also pay a death benefit to your beneficiary IF:
. you are not the annuitant; and
. the annuitant dies before the annuity commencement date; and
. you specifically requested that the death benefit be paid upon the
annuitant's death.
Distribution requirements apply to the policy value upon the death of any owner.
These requirements are detailed in the SAI.
After the Annuity Commencement Date
The death benefit payable, if any, on or after the annuity commencement date
depends on the annuity payment option selected.
IF:
. you are not the annuitant; and
. you die on or after the annuity commencement date; and
. the entire interest in the policy has not been paid to you;
THEN:
. the remaining portion of such interest in the policy will be distributed at
least as rapidly as under the method of distribution being used as of the
date of your death.
When We Do Not Pay A Death Benefit
No death benefit is paid in the following cases:
IF:
. you are not the annuitant; and
. the annuitant dies prior to the annuity commencement date; and
. you did not specifically request that the death benefit be paid upon the
annuitant's death;
THEN:
. you will become the new annuitant and the policy will continue.
IF:
. you are not the annuitant; and
. you die prior to the annuity commencement date;
THEN:
. the new owner must surrender the policy within five years of your death for
the policy value increased or decreased by an excess interest adjustment.
Note carefully. If the owner does not name a contingent owner, the owner's
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 received by PFL.
Amount of Death Benefit
Death benefit provisions may differ from state to state. The death benefit may
be paid as a lump sum or as annuity payments. The amount of the death benefit
depends on the guaranteed minimum death benefit option you chose when you bought
the policy. The death benefit will be the greatest of:
. policy value on the date we receive the required information; or
. cash value on the date we receive the required information (this could be
more than the policy value if there is a positive excess interest
adjustment that exceeds the surrender charge); or
. guaranteed minimum death benefit, if any, (discussed below), plus premium
payments, less partial withdrawals from the date of death to the date the
death benefit is paid.
Guaranteed Minimum Death Benefit
On the policy application, you generally may choose one of the four guaranteed
minimum death benefit options listed below.
After the policy is issued, you cannot make an election and the death benefit
cannot be changed.
A. 5% Annually Compounding Death Benefit
The 5% Annually Compounding Death Benefit is:
. the total premium payments; less
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. 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.
The 5% Annually Compounding Death Benefit is not available if the owner or
annuitant is 75 or older on the policy date. There is an extra charge for this
death benefit.
B. Greater of 5% Annually Compounding through age 80 Death Benefit or Annual
Step-Up through age 80 Death Benefit
The 5% Annually Compounding through age 80 Death Benefit is:
. the total premium payments;less
. any adjusted partial withdrawals; plus
. interest at an effective annual rate of 5% from the premium payment
date or withdrawal date to the earlier of the annuitant's date of
death or the annuitant's 81st birthday.
The Annual Step-Up through age 80 Death Benefit is equal to:
. the largest policy value on the policy date or on any policy
anniversary prior to the earlier of the annuitiant's date of death or
the annuitant's 81st birthday; plus
. any premium payments subsequent to the date of any policy anniversary
with the largest policy value; minus
. any adjusted partial withdrawals subsequent to the date of the policy
anniversary with the largest policy value.
This benefit is not available if the owner or annuitant is age 81 or older
on the policy date.
C. Monthly Step-Up through age 80 Death Benefit
The Monthly Step-Up through age 80 Death Benefit is:
. the largest policy value on the policy date or on any monthly policy
date prior to the earlier of the annuitant's date of death or the
annuitant's 81st birthday; plus
. any premium payments subsequent to the date of any monthly policy date
with the largest policy value; minus
. any adjusted partial withdrawals subsequent to the date of the monthly
policy date with the largest policy value.
This benefit is not available if the owner or annuitant is age 81 or older
on the policy date.
D. Return of Premium Death Benefit
The Return of Premium Death Benefit is:
. total premium payments; less
. any adjusted partial withdrawals (discussed below) as of the date of
death.
The Return of Premium Death Benefit will be in effect if you do not choose
one of the other death benefit options on the policy application. The
charges are lower for this option than for the other three.
IF, under all four death benefit options:
. the surviving spouse elects to continue the policy instead of receiving the
death benefit; and
. the guaranteed minimum death benefit is greater than the policy value;
THEN:
. we will increase the policy value to be equal to the guaranteed minimum
death benefit. This increase is made only at the time the surviving spouse
elects to continue the policy.
Adjusted Partial Withdrawal
When you request a partial withdrawal, your guaranteed minimum death benefit
will be reduced by an amount called the adjusted partial withdrawal. Under
certain circumstances, the adjusted partial withdrawal may be more than the
amount of your withdrawal request. It is also possible that if a death benefit
is paid after you have made a partial withdrawal, then the total amount paid
could be less than the total premium payments. We have included a detailed
explanation of this adjustment in the SAI.
10. 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.
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Assignment
You can also assign the policy any time during your lifetime. PFL will not be
bound by the assignment until we receive written notice of the assignment. We
will not be liable for any payment or other action we take in accordance with
the policy before we receive notice of the assignment. There may be limitations
on your ability to assign a qualified policy. An assignment may have tax
consequences.
PFL Life Insurance Company
PFL Life Insurance Company was incorporated under the laws of the State of Iowa
on April 19, 1961 as NN Investors Life Insurance Company, Inc. It is engaged in
the sale of life and health insurance and annuity policies. PFL is a
Transamerica Company and a wholly owned indirect subsidiary of AEGON USA, Inc.
which conducts most of its operations through subsidiary companies engaged in
the insurance business or in providing non-insurance financial services. All of
the stock of AEGON USA, Inc. is indirectly owned by AEGON N.V. of The
Netherlands, the securities of which are publicly traded. AEGON N.V., a holding
company, conducts its business through subsidiary companies engaged primarily in
the insurance business. PFL is licensed in the District of Columbia, Guam, and
in all states except New York.
All obligations arising under the policies, including the promise to make
annuity payments, are general corporate obligations of PFL.
The Mutual Fund Account
PFL established a mutual fund account, called the PFL Endeavor VA Separate
Account, under the laws of the State of Iowa on January 19, 1990. The mutual
fund account receives and currently invests the premium payments that are
allocated to it for investment in shares of the underlying mutual fund
portfolios.
The mutual fund 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 mutual fund account or PFL. Income,
gains and losses, whether or not realized, from assets allocated to the mutual
fund account are, in accordance with the policies, credited to or charged
against the mutual fund account without regard to PFL's other income, gains or
losses.
The assets of the mutual fund account are held in PFL's name on behalf of the
mutual fund account and belong to PFL. However, those assets that underlie the
policies are not chargeable with liabilities arising out of any other business
PFL may conduct. The mutual fund account includes other subaccounts that are not
available under these policies.
The Target Account
PFL established the PFL Endeavor Target Account under the laws of the state of
Iowa on September 15, 1997. The target account is registered with the SEC under
the 1940 Act, as an open-end management investment company and meets the
definition of a separate account under federal securities laws. However, the SEC
does not supervise the management or the investment practices or policies of the
target account or PFL.
The two Dow(SM) Target 10 Subaccounts (January and July Series) and the two Dow
SM Target 5 Subaccounts (January and July Series) are non-diversified target
series subaccounts of the target account.
Mixed and Shared Funding
Before making a decision concerning the allocation of premium payments to a
particular mutual fund subaccount, please read the prospectuses for the
underlying funds. The underlying funds are not limited to selling their shares
to this mutual fund account and can accept investments from any separate account
or qualified retirement plan. Since the portfolios of the underlying funds are
available to registered separate accounts offering variable annuity products of
PFL, as well as variable annuity and variable life products of other insurance
companies, and qualified retirement plans, there is a possibility that a
material conflict may arise between the interests of this mutual fund account
and one or more of the other accounts of another participating insurance
company. In the event of a material conflict, the affected insurance companies,
including PFL, agree to take any necessary steps to resolve the matter. This
includes removing their mutual fund accounts from the underlying funds. See the
underlying funds' prospectuses for more details.
35
<PAGE>
Reinstatements
You may surrender your policy and transfer your money directly to another life
insurance company (sometimes referred to as a 1035 Exchange or a trustee-to-
trustee transfer). You may also request us to reinstate your policy after such a
transfer by returning the same total dollar amount of funds to the applicable
investment choices. The dollar amount will be used to purchase new accumulation
units at the then current price. Because of changes in market value, your new
accumulation units may be worth more or less than the units you previously
owned. We recommend that you consult a tax professional to explain the possible
tax consequences of exchanges and/or reinstatements.
Voting Rights
Mutual Fund Account. 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.
Target Account. You (or the person receiving annuity payments) can vote on
certain matters with respect to the target series subaccounts you have an
interest in. Such matters include:
. changes in the investment advisory agreement;
. changes in the fundamental investment policies;
. any other matter requiring a vote of persons holding voting interests; and
. matters pursuant to the requirements of Rules 12b-1 and 18f-2 of the
Investment Company Act of 1940.
On certain matters, each target series subaccount may vote separately. Each
person having a voting interest will receive proxy material, reports, and other
materials relating to the appropriate target series subaccount.
Distributor of the Policies
AFSG Securities Corporation is the principal underwriter of the policies. Like
PFL, it is a Transamerica Company and an indirect wholly owned subsidiary of
AEGON USA, Inc. It is located at 4333 Edgewood Road N.E., Cedar Rapids, IA
52499-0001. AFSG Securities Corporation is registered as a broker/dealer under
the Securities Exchange Act of 1934. It is a member of the National Association
of Securities Dealers, Inc.
Commissions of up to 6.25% of premium payments plus an annual continuing fee
based on policy values will be paid to broker/dealers who sell the policies
under agreements with AFSG Securities Corporation. These commissions are not
deducted from premium payments. In addition, certain production, persistency and
managerial bonuses may be paid. PFL may also pay compensation to financial
institutions for their services in connection with the sale and servicing of the
policies.
Non-participating Policy
The policy does not participate or share in the profits or surplus earnings of
PFL. No dividends are payable on the policy.
Variations in Policy Provisions
Certain provisions of the policies may vary from the descriptions in this
prospectus in order to comply with different state laws. See your policy for
variations since any such state variations will be included in your policy or in
riders or endorsements attached to your policy.
IMSA
PFL is a charter member of the Insurance Marketplace Standards Association
(IMSA). IMSA is an independent, voluntary organization of life insurance
companies. It promotes high ethical standards in the sales, advertising and
servicing of individual life insurance and annuity products. Companies must
undergo a rigorous self and independent assessment of their practices to become
a member of IMSA. The IMSA logo in our sales literature shows our ongoing
commitment to these standards.
36
<PAGE>
Legal Proceedings
There are no legal proceedings to which the mutual fund account or target
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 mutual fund account, target
account or PFL.
Financial Statements
The financial statements of PFL, the mutual fund account, and the target account
are included in the SAI.
TABLE OF CONTENTS OF THE STATEMENT OF
ADDITIONAL INFORMATION
Glossary of Terms
The Policy--General Provisions
Certain Federal Income Tax Consequences
Investment Experience
Family Income Protector--Additional Information
Historical Performance Data
The Target Account
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
37
<PAGE>
APPENDIX A
CONDENSED FINANCIAL INFORMATION
The Mutual Fund Account
The accumulation unit values and the number of accumulation units outstanding
for each mutual fund subaccount from the date of inception are shown in the
following tables.
5% Annually Compounding Death Benefit or Double Enhanced Death Benefit *
(Total Mutual Fund Account Annual Expenses: 1.55%)
<TABLE>
<CAPTION>
=============================================================================================================================
Accumulation Accumulation Number of
Unit Value Unit Value Accumulation
at Beginning of Year at End of Year Units at End of Year
=============================================================================================================================
<S> <C> <C> <C>
Dreyfus Small Cap Value Subaccount
1999..........................................
1998.......................................... $ 1.849564 $ 1.781675 7,236,830.344
1997 (9)...................................... $ 1.635726 $ 1.849564 2,651,783.374
- -----------------------------------------------------------------------------------------------------------------------------
Dreyfus U.S. Government Securities Subaccount
1999..........................................
1998.......................................... $ 1.213942 $ 1.283673 5,114,379.634
1997 (9)...................................... $ 1.136634 $ 1.213942 858,785.418
- -----------------------------------------------------------------------------------------------------------------------------
Endeavor Asset Allocation Subaccount
1999..........................................
1998.......................................... $ 2.169995 $ 2.529863 7,169,923.981
1997 (9)...................................... $ 1.998344 $ 2.169995 1,857,541.490
- -----------------------------------------------------------------------------------------------------------------------------
Endeavor Money Market Subaccount
1999..........................................
1998.......................................... $ 1.185346 $ 1.236621 4,060,082.004
1997 (9)...................................... $ 1.170606 $ 1.185346 1,002,462.071
- -----------------------------------------------------------------------------------------------------------------------------
Endeavor Enhanced Index Subaccount
1999..........................................
1998.......................................... $ 1.216554 $ 1.574026 7,597,253.113
1997 (9)...................................... $ 1.066111 $ 1.216554 1,987,857.002
- -----------------------------------------------------------------------------------------------------------------------------
Endeavor High Yield Subaccount
1999..........................................
1998(11)...................................... $ 1.000000 $ 0.960378 1,139,786.018
- -----------------------------------------------------------------------------------------------------------------------------
Endeavor Janus Growth Subaccount
1999..........................................
1998.......................................... $19.647490 $31.822714 1,055,990.702
1997 (9)...................................... $18.030324 $19.647490 331,277.459
- -----------------------------------------------------------------------------------------------------------------------------
Endeavor Opportunity Value Subaccount
1999..........................................
1998.......................................... $ 1.155963 $ 1.197263 7,330,811.955
1997 (9)...................................... $ 1.049539 $ 1.155963 2,879,146.147
- -----------------------------------------------------------------------------------------------------------------------------
Endeavor Value Equity Subaccount
1999..........................................
1998.......................................... $ 2.086425 $ 2.207657 8,178,731.965
1997 (9)...................................... $ 1.804168 $ 2.086425 2,607,465.410
- -----------------------------------------------------------------------------------------------------------------------------
Endeavor Select 50 Subaccount
1999..........................................
1998(10)...................................... $ 1.000000 $ 1.051197 5,686,375.448
=============================================================================================================================
</TABLE>
38
<PAGE>
5% Annually Compounding Death Benefit or Double Enhanced Death Benefit *
(Total Mutual Fund Account Annual Expenses: 1.55%)
continued.............
<TABLE>
<CAPTION>
==============================================================================================================================
Accumulation Accumulation Number of
Unit Value Unit Value Accumulation
at Beginning of Year at End of Year Units at End of Year
==============================================================================================================================
<S> <C> <C> <C>
T. Rowe Price Equity Income Subaccount
1999..........................................
1998.......................................... $1.923303 $2.060734 12,371,479.613
1997 (9)...................................... $1.663897 $1.923303 3,943,109.487
- ------------------------------------------------------------------------------------------------------------------------------
T. Rowe Price Growth Stock Subaccount
1999..........................................
1998.......................................... $2.041653 $2.586964 7,055,527.601
1997 (9)...................................... $1.774078 $2.041653 1,909,047.791
- ------------------------------------------------------------------------------------------------------------------------------
T. Rowe Price International Stock Subaccount
1999..........................................
1998.......................................... $1.345339 $1.529380 6,282,060.011
1997 (9)...................................... $1.432514 $1.345339 2,717,945.242
==============================================================================================================================
</TABLE>
Return of Premium Death Benefit *
(Total Mutual Fund Account Annual Expenses: 1.40%)
<TABLE>
<CAPTION>
==============================================================================================================================
Accumulation Accumulation Number of
Unit Value Unit Value Accumulation
at Beginning of Year at End of Year Units at End of Year
==============================================================================================================================
<S> <C> <C> <C>
Dreyfus Small Cap Value Subaccount
1999..........................................
1998.......................................... $1.851229 $1.785929 59,347,329.564
1997.......................................... $1.496065 $1.851229 63,123,931.161
1996.......................................... $1.206843 $1.496065 51,124,831.634
1995.......................................... $1.072941 $1.206843 40,635,696.978
1994.......................................... $1.107747 $1.072941 32,607,348.474
1993(3)....................................... $1.000000 $1.107747 11,449,956.948
- ------------------------------------------------------------------------------------------------------------------------------
Dreyfus U.S. Government Securities Subaccount
1999..........................................
1998.......................................... $1.215033 $1.286733 41,241,127.664
1997.......................................... $1.128769 $1.215033 30,043,275.031
1996.......................................... $1.124292 $1.128769 17,561,825.527
1995.......................................... $0.985803 $1.124292 8,456,764.729
1994(4)....................................... $0.998670 $0.985803 3,102,671.789
- ------------------------------------------------------------------------------------------------------------------------------
Endeavor Asset Allocation Subaccount
1999..........................................
1998.......................................... $2.171948 $2.535888 116,236,043.595
1997.......................................... $1.833135 $2.171948 127,262,704.167
1996.......................................... $1.577873 $1.833135 124,998,927.667
1995.......................................... $1.301669 $1.577873 122,974,873.030
1994.......................................... $1.393488 $1.301669 130,909,987.116
1993.......................................... $1.209859 $1.393488 69,252,242.665
1992.......................................... $1.125386 $1.209859 11,637,563.615
1991(1)....................................... $1.000000 $1.125386 3,775,618.731
==============================================================================================================================
</TABLE>
39
<PAGE>
Return of Premium Death Benefit *
(Total Mutual Fund Account Annual Expenses: 1.40%)
continued.....
<TABLE>
<CAPTION>
============================================================================================================================
Accumulation Accumulation Number of
Unit Value Unit Value Accumulation
at Beginning of Year at End of Year Units at End of Year
============================================================================================================================
<S> <C> <C> <C>
Endeavor Money Market Subaccount
1999..........................................
1998.......................................... $ 1.196418 $ 1.239556 51,024,317.036
1997.......................................... $ 1.15422 $ 1.196418 28,678,037.042
1996.......................................... $ 1.11571 $ 1.15422 26,461,099.190
1995.......................................... $ 1.07242 $ 1.11571 21,103,926.232
1994.......................................... $ 1.05150 $ 1.07242 17,836,839.874
1993.......................................... $ 1.04313 $ 1.05150 12,190,857.625
1992.......................................... $ 1.02803 $ 1.04313 4,334,947.760
1991(1)....................................... $ 1.00000 $ 1.02803 1,855,372.177
- ----------------------------------------------------------------------------------------------------------------------------
Endeavor Enhanced Index Subaccount
1999..........................................
1998.......................................... $ 1.217647 $ 1.577775 13,701,547.835
1997(7)....................................... $ 1.000000 $ 1.217647 9,296,582.067
- ----------------------------------------------------------------------------------------------------------------------------
Endeavor High Yield Subaccount
1999..........................................
1998 (11)..................................... $ 1.000000 $ 0.961203 6,199,317.634
- ----------------------------------------------------------------------------------------------------------------------------
Endeavor Janus Growth Subaccount
1999..........................................
1998.......................................... $19.665157 $31.898334 15,001,694.599
1997.......................................... $16.964068 $19.665157 16,307,024.863
1996.......................................... $14.583843 $16.964068 15,174,482.394
1995.......................................... $10.051117 $14.583843 13,337,196.679
1994.......................................... $11.114865 $10.051117 12,758,957.591
1993.......................................... $10.839753 $11.114865 9,252,403.800
1992(8)....................................... $10.000000 $10.839753 1,119,066.376
- ----------------------------------------------------------------------------------------------------------------------------
Endeavor Opportunity Value Subaccount
1999..........................................
1998.......................................... $ 1.156993 $ 1.200101 18,189,950.241
1997.......................................... $ 1.004355 $ 1.156993 14,927,829.243
1996(6)....................................... $ 1.000000 $ 1.004355 314,119.406
- ----------------------------------------------------------------------------------------------------------------------------
Endeavor Value Equity Subaccount
1999..........................................
1998.......................................... $ 2.086130 $ 2.212928 78,666,773.562
1997.......................................... $ 1.694854 $ 2.086130 82,171,833.799
1996.......................................... $ 1.387903 $ 1.694854 65,227,195.342
1995.......................................... $ 1.045610 $ 1.387903 46,194,663.692
1994.......................................... $ 1.018576 $ 1.045610 30,512,231.489
1993(2)....................................... $ 1.000000 $ 1.018576 10,958,836.984
- ----------------------------------------------------------------------------------------------------------------------------
Endeavor Select 50 Subaccount
1999..........................................
1998 (10)..................................... $ 1.000000 $ 1.052609 7,340,386.987
- ----------------------------------------------------------------------------------------------------------------------------
T. Rowe Price Equity Income Subaccount
1999..........................................
1998.......................................... $ 1.925022 $ 2.065623 83,821,265.291
1997.......................................... $ 1.521680 $ 1.925022 79,662,847.306
1996.......................................... $ 1.287240 $ 1.521680 42,673,040.677
1995(5)....................................... $ 1.000000 $ 1.287240 14,943,358.393
============================================================================================================================
</TABLE>
40
<PAGE>
Return of Premium Death Benefit *
(Total Mutual Fund Account Annual Expenses: 1.40%)
continued.....
<TABLE>
<CAPTION>
=========================================================================================================================
Accumulation Accumulation Number of
Unit Value Unit Value Accumulation
at Beginning of Year at End of Year Units at End of Year
=========================================================================================================================
<S> <C> <C> <C>
T. Rowe Price Growth Stock Subaccount
1999..........................................
1998.......................................... $2.043487 $2.593121 45,596,534.725
1997.......................................... $1.611613 $2.043487 44,624,829.320
1996.......................................... $1.353339 $1.611613 30,237,847.748
1995(5)....................................... $1.000000 $1.353339 14,196,707.745
- -------------------------------------------------------------------------------------------------------------------------
T. Rowe Price International Stock Subaccount
1999..........................................
1998.......................................... $1.346560 $1.533035 90,839,071.438
1997.......................................... $1.330640 $1.346560 101,220,764.948
1996.......................................... $1.171039 $1.330640 91,462,303.686
1995.......................................... $1.073958 $1.171039 75,065,177.549
1994.......................................... $1.156482 $1.073958 76,518,044.179
1993.......................................... $0.989782 $1.156482 45,569,234.403
1992.......................................... $1.041235 $0.989782 6,368,485.858
1991(1)....................................... $1.000000 $1.041235 3,068,279.081
==============================================================================================================================
</TABLE>
(1) Period from April 8, 1991 through December 31, 1991.
(2) Period from May 27, 1993 through December 31, 1993.
(3) Period from May 4, 1993 through December 31, 1993.
(4) Period from May 9, 1994 through December 31, 1994.
(5) Period from January 3, 1995 through December 31, 1995.
(6) Period from November 18, 1996, through December 31, 1996.
(7) Period from May 1, 1997 through December 31, 1997.
(8) Period from July 1, 1992 through December 31, 1992.
(9) Period from May 23, 1997 through December 31, 1997.
(10) Period from February 2, 1998 through December 31, 1998.
(11) Period from June 2, 1998 through December 31, 1998.
* As of May 1, 2000 the death benefits available under this policy have been
changed to (1) 5% Annually Compounding Death Benefit, (2) Greater of 5%
Annually Compounding through age 80 Death Benefit or Annual Step-Up through
age 80 Death Benefit, (3) Monthly Step-Up Death Benefit, and (4) Return of
Premium. However, the corresponding unit values for each death benefit did
not change.
The Transamerica VIF Growth Subaccount, Fidelity - VIP Equity-Income Subaccount,
Fidelity - VIP II Contrafund Subaccount, Fidelity - VIP III Growth Opportunities
Subaccount, Fidelity - VIP III Mid Cap Subaccount, WRL Alger Aggressive Growth
Subaccount, WRL Goldman Sachs Growth Subaccount, WRL Janus Global Subaccount,
WRL NWQ Value Equity Subaccount, WRL Pilgrim Baxter Mid Cap Growth Subaccount ,
WRL Salomon All Cap Subaccount, WRL T. Rowe Price Dividend Growth Subaccount and
WRL T. Rowe Price Small Cap Subaccount had not commenced operations as of
December 31, 1999, therefore, comparable data is not available.
41
<PAGE>
CONDENSED FINANCIAL INFORMATION
The Target Account
5% Annually Compounding Death Benefit or Double Enhanced Death Benefit *
<TABLE>
<CAPTION>
===========================================================================================================================
The Dow Target 10 The Dow Target The Dow Target 10 The Dow Target
Subaccount 5 Subaccount Subaccount (July 5 Subaccount
(January Series) (January Series) Series) (July Series)
===========================================================================================================================
<C> <S> <C> <C> <C>
Investment Income
1999 (2) .....................................
1998 (1) ..................................... N/A N/A .0258515 .0456860
- ---------------------------------------------------------------------------------------------------------------------------
Expenses
1999 (2) .....................................
1998 (1) ..................................... N/A N/A (.0242777) (.0199165)
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income
1999 (2) .....................................
1998 (1) ..................................... N/A N/A .00157378 .02576956
- ---------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gains (losses)
on securities
1999 (2) .....................................
1998 (1) ..................................... N/A N/A .0308494 .0697949
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in accumulation unit
value
1999 (2) .....................................
1998 (1) ..................................... N/A N/A .033997 .121334
- ---------------------------------------------------------------------------------------------------------------------------
Accumulation unit value at beginning of period
1999 (2) .....................................
1998 (1) ..................................... N/A N/A 1.000000 1.000000
- ---------------------------------------------------------------------------------------------------------------------------
Accumulation unit value at end of period
1999 (2) .....................................
1998 (1) ..................................... N/A N/A 1.033997 1.121334
- ---------------------------------------------------------------------------------------------------------------------------
Expenses to average net assets
1999 (2) .....................................
1998 (1) ..................................... N/A N/A 1.30% 1.30%
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rates
1999 (2) .....................................
1998 (1) ..................................... N/A N/A 0% 0%
- ---------------------------------------------------------------------------------------------------------------------------
Number of accumulation units outstanding
at end of period
1999 (2) .....................................
1998 (1) ..................................... N/A N/A 2,825,523 4,444,952
===========================================================================================================================
</TABLE>
42
<PAGE>
Return of Premium Death Benefit *
<TABLE>
<CAPTION>
=============================================================================================================================
The Dow Target 10 The Dow Target The Dow Target 10 The Dow Target
Subaccount 5 Subaccount Subaccount (July 5 Subaccount
(January Series) (January Series) Series) (July Series)
=============================================================================================================================
<C> <S> <C> <C> <C>
Investment Income
1999 (2) .....................................
1998 (1) ..................................... N/A N/A .0149959 .0156160
- ---------------------------------------------------------------------------------------------------------------------------
Expenses
1999 (2) .....................................
1998 (1) ..................................... N/A N/A (.0134201) (.0141319)
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income
1999 (2) .....................................
1998 (1) ..................................... N/A N/A .00157583 .00148401
- ---------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gains (losses) on
securities
1999 (2) .....................................
1998 (1) ..................................... N/A N/A .0316123 .1192020
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in accumulation unit
value
1999 (2) .....................................
1998 (1) ..................................... N/A N/A .034764 .122170
- ---------------------------------------------------------------------------------------------------------------------------
Accumulation unit value at beginning of period
1999 (2) .....................................
1998 (1) ..................................... N/A N/A 1.000000 1.000000
- ---------------------------------------------------------------------------------------------------------------------------
Accumulation unit value at end of period
1999 (2) .....................................
1998 (1) ..................................... N/A N/A 1.034764 1.122170
- ---------------------------------------------------------------------------------------------------------------------------
Expenses to average net assets
1999 (2) .....................................
1998 (1) ..................................... N/A N/A 1.30% 1.30%
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rates
1999 (2) .....................................
1998 (1) ..................................... N/A N/A 0% 0%
- ---------------------------------------------------------------------------------------------------------------------------
Number of accumulation units outstanding at end
of period
1999 (2) .....................................
1998 (1) ..................................... N/A N/A 1,692,851 1,697,953
==============================================================================================================================
</TABLE>
(1) Period from July 1, 1998 through December 31, 1998 for The Dow(SM) Target
10 (July Series) and The Dow(SM) Target 5 (July Series). The Dow(SM) Target
10 (January Series) and The Dow(SM) Target 5 (January Series) had not
commenced operations as of December 31, 1998, therefore there was no
Condensed Financial Information to report for that period.
(2) Period from January 1, 1999 through December 31, 1999 for The Dow(SM)
Target 10 (January Series), The Dow(SM) Target 5 (January Series), The
Dow(SM) Target 10 (July Series), and The Dow(SM) Target 5 (July
Series),.
* As of May 1, 2000 the death benefits available under this policy have been
changed to (1) 5% Annually Compounding Death Benefit, (2) Greater of 5%
Annually Compounding through age 80 Death Benefit or Annual Step-Up through
age 80 Death Benefit, (3) Monthly Step-Up Death Benefit, and (4) Return of
Premium. However, the corresponding unit values for each death benefit did
not change.
43
<PAGE>
APPENDIX B
HISTORICAL PERFORMANCE DATA
THE MUTUAL FUND ACCOUNT
Standardized Performance Data
PFL may advertise historical yields and total returns for the subaccounts of the
mutual fund account. In addition, PFL may advertise the effective yield of the
subaccount investing in the Endeavor Money Market Portfolio (the "Endeavor Money
Market Subaccount"). These figures are calculated according to standardized
methods prescribed by the SEC. They are based on historical earnings and are not
intended to indicate future performance.
Endeavor Money Market Subaccount. The yield of the Endeavor Money Market
- --------------------------------
Subaccount for a policy refers to the annualized income generated by an
investment under a policy in the subaccount over a specified seven-day period.
The yield is calculated by assuming that the income generated for that seven-day
period is generated each seven-day period over a 52-week period and is shown as
a percentage of the investment. The effective yield is calculated similarly but,
when annualized, the income earned by an investment under a policy in the
subaccount is assumed to be reinvested. The effective yield will be slightly
higher than the yield because of the compounding effect of this assumed
reinvestment.
Other Subaccounts. The yield of a mutual fund subaccount (other than the
- -----------------
Endeavor Money Market Subaccount) for a policy refers to the annualized income
generated by an investment under a policy in the subaccount over a specified
thirty-day period. The yield is calculated by assuming that the income generated
by the investment during that thirty-day period is generated each thirty-day
period over a 12-month period and is shown as a percentage of the
investment.
The total return of a subaccount 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 one, five, and ten
years, respectively, the total return for these periods will be provided. The
total return quotations for a subaccount will represent the average annual
compounded rates of return that equate an initial investment of $1,000 in the
subaccount to the redemption value of that investment as of the last day of each
of the periods for which total return quotations are provided.
The yield and total return calculations for a subaccount do not reflect the
effect of any premium taxes that may be applicable to a particular policy, and
they do not reflect the rider charge for the optional family income protector.
To the extent that any or all of a premium tax is applicable to a particular
policy, the yield and/or total return of that policy will be reduced. For
additional information regarding yields and total returns calculated using the
standard formats briefly summarized above, please refer to the SAI, a copy of
which may be obtained from the administrative and service office upon request.
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 the administrative charges. Performance figures may reflect
the 1.40% mortality and expense risk fee for the 5% Annually Compounding and
Double Enhanced Death Benefits, or the 1.25% mortality and expense risk fee for
the Return of Premium Death Benefit. Standard total return calculations will
reflect the effect of surrender charges that may be applicable to a particular
period.
44
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
TABLE 1 - A
Standard Average Annual Total Returns
- ----------------------------------------------------------------------------------------------------------------------------
5% Annually Compounding Death Benefit or Double Enhanced Death Benefit *
(Total Mutual Fund Account Annual Expenses: 1.55%)
- ----------------------------------------------------------------------------------------------------------------------------
Inception
1 Year 5 Year of the Subaccount
Ended Ended Subaccount Inception
Subaccount 12/31/99 12/31/99 to 12/31/99 Date
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Dreyfus Small Cap Value (1) ........................................... May 4, 1993
Dreyfus U.S. Government Securities ...................................... May 9, 1994
Endeavor Asset Allocation ............................................... April 8, 1991
Endeavor Enhanced Index ................................................. May 1, 1997
Endeavor High Yield ..................................................... June 2, 1998
Endeavor Janus Growth (2) ............................................. July 1, 1992
Endeavor Opportunity Value .............................................. November 18, 1996
Endeavor Value Equity ................................................... May 27, 1993
Endeavor Select 50 ...................................................... February 2, 1998
T. Rowe Price Equity Income ............................................. January 3, 1995
T. Rowe Price Growth Stock .............................................. January 3, 1995
T. Rowe Price International Stock (3) ................................. April 8, 1991
Transamerica VIF Growth (4) ............................................. N/A N/A N/A N/A
Fidelity - VIP Equity-Income (4) ........................................ N/A N/A N/A N/A
Fidelity - VIP II Contrafund (4) ........................................ N/A N/A N/A N/A
Fidelity - VIP III Growth Opportunities (4) ............................. N/A N/A N/A N/A
Fidelity - VIP III Mid Cap (4) .......................................... N/A N/A N/A N/A
WRL Alger Aggressive Growth (4) ......................................... N/A N/A N/A N/A
WRL Goldman Sachs Growth (4) ............................................ N/A N/A N/A N/A
WRL Janus Global (4) .................................................... N/A N/A N/A N/A
WRL NWQ Value Equity (4) ................................................ N/A N/A N/A N/A
WRL Pilgrim Baxter Mid Cap Growth (4) ................................... N/A N/A N/A N/A
WRL Salomon All Cap (4).................................................. N/A N/A N/A N/A
WRL T. Rowe Price Dividend Growth (4).................................... N/A N/A N/A N/A
WRL T. Rowe Price Small Cap (4).......................................... N/A N/A N/A N/A
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
45
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
TABLE 1 - B
Standard Average Annual Total Returns
- ----------------------------------------------------------------------------------------------------------------------------
Return of Premium Death Benefit *
(Total Mutual Fund Account Annual Expenses: 1.40%)
- ----------------------------------------------------------------------------------------------------------------------------
Inception
1 Year 5 Year of the Subaccount
Ended Ended Subaccount Inception
Subaccount 12/31/99 12/31/99 to 12/31/99 Date
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Dreyfus Small Cap Value (1) ............................................ May 4, 1993
Dreyfus U.S. Government Securities ...................................... May 9, 1994
Endeavor Asset Allocation ............................................... April 8, 1991
Endeavor Enhanced Index ................................................. May 1, 1997
Endeavor High Yield ..................................................... June 2, 1998
Endeavor Janus Growth (2) .............................................. July 1, 1992
Endeavor Opportunity Value .............................................. November 18, 1996
Endeavor Value Equity ................................................... May 27, 1993
Endeavor Select 50 ...................................................... February 2, 1998
T. Rowe Price Equity Income ............................................. January 3, 1995
T. Rowe Price Growth Stock .............................................. January 3, 1995
T. Rowe Price International Stock (3) .................................. April 8, 1991
Transamerica VIF Growth (4) ............................................. N/A N/A N/A N/A
Fidelity - VIP Equity-Income (4) ........................................ N/A N/A N/A N/A
Fidelity - VIP II Contrafund (4) ........................................ N/A N/A N/A N/A
Fidelity - VIP III Growth Opportunities (4) ............................. N/A N/A N/A N/A
Fidelity - VIP III Mid Cap (4) .......................................... N/A N/A N/A N/A
WRL Alger Aggressive Growth (4) ......................................... N/A N/A N/A N/A
WRL Goldman Sachs Growth (4) ............................................ N/A N/A N/A N/A
WRL Janus Global (4) .................................................... N/A N/A N/A N/A
WRL NWQ Value Equity (4) ................................................ N/A N/A N/A N/A
WRL Pilgrim Baxter Mid Cap Growth (4) ................................... N/A N/A N/A N/A
WRL Salomon All Cap (4).................................................. N/A N/A N/A N/A
WRL T. Rowe Price Dividend Growth (4).................................... N/A N/A N/A N/A
WRL T. Rowe Price Small Cap (4).......................................... N/A N/A N/A N/A
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Effective September 16, 1996, The Dreyfus Corporation became the adviser to
the Dreyfus Small Cap Value Portfolio, formerly known as Quest for Value
Small Cap Portfolio. The portfolio was previously advised by OpCap
Advisors.
(2) Effective April 30, 1999, shares of the WRL Janus Growth Portfolio were
removed and replaced with shares of the Endeavor Janus Growth Portfolio.
The Endeavor Janus Growth Portfolio has the same investment objectives, the
same investment adviser (Janus Capital Corporation) and the same advisory
fees as the WRL Janus Growth Portfolio. Performance prior to May 1, 1999
reflects performance of the annuity subaccount while it was invested in the
WRL Janus Growth Portfolio.
(3) Effective January 1, 1995, Rowe-Price Fleming International, Inc. became
the adviser to the T. Rowe Price International Stock Portfolio. The
Portfolio's name was changed from the Global Growth Portfolio and the
Portfolio's shareholders approved a change in investment objective from
investments in small capitalization companies on a global basis to
investments in a broad range of companies on an international basis (i.e.,
non- U.S. companies).
(4) The Transamerica VIF Growth Subaccount, Fidelity - VIP Equity-Income
Subaccount, Fidelity - VIP II Contrafund Subaccount, Fidelity - VIP III
Growth Opportunities Subaccount, Fidelity - VIP III Mid Cap Subaccount, WRL
Alger Aggressive Growth Subaccount, WRL Goldman Sachs Growth Subaccount,
WRL Janus Global Subaccount, WRL NWQ Value Equity Subaccount, WRL Pilgrim
Baxter Mid Cap Growth Subaccount, WRL Salomon All Cap Subaccount, WRL T.
Rowe Price Dividend Growth Subaccount, and WRL T. Rowe Price Small Cap
Subaccount had not commenced operations as of December 31, 1999, therefore,
comparable information is not available.
* As of May 1, 2000 the death benefits available under this policy have been
changed to (1) 5% Annually Compounding Death Benefit, (2) Greater of 5%
Annually Compounding through age 80 Death Benefit or Annual Step-Up through
age 80 Death Benefit, (3) Monthly Step-Up Death Benefit, and (4) Return of
Premium. However, the total separate account annual expenses for each death
benefit did not change.
46
<PAGE>
The figures for the "five year" and "from inception" periods in the above tables
reflect waiver of advisory fees and reimbursement of other expenses for all
portfolios except the T. Rowe Price Equity Income Portfolio and T. Rowe Price
Growth Stock Portfolio. In the absence of such waivers, the average annual total
return figures above for the from the five year and from inception periods would
have been lower.
Non-Standardized Performance Data
In addition to the standardized data discussed above, similar performance data
for other periods may also be shown.
PFL may also advertise or disclose average annual total return or other
performance data in non-standard formats for a subaccount of the mutual fund
account. The non-standardized performance data may assume that no surrender
charge is applicable, and may also make other assumptions such as the amount
invested in a subaccount, differences in time periods to be shown, or the effect
of partial withdrawals or annuity payments.
All non-standard performance data will be advertised only if the standardized
performance data is also disclosed. For additional information regarding the
calculation of other performance data, please refer to the SAI.
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. Also, Table 2 does not reflect the rider charge
for the optional family income protector.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
TABLE 2 - A
Non-Standardized Average Annual Total Returns
(Assuming No Surrender Charge)
- ------------------------------------------------------------------------------------------------------------------------------
5% Annually Compounding Death Benefit or Double Enhanced Death Benefit *
(Total Mutual Fund Account Annual Expenses: 1.55%)
- ------------------------------------------------------------------------------------------------------------------------------
Inception
1 Year 5 Year of the Subaccount
Ended Ended Subaccount Inception
Subaccount 12/31/99 12/31/99 to 12/31/99 Date
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Dreyfus Small Cap Value(1) ............................................... May 4, 1993
Dreyfus U.S. Government Securities ...................................... May 9, 1994
Endeavor Asset Allocation ............................................... April 8, 1991
Endeavor Enhanced Index ................................................. May 1, 1997
Endeavor High Yield ..................................................... June 2, 1998
Endeavor Janus Growth(2).................................................. July 1, 1992
Endeavor Opportunity Value .............................................. November 18, 1996
Endeavor Value Equity ................................................... May 27, 1993
Endeavor Select 50 ...................................................... February 2, 1998
T. Rowe Price Equity Income ............................................. January 3, 1995
T. Rowe Price Growth Stock .............................................. January 3, 1995
T. Rowe Price International Stock(3) ..................................... April 8, 1991
Transamerica VIF Growth (4) ............................................. N/A N/A N/A N/A
Fidelity - VIP Equity-Income (4) ........................................ N/A N/A N/A N/A
Fidelity - VIP II Contrafund (4) ........................................ N/A N/A N/A N/A
Fidelity - VIP III Growth Opportunities (4) ............................. N/A N/A N/A N/A
Fidelity - VIP III Mid Cap (4) .......................................... N/A N/A N/A N/A
WRL Alger Aggressive Growth (4) ......................................... N/A N/A N/A N/A
WRL Goldman Sachs Growth (4) ............................................ N/A N/A N/A N/A
WRL Janus Global (4) .................................................... N/A N/A N/A N/A
WRL NWQ Value Equity (4) ................................................ N/A N/A N/A N/A
WRL Pilgrim Baxter Mid Cap Growth (4) ................................... N/A N/A N/A N/A
WRL Salomon All Cap (4) .................................................. N/A N/A N/A N/A
WRL T. Rowe Price Dividend Growth (4) .................................... N/A N/A N/A N/A
WRL T. Rowe Price Small Cap (4) .......................................... N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
47
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
TABLE 2 - B
Non-Standardized Average Annual Total Returns
(Assuming No Surrender Charge)
- ---------------------------------------------------------------------------------------------------------------------------
Return of Premium Death Benefit *
(Total Mutual Fund Account Annual Expenses: 1.40%)
- ---------------------------------------------------------------------------------------------------------------------------
Inception
1 Year 5 Year of the Subaccount
Ended Ended Subaccount Inception
Subaccount 12/31/99 12/31/99 to 12/31/99 Date
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Dreyfus Small Cap Value (1) .......................................... May 4, 1993
Dreyfus U.S. Government Securities ................................... May 9, 1994
Endeavor Asset Allocation ............................................ April 8, 1991
Endeavor Enhanced Index .............................................. May 1, 1997
Endeavor High Yield .................................................. June 2, 1998
Endeavor Janus Growth (2) ............................................ July 1, 1992
Endeavor Opportunity Value ........................................... November 18, 1996
Endeavor Value Equity ................................................ May 27, 1993
Endeavor Select 50 ................................................... February 2, 1998
T. Rowe Price Equity Income .......................................... January 3, 1995
T. Rowe Price Growth Stock ........................................... January 3, 1995
T. Rowe Price International Stock (3) ................................ April 8, 1991
Transamerica VIF Growth (4) .......................................... N/A N/A N/A N/A
Fidelity - VIP Equity-Income (4) ..................................... N/A N/A N/A N/A
Fidelity - VIP II Contrafund (4) ..................................... N/A N/A N/A N/A
Fidelity - VIP III Growth Opportunities (4) .......................... N/A N/A N/A N/A
Fidelity - VIP III Mid Cap (4) ....................................... N/A N/A N/A N/A
WRL Alger Aggressive Growth (4) ...................................... N/A N/A N/A N/A
WRL Goldman Sachs Growth (4) ......................................... N/A N/A N/A N/A
WRL Janus Global (4) ................................................. N/A N/A N/A N/A
WRL NWQ Value Equity (4) ............................................. N/A N/A N/A N/A
WRL Pilgrim Baxter Mid Cap Growth (4) ................................ N/A N/A N/A N/A
WRL Salomon All Cap (4)............................................... N/A N/A N/A N/A
WRL T. Rowe Price Dividend Growth (4)................................. N/A N/A N/A N/A
WRL T. Rowe Price Small Cap (4)....................................... N/A N/A N/A N/A
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Effective September 16, 1996, The Dreyfus Corporation became the adviser to
the Dreyfus Small Cap Value Portfolio, formerly known as Quest for Value
Small Cap Portfolio. The portfolio was previously advised by OpCap
Advisors.
(2) Effective April 30, 1999, shares of the WRL Janus Growth Portfolio were
removed and replaced with shares of the Endeavor Janus Growth Portfolio.
The Endeavor Janus Growth Portfolio has the same investment objectives, the
same investment adviser (Janus Capital Corporation) and the same advisory
fees as the WRL Janus Growth Portfolio. Performance prior to May 1, 1999
reflects performance of the annuity subaccount while it was invested in the
WRL Janus Growth Portfolio.
(3) Effective January 1, 1995, Rowe-Price Fleming International, Inc. became
the Adviser to the T. Rowe Price International Stock Portfolio. The
Portfolio's name was changed from the Global Growth Portfolio and the
Portfolio's shareholders approved a change in investment objective from
investments in small capitalization companies on a global basis to
investments in a broad range of companies on an international basis (i.e.,
non-U.S. companies).
(4) The Transamerica VIF Growth Subaccount, Fidelity - VIP Equity-Income
Subaccount, Fidelity - VIP II Contrafund Subaccount, Fidelity - VIP III
Growth Opportunities Subaccount, Fidelity - VIP III Mid Cap Subaccount, WRL
Alger Aggressive Growth Subaccount, WRL Goldman Sachs Growth Subaccount,
WRL Janus Global Subaccount, WRL NWQ Value Equity Subaccount, WRL Pilgrim
Baxter Mid Cap Growth Subaccount, WRL Salomon All Cap Subaccount, WRL T.
Rowe Price Dividend Growth Subaccount, and WRL T. Rowe Price Small Cap
Subaccount had not commenced operations as of December 31, 1999, therefore,
comparable information is not available.
* As of May 1, 2000 the death benefits available under this policy have been
changed to (1) 5% Annually Compounding Death Benefit, (2) Greater of 5%
Annually Compounding through age 80 Death Benefit or Annual Step-Up through
age 80 Death Benefit, (3) Monthly Step-Up Death Benefit, and (4) Return of
Premium. However, the total separate account annual expenses for each death
benefit did not change.
48
<PAGE>
The figures for the "five year" and "from inception" periods in the above tables
reflect waiver of advisory fees and reimbursement of other expenses for all
portfolios except the T. Rowe Price Equity Income Portfolio and T. Rowe Price
Growth Stock Portfolio. In the absence of such waivers, the average annual total
return figures above for the from the five year and from inception periods would
have been lower.
49
<PAGE>
HISTORICAL PERFORMANCE DATA
THE TARGET STRATEGIES AND THE DOW JONES INDUSTRIAL AVERAGESM
The total return for each target series subaccount will also reflect the
manager's fee and other operating expenses.
Target Strategies--Performance Data
Certain aspects of the investment strategies can be demonstrated using
historical data.
The following table contains three columns that show the performance of:
Column One: the Ten Highest Dividend Yielding Stocks Strategy for the DJIA;
Column Two: Five Lowest Priced Stocks of the Ten Highest Dividend Yielding
Stocks Strategies in the DJIA; and
Column Three: the performance of the DJIA.
The returns shown in the following table and graphs are not guarantees of future
performance and should not be used as predictors of returns to be expected in
connection with a target series subaccount. Both stock prices (which may
appreciate or depreciate) and dividends (which may be increased, reduced or
eliminated) will affect the returns. Each strategy under-performed its
respective index in certain years. Accordingly, there can be no assurance that a
target series subaccount will outperform its respective index over the life of a
target series subaccount or over consecutive rollover periods, if
available.
An investor in a target series subaccount would not necessarily realize as high
a total return on an investment in the stocks upon which the hypothetical
returns are based for the following reasons: the total return figures shown do
not reflect brokerage commissions, target series subaccount expenses or taxes;
the target series subaccounts are established at different times of the year;
and the target series subaccounts may not be fully invested at all times or
equally weighted in all stocks comprising a strategy. If the above-mentioned
charges were reflected in the hypothetical returns, the returns would be lower
than those presented here.
50
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
COMPARISON OF TOTAL RETURN(2)
- --------------------------------------------------------------------------------
Strategy Total Returns
----------------------
10 Highest 5 Lowest Priced
Dividend of the 10 Highest Index
Yielding Dividend Total Return
Year Stocks(1) Yielding Stocks(1) DJIA
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
1975 ........................ 56.10% 64.77% 44.46%
1976 ........................ 35.18% 40.96% 22.80%
1977 ........................ (1.95)% 5.49% (12.91)%
1978 ........................ 0.03% 1.23% 2.66%
1979 ........................ 13.01% 9.84% 10.60%
1980 ........................ 27.90% 41.69% 21.90%
1981 ........................ 7.46% 3.19% (3.61)%
1982 ........................ 27.12% 43.37% 26.85%
1983 ........................ 39.07% 36.38% 25.82%
1984 ........................ 6.22% 11.12% 1.29%
1985 ........................ 29.54% 38.34% 33.28%
1986 ........................ 35.63% 30.89% 27.00%
1987 ........................ 5.59% 10.69% 5.66%
1988 ........................ 24.57% 21.47% 16.03%
1989 ........................ 26.97% 10.55% 32.09%
1990 ........................ (7.82)% (15.74)% (0.73)%
1991 ........................ 34.20% 62.03% 24.19%
1992 ........................ 7.69% 22.90% 7.39%
1993 ........................ 27.08% 34.01% 16.87%
1994 ........................ 4.21% 8.27% 5.03%
1995 ........................ 36.85% 30.50% 36.67%
1996 ........................ 28.35% 26.20% 28.71%
1997 ........................ 21.68% 19.97% 24.82%
1998 ........................ 10.59% 12.36% 18.03%
1999.........................
- --------------------------------------------------------------------------------
</TABLE>
(1) The Ten Highest Dividend Yielding Stocks and the Five Lowest Priced Stocks
of the Ten Highest Dividend Yielding Stocks in the DJIA for any given
period were selected by ranking the dividend yields for each of the stocks
in the index, as of the beginning of the period, and dividing by the
stock's market value on the first trading day on the exchange where that
stock principally trades in the given period.
(2) Total Return represents the sum of the percentage change in market value of
each group of stocks between the first trading day of a period and the
total dividends paid on each group of stocks during the period divided by
the opening market value of each group of stocks as of the first trading
day of a period. Total Return does not take into consideration any sales
charges, commissions, expenses or taxes. Total Return dividends are
reinvested semi-annually and all returns are stated in terms of the United
States dollar. Based on the year-by-year returns contained in the table,
over the twenty-five years listed above, the Ten Highest Dividend Yielding
Stocks in the DJIA achieved an average annual total return of ______%,
while the Five Lowest Priced Stocks of the Ten Highest Dividend Yielding
Stocks in the DJIA achieved an average annual total return of _____%. In
addition, over this period, the individual strategies achieved a greater
average annual total return than that of the DJIA, which was _____%.
Although each target series subaccount seeks to achieve a better
performance than the index as a whole, there can be no assurance that a
target series subaccount will achieve a better performance.
51
<PAGE>
The performance shown for the strategies does not guarantee future success, nor
should it be used as a predictor of returns. The Dow(SM) Target 5 strategy and
The Dow(SM) Target 10 strategy under-performed the DJIA in 8 and 9,
respectively, of the 25 years shown. There can be no assurance that the
strategies will outperform a given index over any time period, or that they will
have positive results. They have the potential for loss.
The results of the strategies do not represent actual investment advice of First
Trust Advisors L.P. or any actual trading using client assets. They were
achieved by the retroactive application of a model designed with the benefit of
hindsight and should not be considered indicative of the competence or skill of
First Trust Advisors L.P. In addition, the strategy results do not reflect the
impact material, economic, and market factors might have had on First Trust
Advisors L.P.'s decision making, if First Trust Advisors L.P. had actually
managed client money during the period indicated.
First Trust Advisors L.P. advisory services, though currently offered for the
strategies, were not offered during the entire 25 year period since First Trust
Advisors L.P. was founded in 1991, and began supervising unit investment trusts
invested in the strategies in 1994. First Trust Advisors L.P.'s investment
advisory clients have received results different from that set forth above.
Past Performance of the DJIA
CHART
The chart above represents past performance of the DJIA, the Ten Highest
Dividend Yielding DJIA Stocks and the Five Lowest Priced Stocks of the Ten
Highest Yielding DJIA Stocks (but not The Dow(SM) Target 10 Subaccount or The
Dow(SM) Target 5 Subaccount) from January 1, 1975 through December 31, 1999 and
should not be considered indicative of future results. Further, these results
are hypothetical. The chart assumes that all dividends during a year are
reinvested semi-annually and does not reflect sales charges, commissions,
expenses or taxes. There can be no assurance that either The Dow(SM) Target 10
Subaccount or The Dow(SM) Target 5 Subaccount will outperform the DJIA.
Investors should not rely on the preceding financial information as an
indication of the past or future performance of the target series subaccounts.
Standardized Performance Data
PFL may advertise historical total returns for the target series subaccounts.
These figures will be calculated according to standardized methods prescribed by
the SEC. They will be based on historical earnings and are not intended to
indicate future performance.
The total return calculations for a target series subaccount do not reflect the
effect of any premium taxes that may be applicable to a particular policy. To
the extent that any or all of a premium tax is applicable to a particular
policy, the total return of that policy will be reduced. For additional
information regarding 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 the administrative charges. Performance figures may reflect
the 1.40% mortality and expense risk fee for the 5% Annually Compounding and
Double Enhanced Death Benefits, or the 1.25% mortality and expense risk fee for
the Return of Premium Death Benefit. Standard total return calculations will
reflect the effect of surrender charges that may be applicable to a particular
period. Also, Table 1 reflects the rider charge for the optional family income
protector.
52
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
TABLE 1
Standardized Average Annual Total Returns
- ------------------------------------------------------------------------------------------------------------------------------
5% Annually Compounding Death Benefit or Double Enhanced Death Benefit *
(Total Separate Account Annual Expenses: 1.55%)
- ------------------------------------------------------------------------------------------------------------------------------
Inception
1 Year of the
Ended Subaccount Subaccount
Subaccount 12/31/99 to 12/31/99 Inception Date
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
The Dow(SM) Target 10 (January Series) .................................. January 4, 1999
The Dow(SM) Target 5 (January Series) ................................... January 4, 1999
The Dow(SM) Target 10 (July Series) ..................................... July 1, 1998
The Dow(SM) Target 5 (July Series) ...................................... July 1, 1998
- ------------------------------------------------------------------------------------------------------------------------------
Return of Premium Death Benefit *
(Total Separate Account Annual Expenses: 1.40%)
- ------------------------------------------------------------------------------------------------------------------------------
Inception
1 Year of the
Ended Subaccount Subaccount
Subaccount 12/31/99 to 12/31/99 Inception Date
- ------------------------------------------------------------------------------------------------------------------------------
The Dow(SM) Target 10 (January Series) .................................. January 4, 1999
The Dow(SM) Target 5 (January Series) ................................... January 4, 1999
The Dow(SM) Target 10 (July Series) ..................................... July 1, 1998
The Dow(SM) Target 5 (July Series) ...................................... July 1, 1998
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* As of May 1, 2000 the death benefits available under this policy have been
changed to (1) 5% Annually Compounding Death Benefit, (2) Greater of 5%
Annually Compounding through age 80 Death Benefit or Annual Step-Up through
age 80 Death Benefit, (3) Monthly Step-Up Death Benefit, and (4) Return of
Premium. However, the total separate account annual expenses for each death
benefit did not change.
Non-Standardized Performance Data
PFL may also advertise or disclose average annual total return or other
performance data in non-standard formats for a target series subaccount. The
non-standardized data may assume that the policy remains in force and therefore
not reflect the surrender charge. The non-standardized performance data may make
other assumptions such as the amount invested in a target series subaccount,
differences in time periods to be shown, or the effect of partial withdrawals or
annuity payments and may also make other assumptions.
All non-standardized performance data will be advertised only if the
standardized performance data is also disclosed. For additional information
regarding the calculation of other performance data, please refer to the SAI.
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. Also, Table 2 does not reflect the rider charge
for the optional family income protector.
53
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
TABLE 2
Average Annual Total Returns
(Assuming No Surrender Charge)
- -----------------------------------------------------------------------------------------------------------------------------------
5% Annually Compounding Death Benefit or Double Enhanced Death Benefit *
(Total Mutual Fund Account Annual Expenses: 1.55%)
- -----------------------------------------------------------------------------------------------------------------------------------
Inception
1 Year of the Subaccount
Ended Subaccount Inception
Subaccount 12/31/99 to 12/31/99 Date
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
The Dow(SM) Target 10 (January Series)....................................... January 4, 1999
The Dow(SM) Target 5 (January Series)........................................ January 4, 1999
The Dow(SM) Target 10 (July Series).......................................... July 1, 1998
The Dow(SM) Target 5 (July Series)........................................... July 1, 1998
- -----------------------------------------------------------------------------------------------------------------------------------
Return of Premium Death Benefit *
(Total Mutual Fund Account Annual Expenses: 1.40%)
- -----------------------------------------------------------------------------------------------------------------------------------
Inception
1 Year of the Subaccount
Ended Subaccount Inception
Subaccount 12/31/99 to 12/31/99 Date
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
The Dow(SM) Target 10 (January Series)....................................... January 4, 1999
The Dow(SM) Target 5 (January Series)........................................ January 4, 1999
The Dow(SM) Target 10 (July Series).......................................... July 1, 1998
The Dow(SM) Target 5 (July Series)........................................... July 1, 1998
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* As of May 1, 2000 the death benefits available under this policy have been
changed to (1) 5% Annually Compounding Death Benefit, (2) Greater of 5%
Annually Compounding through age 80 Death Benefit or Annual Step-Up through
age 80 Death Benefit, (3) Monthly Step-Up Death Benefit, and (4) Return of
Premium. However, the total separate account annual expenses for each death
benefit did not change.
54
<PAGE>
APPENDIX C
POLICY VARIATIONS
The dates shown below are the approximate first issue dates of the various
versions of the policy. These dates will vary by state in many cases. This
Appendix describes certain of the more significant differences in features of
the various versions of the policy. There may be additional variations. Please
see your actual policy and any attachments for determining your specific
coverage.
- --------------------------------------------------------------------------------
Policy Form/Endorsement Approximate First Issue Date
AV201 101 65 189 (Policy Form) January 1991
AE830 292 (endorsement) May 1992
AE847 394 (endorsement) June 1994
AE871 295 (endorsement) May 1995
AV254 101 87 196 (Policy Form) June 1996
AE909 496 (endorsement) June 1996
AE890 196 (endorsement) June 1996
AV320 101 99 197 (Policy Form) May 1997
AE945 197 (endorsement) May 1997
AV376 101 106 1197 (Policy Form) May 1998
AV432 101 114 199 (Group Policy Form) May 2000
AV494 101 124 100 (Individual Policy Form) May 2000
- --------------------------------------------------------------------------------
55
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Product Feature AV201 101 65 189 AV201 101 65 189, AV201 101 65 189, AV254 101 87 196, AE909
AE830 292, and AE847 394, and 496, and
AE847 394 AE871 295 AE890 196
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Excess Interest N/A N/A N/A Yes
Adjustment
- ------------------------------------------------------------------------------------------------------------------------------------
Guaranteed Minimum Death Total premiums paid, less 5% Annually Compounding 5% Annually Compounding 5% Annually Compounding
Benefit Option(s) any partial withdrawals (Option A). (Option A) or Annual (Option A) or Annual
and any surrender Step-Up (Option B). Step-Up (Option B).
charges made before Option A is only Option A is only
death, accumulated at 4% available if owner and available if owner and
to the date we receive annuitant are both under annuitant are both under
due proof of death or age 75. age 75.
the policy value on the
date we receive due
proof of death, which
ever is greater.
- ------------------------------------------------------------------------------------------------------------------------------------
Guaranteed Period 1 and 3 year guaranteed 1 and 3 year guaranteed 1 and 3 year guaranteed 1, 3, 5, and 7 year
Options (available in periods available. periods available. periods available. guaranteed periods
the fixed account) available.
- ------------------------------------------------------------------------------------------------------------------------------------
Minimum effective annual 4% 4% 4% 3%
interest rate
applicable to the fixed
account
- ------------------------------------------------------------------------------------------------------------------------------------
Asset Rebalancing N/A N/A N/A Yes
- ------------------------------------------------------------------------------------------------------------------------------------
Death Proceeds Greater of 1) the policy Greater of (a) policy Greatest of (a) policy Greatest of (a) annuity
value on the date we value and (b) 5% value and (b) guaranteed purchase value, (b) cash
receive due proof of Annually Compounding minimum death benefit value, and (c)
death, or 2) the total Death Benefit guaranteed minimum death
premiums paid for this benefit.
policy, less any partial
withdrawals and any
surrender charges made
before death,
accumulated at 4%
interest per annum to
the date we receive due
proof of death
- ------------------------------------------------------------------------------------------------------------------------------------
Distribution Financing N/A N/A N/A N/A
Charge
- ------------------------------------------------------------------------------------------------------------------------------------
Is Mortality & Expense No No No No
Risk Fee different
after the annuity
commencement date?
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Product Feature AV320 101 99 197 and AV376 101 106 1197 and AV432 101 114 199 and
AE945 197 AE 945 197 AV494 101 124 100
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Excess Interest Yes Yes Yes
Adjustment
- -----------------------------------------------------------------------------------------------------------------
Guaranteed Minimum Death 5% Annually Compounding 5% Annually Compounding 5% Annually Compounding
Benefit Option(s) (Option A), Annual Step-Up (Option A), Double (Option A), Greater of 5%
(Option B), or Return of Enhanced (Option B), or Annually Compounding
Premium (Option C). Option Return of Premium (Option through age 80 or Annual
A is only available if C). Option A is only Step-Up through age 80
owner and annuitant are available if owner and (Option B), Return of
both under age 75. Option annuitant are both under Premium (Option C), and
B is only available if Age 75. Option B is only Monthly Step-Up through age
owner and annuitant are available if owner and 80 (Option D). Option A is
under age 81. annuitant are both under only available if owner and
age 81. annuitant are both under
age 75. Option B and D are
only available if owner and
annuitant are both under
age 81.
- -----------------------------------------------------------------------------------------------------------------
Guaranteed Period 1, 3, 5 and 7 year 1, 3, 5, and 7 year 1, 3, 5, and 7 year
Options (available in guaranteed periods guaranteed periods guaranteed periods
the fixed account) available. available. available.
- -----------------------------------------------------------------------------------------------------------------
Minimum effective annual 3% 3% 3%
interest rate
applicable to the fixed
account
- -----------------------------------------------------------------------------------------------------------------
Asset Rebalancing Yes Yes Yes
- -----------------------------------------------------------------------------------------------------------------
Death Proceeds Greatest of (a) policy Greatest of (a) policy Greatest of (a) policy
value, (b) cash value, and value, (b) cash value, and value, (b) cash value, and
(c) guaranteed minimum (c) guaranteed minimum (c) guaranteed minimum
death benefit. death benefit. death benefit.
- -----------------------------------------------------------------------------------------------------------------
Distribution Financing Applicable Applicable N/A
Charge
- -----------------------------------------------------------------------------------------------------------------
Is Mortality & Expense No Yes (1.10%, plus Yes (1.25%, plus
Risk Fee different administrative charge, administrative charge,
after the annuity regardless of death regardless of death benefit
commencement date? benefit chosen prior to chosen prior to the annuity
the annuity commencement commencement date.)
date)
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
56
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Product Feature AV201 101 65 189 AV201 101 65 189, AV201 101 65 189, AV254 101 87 196, AE909
AE830 292, and AE847 394, and 496, and
AE847 394 AE871 295 AE890 196
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Dollar Cost Averaging N/A N/A N/A Yes
Fixed Account Option
- ------------------------------------------------------------------------------------------------------------------------------------
Service Charge $35 assessed on each $35 assessed on each Assessed only on a Assessed only on a policy
policy anniversary. Not policy anniversary. Not policy anniversary; anniversary; Waived if
deducted from the fixed deducted from the fixed Waived if sum of premium sum of premium payments
account. account. payments less partial less partial withdrawals
withdrawals is at least is at least $50,000 on
$50,000 on the policy the policy anniversary.
anniversary. Not Not deducted from the
deducted from the fixed fixed account.
account.
- ------------------------------------------------------------------------------------------------------------------------------------
Nursing Care and N/A Yes Yes Yes
Terminal Condition
Withdrawal Option
- ------------------------------------------------------------------------------------------------------------------------------------
Unemployment Waiver N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Product Feature AV320 101 99 197 and AV376 101 106 1197 and AV432 101 114 199 and
AE945 197 AE 945 197 AV494 101 124 100
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Dollar Cost Averaging Yes Yes Yes
Fixed Account Option
- ----------------------------------------------------------------------------------------------------------------
Service Charge Assessed either on a policy Assessed either on a policy Assessed either on a policy
anniversary or on anniversary or on anniversary or on
surrender; Waived if sum surrender; Waived if sum surrender; Waived if sum of
of premium payments less of premium payments less premium payments less
partial withdrawals or the partial withdrawals or the partial withdrawals or the
policy value is at least policy value is at least policy value is at least
$50,000 on the policy $50,000 on the policy $50,000 on The policy
anniversary or at the time anniversary or at the time anniversary or at the time
of surrender. The service of surrender. The service of surrender. The service
charge is deducted pro-rata charge is deducted pro-rata charge is deducted pro-rata
from the investment from the investment from the investment options.
options. options.
- ----------------------------------------------------------------------------------------------------------------
Nursing Care and Yes Yes Yes
Terminal Condition
Withdrawal Option
- ----------------------------------------------------------------------------------------------------------------
Unemployment Waiver N/A N/A Yes
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
57
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
THE ENDEAVOR VARIABLE ANNUITY
Issued through
PFL ENDEAVOR VA SEPARATE ACCOUNT
and
PFL ENDEAVOR TARGET ACCOUNT
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 Endeavor Variable Annuity offered by PFL Life
Insurance Company. You may obtain a copy of the prospectus dated May 1, 2000 by
calling 1-800-525-6205, or by writing to the Administrative and Service Office,
Financial Markets Division--Variable Annuity Dept., 4333 Edgewood Road, N.E.,
Cedar Rapids, Iowa 52499-0001. Terms used in the current prospectus for the
policy are incorporated in this Statement of Additional Information.
This Statement of Additional Information (SAI) is not a prospectus and should be
read only in conjunction with the prospectuses for the policy and the underlying
fund portfolios.
Dated: May 1, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
GLOSSARY OF TERMS ..........................................................
THE POLICY--GENERAL PROVISIONS .............................................
Owner ....................................................................
Entire Policy ............................................................
Misstatement of Age or Sex ...............................................
Addition, Deletion or Substitution of Investments ........................
Excess Interest Adjustment ...............................................
Reallocation of Policy Values After the Annuity Commencement Date ........
Annuity Payment Options ..................................................
Death Benefit ............................................................
Death of Owner ...........................................................
Assignment ...............................................................
Evidence of Survival .....................................................
Non-Participating ........................................................
Amendments ...............................................................
Employee and Agent Purchases .............................................
CERTAIN FEDERAL INCOME TAX CONSEQUENCES ....................................
Tax Status of the Policy .................................................
Taxation of PFL ..........................................................
INVESTMENT EXPERIENCE ......................................................
Accumulation Units .......................................................
Annuity Unit Value and Annuity Payment Rates .............................
FAMILY INCOME PROTECTOR--ADDITIONAL INFORMATION ............................
HISTORICAL PERFORMANCE DATA ................................................
Money Market Yields ......................................................
Other Subaccount Yields ..................................................
Total Returns ............................................................
Other Performance Data ...................................................
Adjusted Historical Performance Data--The Mutual Fund Account ............
THE TARGET ACCOUNT .........................................................
What is the Investment Strategy? .........................................
Determination of Unit Value; Valuation of Securities .....................
The Board of Managers ....................................................
The Investment Advisory Services .........................................
The Manager ..............................................................
Operating Expenses .......................................................
Transfer Agent and Custodian .............................................
Brokerage Allocation .....................................................
Investment Restrictions ..................................................
Fundamental Policies .....................................................
Operating Policies .......................................................
Options and Futures Strategies ...........................................
Securities Lending .......................................................
Tax Limitation ...........................................................
PUBLISHED RATINGS ..........................................................
STATE REGULATION OF PFL ....................................................
ADMINISTRATION .............................................................
RECORDS AND REPORTS ........................................................
DISTRIBUTION OF THE POLICIES ...............................................
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
VOTING RIGHTS ..............................................................
The Mutual Fund Account ..................................................
The Target Account .......................................................
OTHER PRODUCTS .............................................................
CUSTODY OF ASSETS ..........................................................
LEGAL MATTERS ..............................................................
INDEPENDENT AUDITORS .......................................................
OTHER INFORMATION ..........................................................
FINANCIAL STATEMENTS .......................................................
</TABLE>
3
<PAGE>
GLOSSARY OF TERMS
Accumulation Unit--An accounting unit of measure used in calculating the policy
value in the mutual fund account and the target 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--Financial Markets Division--Variable Annuity
Dept., PFL Life Insurance Company, 4333 Edgewood Road, N.E., Cedar Rapids, Iowa
52499-0001.
Annual Stock Selection Date--The last business day of a specified 12-month
period.
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.
Beneficiary--The person who has the right to the death benefit set forth in the
policy.
Business Day--A day when the New York Stock Exchange is open for business.
Cash Value--The policy value increased or decreased by an excess interest
adjustment, less the annual service charge, and less any applicable premium
taxes, surrender charge, and family income protector rider fee.
Code--The Internal Revenue Code of 1986, as amended.
DJIA--The Dow Jones Industrial Average/SM/. Thirty stocks chosen by the editors
of The Wall Street Journal as representative of the broad market and of American
industry.
Enrollment form--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.
Excess Interest Adjustment--A positive or negative adjustment to amounts
withdrawn upon partial withdrawals, full surrenders or transfers, from the
guaranteed period options, or to amounts applied to annuity payment options. The
adjustment reflects changes in the interest rates declared by PFL since the date
any payment was received by, or an amount was transferred to, the guaranteed
period option. The excess interest adjustment can either decrease or increase
the amount to be received by the owner upon full surrender or commencement of
annuity payments, depending upon whether there has been an increase or decrease
in interest rates, respectively.
Fixed Account--One or more investment choices under the policy that are part of
the general assets of PFL and which are not in the separate accounts.
Guaranteed Period Options--The various guaranteed interest rate periods of the
fixed account, which PFL may offer, into which premiums may be paid or amounts
may be transferred.
4
<PAGE>
Initial Stock Selection Date--The date is June 30, 1998 for the July Series. The
date is December 31, 1998 for the January Series.
Mutual Fund Account--PFL Endeavor VA Separate Account, a separate account
established and registered as a unit investment trust under the Investment
Company Act of 1940 (the "1940 Act"), as amended, to which premium payments
under the policies may be allocated.
Mutual Fund Subaccount--A subdivision within the mutual fund account, the assets
of which are invested in a specified portfolio of the underlying funds.
Nonqualified Policy--A policy other than a qualified policy.
Owner--Depending upon the state of issue, owner means either:
. the individual or entity that owns a certificate under a group contract; or
. the individual or entity that owns an individual policy.
Participant--A person who makes premium payments or for whom premium payments
are made under the policy.
Policy--Depending upon the state of issue, policy means either:
. the individual certificate under a group contract; or
. the individual policy.
Policy Value--On or before the annuity commencement date, the policy value is
equal to the owner's:
. premium payments; minus
. partial withdrawals (including any applicable excess interest adjustments
and/or surrender charges on such withdrawals); plus
. interest credited in the fixed account; plus
. accumulated gains or losses in the mutual fund account and the target
account; minus
. service charges, premium taxes, rider fees, and transfer fees, if any.
Policy Year--A policy year begins on the date in which the policy becomes
effective and on each anniversary thereof.
Premium Payment--An amount paid to PFL by the owner or on the owner's behalf as
consideration for the benefits provided by the policy.
Qualified Policy--A policy issued in connection with retirement plans that
qualify for special federal income tax treatment under the Code.
Service Charge--An annual charge on each policy anniversary (and a charge at the
time of surrender during any policy year) for policy maintenance and related
administrative expenses. This annual charge is $35, but will not exceed 2% of
the policy value.
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--A percentage of each premium payment in an amount from 7% to
0% depending upon the length of time from the date of each premium payment. The
surrender charge is assessed on surrenders of, or partial withdrawals from, the
policy. A surrender charge may also be referred to as a "contingent deferred
sales charge."
Target Account--A separate account established and registered as a management
investment company under the 1940 Act to which premium payments under the
policies may be allocated.
5
<PAGE>
Target Series Subaccount--A subdivision within the target account, the assets of
which are invested in common stocks selected according to a specified investment
strategy, with a specified stock selection date.
Valuation Period--The period of time from one determination of accumulation unit
values and annuity unit values to the next subsequent determination of values.
Such determination shall be made on each business day.
Variable Annuity Payments--Payments made pursuant to an annuity payment option
which fluctuate as to dollar amount or payment term in relation to the
investment performance of the specified subaccounts within the mutual fund
account or the target account.
Written Notice or Written Request--Written notice, signed by the owner, that
gives PFL the information it requires and is received at the administrative and
service office. For some transactions, PFL may accept an electronic notice such
as telephone instructions. Such electronic notice must meet the requirements PFL
establishes for such notices.
6
<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. Words printed in italics in this SAI are defined in the
Glossary of Terms, found on page 4.
THE POLICY--GENERAL PROVISIONS
Owner
The policy shall belong to the owner upon issuance of the policy after
completion of an enrollment form 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 your 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 enrollment form, information provided in
lieu thereof, or in a written notice. The successor owner will become the new
owner upon your death, if you predecease the annuitant. If no successor owner
survives you and you predecease the annuitant, your estate will become the
owner.
Note carefully. If the owner does not name a contingent owner, the owner's
- --------------
estate will become the new owner. If no probate estate is opened because the
owner has precluded the opening of a probate estate by means of a trust or other
instrument, unless PFL has received written notice of the trust as a successor
owner signed prior to the owner's death, that trust may not exercise ownership
rights to the policy. It may be necessary to open a probate estate in order to
exercise ownership rights to the policy if no contingent owner is named in a
written notice received by PFL.
The owner may change the ownership of the policy in a written notice. When this
change takes effect, all rights of ownership in the policy will pass to the new
owner. A change of ownership may have tax consequences.
When there is a change of owner or successor owner, the change will not be
effective until it is recorded in our records. Once recorded, it will take
effect as of the date the owner signs the written notice, subject to any payment
PFL has made or action PFL has taken before recording the change. Changing the
owner or naming a new successor owner cancels any prior choice of successor
owner, but does not change the designation of the beneficiary or the annuitant.
If ownership is transferred (except to the owner's spouse) because the owner
dies before the annuitant, the cash value generally must be distributed to the
successor owner within five years of the owner's death, or payments must be made
for a period certain or for the successor owner's lifetime so long as any period
certain does not exceed that successor owner's life expectancy, if the first
payment begins within one year of your death.
Entire Policy
The policy, any endorsements thereon, the enrollment form, or information
provided in lieu thereof, constitute the entire contract between PFL and the
owner. All statements in the enrollment form 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 enrollment form or information
provided in lieu thereof.
Misstatement of Age or Sex
If the age or sex of the annuitant or owner 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
7
<PAGE>
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 or owner 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 mutual fund subaccounts or
target series subaccounts will always be available for premium payments,
allocations, or transfers. PFL retains the right, subject to any applicable law,
to make certain changes in the mutual fund account and its investments. PFL
reserves the right to eliminate the shares of any portfolio held by a mutual
fund subaccount2 and to substitute shares of another portfolio of the underlying
funds, or of another registered open-end management investment company for the
shares of any portfolio, if the shares of the portfolio are no longer available
for investment or if, in PFL's judgment, investment in any portfolio would be
inappropriate in view of the purposes of the mutual fund account. To the extent
required by the 1940 Act, as amended, substitutions of shares attributable to
your interest in a mutual fund subaccount will not be made without prior notice
to you and the prior approval of the Securities and Exchange Commission ("SEC").
PFL retains the right, subject to any applicable law, to make certain changes in
the target account and its investments. PFL reserves the right to eliminate a
target series subaccount if, in PFL's judgment, investment in any target series
subaccount would be inappropriate in view of the purposes of the policy or for
any other reason. Nothing contained herein shall prevent the mutual fund account
from purchasing other securities for other series or classes of variable annuity
policies, or from effecting an exchange between series or classes of variable
annuity policies on the basis of your requests.
New subaccounts may be established when, in the sole discretion of PFL,
marketing, tax, investment or other conditions warrant. Any new subaccounts may
be made available to existing owners on a basis to be determined by PFL. Each
additional subaccount will purchase shares in a mutual fund portfolio, other
investment vehicle, or, in the case of the target account, in shares of common
stock. 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 you and request a
reallocation of the amounts invested in the eliminated subaccount. If no such
reallocation is provided by you, PFL will reinvest the amounts in the subaccount
that invests in the Endeavor Money Market Portfolio (or in a similar portfolio
of money market instruments), in another subaccount, or in the fixed account, 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
mutual fund account may be (i) operated as a management company under the 1940
Act or any other form permitted by law, (ii) deregistered under the 1940 Act in
the event such registration is no longer required or (iii) combined with one or
more other mutual fund accounts, and the target account may be (i) operated in
any 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
mutual fund accounts. To the extent permitted by applicable law, PFL also may
transfer the assets of the mutual fund account or the target account associated
with the policies to another account or accounts.
Excess Interest Adjustment
Money that you withdraw from, transfer out of, or apply to an annuity payment
option from a guaranteed period option of the fixed account before the end of
its guaranteed period (the number of years you specified the money would remain
in the guaranteed period option) may be subject to an excess interest
adjustment. At the time you request a withdrawal, if interest rates 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.
<PAGE>
Excess interest adjustments will not reduce the adjusted policy value for a
guaranteed period option below the premium payments and transfers to that
guaranteed period option, less any prior partial withdrawals and transfers from
the 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 in effect for the policy
C = Current guaranteed interest rate then being offered on new premiums for the
next longer option period than "M". If this policy form or such an option
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 option period, rounded up to the
next higher whole number of months.
* = multiplication
# = exponentiation
<TABLE>
<CAPTION>
Example 1 (Surrender, rates increase by 3%):
<S> <C>
Single premium: $50,000.00
Guarantee period: 5 Years
Guarantee rate: 5.50% per annum
Surrender: middle of contract year 2
Policy value at middle of contract year 2 = 50,000.00 * (1.055) # 1.5 = 54,181.21
Penalty free amount at middle of contract year 2 = 50,000.00 * .10 = 5,000.00
(assume any gain in the policy is less than 10% of premium)
Amount subject to excess interest adjustment = 54,181.21 - 5,000.00 = 49,181.21
Excess interest adjustment floor = 50,000.00 * (1.03) # 1.5 = 52,266.79
Excess interest adjustment
G = .055
C = .085
M = 18
Excess interest adjustment = S* (G-C)* (M/12)
= 49,181.21 * (.055-.085) * (18/12)
= -2,213.15, but excess interest adjustment
cannot cause the adjusted policy value to fall
below the excess interest adjustment floor, so the
adjustment is limited to 52,266.79 - 54,181.21 = -1,914.42
Adjusted policy value = policy value + excess interest adjustment
= 54,181.21 + (-2,213.15) = 51,968.06
Surrender charges = (50,000.00 - 5,000.00)* .07 = 3,150.00
Net surrender value at middle of contract year 2 = 54,181.21 - 3,150.00 = 51,031.21
</TABLE>
<PAGE>
Example 2 (Surrender, rates decrease by 1%):
<TABLE>
<S> <C>
Single premium: $50,000.00
Guarantee period: 5 Years
Guarantee rate: 5.50% per annum
Surrender: middle of contract year 2
Policy value at middle of contract year 2 = 50,000.00 * (1.055) # 1.2 = 54,181.21
Penalty free amount at middle of contract year 2 = 50,000.00 * .10 = 5,000.00
(assume any gain in the policy is less than 10% of premium)
Amount subject to excess interest adjustment = 54,181.21 - 5,000.00 = 49,181.21
Excess interest adjustment floor = 50,000.00 * (1.03) # 1.5 = 52,266.79
Excess interest adjustment
G = .055
C = .045
M = 18
Excess interest adjustment = S* (G-C)* (M/12)
= 49,181.21 * (.055-.045) * (18/12) = 737.72
Adjusted policy value = 54,181.21 + 737.72 = 54,918.93
Surrender charges = (50,000.00 - 5,000.00) * .07 = 3,150.00
Net surrender value at middle of contract year 3 = 54,918.93 - 3,150.00 = 51,768.93
</TABLE>
On a partial withdrawal, PFL will pay the policyholder the full amount of
withdrawal requested (as long as the policy value is sufficient). Amounts
withdrawn will reduce the policy value by an amount equal to:
R - E + SC
R = the requested partial withdrawal;
E = the excess interest adjustment; and
SC = the surrender charges on (EPW - E); where
EPW = the excess partial withdrawal amount.
Example 3 (Partial Withdrawal, rates increase by 1%):
<TABLE>
<S> <C>
Single premium: $50,000.00
Guarantee period: 5 Years
Guarantee rate: 5.50% per annum
Partial withdrawal: $20,000; middle of contract year 2
Policy value at middle of contract year 2 = 50,000.00 * (1.055) # 1.2 = 54,181.21
Penalty free amount at middle of contract year 2 = 50,000.00 * .10 = 5,000.00
(assume any gain in policy is less than 10% of premium)
Excess interest adjustment/surrender charge
S = 20,000 - 5,000.00 = 15,000.00
G = .055
C = .065
M = 18
E = 15,000.00 * (.055 - .065) * (18/12) = -225.00
EPW = 20,000.00 - 5,000.00 = 15,000.00
SC = .07 * (15,000.00 - (-225.00) = 1,065.75
Remaining policy value at middle of contract year 2 = 54,181.21 - (R - E + surrender charge)
= 54,181.21 - (20,000.00 - (-225.00) + 1,065.75) = 32,890.46
</TABLE>
<PAGE>
Example 4 (Partial Withdrawal, rates decrease by 1%):
<TABLE>
<S> <C>
Single premium: $50,000.00
Guarantee period: 5 Years
Guarantee rate: 5.50% per annum
Partial withdrawal: $20,000; middle of contract year 2
Policy value at middle of contract year 2 = 50,000.00 * (1.055) # 1.5 = 54,181.21
Penalty free amount at middle of contract year 2 = 50,000.00 * .10 = 5,000.00
(assume any gain in the policy is less than 10% of premium)
Excess interest adjustment/surrender charge
S = 20,000 - 5,000.00 = 15,000.00
G = .055
C = .045
M = 18
E = 15,000.00 * (.055 - .045)* (18/12) = 225.00
EPW = 20,000.00 - 5,000.00 = 15,000.00
SC = .07 * (15,000.00 - 225.00) = 1,034.25
Remaining policy value at middle of contract year 2 = 54,181.21 - (R - E + surrender charge)
= 54,181.21 - (20,000.00 - 225.00 + 1,034.25) = 33,371.96
</TABLE>
Reallocation of Policy Values After the Annuity Commencement Date
After the annuity commencement date, you may reallocate the value of a
designated number of annuity units of a mutual fund subaccount or of a target
series subaccount then credited to a policy into an equal value of annuity units
of one or more other mutual fund subaccounts, target series subaccounts, 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 annuity
units 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 mutual fund account or the target 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 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 mutual fund account and the target 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.
<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 mutual fund account and
the target account selected by the annuitant or beneficiary.
Determination of the First Variable Payment. The amount of the first variable
- --------------------------------------------
payment depends upon the sex (if consideration of sex is allowed under state
law) and adjusted age of the annuitant. The adjusted age is the annuitant's
actual age nearest birthday, on the annuity commencement date, adjusted as
follows:
Annuity Commencement Date Adjusted Age
------------------------- ------------
Before 2001 Actual Age
2001-2010 Actual Age minus 1
2011-2020 Actual Age minus 2
2021-2030 Actual Age minus 3
2031-2040 Actual Age minus 4
After 2040 As determined by PFL
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 and 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 equal to (1) multiplied by (2), where:
(1) is the gross partial withdrawals, where gross partial withdrawal = requested
withdrawal--excess interest adjustment + surrender charges on (excess
partial withdrawal--excess interest adjustment); and
(2) is the adjustment factor = current death benefit prior to the withdrawal
divided by the current policy value prior to the withdrawal.
The following examples describe the effect of a withdrawal on the guaranteed
minimum death benefit and policy value.
12
<PAGE>
Example 1
(Assumed Facts for Example)
$75,000 current guaranteed minimum death benefit before withdrawal
$50,000 current policy value before withdrawal
$75,000 current death benefit (larger of policy value and guaranteed
minimum death benefit)
6% current surrender charge percentage
$15,000 requested withdrawal
$ 5,000 surrender charge-free amount (assumes penalty free withdrawal is
available)
$10,000 excess partial withdrawal (amount subject to surrender charge)
$ 100 excess interest adjustment (assumes interest rates have decreased
since initial guarantee)
$ 594 surrender charge on (excess partial withdrawal less excess
interest adjustment) = 0.06* (10,000 - 100)
$10,194 reduction in policy value due to excess partial withdrawal =
10,000 - 100 + 594
$23,241 adjusted partial withdrawal = (5,000 + 10,494) * (75,000 / 50,000)
$51,759 New guaranteed minimum death benefit (after withdrawal) = 75,000 -
23,241
$34,506 New policy value (after withdrawal) = 50,000 - 15,494
Summary:
- --------
Reduction in guaranteed minimum death benefit = $23,241
Reduction in policy value = $15,494
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.
Example 2
(Assumed Facts for Example)
$50,000 current guaranteed minimum death benefit before withdrawal
$75,000 current policy value before withdrawal
$75,000 current death benefit (larger of policy value and guaranteed
minimum death benefit)
6% current surrender charge percentage
$15,000 requested withdrawal
$ 7,500 surrender charge-free amount (assumes penalty free withdrawal is
available)
$ 7,500 excess partial withdrawal (amount subject to surrender charge)
$ -100 excess interest adjustment (assumes interest rates have increased
since initial guarantee)
$ 456 surrender charge on (excess partial withdrawal less excess
interest adjustment) = 0.06*[(7500 - (- 100)]
$ 8,056 reduction in policy value due to excess partial withdrawal
= 7500 - (- 100) + 456 = 7500 + 100 + 456
$15,556 adjusted partial withdrawal = (7,500 + 8056) * (75,000 / 75,000)
$34,444 New guaranteed minimum death benefit (after withdrawal) = 50,000 -
15,556
$59,444 New policy value (after withdrawal) = 75,000 - 15,556
Summary:
- --------
Reduction in guaranteed minimum death benefit = $15,556
Reduction in policy value = $15,556
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 that 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
13
<PAGE>
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.
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.
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 enrollment form 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" for more information about these rules. Other rules may
apply to qualified policies.
Assignment
During the lifetime of the annuitant you may assign any rights or benefits
provided by the policy if your policy is a nonqualified policy. An assignment
will not be binding on PFL until a copy has been filed at its administrative and
service office. Your rights and benefits and those of the beneficiary are
subject to the rights of the assignee. PFL assumes no responsibility for the
validity or effect of any assignment. Any claim made under an assignment shall
be subject to proof of interest and the extent of the assignment. An assignment
may have tax consequences.
Unless you so direct by filing written notice with PFL, no beneficiary may
assign any payments under the policy before they are due. To the extent
permitted by law, no payments will be subject to the claims of any beneficiary's
creditors.
Ownership under qualified policies is restricted to comply with the Code.
14
<PAGE>
Evidence of Survival
PFL reserves the right to require satisfactory evidence that a person is alive
if a payment is based on that person being alive. No payment will be made until
PFL receives such evidence.
Non-Participating
The policy will not share in PFL's surplus earnings; no dividends will be paid.
Amendments
No change in the policy is valid unless made in writing by PFL and approved by
one of PFL's officers. No registered representative has authority to change or
waive any provision of the policy.
PFL reserves the right to amend the policies to meet the requirements of the
Code, regulations or published rulings. You can refuse such a change by giving
written notice, but a refusal may result in adverse tax consequences.
Employee and Agent Purchases
The policy may be acquired by an employee or registered representative of any
broker/dealer authorized to sell the policy or their spouse or minor children,
or by an officer, director, trustee or bona-fide full-time employee of PFL or
its affiliated companies or their spouse or minor children. In such a case, PFL
may credit an amount equal to a percentage of each premium payment to the policy
due to lower acquisition costs PFL experiences on those purchases. The credit
will be reported to the Internal Revenue Service as taxable income to the
employee or registered representative. PFL may offer certain employer sponsored
savings plans, in its discretion reduced fees and charges including, but not
limited to, the annual service charge, the surrender charges, the mortality and
expense risk fee and the administrative charge for certain sales under
circumstances which may result in savings of certain costs and expenses. In
addition, there may be other circumstances of which PFL is not presently aware
which could result in reduced sales or distribution expenses. Credits to the
policy or reductions in these fees and charges will not be unfairly
discriminatory against any owner.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following summary does not constitute tax advice. It is a general discussion
of certain of the expected federal income tax consequences of investment in and
distributions with respect to a policy, based on the 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.
Distribution Requirements. The Code requires that nonqualified policies
- --------------------------
contain specific provisions for distribution of policy proceeds upon the death
of any owner. In order to be treated as an annuity contract for federal income
tax purposes, the Code requires that such policies provide that if any owner
dies on or after the annuity commencement date and before the entire interest in
the policy has been distributed, the remaining portion must be distributed at
least as rapidly as under the method in effect on such owner's death. If any
owner dies before the annuity commencement date, the entire interest in the
policy must generally be distributed within 5 years after such owner's date of
death or be used to purchase 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
15
<PAGE>
life expectancy of the "designated beneficiary" as defined in section 72(s) of
the Code. However, if upon such owner's death prior to the annuity commencement
date, such owner's surviving spouse becomes the sole new owner under the policy,
then the policy may be continued with the surviving spouse as the new owner.
Under the policy, the beneficiary is the designated beneficiary of an
owner/annuitant and the successor owner is the designated beneficiary of an
owner who is not the annuitant. If any owner is not a natural person, then for
purposes of these distribution requirements, the primary annuitant shall be
treated as an owner and any death or change of such primary annuitant shall be
treated as the death of an owner. The nonqualified policies contain 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 assure that they comply with the Code
requirements when clarified by regulation or otherwise.
Withholding. The portion of any distribution under a policy that is includable
- ------------
in gross income will be subject to federal income tax withholding unless the
recipient of such distribution elects not to have federal income tax withheld.
Election forms will be provided at the time distributions are requested or made.
For certain qualified policies, certain distributions are subject to mandatory
withholding. The withholding rate varies according to the type of distribution
and the owner's tax status. For qualified policies, "eligible rollover
distributions" from section 401(a) plans and section 403(b) tax-sheltered
annuities are subject to a mandatory federal income tax withholding of 20%. An
eligible rollover distribution is the taxable portion of any distribution from
such a plan, except certain distributions such as distributions required by the
Code or distributions in a specified annuity form. The 20% withholding does not
apply, however, if the owner chooses a "direct rollover" from the plan to
another tax-qualified plan or IRA. Different withholding requirements may
apply in the case of non-United States persons.
Qualified Policies. The qualified policy is designed for use with several
- -------------------
types of tax-qualified retirement plans. The tax rules applicable to
participants and beneficiaries in tax-qualified retirement plans vary according
to the type of plan and the terms and conditions of the plan. Special favorable
tax treatment may be available for certain types of contributions and
distributions. Adverse tax consequences may result from contributions in excess
of specified limits; distributions prior to age 59 1/2 (subject to certain
exceptions); distributions that do not conform to specified commencement and
minimum distribution rules; and in other specified circumstances. Some
retirement plans are subject to distribution and other requirements that are not
incorporated into our policy administration procedures. Owners, participants and
beneficiaries are responsible for determining that contributions, distributions
and other transactions with respect to the policies comply with applicable
law.
For qualified plans under Section 401(a), 403(a), 403(b), and 457, the Code
requires that distributions generally must commence no later than the later of
April 1 of the calendar year following the calendar year in which the owner (or
plan participant) (i) reaches age 70/1//2 or (ii) retires, and must be made in a
specified form or manner. If the plan participant is a "5 percent owner" (as
defined in the Code), distributions generally must begin no later than April 1
of the calendar year in which the owner (or plan participant) reaches age
70/1//2. Each owner is responsible for requesting distributions under the policy
that satisfy applicable tax rules.
PFL makes no attempt to provide more than general information about use of the
policy with the various types of retirement plans. Purchasers of policies for
use with any retirement plan should consult their legal counsel and tax adviser
regarding the suitability of the policy.
Individual Retirement Annuities. In order to qualify as a traditional
- --------------------------------
individual retirement annuity under Section 408(b) of the Code, a policy must
contain certain provisions: (i) the owner must be the annuitant; (ii) the policy
generally is not transferable by the owner, e.g., the owner may not designate a
new owner, designate a contingent owner or assign the policy as collateral
security; (iii) the total premium payments for any calendar year may not exceed
$2,000, except in the case of a rollover amount or contribution under Section
402(c), 403(a)(4), 403(b)(8) or 408(d)(3) of the Code; (iv) annuity payments or
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; and
(vi) certain payments of death benefits must be made in the event the annuitant
dies prior to the distribution of the policy value. Policies intended to qualify
as traditional individual retirement annuities under
16
<PAGE>
Section 408(b) of the Code contain such provisions. Amounts in the IRA (other
than nondeductible contributions) are taxed when distributed from the IRA.
Distributions prior to age 59/1//2 (unless certain exceptions apply) are subject
to a 10% penalty tax.
Section 408 of the Code also indicates that no part of the funds for a
traditional individual retirement account or annuity should be invested in a
life insurance contract, but the regulations thereunder allow such funds to be
invested in an annuity contract that provides a death benefit that equals the
greater of the premiums paid or the cash value for the contract. The policy
provides an enhanced death benefit that could exceed the amount of such a
permissible death benefit, but it is unclear to what extent such an enhanced
death benefit could disqualify the policy under Section 408 of the Code. The
Internal Revenue Service has not reviewed the policy for qualification as an
IRA, and has not addressed in a ruling of general applicability whether an
enhanced death benefit provision, such as the provision in the policy, comports
with IRA qualification requirements.
Roth Individual Retirement Annuities (Roth IRA). The Roth IRA, under Section
- ------------------------------------------------
408A of the Code, contains many of the same provisions as a traditional IRA.
However, there are some differences. First, the contributions are not deductible
and must be made in cash or as a rollover or transfer from another Roth IRA or
other IRA. A rollover from or conversion of an IRA to a Roth IRA may be subject
to tax and other special rules may apply. You should consult a tax adviser
before combining any converted amounts with any other Roth IRA contributions,
including any other conversion amounts from other tax years. The Roth IRA is
available to individuals with earned income and whose adjusted gross income is
under $110,000 for single filers, $160,000 for married filing jointly, and
$10,000 for married filing separately. The amount per individual that may be
contributed to all IRAs (Roth and traditional) is $2,000. Secondly, the
distributions are taxed differently. The Roth IRA offers tax-free distributions
when made from assets which have been held in the account for 5 tax years and
are made after attaining age 59/1//2, to pay for qualified first time homebuyer
expenses (lifetime maximum of $10,000) or due to death or disability. All other
distributions are subject to income tax when made from earnings and may be
subject to a premature withdrawal penalty tax unless an exception applies.
Unlike the traditional IRA, there are no minimum required distributions during
the owner's lifetime; however, required distributions at death are the same.
Section 403(b) Plans. Under Section 403(b) of the Code, payments made by
- ---------------------
public school systems and certain tax exempt organizations to purchase policies
for their employees are excludable from the gross income of the employee,
subject to certain limitations. However, such payments may be subject to FICA
(Social Security) taxes. The policy includes a death benefit that in some cases
may exceed the greater of the premium payments or the policy value. The death
benefit could be characterized as an incidental benefit, the amount of which is
limited in any tax-sheltered annuity under Section 403(b). Because the death
benefit may exceed this limitation, employers using the policy in connection
with such plans should consult their tax adviser. Additionally, in accordance
with the requirements of the Code, Section 403(b) annuities generally may not
permit distribution of (i) elective contributions made in years beginning after
December 31, 1988, and (ii) earnings on those contributions and (iii) earnings
on amounts attributed to elective contributions held as of the end of the last
year beginning before January 1, 1989. Distributions of such amounts will be
allowed only upon the death of the employee, on or after attainment of age
59/1//2, separation from service, disability, or financial hardship, except that
income attributable to elective contributions may not be distributed in the case
of hardship.
Corporate Pension and Profit-Sharing Plans and H.R. 10 Plans. Sections 401(a)
- -------------------------------------------------------------
and 403(a) of the Code permit corporate employers to establish various types of
retirement plans for employees and self-employed individuals to establish
qualified plans for themselves and their employees. Such retirement plans may
permit the purchase of the policies to accumulate retirement savings. Adverse
tax consequences to the plan, the participant or both may result if the policy
is assigned or transferred to any individual as a means to provide benefit
payments. The policy includes a death benefit that in some cases may exceed the
greater of the premium payments or the policy value. The death benefit could be
characterized as an incidental benefit, the amount of which is limited in a
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 normally used, provides for
certain deferred compensation plans with respect to service for state
17
<PAGE>
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 Section 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-government 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 policy 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
this 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 qualified under
Section 457) or (iv) a single-payment annuity where the annuity commencement
date is no later than one year from the date of the single premium payment;
instead, such policies are taxed as described above under the heading "Taxation
of Annuities."
Taxation of PFL
PFL at present is taxed as a life insurance company under part I of Subchapter L
of the Code. The mutual fund account and the target account are treated as part
of PFL and, accordingly, will not be taxed separately as "regulated investment
companies" under Subchapter M of the Code. PFL does not expect to incur any
federal income tax liability with respect to investment income and net capital
gains arising from the activities of the mutual fund account or the target
account retained as part of the reserves under the policy. Based on this
expectation, it is anticipated that no charges will be made against the mutual
fund account or the target account for federal income taxes. If, in future
years, any federal income taxes are incurred by PFL with respect to the mutual
fund account or the target account, PFL may make a charge to that 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 mutual fund subaccount or target
series 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
mutual fund subaccount or target series subaccount by the accumulation unit
value of the mutual fund subaccount or target series subaccount as of the end of
the valuation period during which the allocation is made. For each mutual fund
subaccount or target series 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.
Upon allocation to the selected mutual fund subaccount or target series
subaccount, 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
18
<PAGE>
the initial premium payment, when the enrollment form is completed, whichever is
later. The value of an accumulation unit for each mutual fund subaccount was
arbitrarily established at $1 and at $10 for each target series subaccount at
the inception of each subaccount. Thereafter, the value of an accumulation unit
is determined as of the close of trading on each day the New York Stock Exchange
is open for business.
For the mutual fund account and the target account, 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. You bear 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 mutual fund subaccount or target series
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 credit or charge for any taxes determined by PFL to have
resulted during the valuation period from the investment operations of
the subaccount;
(b) is the net asset value per share of the shares held in the subaccount
determined as of the end of the immediately preceding valuation period.
(c) is the charge for mortality and expense risk during the valuation period,
equal on an annual basis to 1.40% (for each of the 5% Annually Compounding
Death Benefit, the Greater of 5% Annually Compounding through age 80 Death
Benefit or Annual Step-Up through age 80 Death Benefit, and the Monthly
Step-Up through age 80 Death Benefit) and 1.25% (for the Return of Premium
Death Benefit) of the daily net asset value of the subaccount, plus the
0.15% administrative charge.
Illustration of Separate Account Accumulation Unit Value Calculations
(Assumes 5% Annually Compounding Death Benefit)
Formula and Illustration for Determining the Net Investment Factor
Net Investment Factor = (A + B - C) - E
---------------
D
Where: A = The net asset value of an underlying fund share as of the end of the
current valuation period.
Assume A =$11.57
B = The per share amount of any dividend or capital gains distribution
since the end of the immediately preceding valuation period.
Assume B = 0
C = The per share charge or credit for any taxes reserved for at the end
of the current valuation period.
Assume C = 0
D = The net asset value of an underlying fund share at the end of the
immediately preceding valuation period.
Assume D = $11.40
E = The daily deduction for the mortality and expense risk fee and the
administrative charge, which totals 1.55% on an annual basis. On a
daily basis, E equals .0000421409.
19
<PAGE>
Then, the net investment factor = (11.57 + 0 - 0) - .0000421409 =Z= 1.0148701398
---------------
(11.40)
Formula and Illustration for Determining Accumulation Unit Value
Accumulation Unit Value = A * B
Where: A = The accumulation unit value for the immediately preceding
valuation period.
Assume = $X
B = The net investment factor for the current valuation period.
Assume = Y
Then, the accumulation unit value = $X * Y = $Z
Annuity Unit Value and Annuity Payment Rates
For both the mutual fund account and the target account, the amount of variable
annuity payments will vary with annuity unit values. Annuity unit values rise if
the net investment performance of the subaccount exceeds the assumed interest
rate of 5% annually. Conversely, annuity unit values fall if the net investment
performance of the subaccount is less than the assumed rate. The value of a
variable annuity unit in each subaccount was established at $1.00 on the date
operations began for that subaccount. For the mutual fund account, 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 on the immediately preceding business
day;
(b) is the net investment factor 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.
For the target account, at the end of each valuation period, the annuity unit
value is established by multiplying the value of an annuity unit determined at
the end of the immediately preceding valuation period by a net investment factor
for the current valuation period, and then multiplying that product by an
investment result adjustment factor for the purpose of offsetting the effect of
an assumed investment return of 5.0% per annum which is assumed in the annuity
conversion rates for the contracts. The net investment factor for the target
series subaccounts is very similar to the net investment factor for the mutual
fund account, except that it is based upon the value of the assets in the
subaccount, instead of the net asset value for a mutual fund share. The net
investment factor includes a charge for mortality and expense risks, that is,
the mortality and expense risk fee, and administrative charge.
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.
20
<PAGE>
Illustration of Calculations for Annuity Unit Value
and Variable Annuity Payments
Formula and Illustration for Determining Annuity Unit Value
Annuity Unit Value = A * B * C
Where: A = annuity unit value for the immediately preceding valuation period.
Assume = $X
B = Net investment factor for the valuation period for which the
annuity unit value is being calculated.
Assume = Y
C = A factor to neutralize the assumed interest rate of 5% built into
the Annuity Tables used.
Assume = Z
Then, the annuity unit value is:
$X * Y * Z = $Q
Formula and Illustration for Determining Amount of
First Monthly Variable Annuity Payment
First monthly variable annuity payment = A * B
-----
$1,000
Where: A = The adjusted policy value as of the annuity commencement date.
Assume = $X
B = The Annuity purchase rate per $1,000 of adjusted policy value
based upon the option selected, the sex and adjusted age of the
annuitant according to the tables contained in the policy.
Assume = $Y
Then, the first monthly variable annuity payment = $X * $Y = $Z
------------
1,000
Formula and Illustration for Determining the Number of Annuity Units
Represented by Each Monthly Variable Annuity Payment
Number of annuity units = A
-
B
Where: A = The dollar amount of the first monthly variable annuity payment.
Assume = $X
B = The annuity unit value for the valuation date on which the first
monthly payment is due.
Assume = $Y
Then, the number of annuity units = $X = Z
---
$Y
21
<PAGE>
FAMILY INCOME PROTECTOR -- ADDITIONAL INFORMATION
The amounts shown below are hypothetical guaranteed minimum monthly payment
amounts under the "family income protector" for a $100,000 premium when annuity
payments do not begin until the rider anniversary indicated in the left-hand
column. These figures assume the following:
. there were no subsequent premium payments or withdrawals;
. there were no premium taxes;
. the $100,000 premium is subject to the family income protector;
. the annuitant is (or both annuitants are) 60 years old when the rider is
issued;
. the annual growth rate is 6.0% (once established, an annual growth rate
will not change during the life of the family income protector rider);
and
. there was no upgrade of the minimum annuitization value.
Six different annuity payment options are illustrated: a male annuitant, a
female annuitant and a joint and survivor annuity, each on a Life Only and a
Life with 10-Year Certain basis. The figures below, which are the amount of the
first monthly payment, are based on an assumed investment return of 3%.
Subsequent payments will never be less than the amount of the first payment
(although subsequent payments are calculated using a 5% assumed investment
return).
Life Only = Life Annuity with No Period Certain Life 10 = Life Annuity with
10 Years Certain
Rider Anniversary at
Exercise Date Male Female Joint & Survivor
- --------------------------------------------------------------------------------
Life Only Life 10 Life Only Life 10 Life Only Life 10
- --------------------------------------------------------------------------------
10 (age 70) $1,135 $1,067 $ 976 $ 949 $ 854 $ 852
- --------------------------------------------------------------------------------
15 1,833 1,634 1,562 1,469 1,332 1,318
- --------------------------------------------------------------------------------
20 (age 80) 3,049 2,479 2,597 2,286 2,145 2,078
- --------------------------------------------------------------------------------
This hypothetical illustration should not be deemed representative of past or
future performance of any underlying variable investment option.
Withdrawals will affect the minimum annuitization value as follows: Each policy
year, withdrawals up to the limit of the total free amount (the minimum
annuitization value on the last policy anniversary multiplied by the annual
growth rate) reduce the minimum annuitization value on a dollar-for-dollar
basis. Withdrawals over this free amount will reduce the minimum annuitization
value on a pro rata basis by an amount equal to the minimum annuitization value
immediately prior to the excess withdrawal multiplied by the percentage
reduction in the policy value resulting from the excess withdrawal. The free
amount will always be a relatively small fraction of the minimum annuitization
value.
Examples of the effect of withdrawals on the minimum annuitization value are as
follows:
<TABLE>
<CAPTION>
EXAMPLE 1
- ----------------------------------------------------------------------------------------------
Assumptions
- ----------------------------------------------------------------------------------------------
<S> <C>
. minimum annuitization value on last policy anniversary: $10,000
- ----------------------------------------------------------------------------------------------
. minimum annuitization value at time of distribution: $10,500
- ----------------------------------------------------------------------------------------------
. policy value at time of distribution: $15,000
- ----------------------------------------------------------------------------------------------
. distribution amount: $500
- ----------------------------------------------------------------------------------------------
. prior distribution in current policy year: None
- ----------------------------------------------------------------------------------------------
Calculations
- ----------------------------------------------------------------------------------------------
. maximum annual free amount: $10,000 x 6% = $600
- ----------------------------------------------------------------------------------------------
. policy value after distribution: $15,000 - $500 = $14,500
- ----------------------------------------------------------------------------------------------
. minimum annual value after distribution: $10,500 - $500 = $10,000
- ----------------------------------------------------------------------------------------------
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
EXAMPLE 2
- ----------------------------------------------------------------------------------------------------------------
Assumptions
- ----------------------------------------------------------------------------------------------------------------
<S> <C>
. minimum annuitization value on last policy anniversary: $10,000
- ----------------------------------------------------------------------------------------------------------------
. minimum annuitization value at time of distribution: $10,500
- ----------------------------------------------------------------------------------------------------------------
. policy value at time of distribution: $15,000
- ----------------------------------------------------------------------------------------------------------------
. distribution amount: $1,500
- ----------------------------------------------------------------------------------------------------------------
. prior distribution in current policy year: $1,000
- ----------------------------------------------------------------------------------------------------------------
Calculations
- ----------------------------------------------------------------------------------------------------------------
. maximum annual free amount: $0.0
- ----------------------------------------------------------------------------------------------------------------
(prior distributions have exceeded the current year free amount of $600 [$10,000 x 6% = $600])
- ----------------------------------------------------------------------------------------------------------------
. policy value after distribution: $15,000 - $1,500 = $13,500
- ----------------------------------------------------------------------------------------------------------------
(since the policy value is reduced 10% ($1,500/$15,000), the minimum annuitization value is also reduced 10%)
- ----------------------------------------------------------------------------------------------------------------
. minimum annual value after distribution: $10,500 - (10% x $10,500) = $9,450
- ----------------------------------------------------------------------------------------------------------------
<CAPTION>
EXAMPLE 3
- ----------------------------------------------------------------------------------------------------------------
Assumptions
- ----------------------------------------------------------------------------------------------------------------
<S> <C>
. minimum annuitization value on last policy anniversary: $10,000
- ----------------------------------------------------------------------------------------------------------------
. minimum annuitization value at time of distribution: $10,500
- ----------------------------------------------------------------------------------------------------------------
. policy value at time of distribution: $7,500
- ----------------------------------------------------------------------------------------------------------------
. distribution amount: $1,500
- ----------------------------------------------------------------------------------------------------------------
. prior distribution in current policy year: $1,000
- ----------------------------------------------------------------------------------------------------------------
Calculations
- ----------------------------------------------------------------------------------------------------------------
. maximum annual free amount: $0.0
- ----------------------------------------------------------------------------------------------------------------
(prior distributions have exceeded the current year free amount of $600 [$10,000 x 6% = $600])
- ----------------------------------------------------------------------------------------------------------------
. policy value after distribution: $7,500 - $1,500 = $6,000
- ----------------------------------------------------------------------------------------------------------------
(since the policy value is reduced 20% ($1,500/$7,500), the minimum annuitization value is also reduced 20%)
- ----------------------------------------------------------------------------------------------------------------
. minimum annual value after distribution: $10,500 - (20% x $10,500) = $8,400
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
The amount of the first payment provided by the family income protector will be
determined by multiplying each $1,000 of minimum annuitization value by the
applicable annuity factor shown on Schedule I of the family income protector
rider. The applicable annuity factor depends upon the annuitant's (and joint
annuitant's, if any) sex (or without regard to gender if required by law), age,
and the family income protector payment option selected and is based on a
guaranteed interest rate of 3% and the "1983 Table a" mortality table with
projection using projection Scale G factors, assuming a maturity date in the
year 2000. Subsequent payments will be calculated as described in the family
income protector rider using a 5% assumed investment return. Subsequent payments
may fluctuate annually in accordance with the investment performance of the
annuity subaccounts. However, subsequent payments are guaranteed to never be
less than the initial payment.
The stabilized payment on each subsequent policy anniversary after annuitization
using the family income protector will equal the greater of the initial payment
or the payment supportable by the annuity units in the selected subaccounts. The
supportable payment is equal to the number of variable annuity units in the
selected subaccounts multiplied by the variable annuity unit values in those
subaccounts on the date the payment is made. The variable annuity unit values
used to calculate the supportable payment will assume a 5% assumed investment
return. If the supportable payment at any payment date during a policy year is
greater than the stabilized payment for that policy year, the excess will be
used to purchase additional annuity units. Conversely, if the supportable
payment at any payment date during a policy year is less than the stabilized
payment for that policy year, there will be a reduction in the number of annuity
units credited to the policy to fund the deficiency. In the case of a reduction,
you will not participate as fully in the future investment performance of the
subaccounts you selected since fewer annuity units are credited to your policy.
Purchases and reductions will be allocated to each subaccount on a proportionate
basis.
23
<PAGE>
PFL bears the risk that it will need to make payments if all annuity units have
been used in an attempt to maintain the stabilized payment at the initial
payment level. In such an event, PFL will make all future payments equal to the
initial payment. Once all the annuity units have been used, the amount of your
payment will not increase or decrease and will not depend upon the performance
of any subaccounts. To compensate PFL for this risk, a stabilized payment fee
will be deducted.
HISTORICAL PERFORMANCE DATA
Money Market Yields
PFL may from time to time disclose the current annualized yield of the Endeavor
Money Market Subaccount, which invests in the Endeavor Money Market Portfolio,
for a 7-day period in a manner which does not take into consideration any
realized or unrealized gains or losses on shares of the Endeavor Money Market
Portfolio or on its portfolio securities. This current annualized yield is
computed by determining the net change (exclusive of realized gains and losses
on the sale of securities and unrealized appreciation and depreciation and
income other than investment income) at the end of the 7-day period in the value
of a hypothetical account having a balance of 1 unit of the Endeavor Money
Market Subaccount at the beginning of the 7-day period, dividing such net change
in account value by the value of the account at the beginning of the period to
determine the base period return, and annualizing this quotient on a 365-day
basis. The net change in account value reflects (i) net income from the
portfolio attributable to the hypothetical account; and (ii) charges and
deductions imposed under a policy that are attributable to the hypothetical
account. The charges and deductions include the per unit charges for the
hypothetical account for (i) the administrative charges and (ii) the mortality
and expense risk fee. Current yield will be calculated according to the
following formula:
Current Yield = ((NCS * ES)/UV) * (365/7)
Where:
NCS = The net change in the value of the portfolio (exclusive of realized
gains and losses on the sale of securities and unrealized appreciation
and depreciation and income other than investment income) for the 7-day
period attributable to a hypothetical account having a balance of 1
subaccountunit.
ES = Per unit expenses of the subaccount for the 7-day period.
UV = The unit value on the first day of the 7-day period.
Because of the charges and deductions imposed under a policy, the yield for the
Endeavor Money Market Subaccount will be lower than the yield for the Endeavor
Money Market Portfolio. The yield calculations do not reflect the effect of any
premium taxes that may be applicable to a particular policy.
PFL may also disclose the effective yield of the Endeavor Money Market
Subaccount for the same 7-day period, determined on a compounded basis. The
effective yield is calculated by compounding the base period return according to
the following formula:
Effective Yield = (1 + ((NCS - ES)/UV))/365/7/ - 1
Where:
NCS = The net change in the value of the portfolio (exclusive of realized
gains and losses on the sale of securities and unrealized appreciation
and depreciation and income other than investment income) for the 7-day
period attributable to a hypothetical account having a balance of 1
subaccount unit.
ES = Per unit expenses of the subaccount for the 7-day period.
UV = The unit value on the first day of the 7-day period.
The yield on amounts held in the Endeavor Money Market Subaccount normally will
fluctuate on a daily basis. Therefore, the disclosed yield for any given past
period is not an indication or representation of future yields or rates of
return. The Endeavor Money Market Subaccount's actual yield is affected by
changes in interest rates on money
24
<PAGE>
market securities, average portfolio maturity of the Endeavor Money Market
Portfolio, the types and quality of portfolio securities held by the Endeavor
Money Market Portfolio and its operating expenses. For the seven days ended
December 31, 1999, the yield of the Endeavor Money Market Subaccount was _____%,
and the effective yield was _____% for the 5% Annually Compounding Death Benefit
and the Double Enhanced Death Benefit. For the seven days ended December 31,
1999, the yield of the Endeavor Money Market Subaccount was _____%, and the
effective yield was _____% for the Return of Premium Death Benefit.
Other Subaccount Yields
PFL may from time to time advertise or disclose the current annualized yield of
one or more of the mutual fund subaccounts and the target series subaccounts
(except the Endeavor Money Market Subaccount) for 30-day periods. The annualized
yield of a subaccount refers to income generated by the subaccount over a
specific 30-day period. Because the yield is annualized, the yield generated by
a subaccount during the 30-day period is assumed to be generated each 30-day
period over a 12-month period. The yield is computed by: (i) dividing the net
investment income of the subaccount less subaccount expenses for the period, by
(ii) the maximum offering price per unit on the last day of the period times the
daily average number of units outstanding for the period, (iii) compounding that
yield for a 6-month period, and (iv) multiplying that result by 2. Expenses
attributable to the subaccount include (i) the administrative charges and (ii)
the mortality and expense risk fee. The 30-day yield is calculated according to
the following formula:
Yield = 2 * ((((NI - ES)/(U - UV)) + 1)/6/ -1)
Where:
NI = Net investment income of the subaccount for the 30-day period attributable
to the subaccount's unit.
ES = Expenses of the subaccount for the 30-day period.
U = The average number of units outstanding.
UV = The unit value at the close (highest) of the last day in the 30-day period.
Because of the charges and deductions imposed by the mutual fund account, the
yield for a mutual fund subaccount will be lower than the yield for its
corresponding portfolio. The yield calculations do not reflect the effect of any
premium taxes that may be applicable to a particular policy.
The yield on amounts held in the mutual fund subaccounts and the target series
subaccounts normally will fluctuate over time. Therefore, the disclosed yield
for any given past period is not an indication or representation of future
yields or rates of return. The types and quality of its investments and its
operating expenses affect a subaccount's actual yield.
Total Returns
PFL may from time to time also advertise or disclose total returns for one or
more of the mutual fund subaccounts or the target series subaccounts 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 mutual fund
account's underlying portfolio, the target series subaccount's common shares,
and the deductions for the mortality and expense risk fee and the administrative
charges. The total return for each target series subaccount will also reflect
the manager's fee and other operating expenses. Total return calculations
25
<PAGE>
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.
CTR = (ERV / P)-1
Where:
CTR = The cumulative total return net of subaccount recurring charges for the
period.
ERV = The ending redeemable value of the hypothetical investment at the end of
the period.
P = A hypothetical initial payment of $1,000.
All non-standard performance data will only be advertised if the standard
performance data for the same period, as well as for the required period, is
also disclosed.
Adjusted Historical Performance Data--The Mutual Fund Account
From time to time, sales literature or advertisements may quote average annual
total returns for periods prior to the date a particular mutual fund subaccount
commenced operations. Such performance information for the mutual fund
subaccounts will be calculated based on the performance of the various
portfolios and the assumption that the mutual fund 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.
THE TARGET ACCOUNT
What is the Investment Strategy?
The objective of each of the target series subaccounts is to provide an above-
average total return through a combination of dividend income and capital
appreciation. While the objectives of the target series subaccounts are the
same, each target series subaccount follows a different investment strategy (set
forth below) in order to achieve its stated objective.
Each target series subaccount will initially invest in equal amounts in the
common stock described below for each target series subaccount (the common
shares) determined as of a specified business day (initial stock selection
date). The Dow/SM/ Target 10 Subaccount will invest in the common stock of the
ten companies in the DJIA that have the highest dividend yield. The Dow/SM/
Target 5 Subaccount will invest in the common stock of the five companies with
the lowest per share stock price of the ten companies in The Dow SM Target 10
Subaccount. These stocks will be held for approximately one year.
26
<PAGE>
At the initial stock selection date, a percentage relationship among the number
of common shares in a target series subaccount will be established. When
additional funds are deposited into the target series subaccount, additional
common shares will be purchased in such numbers reflecting as nearly as
practicable the percentage relationship of the number of common shares
established at the initial purchase. Sales of common shares by the target series
subaccount will likewise attempt to replicate the percentage relationship of
common shares. The percentage relationship among the number of common shares in
the target series subaccount should therefore remain stable. However, given the
fact that the market price of such common shares will vary throughout the year,
the value of the common shares of each of the companies as compared to the total
assets of the target series subaccount will fluctuate during the year, above and
below the proportion established on a stock selection date. On the last business
day of the 12-month period following the preceding stock selection date (annual
stock selection date), a new percentage relationship will be established among
the number of common shares described above for each target series subaccount on
such date. Common shares may be sold or new equity securities bought so that the
target series subaccount is equally invested in the common stock of each company
meeting the target series subaccount's investment criteria. Thus the target
series subaccount may or may not hold equity securities of the same companies as
the previous year. Any purchase or sale of additional common shares during the
year will duplicate, as nearly as practicable, the percentage relationship among
the number of common shares as of the annual stock selection date since the
relationship among the value of the common shares on the date of any subsequent
transactions may be different than the original relationship among their value.
The yield for each equity security listed on the DJIA is calculated by
annualizing the last quarterly or semi-annual ordinary dividend declared and
dividing the result by the market value of such equity security as of the close
of business on the stock selection date.
The publishers of the DJIA are not affiliated with PFL, Endeavor Management Co.,
or First Trust Advisers L.P. and have not participated in the creation of the
target series subaccounts or the selection of the equity securities included
therein. Any changes in the components of any of the respective indices made
after a stock selection date will not cause a change in the identity of the
common shares included in a target series subaccount, including any additional
common shares purchased thereafter, until the next annual stock selection date.
Investors should note that the above criteria were applied and will in the
future be applied to the common shares selected for inclusion in the target
series subaccounts as of the respective stock selection date. Additional common
shares, which were originally selected through this process, may be purchased
throughout the year, as investors may continue to invest in the target series
subaccounts, even though the yields on these common shares may have changed
subsequent to the previous stock selection date. These common shares may no
longer be included in the index, or may not meet a target series subaccount's
selection criteria at that time, and therefore, such common shares would no
longer be chosen for inclusion in the target series subaccounts if the selection
process were to be performed again at that time. The equity securities selected
as common shares and the percentage relationship among the number of shares will
not change for purchase or sales by a target series subaccount until the next
annual stock selection date.
Determination of Unit Value; Valuation of Securities
PFL determines the unit value of each target series subaccount each business
day. This daily determination of unit value is made by dividing the total assets
of a target series subaccount, less all of its liabilities, by the total number
of units outstanding at the time the determination is made. This is made as of
the close of regular trading on the New York Stock Exchange, currently 4:00 p.m.
New York time, unless the Exchange closes earlier. Purchases and redemptions
will be effected at the time of determination of unit value next following the
receipt of any purchase or redemption order deemed to be in good order.
Equity securities are valued at the last sale price on the exchange on which
they are primarily traded or at the ask price on the NASDAQ system for unlisted
national market issues, or at the last quoted bid price for securities in which
there were no sales during the day or for unlisted securities not reported on
the NASDAQ system. Short-term obligations, which mature in 60 days or less, are
valued at amortized cost, which approximates fair value as determined by the
Board of Managers. Futures and option contracts that are traded on commodities
or securities
27
<PAGE>
exchanges are normally valued at the settlement price on the exchange on which
they are traded. Securities (other than short-term obligations) for which there
are no such quotations or valuations are valued at fair value as determined in
good faith by or at the direction of the Board of Managers of the target
account.
The Board of Managers
The members of the Board of Managers of the target account, and their principal
occupations during the past five years are set forth below. Their titles may
have varied during that period. Unless otherwise indicated, the address of each
member is 2101 East Coast Highway, Suite 300, Corona del Mar, California 92625.
<TABLE>
<CAPTION>
Name, Age and Address Held With Registrant During Past 5 Years
- ---------------------------------- ------------------------ ---------------------------------------------------
<S> <C> <C>
*+Vincent J. McGuinness, Jr. (34) President and Chief From February 1997 to December 1997, Executive
1960 Post Ramsgate Place Financial Officer Vice-President, Chief of Operations, from March
Newport Beach, CA 92660 (Treasurer) 1997 to October 1999, Director, from December 1997
to October 1999, Chief Operating Officer and from
June 1998 to October 1999, Chief Financial
Officer, from July 1999 to October 1999, Chief
Executive Officer of Endeavor Group; from
September 1996 to June 1997, and from June 1998 to
October 1999, Chief Financial Officer, since May
1996, Director, and from June 1997 to October
1998, Executive Vice President--Administration,
from October 1998 to October 1999, President, and
from July 1999 to October 1999 Chief Executive
Officer of Endeavor Management Co.; since August
1996, Chief Financial Officer of VJM Corporation;
from May 1996 to January 1997, Executive Vice
President and Director of Sales, Western Division
of Endeavor Group; since May 1996, Chief
Financial Officer of McGuinness & Associates; from
July 1993 to August 1995, Rocky Mountain Regional
Marketing Director for Endeavor Group; President,
Chief Financial Officer, and Trustee of Endeavor
Series Trust.
*Vincent J. McGuinness (64) Manager Director of Endeavor Group and Endeavor Management
1901 Ocean Way Co.; President of VJM Corporation (oil and gas);
Laguna Beach, CA 92651 since February 1996, President of McGuinness and
Associates; until July 1999, Chairman, Chief
Executive Officer and Director of McGuinness &
Associates and VJM Corporation ; until July 1996,
Chairman, Chief Executive Officer and Director of
McGuinness Group (insurance marketing); from
September 1988 to July 1999, Chief Executive
Officer of Endeavor Management Co.; until October
1998, President of Endeavor Management Co.;
Trustee, Endeavor Series Trust.
Timothy A. Devine (64) Manager Vice President, Plant Control, Inc. (landscape
1424 Dolphin Terrace contracting and maintenance); Trustee, Endeavor
Corona del Mar, Series Trust.
California 92625
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
Name, Age and Address Held With Registrant During Past 5 Years
- ---------------------------------- ------------------------ ---------------------------------------------------
<S> <C> <C>
Thomas J. Hawekotte (64) Manager President, Thomas Hawekotte, P.C. (law practice);
6007 North Sheridan Road Trustee, Endeavor Series Trust.
Chicago, Illinois 60660
Steven L. Klosterman (47) Manager Since July 1995, President of Klosterman Capital
5973 Avenida Encinas, #300 Corporation (investment adviser); Investment
Carlsbad, California 92008 Counselor, Robert J. Metcalf & Associates, Inc.
(investment adviser) from August 1990 to June 1995;
Trustee, Endeavor Series Trust.
Halbert D. Lindquist (53) Manager President, Lindquist, Stephenson & White
1650 E. Fort Lowell Road (investment adviser) and since December 1987
Suite 203 Tucson Asset Management Inc. (commodity trading
Tucson, Arizona advisor), and since November 1987, Presidio
85719-2324 Government Securities, Incorporated
(broker-dealer); since January 1998, Chief
Investment Officer, Blackstone Alternative Asset
Management, Trustee, Endeavor Series Trust.
Keith H. Wood (63) Manager Since 1972, Chairman and Chief Executive Officer
of Jamison, Eaton & Wood (investment adviser) and
since 1978 to December 1997, President of Ivory &
Sime International, Inc. (investment adviser);
Trustee, Endeavor Series Trust.
Peter F. Muratore (67) Manager From June 1989 to March 1998, President of OCC
Too Far Distributors (broker/dealer), a subsidiary of
Posthouse Road Oppenheimer Capital; Trustee, Endeavor Series
Morristown, NJ 07960 Trust.
*Larry N. Norman (47) Manager Executive Vice-President, PFL Life Insurance
4333 Edgewood Road N.E. Company.
Cedar Rapids, Iowa
52499-0001
Michael Pond (46) Executive Vice Since November 1, 1998, Executive Vice
President-- President--Administrator and Compliance of
Administration and Endeavor Group; from November 1, 1998 to October
Compliance 1999, Executive Vice President-Administration and
Compliance and Chief Investment Officer of
Endeavor Management Co.; since October 1999,
President, Chief Executive Officer and Chief
Investment Officer of Endeavor
Management Co.; from November 1991 to November
1996, Chairman and President, the Preferred Group
of Mutual Funds; from October 1989 to November
1996, President of
Caterpillar Securities, Inc. and Caterpillar
Investment Manager, Ltd.
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
Name, Age and Address Held With Registrant During Past 5 Years
- ---------------------------------- -------------------- ---------------------------------------------------
<S> <C> <C>
Gail A. Hanson (57) Secretary Since September 1994, Vice President for PFPC,
Inc. (formerly known as First Data Investor
Services Group, Inc.) (mutual fund administration)
</TABLE>
- ----------------------------------
* An "interested person" of the target account as defined in the 1940 Act.
+ Vincent J. McGuinness, Jr. is the son of Vincent J. McGuinness.
The "rules and regulations" of the target account provide that the target
account will indemnify its Board of Managers and officers against liabilities
and expenses incurred in connection with litigation in which they may be
involved because of their offices with the target account, except if it is
determined in the manner specified in the rules and regulations that they have
not acted in good faith in the reasonable belief that their actions were in the
best interests of the target account or that such indemnification would relieve
any officer or member of the Board of Managers of any liability to the target
account or its shareholders by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of his duties. The target account, at its
expense, provides liability insurance for the benefit of its Board of Managers
and officers.
Compensation. For the period ended December 31, 1999, the following
- -------------
compensation was paid to members of the Board of Managers:
<TABLE>
<CAPTION>
Aggregate Total Compensation
----------------- ---------------------
Compensation From From Account and Fund
Name of Person ----------------- ---------------------
- ------------------------------------------------------ Account Complex Paid Managers
----------------- ---------------------
<S> <C> <C>
Vincent J. McGuinness . -0- -0-
Timothy A. Devine .
Thomas J. Hawekotte .
Steven L. Klosterman .
Halbert D. Lindquist .
Keith H. Wood .
Vincent J. McGuinness, Jr. . -0- -0-
William L. Busler (resigned as of November 15, 1999).. -0- -0-
Peter F. Muratore .
Larry N. Norman
</TABLE>
The Investment Advisory Services
First Trust Advisors L.P. (the "adviser") is the target account's investment
adviser. The adviser manages the assets of each target series subaccount,
consistent with the investment objective and policies described herein and in
the prospectus, pursuant to investment advisory agreements (the "advisory
agreements") with Endeavor Management Co., the target account's manager.
The adviser's address is 1001 Warrenville Road, Lisle, Illinois 60532. First
Trust Advisers L.P. is a limited partnership with one limited partner, Grace
Partners of Dupage L.P., and one general partner, Nike Securities Corporation.
Grace Partners of Dupage L.P. is a limited partnership with one general partner,
Nike Securities Corporation, and a number of limited partners. Nike Securities
Corporation is an Illinois corporation controlled by the Robert Donald Van
Kampen family.
Under the advisory agreements, the investment adviser provides each target
series subaccount with discretionary investment services. Specifically, the
adviser is responsible for supervising and directing the investments of each
target series subaccount in accordance with each target series subaccount's
investment objective, program, and restrictions as provided in the prospectus
and this Statement of Additional Information. The investment adviser is also
responsible for effecting all security transactions on behalf of each target
series subaccount.
30
<PAGE>
As compensation for its services, the adviser receives a fee of 0.35% of the
average daily net assets of each target series subaccount, which is paid by the
manager. The amount that Endeavor Management Co. paid to the adviser during 1998
and 1999 was $ 19,594 and $_______________, respectively. No fees were paid
prior to 1998 because the target account had not commenced operations. Each
target series subaccount's advisory agreement provides that the adviser, its
directors, officers, employees, and certain other persons performing specific
functions for the target series subaccounts will only be liable to the target
series subaccount for losses resulting from willful misfeasance, bad faith,
gross negligence, or reckless disregard of duty.
The adviser is also the portfolio supervisor of certain unit investment trusts
sponsored by Nike Securities L.P. ("Nike Securities") which are substantially
similar to the target series subaccounts in that they have the same investment
objectives as the target series subaccounts but have a life of approximately one
year. Nike Securities specializes in the underwriting, trading and distribution
of unit investment trusts and other securities. Nike Securities, an Illinois
limited partnership formed in 1991, acts as sponsor for successive series of The
First Trust Combined Series, The First Trust Special Situations Trust, the First
Trust Insured Corporate Trust, The First Trust of Insured Municipal Bonds and
the First Trust GNMA. First Trust introduced the first insured unit investment
trust in 1974 and to date more than $11 billion in First Trust unit investment
trusts have been deposited.
The Manager
The target account is managed by Endeavor Management Co. ("the manager") which,
subject to the supervision and direction of the target account's Board of
Managers, has overall responsibility for the general management and
administration of the target account. All of the outstanding common stock of
Endeavor Management Co. is owned by AUSA Holding Company, an affiliate of PFL.
The manager is responsible for providing investment management to the target
account and in the exercise of such responsibility selects an investment adviser
for each of the target series subaccounts (the "adviser") and monitors the
adviser's investment program and results, reviews brokerage matters, oversees
compliance by the target account with various federal and state statutes, and
carries out the directives of the Board of Managers. The manager is responsible
for providing the target account with office space, office equipment, and
personnel necessary to operate and administer the target account's business, and
also supervises the provision of services by third parties such as the target
account's custodian, transfer agent and administrator. Pursuant to an
administration agreement, PFPC, Inc. assists the manager in the performance of
its administrative responsibilities to the target account. For its
administrative responsibilities, the target account pays PFPC, Inc. a fee of
$10,000 per annum per subaccount and any out-of-pocket fees of the expenses.
As compensation for its services, the manager receives a fee equal to 0.75% of
the average daily net assets of each target series subaccount. The amount that
the target account paid the manager during 1998 and 1999 was $38,590 and
$___________, respectively. No fees were paid prior to 1998 because the target
account had not commenced operations.
Operating Expenses
In addition to the management fees, the target account pays all expenses not
assumed by the manager, including, without limitation, expenses for legal,
accounting and auditing services, interest, taxes, costs of printing and
distributing reports to shareholders, proxy materials and prospectuses, charges
of its custodian, transfer agent and dividend disbursing agent, registration
fees, fees and expenses of the Board of Managers who are not affiliated persons
of the manager or an adviser, insurance, brokerage costs, litigation, and other
extraordinary or nonrecurring expenses. All general target account expenses are
allocated among and charged to the assets of the target series subaccounts on a
basis that the Board of Managers deems fair and equitable, which may be on the
basis of relative net assets of each target series subaccount or the nature of
the services performed and relative applicability to each target series
subaccount. The manager has agreed to limit each target series subaccount's
management fee and operating expenses during its first year of operations to an
annual rate of 1.30% of the target series subaccount's average net assets. (This
limit does not include other fees and deductions such as the mortality and
expense risk fee and administrative charge.)
31
<PAGE>
Transfer Agent and Custodian
Boston Safe Deposit and Trust Company holds all cash and securities of each
target series subaccount as custodian. PFPC, Inc., located at 4400 Computer
Drive, Westborough, Massachusetts 01581, serves as transfer agent for the target
account.
Brokerage Allocation
The adviser invests all assets of the target series subaccounts in common stock
and incurs brokerage costs in connection therewith.
Allocations of transactions by the target series subaccounts, including their
frequency, to various dealers is determined by the adviser in its best judgment
and in a manner deemed to be in the best interest of the investors in the target
series subaccount rather than by any formula. The primary consideration is
prompt execution of orders in an effective manner at the most favorable price.
Purchases and sales of securities may be principal transactions; that is,
securities may be purchased directly from the issuer or from an underwriter or
market maker for the securities. Any transactions for which the target series
subaccounts pays a brokerage commission will be effected at the best price and
execution available. Purchases from underwriters of securities include a
commission or concession paid by the issuer to the underwriter, and purchases
from dealers serving as market makers include the spread between the bid and the
asked price. Brokerage may be allocated based on the sale of policies by dealers
or activities in support of sales of the policies. The target account has
adopted a Brokerage Enhancement Plan, whereby all or a portion of certain
brokerage commissions paid by the target series subaccounts may be allocated or
credited to the distributor or other entities marketing the policies, to help
finance sales activities.
The target account did not pay compensation to any affiliated broker of Endeavor
Management Co. or First Trust Advisors L.P. during 1999. [UPDATE for 1999]
Investment Restrictions
Fundamental policies of the target series subaccounts may not be changed without
the approval of the lesser of (1) 67% of the persons holding voting interests
(generally owners) present at a meeting if the holders of more than 50% are
present in person or by proxy or (2) more than 50% of the persons holding voting
interests. Other restrictions, in the form of operating policies, are subject to
change by the Board of Managers without the approval of persons holding a voting
interest. Any investment restriction which involves a maximum percentage of
securities or assets shall not be considered to be violated unless an excess
over the percentage occurs immediately after, and is caused by, an acquisition
of securities or assets of, or borrowings by, a target subaccount.
Fundamental Policies
As a matter of fundamental policy, each target series subaccount may not:
. Borrowing. Borrow money, except each target series subaccount may borrow as
a temporary measure for extraordinary or emergency purposes, and then only
in amounts not exceeding 30% of its total assets valued at market. Each
target series subaccount will not borrow in order to increase income
(leveraging), but only to facilitate redemption requests which might
otherwise require untimely investment liquidations;
. Loans. Make loans, although the target series subaccounts may purchase
money market securities and enter into repurchase agreements; and they may
lend their common shares.
. Margin. Purchase securities on margin;
. Mortgaging. Mortgage, pledge, hypothecate or, in any manner, transfer any
security owned by the target series subaccounts as security for
indebtedness except as may be necessary in connection with permissible
borrowings, in which event such mortgaging, pledging, or hypothecating may
not exceed 30% of each target series subaccount's total assets, valued at
market;
. Real Estate. Purchase or sell real estate;
. Senior Securities. Issue senior securities (except permitted borrowings);
32
<PAGE>
. Short Sales. Effect short sales of securities; or
. Underwriting. Underwrite securities issued by other persons, except to the
extent the target series subaccounts may be deemed to be underwriters
within the meaning of the Securities Act of 1933 in connection with the
purchase and sale of their portfolio securities in the ordinary course of
pursuing their investment programs.
In addition, as a matter of fundamental policy, each target series subaccount
may engage in futures and options transactions and hold warrants.
The investment objective of each target series subaccount is also a fundamental
policy and may not be changed without the necessary approval described above.
Operating Policies
As a matter of operating policy, each target series subaccount may not:
. Control of Companies. Invest in companies for the purpose of exercising
management or control;
. Illiquid Securities. Purchase a security if, as a result of such purchase,
more than 15% of the value of each target series subaccount's net assets
would be invested in illiquid securities or other securities that are not
readily marketable.
. Oil and Gas Programs. Purchase participations or other direct interests or
enter into leases with respect to, oil, gas, other mineral exploration or
development programs.
Options and Futures Strategies
A target series subaccount may at times seek to hedge against either a decline
in the value of its portfolio securities or an increase in the price of
securities which the adviser plans to purchase through the writing and purchase
of options and the purchase or sale of future contracts and related options.
Expenses and losses incurred as a result of such hedging strategies will reduce
a target series subaccount's current return.
The ability of a target series subaccount to engage in the options and futures
strategies described below will depend on the availability of liquid markets in
such instruments. It is impossible to predict the amount of trading interest
that may exist in various types of options or futures. Therefore no assurance
can be given that a target series subaccount will be able to utilize these
instruments effectively for the purposes stated below.
Writing Covered Options on Securities. A target series subaccount may write
- --------------------------------------
covered call options and covered put options on optionable securities of the
types in which it is permitted to invest from time to time as the adviser
determines is appropriate in seeking to attain the target series subaccount's
investment objective. Call options written by a target series subaccount give
the holder the right to buy the underlying security from the target series
subaccount at a stated exercise price; put options give the holder the right to
sell the underlying security to the target series subaccount at a stated price.
A target series subaccount may only write call options on a covered basis or for
cross-hedging purposes and will only write covered put options. A put option
would be considered "covered" if the target series subaccount owns an option to
sell the underlying security subject to the option having an exercise price
equal to or greater than the exercise price of the "covered" option at all times
while the put option is outstanding. A call option is covered if the target
series subaccount owns or has the right to acquire the underlying securities
subject to the call option (or comparable securities satisfying the cover
requirements of securities exchanges) at all times during the option period. A
call option is for cross-hedging purposes if it is not covered, but is designed
to provide a hedge against another security which the target series subaccount
owns or has the right to acquire. In the case of a call written for cross-
hedging purposes or a put option, the target series subaccount will maintain in
a segregated account at the target series subaccount's custodian bank cash or
short-term U.S. government securities with a value equal to or greater than the
target series subaccount's obligation under the option. A target series
subaccount may also write combinations of covered puts and covered calls on the
same underlying security.
A target series subaccount will receive a premium from writing an option, which
increases the target series subaccount's return in the event the option expires
unexercised or is terminated at a profit. The amount of the
33
<PAGE>
premium will reflect, among other things, the relationship of the market price
of the underlying security to the exercise price of the option, the term of the
option, and the volatility of the market price of the underlying security. By
writing a call option, a target series subaccount will limit its opportunity to
profit from any increase in the market value of the underlying security above
the exercise price of the option. By writing a put option, a target series
subaccount will assume the risk that it may be required to purchase the
underlying security for an exercise price higher than its then current market
price, resulting in a potential capital loss if the purchase price exceeds the
market price plus the amount of the premium received.
A target series subaccount may terminate an option, which it has written prior
to its expiration, by entering into a closing purchase transaction in which it
purchases an option having the same terms as the option written. The target
series subaccount will realize a profit (or loss) from such transaction if the
cost of such transaction is less (or more) than the premium received from the
writing of the option. Because increases in the market price of a call option
will generally reflect increases in the market price of the underlying security,
any loss resulting from the repurchase of a call option may be offset in whole
or in part by unrealized appreciation of the underlying security owned by the
target series subaccount.
Purchasing Put and Call Options on Securities. A target series subaccount may
- ----------------------------------------------
purchase put options to protect its portfolio holdings in an underlying security
against a decline in market value. This protection is provided during the life
of the put option since the target series subaccount, as holder of the put, is
able to sell the underlying security at the exercise price regardless of any
decline in the underlying security's market price. For the purchase of a put
option to be profitable, the market price of the underlying security must
decline sufficiently below the exercise price to cover the premium and
transaction costs. By using put options in this manner, any profit which the
target series subaccount might otherwise have realized on the underlying
security will be reduced by the premium paid for the put option and by
transaction costs.
A target series subaccount may also purchase a call option to hedge against an
increase in price of a security that it intends to purchase. This protection is
provided during the life of the call option since the target series subaccount,
as holder of the call, is able to buy the underlying security at the exercise
price regardless of any increase in the underlying security's market price. For
the purchase of a call option to be profitable, the market price of the
underlying security must rise sufficiently above the exercise price to cover the
premium and transaction costs. By using call options in this manner, any profit
which the target series subaccount might have realized had it brought the
underlying security at the time it purchased the call option will be reduced by
the premium paid for the call option and by transaction costs.
No target series subaccount intends to purchase put or call options if, as a
result of any such transaction, the aggregate cost of options held by the target
series subaccount at the time of such transaction would exceed 5% of its total
assets.
Limitations. A target series subaccount will not purchase or sell futures
- ------------
contracts or options on futures contracts for non-hedging purposes if, as a
result, the sum of the initial margin deposits on its existing futures contracts
and related options positions and premiums paid for options on futures contracts
would exceed 5% of the net assets of the target series subaccount unless the
transaction meets certain "bona fide hedging" criteria.
Risks of Options and Futures Strategies. The effective use of options and
- ----------------------------------------
futures strategies depends, among other things, on a target series subaccount's
ability to terminate options and futures positions at times when the adviser
deems it desirable to do so. Although a target series subaccount will not enter
into an option or futures position unless the adviser believes that a liquid
market exists for such option or future, there can be no assurance that a target
series subaccount will be able to effect closing transactions at any particular
time or at an acceptable price. The adviser generally expects that options and
futures transactions for the target series subaccounts will be conducted on
recognized exchanges. In certain instances, however, a target series subaccount
may purchase and sell options in the over-the-counter market. The staff of the
SEC considers over-the-counter options to be illiquid. A target series
subaccount's ability to terminate option positions established in the over-the-
counter market may be more limited than in the case of exchange traded options
and may also involve the risk that securities dealers participating in such
transactions would fail to meet their obligations to the target series
subaccount.
34
<PAGE>
The use of options and futures involves the risk of imperfect correlation
between movements in options and futures prices and movements in the price of
the securities that are the subject of the hedge. The successful use of these
strategies also depends on the ability of the target series subaccounts' adviser
to forecast correctly interest rate movements and general stock market price
movements. The risk increases as the composition of the securities held by the
target series subaccount diverges from the composition of the relevant option or
futures contract.
Securities Lending
Each target series subaccount may also lend common shares to broker-dealers and
financial institutions to realize additional income. As an operating policy, the
target series subaccounts will not lend common shares or other assets, if as a
result, more than 33% of each subaccount's total assets would be lent to other
parties. Under applicable regulatory requirements (which are subject to change),
the following conditions apply to securities loans: (a) the loan must be
continuously secured by liquid assets maintained on a current basis in an amount
at least equal to the market value of the securities loaned; (b) each target
series subaccount must receive any dividends or interest paid by the issuer on
such securities; (c) each target series subaccount must have the right to call
the loan and obtain the securities loaned at any time upon notice of not more
than five business days, including the right to call the loan to permit voting
of the securities; and (d) each target series subaccount must receive either
interest from the investment of collateral or a fixed fee from the borrower.
Securities loaned by a target series subaccount remain subject to fluctuations
in market value. A target series subaccount may pay reasonable finders,
custodian and administrative fees in connection with a loan. Securities lending,
as with other extensions of credit, involves the risk that the borrower may
default. Although securities loans will be fully collateralized at all times, a
target series subaccount may experience delays in, or be prevented from,
recovering the collateral. During the period that the target series subaccount
seeks to enforce its rights against the borrower, the collateral and the
securities loaned remain subject to fluctuations in market value. The target
series subaccount does not have the right to vote securities on loan, but would
terminate the loan and regain the right to vote if it was considered important
with respect to the investment. A target series subaccount may also incur
expenses in enforcing its rights. If a target series subaccount has sold a
loaned security, it may not be able to settle the sale of the security and may
incur potential liability to the buyer of the security on loan for its costs to
cover the purchase.
Tax Limitation
Section 817(h) of the Code provides that in order for a variable contract which
is based on a segregated asset account to qualify as an annuity contract under
the Code, the investments made by such account must be "adequately diversified"
in accordance with Treasury regulations. The Treasury regulations issued under
Section 817(h) (Treas. Reg.(S)1.817-5) apply a diversification requirement to
each of the subaccounts of the target account. To qualify as "adequately
diversified," each subaccount may have:
. No more than 55% of the value of its total assets represented by any one
investment;
. No more than 70% of the value of its total assets represented by any two
investments;
. No more than 80% of the value of its total assets represented by any three
investments; and
. No more than 90% of the value of its total assets represented by any four
investments.
The target account, through the target series subaccounts, intends to comply
with the section 817(h) diversification requirements. PFL has entered into an
agreement with the manager, who in turn, has entered into a contract with the
adviser, that requires the target series subaccounts be operated in compliance
with Treasury regulations. Therefore, each target series subaccount may deviate
from its stated strategy to the extent necessary to comply with these
requirements.
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
35
<PAGE>
& 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. The ratings should not be
considered as bearing on the investment performance of assets held in the mutual
fund account or the target account or of the safety or riskiness of an
investment in the mutual fund account or the target 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 (i.e., debt/commercial paper).
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 mutual fund account and the target
account will be maintained by PFL. As presently required by the 1940 Act, as
amended, and regulations promulgated thereunder, PFL will mail to all owners at
their last known address of record, at least annually, reports containing such
information as may be required under that Act or by any other applicable law or
regulation. Owners will also receive confirmation of each financial transaction
and any other reports required by law or regulation.
DISTRIBUTION OF THE POLICIES
The policies are offered to the public through brokers licensed under the
federal securities laws and state insurance laws. The offering of the policies
is continuous and PFL does not anticipate discontinuing the offering of the
policies, however, PFL reserves the right to do so.
AFSG Securities Corporation, an affiliate of PFL, is the principal underwriter
of the policies and may enter into agreements with broker-dealers for the
distribution of the policies. During 1999 and 1998 the amount paid to AFSG
Securities Corporation was $______________ and $13,075,039.78, respectively.
Prior to April 30, 1998, AEGON USA Securities, Inc. (also an affiliate of PFL)
was the principal underwriter. During 1998 and 1997, the amount paid to AEGON
USA Securities, Inc. and/or the broker-dealers for their services was
$8,891,105.79 and $29,678,498, respectively.
The target account has adopted a distribution plan in accordance with Rule 12b-1
under the 1940 Act (the "distribution plan") because a portion of the mortality
and expense risk fee (0.15% of separate account assets) may be deemed to be a
distribution charge. The distribution plan has been approved by a majority of
the disinterested members of the Board of Managers of the target account. The
distribution plan is designed to partially compensate
36
<PAGE>
PFL for the cost of distributing the policies. Charges under the distribution
plan will be used to support marketing efforts, training of representatives and
reimbursement of expenses incurred by broker/dealers who sell the policies, and
will be based on a percentage of the daily net assets of the target account. The
distribution plan may be terminated at any time by a vote of a majority of the
disinterested members of the target account's Board of Managers, or by a vote of
the majority of its outstanding shares.
VOTING RIGHTS
The Mutual Fund Account
To the extent required by law, PFL will vote the underlying funds' shares held
by the mutual fund account at 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.
The Target Account
The target account is the legal owner of the common stock held in the target
series subaccounts and as such has the right to vote upon any matter that may be
voted by shareholders. However, you or persons receiving income payments may
vote on certain aspects of the governance of the target series subaccounts.
Matters on which persons holding voting interests may vote include the
following: (1) approval of any change in the investment advisory agreement
corresponding to a target series subaccount; (2) any change in the fundamental
investment policies of a target series subaccount; or (3) any other matter
requiring a vote of persons holding voting interests in the target series
subaccount. With respect to approval of the investment advisory agreements or
any change in a fundamental investment policy, owners participating in that
target series subaccount will vote separately on the matter pursuant to the
requirements of Rule 18f-2 under the 1940 Act.
Before the annuity commencement date, you hold the voting interest in the
selected target series subaccounts. The number of votes that you have will be
calculated separately for each target series subaccount. The number of votes
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<PAGE>
that you have for a target series subaccount will be determined by dividing your
policy value in the target series subaccount into the total assets of the target
series subaccount and multiplying this by the total number of votes.
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 target series subaccount into the total assets of the Subaccount and
multiplying this by the total number of votes.
PFL does not intend to hold annual or other periodic meetings of owners. PFL
will solicit proxies by sending you or other persons entitled to vote written
requests for proxies prior to the vote. Where timely proxies are not received,
the voting interests will be voted in proportion to the proxies that are
received with respect to all policies participating in the same target series
subaccount.
PFL may, if required by state insurance officials, disregard proxies which would
require voting to cause a change in the subclassification or investment
objectives or policies of one or more of the target series subaccounts, or to
approve or disapprove an investment adviser or principal underwriter for one or
more of the target series subaccounts. In addition, PFL may disregard proxies
that would require changes in the investment objectives or policies of any
target series subaccount or in an investment adviser or principal underwriter,
if PFL reasonably disapproves those changes in accordance with applicable
federal regulations. If PFL disregards proxies, it will advise those persons who
may give proxies of that action and its reasons for the action in the next
semiannual report.
OTHER PRODUCTS
PFL makes other variable annuity policies available that may also be funded
through the mutual fund account and/or the target account. These variable
annuity policies may have different features, such as different investment
options or charges.
CUSTODY OF ASSETS
PFL holds assets of each of the mutual fund subaccounts and the target series
subaccounts. The assets of each of the subaccounts 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 mutual fund subaccounts,
and of all purchases and sales of common stock held by each of the target series
subaccounts. Additional protection for the assets of the mutual fund account and
the target 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 certain subaccounts of PFL Endeavor VA
Separate Account, which are available for investment by The Endeavor Variable
Annuity policyowners, as of December 31, 1999 and for each of the two years in
the period then ended, included in this Statement of Additional Information have
been audited by Ernst & Young LLP, Independent Auditors, 801 Grand Avenue, Suite
3400, Des Moines, Iowa 50309.
The financial statements of the PFL Endeavor Target Account as of December 31,
1999 and December 31, 1998, and for each of the years ended December 31, 1999
and for the period July 1, 1998 (commencement of operations
38
<PAGE>
through December 31, 1998, included in this Statement of Additional Information
have been audited by Ernst & Young LLP.
OTHER INFORMATION
A registration statement has been filed with the Securities and Exchange
Commission, under the Securities Act of 1933 as amended, with respect to the
policies discussed in this Statement of Additional Information. Not all of the
information set forth in the Registration Statement, amendments and exhibits
thereto has been included in the prospectus or this Statement of Additional
Information. Statements contained in the Prospectus and this Statement of
Additional Information concerning the content of the policies and other legal
instruments are intended to be summaries. For a complete statement of the terms
of these documents, reference should be made to the instruments filed with the
Securities and Exchange Commission.
FINANCIAL STATEMENTS
The values of your interest in the mutual fund account or the target account
will be affected solely by the investment results of the selected subaccount(s).
Financial statements of certain subaccounts of The PFL Endeavor VA Separate
Account, which are available for investment by the PFL Endeavor Variable Annuity
contract owners, and the financial statements of The PFL Endeavor Target Account
are contained herein. The statutory-basis financial statements of PFL, which are
included in this Statement of Additional Information, should be considered only
as bearing on the ability of PFL to meet its obligations under the policies.
They should not be considered as bearing on the investment performance of the
assets held in the mutual fund account or the target account.
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<PAGE>
THE ENDEAVOR ML
VARIABLE ANNUITY
Issued Through
PFL ENDEAVOR VA SEPARATE ACCOUNT
and
PFL ENDEAVOR TARGET ACCOUNT
by
PFL LIFE INSURANCE COMPANY
Prospectus
May 1, 2000
This prospectus and the mutual fund prospectuses give you important information
about the policies and the mutual funds. Please read them carefully before you
invest and keep them for future reference.
If you would like more information about The Endeavor ML Variable Annuity
policy, you can obtain a free copy of the Statement of Additional Information
(SAI) dated May 1, 2000. Please call us at (800) 525-6205 or write us at: PFL
Life Insurance Company, Financial Markets Division, Variable Annuity Department,
4333 Edgewood Road N.E., Cedar Rapids, Iowa, 52499-0001. A registration
statement, including the SAI, has been filed with the Securities and Exchange
Commission (SEC) and is incorporated herein by reference. Information about the
variable annuity can be reviewed and copied at the SEC's Public Reference Room
in Washington, D.C. You may obtain information about the operation of the public
reference room by calling the SEC at 1-800-SEC-0330. The SEC also maintains a
web site (http://www.sec.gov) that contains the prospectus, the SAI, material
incorporated by reference, and other information. The table of contents of the
SAI is included at the end of this prospectus.
Please note that the policies and the mutual funds:
. are not bank deposits
. are not federally insured
. are not endorsed by any bank or government agency
. are not guaranteed to achieve their goal
. are subject to risks, including loss of premium
The Securities and Exchange Commission has not approved or disapproved these
securities, or passed upon the adequacy of this prospectus. Any representation
to the contrary is a criminal offense.
This flexible premium deferred annuity policy has many investment choices. There
are two separate accounts: (1) a mutual fund account; and (2) a target account.
The mutual fund subaccounts and the target series subaccounts are listed below.
You bear the entire investment risk for all amounts you put in either separate
account. There is also a fixed account, which offers interest at rates that are
guaranteed by PFL Life Insurance Company (PFL). You can choose any combination
of these investment choices.
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.
Merrill Lynch Basic Value Focus Fund
Merrill Lynch High Current Income Fund
Merrill Lynch Developing Capital Markets Focus Fund
ENDEAVOR SERIES TRUST
Dreyfus Small Cap Value Portfolio
Dreyfus U.S. Government Securities Portfolio
Endeavor Asset Allocation Portfolio
Endeavor Money Market Portfolio
Endeavor Enhanced Index Portfolio
Endeavor High Yield Portfolio
Endeavor Janus Growth Portfolio
Endeavor Opportunity Value Portfolio
Endeavor Value Equity Portfolio
Endeavor Select 50 Portfolio
T. Rowe Price Equity Income Portfolio
T. Rowe Price Growth Stock Portfolio
T. Rowe Price International Stock Portfolio
TRANSAMERICA VARIABLE
INSURANCE FUND, INC.
Transamerica VIF Growth Portfolio
VARIABLE INSURANCE PRODUCTS FUND
(VIP) - SERVICE CLASS 2
Fidelity - VIP Equity-Income Portfolio
VARIABLE INSURANCE PRODUCTS FUND II
(VIP II)-SERVICE CLASS 2
Fidelity-VIP II Contrafund Portfolio
VARIABLE INSURANCE PRODUCTS FUND III
(VIP III) - SERVICE CLASS 2
Fidelity - VIP III Growth Opportunities Portfolio
Fidelity - VIP III Mid Cap Portfolio
WRL SERIES FUND, INC.
WRL Alger Aggressive Growth
WRL Goldman Sachs Growth
WRL Janus Global
WRL NWQ Value Equity
WRL Pilgrim Baxter Mid Cap Growth
WRL Salomon All Cap
WRL T. Rowe Price Dividend Growth
WRL T. Rowe Price Small Cap
THE TARGET ACCOUNT
The Dow(SM) Target 10 (January Series)
The Dow(SM) Target 5 (January Series)
The Dow(SM) Target 10 (July Series)
The Dow(SM) Target 5 (July Series)
<PAGE>
TABLE OF CONTENTS Page
GLOSSARY OF TERMS ..........................................................
SUMMARY ....................................................................
ANNUITY POLICY FEE TABLE ...................................................
EXAMPLES ...................................................................
1. THE ANNUITY POLICY ....................................................
2. ANNUITY PAYMENTS
(THE INCOME PHASE) ....................................................
Annuity Payment Options ...............................................
3. PURCHASE ..............................................................
Policy Issue Requirements .............................................
Premium Payments ......................................................
Initial Premium Requirements ..........................................
Additional Premium Payments ...........................................
Maximum Total Premium Payments ........................................
Allocation of Premium Payments ........................................
Policy Value ..........................................................
4. INVESTMENT CHOICES ....................................................
The Separate Accounts .................................................
The Mutual Fund Account ...............................................
The Target Account ....................................................
The Fixed Account .....................................................
Transfers .............................................................
Family Income Protector ...............................................
Dollar Cost Averaging Program .........................................
Asset Rebalancing .....................................................
Telephone Transactions ................................................
5. EXPENSES ..............................................................
Surrender Charges .....................................................
Excess Interest Adjustment ............................................
Mortality and Expense Risk Fee ........................................
Administrative Charges ................................................
Distribution Financing Charge .........................................
Premium Taxes .........................................................
Federal, State and Local Taxes ........................................
Transfer Fee ..........................................................
Family Income Protector ...............................................
Portfolio Management Fees .............................................
Target Account Fees ...................................................
6. TAXES .................................................................
Annuity Policies in General ...........................................
Qualified and Nonqualified Policies ...................................
Withdrawals - Nonqualified Policies ...................................
Withdrawals - Qualified Policies ......................................
Withdrawals - 403(b) Policies .........................................
Tax Status of the Policy ..............................................
Taxation of Death Benefit Proceeds ....................................
Annuity Payments ......................................................
Transfers, Assignments or Exchanges of Policies .......................
Possible Tax Law Changes ..............................................
7. ACCESS TO YOUR MONEY ..................................................
Surrenders ............................................................
Delay of Payment and Transfers ........................................
Excess Interest Adjustment ............................................
Systematic Payout Option ..............................................
Nursing Care and Terminal Condition
Withdrawal Option ....................................................
Unemployement Waiver ..................................................
8. PERFORMANCE ...........................................................
The Mutual Fund Account ...............................................
The Target Account ....................................................
9. DEATH BENEFIT .........................................................
When We Pay A Death Benefit ...........................................
When We Do Not Pay A Death Benefit ....................................
Amount of Death Benefit ...............................................
Guaranteed Minimum Death Benefit ......................................
Adjusted Partial Withdrawal ...........................................
10. OTHER INFORMATION .....................................................
Ownership .............................................................
Assignment ............................................................
PFL Life Insurance Company ............................................
The Mutual Fund Account ...............................................
The Target Account ....................................................
Mixed and Shared Funding ..............................................
Reinstatements ........................................................
Voting Rights .........................................................
Distributor of the Policies ...........................................
Non-participating Policy ..............................................
Variations in Policy Provisions .......................................
IMSA ..................................................................
Legal Proceedings .....................................................
Financial Statements ..................................................
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION ...............
APPENDIX A
Condensed Financial Information
The Mutual Fund Account ................................................
Condensed Financial Information
The Target Account .....................................................
APPENDIX B
Historical Performance Data
The Mutual Fund Account ................................................
Historical Performance Data
The Target Strategies and the
Dow Jones Industrial Average(SM).......................................
APPENDIX C
Policy Variations ..........................................................
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<PAGE>
GLOSSARY OF TERMS
Accumulation Unit--An accounting unit of measure used in calculating the policy
value in the mutual fund account and the target account before the annuity
commencement date.
Annual Stock Selection Date--The last business day of a specified 12-month
period.
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 annual service charge, and less any applicable surrender
charge, premium taxes and family income protector rider fee.
DJIA--The Dow Jones Industrial Average(SM). Thirty stocks chosen by the editors
of The Wall Street Journal as representative of the broad market and of American
industry.
Excess Interest Adjustment--A positive or negative adjustment to amounts
withdrawn upon partial withdrawals, full surrenders, transfers, or to amounts
applied to annuity payment options, from the guaranteed period options. The
adjustment reflects changes in the interest rates declared by PFL since the date
any payment was received by, or an amount was transferred to, the guaranteed
period option. The excess interest adjustment can either decrease or increase
the amount to be received by the owner upon full surrender or commencement of
annuity payments, depending upon whether there has been an increase or decrease
in interest rates, respectively.
Fixed Account--One or more investment choices under the policy that are part of
the general assets of PFL and are not in the mutual fund account or the target
account.
Guaranteed Period Options--The various guaranteed interest rate periods of the
fixed account which PFL may offered and into which premium payments may be paid
or amounts transferred.
Initial Stock Selection Date--The date is June 30, 1998 for the July Series. The
date is December 31, 1998 for the January Series.
Monthly Anniversary-- The same date in each succeeding month as the policy date.
For purposes of the variable account, whenever the monthly anniversary falls on
a date other than the valuation date, the monthly anniversary will be deemed to
be the next valuation date.
Mutual Fund Account--PFL Endeavor VA Separate Account, 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.
Mutual Fund Subaccount--A subdivision within the mutual fund account, the assets
of which are invested in a specified portfolio of the underlying funds.
Owner--Depending upon the state of issue, owner means either:
. the individual or entity that owns a certificate under a group contract; or
. the individual or entity that owns an individual policy.
Policy--Depending upon the state of issue, policy means either:
. the individual certificate under a group contract; or
. the individual policy.
Policy Value--On or before the annuity commencement date, the policy value is
equal to the owner's:
. premium payments; minus
. partial withdrawals (including the net effect of any applicable excess
interest adjustments and/or surrender charges on such withdrawals); plus
. interest credited in the fixed account; plus
. accumulated gains or losses in the mutual fund account and the target
account; minus
. service charges, rider fees, premium taxes, and transfer fees, if any.
Policy Year--A policy year begins on the policy date and on each policy
anniversary.
Target Account--A separate account established and registered as a management
investment company under the 1940 Act to which premium payments under the
policies may be allocated.
Target Series Subaccount--A subdivision within the target account, the assets of
which are invested in common stocks selected according to a specified investment
strategy, with a specific stock selection date.
(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. Words printed in italics in this prospectus
are defined in the Glossary.
1. THE ANNUITY POLICY
The flexible premium variable annuity policy offered by PFL Life Insurance
Company (PFL, we, us or our) provides a way for you to invest on a tax-deferred
basis in the following investment choices: twenty-nine subaccounts of the mutual
fund account, four subaccounts of the target 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 thirty-three subaccounts in both the mutual fund account and
the target account that are listed in Section 4. Each mutual fund subaccount
invests exclusively in shares of one of the portfolios of the underlying funds.
Each target series subaccount invests directly in individual stocks according to
its specific investment strategy. 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. We reserve the
right to impose a $10 fee for each transfer in excess of 12 transfers per policy
year.
The policy, like all deferred annuity policies, has two phases: the
"accumulation phase" and the "income phase." During the accumulation phase,
earnings accumulate on a tax-deferred basis and are taxed as ordinary income
when you take them out of the policy. The income phase occurs when you begin
receiving regular payments from your policy. The money you can accumulate during
the accumulation phase will largely determine the income payments you receive
during the income phase.
2. ANNUITY PAYMENTS
(THE INCOME PHASE)
The policy allows you to receive income under one of five annuity payment
options. You may choose from fixed payment options, variable payment options, or
a combination of both. If you select a variable payment option, the dollar
amount of your payments may go up or down.
3. PURCHASE
You can buy a nonqualified policy with $5,000 or more, and a qualified policy
with $1,000 or more, under most circumstances. You can add as little as $50 at
any time during the accumulation phase.
4. INVESTMENT CHOICES
You can allocate your premium payments to one or more of the investment choices
listed below.
The following twenty-nine mutual fund portfolios are described in the underlying
fund prospectuses:
Merrill Lynch Basic Value Focus Fund
Merrill Lynch High Current Income Fund
Merrill Lynch Developing Capital Markets Focus Fund
Dreyfus Small Cap Value Portfolio
Dreyfus U.S. Government Securities Portfolio
Endeavor Asset Allocation Portfolio
Endeavor Money Market Portfolio
Endeavor Enhanced Index Portfolio
Endeavor High Yield Portfolio
Endeavor Janus Growth Portfolio
Endeavor Opportunity Value Portfolio
Endeavor Value Equity Portfolio
Endeavor Select 50 Portfolio
T. Rowe Price Equity Income Portfolio
T. Rowe Price Growth Stock Portfolio
T. Rowe Price International Stock Portfolio
Transamerica VIF Growth Portfolio
Fidelity - VIP Equity-Income Portfolio
Fidelity - VIP II Contrafund Portfolio
Fidelity - VIP III Growth Opportunities Portfolio
Fidelity - VIP III Mid Cap Portfolio
WRL Alger Aggressive Growth
WRL Goldman Sachs Growth
4
<PAGE>
WRL Janus Global
WRL NWQ Value Equity
WRL Pilgrim Baxter Mid Cap Growth
WRL Salomon All Cap
WRL T. Rowe Price Dividend Growth
WRL T. Rowe Price Small Cap
The following four target series subaccounts are described later in this
prospectus:
The Dow(SM) Target 10 (January Series)
The Dow(SM) Target 5 (January Series)
The Dow(SM) Target 10 (July Series)
The Dow(SM) Target 5 (July Series)
Depending upon their investment performance, you can make or lose money in any
of the mutual fund subaccounts or target series subaccounts.
You can also allocate your premium payments to the fixed account.
5. EXPENSES
No deductions are made from premium payments at the time you buy the policy so
that the full amount of each premium payment is invested in one or more of your
investment choices.
We may deduct a surrender charge of up to 7% of premium payments withdrawn
within seven years after the premium is paid. To calculate surrender charges, we
consider the premium you paid to come out before any earnings.
Full surrenders, partial withdrawals and transfers from a guaranteed period
option of the fixed account may also be subject to an excess interest
adjustment, which may increase or decrease the amount you receive. This
adjustment may also apply to amounts applied to an annuity payment option from a
guaranteed period option of the fixed account.
We deduct daily mortality and expense risk fees and administrative charges at an
annual rate of 1.40% (if you choose the "Return of Premium Death Benefit") or
1.55% (if you choose any other death benefit option) from the assets in each
mutual fund subaccount and target series subaccount.
During the accumulation phase, we deduct an annual service charge of no more
than $35 from the policy value on each policy anniversary and at the time of
surrender. The charge is waived if either the policy value or the sum of all
premium payments, minus all partial withdrawals, is at least $50,000.
We will deduct state premium taxes, which currently range from 0% to 3.50%, upon
total surrender, payment of a death benefit, or when annuity payments begin.
If you elect the "family income protector" rider, then there is an annual fee
during the accumulation phase of 0.30% of the minimum annuitization value. If
you annuitize under the rider, then there is a guaranteed payment fee at an
annual rate of 1.25% of the daily net asset value in the separate account.
The value of the net assets of the mutual fund subaccounts will reflect the
management fee and other expenses incurred by the underlying portfolios. Those
fees and expenses are detailed in the underlying funds' prospectuses that are
attached to this prospectus. The value of the net assets of the target series
subaccounts will reflect the management fee and other expenses incurred by the
manager in operating each target series subaccount.
6. TAXES
Your earnings, if any, are not taxed until you take them out. If you take money
out during the accumulation phase, earnings come out first for federal tax
purposes, and are taxed as ordinary income. If you are younger than 59/1//2 when
you take money out, you may be charged a 10% federal penalty tax on the
earnings. Payments during the income phase may be considered partly a return of
your original investment so that part of each payment would not be taxable as
income.
7. ACCESS TO YOUR MONEY
You can take out $500 or more anytime during the accumulation phase (except
under certain qualified policies). After one year, you may take out the greater
of:
. up to 10% of your premium; and
. any gains in the policy.
These amounts may be taken free of surrender charges once each policy year. The
gains in the policy are the amount equal to the policy value, minus the sum of
all premium payments, reduced by all prior partial withdrawals.
5
<PAGE>
If you have policy value in the fixed account, you may take the 10% free of
surrender charges and excess interest adjustments. Amounts withdrawn in the
first year, or in excess of the amount taken free of surrender charges described
above, may be subject to a surrender charge and/or excess interest adjustment.
You may also have to pay income tax and a tax penalty on any money you take out.
8. PERFORMANCE
The value of the policy will vary up or down depending upon the investment
performance of the mutual fund subaccounts or target series subaccounts you
choose. We provide performance information in Appendix B and in the SAI. This
data is not intended to indicate future performance.
9. DEATH BENEFIT
If you are both the owner and the annuitant and you die before the income phase
begins, then your beneficiary will receive a death benefit.
Naming different persons as owner and annuitant can affect whether the death
benefit is payable and to whom amounts will be paid. Use care when naming
owners, annuitants and beneficiaries, and consult your agent if you have
questions.
You generally may choose one of the following guaranteed minimum death benefits:
. 5% Annually Compounding
. Greater of 5% Annually Compounding through age 80 or Annual Step-Up through
age 80
. Monthly Step-Up through age 80
. Return of Premium
Charges are lower for the Return of Premium Death Benefit, than they are for the
other three.
These choices are restricted for annuitants and owners over age 74.
If the owner is not the annuitant, no death benefit is paid if the owner dies.
10. OTHER INFORMATION
Right to Cancel Period. You may return your policy for a refund. The amount of
time you have to return the policy will depend on the state where the policy was
issued. It is generally only 10 days. The amount of the refund will generally be
the policy value. 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. In some states you may have more than 10 days to return a policy, or
receive a refund of more (or less) than the policy value.
No Probate. Usually, when the annuitant dies, the person you choose as your
beneficiary will receive the death benefit under this policy without going
through probate. State laws vary on how the amount that may be paid is treated
for estate tax purposes.
Who should purchase the Policy? This policy is designed for people seeking long-
term tax-deferred accumulation of assets, generally for retirement or other
long-term purposes; and for persons who have maximized their use of other
retirement savings methods, such as 401(k) plans. The tax-deferred feature is
most attractive to people in high federal and state tax brackets. The tax
deferral features of variable annuities are unnecessary when purchased to fund a
qualified plan. You should not buy this policy if you are looking for a short-
term investment or if you cannot take the risk of losing the money that you put
in.
There are various fees and charges associated with variable annuities. You
should consider whether the features and benefits unique to variable annuities,
such as the opportunity for lifetime income payments, a guaranteed death benefit
and the guaranteed level of certain charges, are appropriate for your needs.
Financial Statements. Financial Statements for PFL and the mutual fund
subaccounts and target series subaccounts are in the SAI.
Additional Features. This policy has additional features that might interest
you. These include the following:
. You can arrange to have money automatically sent to you monthly, quarterly,
semi-annually or annually while your policy is in the accumulation phase.
This feature is referred to as the "systematic payout option." Amounts you
receive may be included in your gross income, and in certain circumstances,
may be subject to penalty taxes.
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. You can elect an optional rider that guarantees you a minimum annuitization
value. This feature is called the "family income protector." There is an
extra charge for this rider and the rider may vary by state.
. Under certain medically related circumstances, we will allow you to
surrender or partially withdraw your policy value without a surrender
charge and excess interest adjustment. This feature is called the "nursing
care and terminal condition withdrawal option."
. Under certain unemployment circumstances, you may withdraw all or a portion
of the policy value free of surrender charges and excess interest
adjustments. This feature is called the "unemployment waiver."
. You may make transfers and/or change the allocation of additional premium
payments by telephone.
. You can arrange to have a certain amount of money (at least $500)
automatically transferred from the fixed account, the Dreyfus U.S.
Government Securities Subaccount, or the Endeavor Money Market Subaccount,
either monthly or quarterly, into your choice of mutual fund subaccounts or
target series subaccounts. This feature is called "dollar cost averaging."
. We will, upon your request, automatically transfer amounts among the mutual
fund subaccounts or target series subaccounts on a regular basis to
maintain a desired allocation of the policy value among the various mutual
fund subaccounts or target series subaccounts. This feature is called
"asset rebalancing."
The dollar cost averaging and asset rebalancing features are inconsistent with
the target series subaccounts' investment strategy.
These features are not available in all states and may not be suitable for your
particular situation.
Inquiries
If you need more information, please contact us at:
Administrative and Service Office
Financial Markets Division
Variable Annuity Department
PFL Life Insurance Company
4333 Edgewood Road N.E.
P.O. Box 3183
Cedar Rapids, IA 52406-3183
7
<PAGE>
<TABLE>
<CAPTION>
===================================================================================================================================
ANNUITY POLICY FEE TABLE
===================================================================================================================================
Separate Account Annual Expenses
Policy Owner Transaction Expenses (as a percentage of average account value)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales Load On Purchase Payments............ 0 Mortality and Expense Risk Fee(4) ............ 1.40%
Maximum Surrender Charge Administrative Charge ........................ 0.15%
(as a % of Premium Payments Surrendered)(1)(2) 7%
Surrender Fees .................................... 0 TOTAL SEPARATE ACCOUNT
Annual Service Charge (1) ......................... $35 Per Policy ANNUAL EXPENSES ............................. 1.55%
Transfer Fee (1) .................. Currently No Fee
Family Income Protector (optional) (3)
Rider Fee.................................... 0.30%
===================================================================================================================================
<CAPTION> Portfolio Annual Expenses (5)
(as a percentage of average net assets and after expense reimbursements)
- -----------------------------------------------------------------------------------------------------------------------------------
Total Total
Rule Portfolio Account and
Management Other 12b-1 Annual Portfolio
Fees Expenses Fees (6) Expenses Expenses
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Merrill Lynch Basic Value Focus Fund (7)
Merrill Lynch High Current Income Fund (7)
Merrill Lynch Developing
Capital Markets Focus Fund (7)
Dreyfus Small Cap Value Portfolio (8)
Dreyfus U.S. Government Securities Portfolio (8)(9)
Endeavor Asset Allocation Portfolio (8)
Endeavor Money Market Portfolio (8)
Endeavor Enhanced Index Portfolio (8)
Endeavor High Yield Portfolio (8)(10)
Endeavor Janus Growth Portfolio(8)(11)
Endeavor Opportunity Value Portfolio (8)
Endeavor Value Equity Portfolio (8)
Endeavor Select 50 Portfolio (8)(112)
T. Rowe Price Equity Income Portfolio (8)
T. Rowe Price Growth Stock Portfolio (8)
T. Rowe Price International Stock Portfolio (8)(13)
Transamerica VIF Growth Portfolio (14)
Fidelity - VIP Equity-Income Portfolio
Fidelity - VIP II Contrafund
Fidelity - VIP III Growth Opportunities
Fidelity - VIP III Mid Cap
WRL Alger Aggressive Growth
WRL Goldman Sachs Growth (15)
WRL Janus Global (16)
WRL NWQ Value Equity
WRL Pilgrim Baxter Mid Cap Growth (15)
WRL Salomon All Cap (15)
WRL T. Rowe Price Dividend Growth (15)
WRL T. Rowe Price Small Cap
The Dow(SM) Target 10 (January) (17)(18)
The Dow(SM) Target 5 (January) (17)(18)
The Dow(SM) Target 10 (July)(17)(18)
The Dow(SM Target 5 (July)(17)(18)
===================================================================================================================================
</TABLE>
8
<PAGE>
(1) The surrender charge and transfer fee, if any are imposed, apply to each
policy, regardless of how policy value is allocated among the mutual fund
account, the target account and the fixed account. The service charge
applies to the fixed account, the mutual fund account, and the target
account, and is assessed on a pro rata basis relative to each account's
policy value as a percentage of the policy's total policy value. The
service charge is deducted on each policy anniversary and at the time of
surrender, if surrender occurs during a policy year. There is no fee for
the first 12 transfers per year. For additional transfers, PFL may charge a
fee of $10 per transfer, but currently does not charge for any transfers.
(2) The surrender charge is decreased based on the number of years since the
premium payment was made, from 7% in the year in which the premium payment
was made, to 0% in the eighth year after the premium payment was made. If
applicable a surrender charge will only be applied to withdrawals that
exceed the amount available under certain listed exceptions.
(3) The annual rider fee for the optional family income protector rider (only
deducted during the accumulation phase) is currently equal to 0.30% of the
minimum annuitization value on the previous policy anniversary; PFL may, at
its discretion, change the rate in the future, but the rate will never be
greater than 0.50% per year. The guaranteed payment fee is only charged if
you annuitize under the family income protector rider, and then only after
annuitization. This fee is reflected in the amount of the variable
payments. The guaranteed payment fee is currently equal to an effective
annual rate of 1.25% of the daily net asset value in the variable
investment options. PFL may, at its discretion, change the rate in the
future, but the rate will never be greater than 2.25% per year. Once the
family income protector rider is added to your policy, neither the rider
fee nor the guaranteed payment fee that is in effect at that time will
change during the life of that family income protector rider. They could
change if you upgrade.
(4) Mortality and expense risk fees shown (1.40%) are for the "5% Annually
Compounding Death Benefit," the "Greater of 5% Annually Compounding through
age 80 Death Benefit or Annual Step-Up through age 80 Death Benefit", and
the Monthly Step-Up through age 80 Death Benefit." This reflects a fee
that is 0.15% per year higher than the 1.25% corresponding fee for the
"Return of Premium Death Benefit."
(5) The fee table information relating to the underlying funds was provided
to PFL by the underlying funds, their investment advisers or managers, and
PFL has not independently verified such information. Actual future expenses
of the portfolios may be greater or less than those shown in the Table.
(6) The Board of Trustees of Endeavor Series Trust (the "Trust") and the Board
of Managers of the target account have authorized an arrangement whereby,
subject to best price and execution, executing brokers will share
commissions with the Trust's or the target account's affiliated broker.
Under supervision of the Trustees and the Managers, the affiliated broker
will use the "recaptured commissions" to promote marketing of the Trust's
shares and investments in the target account. The staff of the Securities
and Exchange Commission believes that, through the use of these recaptured
commissions, the Trust and the target account are indirectly paying for
distribution expenses and such amounts are shown as 12b-1 fees in the above
table. This use of recaptured commissions to promote the sale of the
Trust's shares and investments in the target account involves no additional
costs to the Trust, to the target account or any owner. Endeavor Series
Trust and the target account, based on advice of counsel, do 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. For more information on the target
account's Brokerage Enhancement Plan, see the target account's section of
this prospectus.
(7) These reflect expenses on Class A shares for the year ended December 31,
1998. Reimbursement agreements are in effect that limit operating expenses
exclusive of any distribution fees imposed on shares of Class B Common
Stock, paid by each portfolio of the Merrill Lynch Variable Series Funds,
Inc. in a given year to 1.25% of its average daily net assets. Any such
expenses in excess of 1.25% of the average daily net assets will be
reimbursed to the portfolio by MLAM, which in turn will be reimbursed by
Merrill Lynch Life Agency, Inc., an affiliate of MLAM. During 1998, MLAM
waived management fees and reimbursed expenses totaling 0.17% for the
Developing Capital Markets Focus Fund.
(8) Endeavor Management Co. has agreed, until further notice, to assume
expenses of the Portfolios that exceed the following rates: Dreyfus Small
Cap Value--1.30%; Dreyfus U.S. Government Securities--1.00%; Endeavor Asset
Allocation--1.25%; Endeavor Money Market--0.99%; Endeavor Enhanced Index--
1.30%; Endeavor High Yield--1.30%; Endeavor Opportunity Value--1.30%;
Endeavor Value Equity--1.30%; Endeavor Select 50--1.50%; T. Rowe Price
Equity Income-- 1.30%; T. Rowe Price Growth Stock--1.30%; and T. Rowe Price
International Stock--1.53%. Endeavor Management Co. has agreed to assume
the
9
<PAGE>
expenses of the Endeavor Janus Growth Portfolio that exceed 0.87% until
April 30, 2000. Expenses shown for the Endeavor Janus Growth Portfolio are
annualized for 1999.
(9) For the Dreyfus U.S. Government Securities Portfolio, the management fees
before waivers/reimbursements were 0.65% and other expenses after credits
allowed by the custodian were _____%. Therefore, Total Portfolio Annual
Expenses before waivers/reimbursements and after credits allowed by the
custodian for the period ended December 31, 1999 were _____%.
(10) For the Endeavor High Yield Portfolio, the management fees before
waivers/reimbursements were 0.775% and other expenses after credits allowed
by the custodian were _____%. Therefore, Total Portfolio Annual Expenses
before waivers/reimbursements and after credits allowed by the custodian
for the period ended December 31, 1999 were _____%.
(11) For the Endeavor Janus Growth Portfolio, the management fees before
waivers/reimbursements were _____% and other expenses after credits allowed
by the custodian were _____%. Therefore, Total Portfolio Annual Expenses
before waivers/reimbursements and after credits allowed by the custodian
for the period ended December 31, 1999 were _____% annualized.
(12) For the Endeavor Select 50 Portfolio, the management fees before
waivers/reimbursements were 1.10% and other expenses after credits allowed
by the custodian were _____%. Therefore, Total Portfolio Annual Expenses
before waivers/reimbursement and after credits allowed by the custodian for
the period ended December 31, 1990 were _____%.
(13) For the T. Rowe Price International Stock Portfolio, the management fees
before waivers/reimbursements were 0.90% and other expenses after credits
allowed by the custodian were ____%. Therefore, Total Portfolio Annual
Expenses before waivers/reimbursements and after credits allowed by the
custodian for the period ended December 31, 1999 were ____%.
(14) From time to time, the Transamerica VIF Growth Portfolio's investment
adviser, in its own discretion, may voluntarily waive all or part of its
fees and/or voluntarily assume certain portfolio expenses. The expenses
shown in the fee table are the expenses paid for 1999. The expenses shown
in that table reflect the portfolio's adviser's waivers of fees or
reimbursement of expenses, if applicable. It is anticipated that such
waivers or reimbursements will continue for calendar year 2000. Without
such waivers or reimbursements, the annual expenses for the portfolio would
have been as follows: Management Fee -_____%; Other Expenses - _____%; and
Total Portfolio Annual Expenses - _____%.
(15) Because WRL Goldman Sachs
Growth, WRL Pilgrim Baxter Mid Cap Growth , WRL Salomon All Cap, WRL T.
Rowe Price Dividend Growth, and WRL T. Rowe Price Small Cap commenced
operations on May 3, 1999, the percentages set forth as "Other Expenses"
and "Total Portfolio Annual Expenses" are estimates.
(16) For WRL Janus Global, the investment adviser will waive 0.025% of its
advisory fee one portfolio average daily net assets reach $2 billion (net
fee 0.775%). This waiver is voluntary and may be terminated at any time
upon 90 days written notice to the WRL Series Fund, Inc.
(17) For the target account, 0.15% of the administrative charge included under
"Total Separate Account Annual Expenses" in this table is deducted pursuant
to a 12b-1 plan.
(18) In addition to the management fees, the target account pays all expenses
not assumed by the manager. The manager has agreed to limit each target
series subaccount's management fee and operating expenses during its first
year of operations to an annual rate of 1.30% of the target series
subaccount's average net assets. (This limit does not include other fees
and deductions such as the mortality and expense risk fee and
administrative charge.) (See the SAI for more details.) Without this
limitation, the management fee and operating expenses for the July Series
were _____%. Without this limitation, the management fees and operating
expenses for the January Series were _____%.
10
<PAGE>
EXAMPLES
You would pay the following expenses on a $1,000 investment, assuming a
hypothetical 5% annual return on assets, assuming the entire policy value is in
the applicable mutual fund subaccount or target series subaccount, and assuming
the family income protector benefit has been selected:
The expenses reflect different mortality and expense risk fees depending on
which death benefit you select:
A = Return of Premium Death Benefit (1.25%)
B = 5% Annually Compounding Death Benefit, Greater of 5% Annually Compounding
through age 80 Death Benefit or Annual Step-Up through age 80 Death Benefit, or
Monthly Step-Up through age 80 Death Benefit (1.40%)
<TABLE>
<CAPTION>
=============================================================================================================================
If the Policy is annuitized at
If the Policy is surrendered the end of the applicable time period
at the end of the applicable or if the Policy is not surrendered
time period. or annuitized.
--------------------------------------------------------------------
Subaccounts 1 3 5 10 1 3 5 10
Year Years Years Years Year Years Years Years
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C>
Merrill Lynch Basic Value Focus A
------------------------------------------------------------------------
B
- -----------------------------------------------------------------------------------------------------------------------------
Merrill Lynch High Current Income A
------------------------------------------------------------------------
B
- -----------------------------------------------------------------------------------------------------------------------------
Merrill Lynch Developing Capital Markets Focus A
------------------------------------------------------------------------
B
- -----------------------------------------------------------------------------------------------------------------------------
Dreyfus Small Cap Value A
B
- -----------------------------------------------------------------------------------------------------------------------------
Dreyfus U.S. Government Securities A
B
- -----------------------------------------------------------------------------------------------------------------------------
Endeavor Asset Allocation A
B
- -----------------------------------------------------------------------------------------------------------------------------
Endeavor Money Market A
------------------------------------------------------------------------
B
- -----------------------------------------------------------------------------------------------------------------------------
Endeavor Enhanced Index A
------------------------------------------------------------------------
B
- -----------------------------------------------------------------------------------------------------------------------------
Endeavor High Yield A
------------------------------------------------------------------------
B
- -----------------------------------------------------------------------------------------------------------------------------
Endeavor Janus Growth A
------------------------------------------------------------------------
B
- -----------------------------------------------------------------------------------------------------------------------------
Endeavor Opportunity Value A
------------------------------------------------------------------------
B
- -----------------------------------------------------------------------------------------------------------------------------
Endeavor Value Equity A
------------------------------------------------------------------------
B
- -----------------------------------------------------------------------------------------------------------------------------
Endeavor Select 50 A
------------------------------------------------------------------------
B
- -----------------------------------------------------------------------------------------------------------------------------
T. Rowe Price Equity Income A
------------------------------------------------------------------------
B
- -----------------------------------------------------------------------------------------------------------------------------
T. Rowe Price Growth Stock A
------------------------------------------------------------------------
B
- -----------------------------------------------------------------------------------------------------------------------------
T. Rowe Price International Stock A
------------------------------------------------------------------------
B
Transamerica VIF Growth A
B
- -----------------------------------------------------------------------------------------------------------------------------
Fidelity - VIP Equity-Income A
------------------------------------------------------------------------
B
=============================================================================================================================
</TABLE>
11
<PAGE>
EXAMPLES continued........
<TABLE>
<CAPTION>
====================================================================================================================================
<S> <C>
Fidelity - VIP II Contrafund A
------------------------------------------------------------------------------
B
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity - VIP III Growth Opportunities A
------------------------------------------------------------------------------
B
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity - VIP III Mid Cap A
------------------------------------------------------------------------------
B
- ------------------------------------------------------------------------------------------------------------------------------------
WRL Alger Aggressive Growth A
------------------------------------------------------------------------------
B
- ------------------------------------------------------------------------------------------------------------------------------------
WRL Goldman Sachs Growth A
------------------------------------------------------------------------------
B
- ------------------------------------------------------------------------------------------------------------------------------------
WRL Janus Global A
------------------------------------------------------------------------------
B
- ------------------------------------------------------------------------------------------------------------------------------------
WRL NWQ Value Equity A
------------------------------------------------------------------------------
B
- ------------------------------------------------------------------------------------------------------------------------------------
WRL Pilgrim Baxter Mid Cap Growth A
------------------------------------------------------------------------------
B
- ------------------------------------------------------------------------------------------------------------------------------------
WRL Salomon All Cap A
------------------------------------------------------------------------------
B
- ------------------------------------------------------------------------------------------------------------------------------------
WRL T. Rowe Price Dividend Growth A
------------------------------------------------------------------------------
B
- ------------------------------------------------------------------------------------------------------------------------------------
WRL T. Rowe Price Small Cap A
------------------------------------------------------------------------------
B
- ------------------------------------------------------------------------------------------------------------------------------------
The DowSM Target 10 (January Series) A
------------------------------------------------------------------------------
B
- ------------------------------------------------------------------------------------------------------------------------------------
The DowSM Target 5 (January Series) A
------------------------------------------------------------------------------
B
- ------------------------------------------------------------------------------------------------------------------------------------
The DowSM Target 10 (July Series) A
------------------------------------------------------------------------------
B
- ------------------------------------------------------------------------------------------------------------------------------------
The DowSM Target 5 (July Series) A
------------------------------------------------------------------------------
B
====================================================================================================================================
</TABLE>
The above tables will assist you in understanding the costs and expenses that
you will bear, directly or indirectly. These include the 1999 expenses of the
underlying portfolios, except for Endeavor Janus Growth, WRL Goldman Sachs
Growth, WRL Pilgrim Baxter Mid Cap Growth, WRL Salomon All Cap, WRL T. Rowe
Price Dividend Growth, WRL T. Rowe Price Small Cap, and (whose expenses listed
above are annualized for the first full year of operations). In addition to the
expenses listed above, premium taxes may be applicable.
These 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.
In the examples, the $35 annual service charge is reflected as a charge of
________% based on average policy value of $___________.
These examples also reflect the annual fee of 0.30% for the family income
protector rider. Expenses would be lower if you do not elect that rider.
Financial Information. Condensed financial information for the mutual fund
subaccounts and target series subaccounts are in Appendix A to this prospectus.
12
<PAGE>
1. THE ANNUITY POLICY
This prospectus describes The Endeavor ML Variable Annuity policy offered by PFL
Life Insurance Company.
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 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 Endeavor ML Variable Annuity consists of either:
. a group annuity contract that we, PFL Life Insurance Company, issue to the
contract holder and an individual certificate that we issue to you; or
. an individual policy that we issue to you.
This prospectus describes your individual certificate or policy (both are
referred to as policy in this prospectus). 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. Your individual investment and
your rights are determined primarily by your own policy.
The policy is a "flexible premium" policy because after you purchase it, you can
generally make additional investments of any amount of $50 or more, until the
annuity commencement date. But you are not required to make any additional
investments.
The policy is a "variable" annuity because the value of your investments can go
up or down based on the performance of your investment choices. If you invest in
the mutual fund account or the target account, 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 mutual fund account or the target
account also depends upon the investment performance of your investment choices
for the income phase. However, if you annuitize under the family income
protector rider, then PFL will guarantee a minimum amount of your annuity
payments. There is an extra charge for this rider.
The policy also contains a fixed account. The fixed account offers interest at
rates that we guarantee will not decrease during the selected guaranteed period.
There may be different interest rates for each different guaranteed period that
you select.
2. ANNUITY PAYMENTS
(THE INCOME PHASE)
You choose the annuity commencement date. You can change this date by giving us
30 days written notice before the current annuity commencement date. The new
annuity commencement date must be at least 30 days after we receive notice of
the change. The latest annuity commencement date generally cannot be after the
policy month following the month in which the annuitant attains age 85 (in
certain cases, we may allow the date to be up to the last day of the 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 annuity
payments monthly, quarterly, semi-annually, or annually. (We reserve the right
to change the frequency if payments would be less than $50.)
13
<PAGE>
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 mutual
fund subaccount(s)0 and/or target series subaccount(s). The dollar amount of
each variable payment after the first may increase, decrease, or remain
constant. If the actual investment performance exactly matched the assumed
investment return of 5% at all times, the amount of each variable annuity
payment would remain equal. If actual investment performance exceeds the assumed
investment return, the amount of the variable annuity payments would increase.
Conversely, if actual investment performance is lower than the assumed
investment return, the amount of the variable annuity payments would decrease.
A charge for premium taxes and an excess interest adjustment may be made when
annuity payments begin.
The annuity payment options are explained below. Options 1, 2, and 4 are fixed
only. Options 3 and 5 can be fixed or variable.
Payment Option 1--Interest Payments. We will pay the interest on the amount we
use to provide annuity payments in equal payments, or this amount may be left to
accumulate for a period of time you and PFL agree to. You and PFL will agree on
withdrawal rights when you elect this option.
Payment Option 2--Income for a Specified Period. We will make level payments
only for the fixed period you choose. No funds will remain at the end.
Payment Option 3--Life Income. You may choose between:
Fixed Payments
. No Period Certain--We will make level payments only during the annuitant's
lifetime.
. 10 Years Certain--We will make level payments for the longer of the
annuitant's lifetime or ten years.
. Guaranteed Return of Policy Proceeds--We will make level payments for the
longer of the annuitant's lifetime or until the total dollar amount of
payments we made to you equals the amount applied to this option.
Variable Payments
. No Period Certain--Payments will be made only during the lifetime of the
annuitant.
. 10 Years Certain--Payments will be made for the longer of the annuitant's
lifetime or ten years.
Payment Option 4--Income of a Specified Amount. Payments are made for any
specified amount until the amount applied to this option, with interest, is
exhausted. This will be a series of level payments followed by a smaller final
payment.
Payment Option 5--Joint and Survivor Annuity. You may choose between:
Fixed Payments
. Payments are made during the joint lifetime of the payee and a joint payee
of your selection. Payments will be made as long as either person is
living.
Variable Payments
. Payments are made as long as either the payee or the joint payee is living.
Other annuity payment options may be arranged by agreement with PFL. Certain
annuity payment options may not be available in all states.
Family Income Protector
The optional "family income protector" rider assures you of a minimum level of
income in the future by guaranteeing a minimum annuitization value (discussed
below) after 10 years. You may elect to purchase this benefit, which guarantees
the total amount you will have to apply to a family income protector payment
option and which guarantees the amounts of those payments once you begin to
receive them. By electing this benefit, you can participate in the gains of the
underlying variable investment options you select while knowing that you are
guaranteed a minimum level of income in the future, regardless of the
performance of the underlying variable investment options.
You can annuitize under the family income protector (subject to the conditions
described below) at the greater of the adjusted policy value or the minimum
annuitization value.
Minimum Annuitization Value. The minimum annuitization value is:
. the policy value on the date the rider is issued; plus
. any additional premium payments; minus
14
<PAGE>
. an adjustment for any withdrawals made after the date the rider is issued;
. accumulated at the annual growth rate written on page one of the rider;
minus
. any premium taxes.
The annual growth rate is currently 6% per year. PFL may, at its discretion,
change the rate in the future, but the rate will never be less than 3% per year.
Once the rider is added to your policy, the annual growth rate will not vary
during the life of that rider. Withdrawals may reduce the minimum annuitization
value on a basis greater than dollar-for-dollar. See the SAI for more
information.
The minimum annuitization value may only be used to annuitize using the family
income protector payment options and may not be used with any of the annuity
payment options listed in Section 2 of this prospectus. The family income
protector payment options are:
. Life Income--An election may be made for "No Period Certain" or "10 Years
Certain". In the event of the death of the annuitant prior to the end of
the chosen period certain, the remaining period certain payments will be
continued to the beneficiary.
. Joint and Full Survivor--An election may be made for "No Period Certain" or
"10 Years Certain". Payments will be made as long as either the annuitant
or joint annuitant is living. In the event of the death of both the
annuitant and joint annuitant prior to the end of the chosen period
certain, the remaining period certain payments will be continued to the
beneficiary.
The minimum annuitization value is used to calculate the family income protector
payment and does not establish or guarantee a policy value or guarantee
performance of any investment option.
In addition to the annual growth rate, other benefits and fees under the rider
(the rider fee, the fee waiver threshold, the guaranteed payment fee, and the
waiting period before the family income protector can be exercised) are also
guaranteed not to change after the rider is added. However, all of these benefit
specifications may change if you select to upgrade the minimum annuitization
value.
Minimum Annuitization Value Upgrade. You can upgrade your minimum annuitization
value to the policy value within 30 days after any policy anniversary before
your 85/th/ birthday (earlier if required by state law). For your convenience,
we will put the last date to upgrade on page one of the rider.
If you upgrade:
. the current rider will terminate and a new one will be issued with its own
specified guaranteed benefits and fees;
. the new rider's specified benefits and fees may not be as advantageous as
before; and
. you will have a new ten year waiting period before you can exercise the
family income protector.
It generally will not be to your advantage to upgrade unless your policy value
exceeds your minimum annuitization value on the applicable policy
anniversary.
Conditions of Exercise of the Family Income Protector. You can only annuitize
using the family income protector within the 30 days after the tenth or later
policy anniversary after the family income protector is elected or, in the case
of an upgrade of the minimum annuitization value, the tenth or later policy
anniversary following the upgrade; PFL may, at its discretion, change the
waiting period before the family income protector can be exercised in the
future. You cannot, however, annuitize using the family income protector after
the policy anniversary after your 94th birthday (earlier if required by state
law). For your convenience, we will put the first and last date to annuitize
using the family income protector on page one of the rider.
Note Carefully--If you annuitize at any time other than indicated above, you
cannot use the family income protector.
Guaranteed Minimum Stabilized Payments. Annuity payments under the family income
protector are guaranteed to never be less than the initial payment. See the SAI
for information concerning the calculation of the initial payment. The payments
will also be "stabilized" or held constant during each policy year.
During the first policy year after annuitizing using the family income
protector, each stabilized payment will equal the initial payment. On each
policy anniversary thereafter, the stabilized payment will increase or decrease
depending on the performance of the investment options you selected, and then be
held constant at that amount for that policy year. The stabilized payment on
each policy anniversary will equal the greater of the initial payment or the
payment supportable by the annuity units in the selected investment
15
<PAGE>
options. See the SAI for additional information concerning stabilized
payments.
Family Income Protector Rider Fee. A rider fee, currently 0.30% of the minimum
annuitization value on the previous policy anniversary, is charged annually
prior to annuitization. We will also charge this fee if you take a complete
withdrawal. PFL may change the rider fee percentage in the future, but it will
never be greater than 0.50%. The rider fee is deducted from each variable
investment option in proportion to the amount of policy value in each mutual
fund subaccount and target series subaccount.
The rider fee on any given policy anniversary will be waived if the policy value
exceeds the fee waiver threshold. The fee waiver threshold currently is two
times the minimum annuitization value. PFL may, at its discretion, change the
fee waiver threshold in the future, but it will never be greater than two and
one-half times the minimum annuitization value.
Guaranteed Payment Fee. A guaranteed payment fee, currently equal to an
effective annual rate of 1.25% of the daily net asset value in the mutual fund
account and/or the target account, is reflected in the amount of the variable
payments you receive if you annuitize under the family income protector rider.
PFL may change the guaranteed payment fee in the future, but it will never be
greater than 2.25%. The guaranteed payment fee is included on page one of the
rider.
Termination. The family income protector is irrevocable. You have the option not
to use the benefit but you will not receive a refund of any fees you have paid.
The family income protector will terminate upon the earliest of the
following:
. annuitization (you will still get guaranteed minimum stabilized payments if
you annuitize using the minimum annuitization value under the family income
protector),
. upgrade of the minimum annuitization value (although a new rider will be
issued),
. termination of your policy, or
. days after the policy anniversary after your 94th birthday (earlier if
required by state law).
The family income protector does not establish or guarantee policy value or
guarantee performance of any investment option. Because this benefit is based
on conservative actuarial factors, the level of lifetime income that it
guarantees may be less than the level that would be provided by application of
the policy value at otherwise applicable annuity factors. Therefore, the family
income protector should be regarded as a safety net. The costs of annuitizing
under the family income protector include the guaranteed payment fee, and also
the lower payout levels inherent in the annuity tables used for those minimum
payouts. These costs should be balanced against the benefits of a minimum
payout level.
The family income protector may not be available in all states.
NOTE CAREFULLY:
IF:
. you choose Life Income with No Period Certain or a Joint and Survivor
Annuity; and
. the annuitant(s) dies before the due date of the second annuity
payment;
THEN:
. we may make only one annuity payment.
IF:
. you choose Income for a Specified Period, Life Income with 10 years
Certain, Life Income with Guaranteed Return of Policy Proceeds, or Income
of a Specified Amount; and
. the person receiving payments dies prior to the end of the guaranteed
period;
THEN:
. the remaining guaranteed payments will be continued to that person's
beneficiary, or their present value may be paid in a single sum.
We will not pay interest on amounts represented by uncashed annuity payment
checks if the postal or other delivery service is unable to deliver checks to
the payee's address of record. The person receiving payments is responsible to
keep PFL informed of their current address.
3. 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
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. You (annuitant and any joint owner) are age 84 or younger.
Premium Payments
You should make checks for premium payments payable only to PFL Life Insurance
Company and send them to the administrative and service office. Your check must
be honored in order for PFL to pay any associated payments and benefits due
under the policy.
Initial Premium Requirements
The initial premium payment for nonqualified policies must be at least $5,000,
and at least $1,000 for qualified policies. There is no minimum initial premium
payment for policies issued under section 403(b) of the Internal Revenue Code;
however, your premium must be received within 90 days of the policy date or your
policy will be canceled. We will credit your initial premium payment to your
policy within two business days after the day we receive it and your complete
policy information. If we are unable to credit your initial premium payment, we
will contact you within five business days and explain why. We will also return
your initial premium payment at that time unless you tell us to keep it and
credit it as soon as possible.
The date on which we credit your initial premium payment to your policy is the
policy date. The policy date is used to determine policy years, policy months
and policy anniversaries.
Additional Premium Payments
You are not required to make any additional premium payments. However, you can
make additional premium payments as often as you like during the lifetime of the
annuitant and during the accumulation phase. Additional premium payments must be
at least $50. We will credit additional premium payments to your policy as of
the business day we receive your premium and required information. Additional
premium payments must be received before the New York Stock Exchange closes to
get same-day pricing of the additional premium payment.
Maximum Total Premium Payments
We allow premium payments up to a total of $1,000,000 without prior
approval.
Allocation of Premium Payments
When you purchase a policy, we will allocate your premium payment to the
investment choices you select. Your allocation must be in whole percentages and
must total 100%. We will allocate additional premium payments the same way,
unless you request a different allocation.
If you allocate premium payments to the dollar cost averaging fixed account, you
must give us directions regarding the mutual fund subaccount(s) and/or target
series subaccount(s) to which transfers are to be made or we cannot accept your
premium payment.
You may change allocations for future additional premium payments by sending us
written instructions or by telephone, subject to the limitations described 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 at 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.
4. INVESTMENT CHOICES
The Separate Accounts
There are currently thirty-three variable subaccounts available under the
policies. There are twenty-nine subaccounts of the mutual fund account (which is
a portion of the PFL Endeavor VA Separate Account) and four subaccounts of the
target account (the PFL Endeavor Target Account).
The Mutual Fund Account
The mutual fund subaccounts invest in shares of the various underlying fund
portfolios. The companies that provide investment advice and administrative
services for the underlying fund portfolios offered through this policy are
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listed below. The following mutual fund investment choices are currently offered
through this policy:
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.
Managed by Merrill Lynch Asset Management, L.P.
Merrill Lynch Basic Value Focus Fund
Merrill Lynch High Current Income Fund
Merrill Lynch Developing Capital Markets Focus Fund
ENDEAVOR SERIES TRUST
Subadvised by The Dreyfus Corporation
Dreyfus Small Cap Value Portfolio
Dreyfus U.S. Government Securities Portfolio
Subadvised by Morgan Stanley Asset Management Inc.
Endeavor Asset Allocation Portfolio
Endeavor Money Market Portfolio
Subadvised by J.P. Morgan Investment Management Inc.
Endeavor Enhanced Index Portfolio
Subadvised by Massachusetts Financial Services Company
Endeavor High Yield Portfolio
Subadvised by Janus Capital Corporation
Endeavor Janus Growth Portfolio
Subadvised by OpCap Advisors
Endeavor Opportunity Value
Endeavor Value Equity Portfolio
Subadvised by Montgomery Asset Management, LLC
Endeavor Select 50 Portfolio
Subadvised by T. Rowe Price Associates, Inc.
T. Rowe Price Equity Income Portfolio
T. Rowe Price Growth Stock Portfolio
Subadvised by Rowe Price-Fleming International, Inc.
T. Rowe Price International Stock Portfolio
TRANSAMERICA VARIABLE INSURANCE FUND, INC.
Subadvised by Transamerica Investment Services, Inc.
Transamerica VIF Growth Portfolio
VARIABLE INSURANCE PRODUCTS FUND -
SERVICE CLASS 2
Managed by Fidelity Management & Research Company
Fidelity - VIP Equity-Income Portfolio
VARIABLE INSURANCE PRODUCTS FUND II -
SERVICE CLASS 2
Managed by Fidelity Management & Research Company
Fidelity - VIP II Contrafund
VARIABLE INSURANCE PRODUCTS FUND III -
SERVICE CLASS 2
Managed by Fidelity Management & Research Company
Fidelity - VIP III Growth Opportunities Portfolio
Fidelity - VIP III Mid Cap Portfolio
WRL SERIES FUND, INC.
Subadvised by Fred Alger Management, Inc.
WRL Alger Aggressive Growth
Subadvised by Goldman Sachs Asset Management
WRL Goldman Sachs Growth
Subadvised by Janus Capital Corporation
WRL Janus Global
Subadvised by NWQ Investment Management
Company, Inc.
WRL NWQ Value Equity
Subadvised by Pilgrim Baxter & Associates, Ltd.
WRL Pilgrim Baxter Mid Cap Growth
Subadvised by Salomon Brothers Asset Management Inc.
WRL Salomon All Cap
Subadvised by T. Rowe Price Associates, Inc.
WRL T. Rowe Price Dividend Growth
WRL T. Rowe Price Small Cap
The general public may not purchase shares of 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 that the investment results of the
underlying fund portfolios to be the same as those of other portfolios or mutual
funds.
More detailed information, including an explanation of the portfolio's
investment objectives, may be found in the current prospectus for the underlying
funds, which are attached to this prospectus. You should read the prospectuses
for 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 based on the amount of assets that PFL or the mutual fund account invests
in the underlying fund portfolios.
We do not guarantee that any of the mutual fund subaccounts will always be
available for premium payments, allocations, or transfers. See the SAI for
more information concerning the possible addition, deletion or
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substitution of investments.
The Target Account
This section gives information on the target account, including the management
and investment strategies, and policies. The following target account investment
choices are currently offered through this policy:
THE TARGET ACCOUNT
Subadvised by First Trust Advisors L.P.
The Dow(SM) Target 10 (January Series)
The Dow(SM) Target 5 (January Series)
The Dow(SM) Target 10 (July Series)
The Dow(SM) Target 5 (July Series)
General. The target account is a managed separate account and is currently
divided into four target series subaccounts. Each Series is a separate
subaccount, so there are currently two Target 10 subaccounts (January and July
Series) and two Target 5 subaccounts (January and July Series). Additional
target series subaccounts may be established in the future at the discretion of
PFL. Each target series subaccount invests according to specific investment
strategies.
Under Iowa law, the assets of the target account are owned by PFL, but they are
held separately from the other assets of PFL. To the extent that these assets
are attributable policy value of the policies, these assets are not chargeable
with liabilities incurred in any other business operation of PFL. Income, gains,
and losses incurred on the assets in a target series subaccount of the target
account, whether or not realized, are credited to or charged against that target
series subaccount without regard to other income, gains or losses of any other
account or subaccount of PFL. Each target series subaccount operates as a
separate investment fund. Therefore, the investment performance of any target
series subaccount should be entirely independent of the investment performance
of PFL's general account assets or any other account or subaccount maintained by
PFL.
Management of the Target Account. The investments and administration of each
managed target series subaccount are under the direction of a Board of Managers.
The Board of Managers for each target series subaccount annually selects an
independent public accountant, reviews the terms of the management and
investment advisory agreements, recommends any changes in the fundamental
investment policies, and takes any other actions necessary in connection with
the operation and management of the target series subaccounts.
Endeavor Management Co., an investment adviser registered with the SEC under the
Investment Advisers Act of 1940, and an affiliate of PFL, is the target
account's manager. The manager performs administerial and managerial functions
for the target account. First Trust Advisors L.P., an Illinois limited
partnership formed in 1991, and an investment adviser registered with the SEC
under the Investment Advisers Act of 1940, is the target account's investment
adviser. The Adviser is responsible for selecting the investments of each target
series subaccount consistent with the investment objectives and policies of that
target series subaccount, and will conduct securities trading for the target
series subaccount. The manager has the ultimate responsibility to oversee the
adviser and recommend its hiring, termination and replacement.
In response to an exemptive application filed by the manager, the SEC has issued
an exemptive order that will permit the manager, subject to certain conditions,
and without the approval of owners who have an interest in a target series
subaccount to: (a) employ a new unaffiliated investment adviser for a target
series subaccount pursuant to the terms of a new investment advisory agreement,
in each case either as a replacement for an existing investment adviser or as an
additional investment adviser; (b) change the terms of any investment advisory
agreement; and (c) continue the employment of an existing investment adviser on
the same advisory contract terms where a contract has been assigned because of a
change in control of the investment adviser. In such circumstances, owners who
have an interest in a target series subaccount would receive notice of such
action, including the information concerning the investment adviser that
normally is provided in a proxy statement. The exemptive order also permits
disclosure of fees paid to multiple unaffiliated investment advisers on an
aggregate basis only.
Portfolio Manager. There is no one individual primarily responsible for
portfolio management decisions for the target account. Investments are made
according to the prescribed strategy under the direction of a committee.
Investment Strategy. Each of The Dow(SM) Target 10 Subaccounts will invest in
the common stock of the ten companies in the DJIA that have the highest dividend
yield
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as of a specified business day and hold those stocks for the following 12-month
period.
Each of The Dow(SM) Target 5 Subaccounts will invest in the common stock of the
five companies with the lowest per share stock price of the ten companies in the
DJIA that have the highest dividend yield as of a specified business day and
hold those stocks for the following 12-month period.
The objective of each target series subaccount is to provide an above-average
total return through a combination of dividend income and capital appreciation.
Each target series subaccount will function in a similar manner. Each target
series subaccount will initially invest in substantially equal amounts in the
common stock of the companies described above for each target series subaccount
(as held in a target series subaccount, such common stock is referred to as the
common shares) determined as of the initial stock selection date.
Each target series subaccount may have different investment series running
simultaneously for different 12-month periods. For example, within The Dow(SM)
Target 10 Subaccount there may be more than one series, each with a different
initial stock selection date. At the initial stock selection date, a percentage
relationship among the number of common shares in a series will be established.
When additional funds are deposited into the series, additional common shares
will be purchased in such numbers reflecting as nearly as practicable the
percentage relationship of the number of common shares established at the
initial purchase. Sales of common shares by the series will likewise attempt to
replicate the percentage relationship of common shares. The percentage
relationship among the number of common shares in the series should therefore
remain stable. However, given the fact that the market price of such common
shares will vary throughout the year, the value of the common shares of each of
the companies as compared to the total assets of the series will fluctuate
during the year, above and below the proportion established on a stock
selection.
As of the annual stock selection date, a new percentage relationship will be
established among the number of common shares described below for each series on
such date. Common shares may be sold or new equity securities bought so that the
series is equally invested in the common stock of each company meeting the
series' investment criteria. Thus the series may or may not hold equity
securities of the same companies as the previous year. Any purchase or sale of
additional common shares during the year will duplicate, as nearly as
practicable, the percentage relationship among the number of common shares as of
the annual stock selection date since the relationship among the value of the
common shares on the date of any subsequent transactions may be different than
the original relationship among their value. The adviser may depart from the
specified strategy to meet tax diversification requirements. (See Section 6,
"TAXES--Diversification and Distribution Requirements").
There are currently four target series subaccounts. There are two "The Dow(SM)
Target 10 Subaccounts," which contain a January Series (a December 31, 1998
initial stock selection date) and a July Series (a June 30, 1998 initial stock
selection date). Similarly, there are two "The Dow(SM) Target 5 Subaccounts,"
which contain a January Series (December 31, 1998 initial stock selection date)
and a July Series (June 30, 1998 initial stock selection date).
The target account may determine to offer additional target series subaccounts
in the future, which may have different selection criteria or stock selection
dates (or both).
The Dow(SM) Target 10 Subaccounts and The Dow(SM) Target 5 Subaccounts have not
been designed so that their prices will parallel or correlate with movements in
the DJIA. It is expected that their prices will not do so.
An investment in a target series subaccount is an investment in a portfolio of
equity securities with high dividend yields in one convenient purchase.
Investing in the stocks of the DJIA with the highest dividend yields amounts to
a contrarian strategy because these shares are often out of favor. Such strategy
may be effective in achieving a target series subaccount's investment objectives
because regular dividends are common for established companies and dividends
have accounted for a substantial portion of the total return on stocks of the
DJIA as a group. However, there is no guarantee that either a target series
subaccount's objective will be achieved or that a target series subaccount will
provide for capital appreciation in excess of such target series subaccount's
expenses.
Each target series subaccount may also invest in futures and options, hold
warrants, and lend its common shares.
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The Dow Jones Industrial Average(SM). The DJIA consists of 30 stocks. The stocks
are chosen by the editors of The Wall Street Journal as representative of the
broad market and of American industry. The companies are major factors in their
industries and their stocks are widely held by individuals and institutional
investors. Changes in the components of the DJIA are made entirely by the
editors of The Wall Street Journal without consultation with the companies, the
New York Stock Exchange or any official agency. For the sake of continuity,
changes are made rarely. Most substitutions have been the result of mergers, but
from time to time, changes may be made. The components of the DJIA may be
changed at any time, for any reason. Any changes in the components of the DJIA
made after the initial stock selection date of any series will not cause a
change in the identity of the common shares included in that series, including
any equity securities deposited in that series, except on an annual stock
selection date. The following is a list of the companies that currently comprise
the DJIA as of _________________. [UPDATE]
AT&T Corporation
Allied Signal
Aluminum Company of America
American Express Company
Boeing Company
Caterpillar Inc.
Chevron Corporation
Coca Cola Company
Walt Disney Company
International Business Machines Corporation
International Paper Company
Johnson & Johnson
McDonald's Corporation
Merck & Company, Inc.
Minnesota Mining & Manufacturing Company
E.I. du Pont de Nemours & Company
Eastman Kodak Company
Exxon Corporation
General Electric Company
General Motors Corporation
Goodyear Tire & Rubber Company
Hewlett Packard Company
J.P. Morgan & Company, Inc.
Philip Morris Companies, Inc.
Procter & Gamble Company
Sears, Roebuck & Company
Travelers Group
Union Carbide Corporation
United Technologies Corporation
Wal Mart Stores Inc.
The target account is not sponsored, endorsed, sold or promoted by Dow Jones.
Dow Jones makes no representation or warranty, express or implied, to the owners
of the target account or any member of the public regarding the advisability of
purchasing the target account. Dow Jones' only relationship to First Trust
Advisors, Endeavor and PFL is the licensing of certain copyrights, trademarks,
service marks and service names of Dow Jones. Dow Jones has no obligation to
take the needs of First Trust Advisors, Endeavor, PFL or the owners of the
target account into consideration in determining, composing or calculating the
Dow Jones Industrial Average(SM). Dow Jones is not responsible for and has not
participated in the determination of the terms and conditions of the target
account to be issued, including the pricing or the amount payable under the
policy. Dow Jones has no obligation or liability in connection with the
administration or marketing of the target account.
Dow Jones does not guarantee the accuracy and/or the completeness of the Dow
Jones Industrial Average(SM) or any data included therein and Dow Jones shall
have no liability for any errors, omission, or interruptions therein. Dow Jones
makes no warranty, express or implied, as to results to be obtained by First
Trust Advisors, Endeavor, PFL, owners of the target account or any other person
or entity from the use of the Dow Jones Industrial Average(SM) or any data
included therein. Dow Jones makes no express or implied warranties, and
expressly disclaims all warranties of merchantability or fitness for a
particular purpose or use with respect to the Dow Jones Industrial Average(SM)
or any data included therein. Without limiting any of the foregoing, in no event
shall Dow Jones have any liability for any lost profits or indirect, punitive,
special or consequential damages (including lost profits), even if notified of
the possibility of such damages.
Investment Risks. There is no assurance that any target series subaccount will
achieve its stated objective. More detailed information, including a description
of each target series subaccount's investment objective and policies and a
description of risks involved in investing in each of the target series
subaccounts and of each target series subaccount's fees and expenses is
contained in the SAI. You should read the SAI carefully before investing in a
target series subaccount.
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Each subaccount consists of different issues of equity securities, all of which
are listed on a securities exchange. In addition, each of the companies whose
equity securities are included in a subaccount are actively traded, well-
established corporations.
Common shares may be sold under certain circumstances. Common shares, however,
will not be sold by a target series subaccount to take advantage of market
fluctuations or changes in anticipated rates of appreciation or depreciation, or
if the common shares no longer meet the criteria by which they were selected.
However, common shares will be sold on or about each annual stock selection date
in accordance with the adviser's stock selection strategy.
Even though the common shares are listed on a securities exchange, the principal
trading market for the common shares may be in the over-the-counter market. As a
result, the existence of a liquid trading market for the common shares may
depend on whether dealers will make a market in the common shares. There can be
no guarantee that a market will be made for any of the common shares, that any
market for the common shares will be maintained or that there will be sufficient
liquidity of the common shares in any markets made. The price at which the
common shares may be sold to meet transfers, partial withdrawals or surrenders
and the value of a target series subaccount will be adversely affected if
trading markets for the common shares are limited or absent.
Investors should consider the following before making a decision to invest in a
target series subaccount:
. The value of the common shares will fluctuate over the life of a target
series subaccount and may be more or less than the price at which they were
purchased by such target series subaccount.
. The common shares may appreciate or depreciate in value (or pay dividends)
depending on the full range of economic and market influences affecting
these securities, including the impact of the target series subaccounts'
purchase and sale of the common shares and other factors.
. Transfers between the target account investment portfolios during the
12-month period from stock selection date to stock selection date run
counter to the investment strategy of the target account investment
portfolios, namely holding the applicable stocks for a 12-month period, and
may adversely impact your investment performance. Similarly, using dollar
cost averaging and asset rebalancing for the target account investment
portfolios also runs counter to their investment strategies.
. The investment policies of each target subaccount are narrow and
innovative, and the Internal Revenue Service has not addressed them. If you
are deemed to have investment control of the assets in a target subaccount,
then you could be treated as the owner of those assets. If so, income and
gains from the subaccount's assets would be includable (pro rata) in your
taxable income each year.
You should understand the risks of investing in common stocks before making an
investment in a target series subaccount. In general, the value of your
investment will fall if the financial condition of the issuers of the common
stocks becomes impaired or if the general condition of the relevant stock market
worsens. Common stocks are especially susceptible to general stock market
movements and to volatile increases and decreases of value, as market confidence
in and perceptions of the issuers change. These perceptions are based on
unpredictable factors including:
. expectations regarding government;
. economic, monetary and fiscal policies;
. inflation and interest rates;
. economic expansion or contraction; and
. global or regional political, economic or banking crises.
At times, due to the objective nature of the investment selection criteria,
target series subaccounts may be considered concentrated in various industries.
PFL cannot predict the direction or scope of any of these factors. Generally,
common stocks do not receive payments until all obligations of the issuer have
been paid. Unlike debt securities, common stocks do not offer any assurance of
income or provide guaranteed protection of capital.
An investment in The Dow(SM) Target 5 Subaccount may subject you to greater
market risk than other target series subaccounts that contain a more diversified
portfolio of securities since it only contains five stocks.
No target series subaccount is actively managed and common shares will not be
sold to take advantage of market fluctuations or changes in anticipated rates of
appreciation.
Please note that each strategy has previously under-performed the DJIA.
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Neither PFL nor the manager shall be liable in any way for any default, failure
or defect in any common share.
The target account is also available as an investment option in other types of
variable annuity policies sold by PFL. Those other policies may have different
features and different charges than The Endeavor Variable Annuity described in
this prospectus, and therefor are accounted for through a different class of
accumulation or annuity units. PFL does not believe there are any disadvantages
to this arrangement; rather, it leads to larger pools of assets which can result
in economies of scale.
Legislation. Legislation may be enacted at any time that could negatively affect
the common shares in the target series subaccounts or the issuers of the common
shares. Changing approaches to regulation, particularly with respect to the
environment or with respect to the petroleum industry, may have a negative
impact on certain companies represented in the target series subaccounts. There
can be no assurance that future legislation, regulation or deregulation will not
have a material adverse effect on the target series subaccounts or will not
impair the ability of the issuers of the common shares to achieve their business
goals.
Portfolio Turnover. It is anticipated that each target series subaccount's
annual rate of portfolio turnover normally will not exceed 100%. Portfolio
turnover for each target series subaccount will vary from year to year, and
depending on market conditions, the portfolio turnover rate could be greater in
periods of unusual market movement. A higher turnover rate would result in
heavier brokerage commissions or other transactional expenses which must be
borne, directly or indirectly by each target series subaccount, and ultimately
by you.
Brokerage Enhancement Plan. The target account has adopted, but is not
currently participating in, a Brokerage Enhancement Plan (the "Plan") for each
of its subaccounts in accordance with the substantive provisions of Rule 12b-1
under the 1940 Act. The Plan uses available brokerage commissions to promote
the sale and distribution of interests in the subaccount's shares. Under the
Plan, the target account may use recaptured commissions to pay for distribution
expenses. Except for recaptured commissions (unlike asset based charges imposed
by many mutual funds for sales expenses) the subaccounts do not incur any asset
based or additional fees or charges under the Plan.
Under the Plan, the manager is authorized to direct investment advisers to use
certain broker/dealers for securities transactions. (The duty of best price and
execution still applies to these transactions.) These broker/dealers have
agreed to give a percentage of their commission from the sale and purchase of
securities to Transamerica Capital, Inc, the target account's distributor and
an affiliate of PFL.
Transamerica Capital, Inc. will not make any profit from participating in the
Plan. It is obligated to use any money given to it under the Plan for
distribution expenses (other than a minimal amount to defray its legal and
administrative costs). The rest will be spent on activities that are meant to
result in the sale of the policies, including:
. holding or participating in seminars and sales meetings promoting the
subaccounts;
. paying marketing fees requested by broker/dealers who sell policies;
. training sales personnel;
. compensating broker/dealers and/or registered representatives in connection
with the allocation of cash values and premiums to the target account;
. printing and mailing prospectuses, statements of additional information and
reports to prospective owners; and
. creating and mailing advertising and sales literature.
The Fixed Account
Premium payments allocated and amounts transferred to the fixed account become
part of PFL's general account. Interests in the general account have not been
registered under the Securities Act of 1933 (the "1933 Act"), nor is the general
account registered as an investment company under the 1940 Act. Accordingly,
neither the general account nor any interests therein are generally subject to
the provisions of the 1933 or 1940 Acts. PFL has been advised that the staff of
the SEC has not reviewed the disclosures in this prospectus which relate to the
fixed account.
We guarantee that the interest credited to the fixed account will not be less
than 3% per year. At the end of a guaranteed period option you selected, the
value in that guaranteed period option will automatically be transferred into a
new guaranteed period option of the same length (or the next shorter period if
the same period is no longer offered) at the current interest rate for that
period. You can transfer to
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another investment choice by giving us notice within 30 days before the end of
the expiring guaranteed period.
Surrenders or partial withdrawals from a guaranteed period option of the fixed
account are subject to an excess interest adjustment. This adjustment may
increase or decrease the amount of interest credited to your policy. The excess
interest 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 the other
general assets of PFL. The amount of money you are able to accumulate in the
fixed account during the accumulation phase depends upon the total interest
credited. The amount of annuity payments you receive during the income phase
from the fixed portion of your policy will remain level for the entire income
phase.
Transfers
During the accumulation phase, you may make transfers to or from any mutual fund
subaccount, target series subaccount, or fixed account as often as you wish
within certain limitations.
Transfers from a guaranteed period option of the fixed account are limited to
the following:
. If at the end of a guaranteed period option, you must notify us within 30
days prior to the end of the guaranteed period that you wish to transfer
the amount in that guaranteed period option to another investment choice.
No excess interest adjustment will apply.
. Transfers of amounts equal to interest credited. This may affect your
overall interest-crediting rate, because transfers are deemed to come from
the oldest premium payment first.
. Other than at the end of a guaranteed period, transfers of amounts from the
guaranteed period option in excess of amounts equal to interest credited
are subject to an excess interest adjustment. If it is a negative
adjustment, the maximum amount you can transfer is 25% of the amount in
that guaranteed period option, less any previous transfers during the
current policy year. If it is a positive adjustment, we do not limit the
amount that you can transfer.
There are no transfers permitted out of the dollar cost averaging fixed account
option except through the dollar cost averaging program.
Transfers out of a mutual fund subaccount or target series subaccount must be at
least $500, or the entire mutual fund subaccount or target series subaccount
value. Transfers of guaranteed period option amounts equal to interest credited
must be at least $50. If less than $500 remains, then we reserve the right to
either deny the transfer or include that amount in the transfer. Transfers
must be received while the New York Stock Exchange is open to get same-day
pricing of the transaction.
During the income phase of your policy, you may transfer values out of any
mutual fund subaccount or target series subaccount up to four times per 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 mutual
fund subaccount20 or target series subaccount from which the transfer is being
made.
Transfers may be made by telephone, subject to the limitations described below
under "Telephone Transactions."
Currently, there is no charge for transfers 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 per transfer may apply. We
reserve the right to prohibit transfers to the fixed account if we are crediting
an effective annual interest rate of 3.0% (the guaranteed minimum).
The policy you are purchasing was not designed for professional market timing
organizations or other persons that use programmed, large, or frequent
transfers. The use of such transfers may be disruptive to an underlying fund
portfolio. We reserve the right to reject any premium payment or transfer
request from any person, if, in our judgment, an underlying fund portfolio would
be unable to invest effectively in accordance with its investment objectives and
policies or would otherwise be potentially adversely affected.
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Dollar Cost Averaging Program
During the accumulation phase, you may instruct us to automatically transfer
money from the dollar cost averaging fixed account option, the Dreyfus U.S.
Government Securities Subaccount, or the Endeavor Money Market Subaccount, into
any other mutual fund subaccounts and/or target series subaccounts. You may
specify the dollar amount to be transferred either monthly or quarterly; however
each transfer must be at least $500. A minimum of 6 monthly or 4 quarterly
transfers are required and a maximum of 24 monthly or 8 quarterly transfers are
allowed. Transfers must begin within 30 days. We will make the transfers on the
28th day of the applicable month.
If you choose to allocate additional premium payments to the dollar cost
averaging program, you must complete a separate request for each additional
premium payment. There is no charge for this program.
Dollar cost averaging buys more accumulation units when prices are low and fewer
accumulation units when prices are high. It does not guarantee profits or assure
that you will not experience a loss. You should consider your ability to
continue the dollar cost averaging program during all economic conditions.
We may credit different interest rates for dollar cost averaging programs of
varying time periods. If you discontinue the dollar cost averaging program
before its completion, then the interest credited on amounts in the dollar cost
averaging fixed account may be adjusted downward, but not below the minimum
guaranteed effective annual interest rate of 3%.
Asset Rebalancing
During the accumulation phase you can instruct us to automatically rebalance the
amounts in your mutual fund subaccounts or target series subaccounts to maintain
your desired asset allocation. This feature is called asset rebalancing and can
be started and stopped at any time free of charge. However, we will not
rebalance if you are in the dollar cost averaging program or if any other
transfer is requested. If a transfer is requested, we will honor the requested
transfer and discontinue asset rebalancing. Asset rebalancing ignores amounts
in the fixed account. You can choose to rebalance monthly, quarterly, semi-
annually, or annually.
Telephone Transactions
You may make transfers and change the allocation of additional premium payments
by telephone IF:
. you select the "Telephone Transfer/Reallocation Authorization" box in the
policy enrollment form or enrollment information; or
. you later make this request in writing.
You will be required to provide certain information for identification purposes
when requesting a transaction by telephone and we may record your telephone
call. We may also require written confirmation of your request. We will not be
liable for following telephone requests that we believe are genuine.
Telephone requests must be received while the New York Stock Exchange is open to
get same-day pricing of the transaction. We may discontinue this option at any
time.
5. EXPENSES
There are charges and expenses associated with your policy that reduce the
return on your investment in the policy.
Surrender Charges
During the accumulation phase, you can withdraw part or all of the cash value.
Cash value is the policy value increased or decreased by any excess interest
adjustment, less the annual service charge, and less any applicable surrender
charge, premium taxes, and family income protector rider fees. We may apply a
surrender charge to compensate us for expenses relating to policy sales,
including commissions to registered representatives and other promotional
expenses. After the first year, you can withdraw up to 10% of your policy value
each year free of surrender charges. This amount is referred to as the free
percentage and is determined at the time of the withdrawal. If you withdraw
money in excess of 10% of your policy value, 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 seven years
following each premium payment:
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Surrender Charge
Number of Years Since (as a percentage of
Premium Payment Date premium withdrawn)
- --------------------------------------------------------------------------------
0-1 7%
- --------------------------------------------------------------------------------
1-2 7%
- --------------------------------------------------------------------------------
2-3 6%
- --------------------------------------------------------------------------------
3-4 6%
- --------------------------------------------------------------------------------
4-5 5%
- --------------------------------------------------------------------------------
5-6 4%
- --------------------------------------------------------------------------------
6-7 2%
- --------------------------------------------------------------------------------
For example, assume your policy value is $100,000 at the beginning of policy
year 2 and you withdraw $30,000. Since that amount is more than your free
percentage, you would pay a surrender charge of $1,400 on the remaining $20,000
(7% of $30,000--$10,000).
You receive the full amount of a requested partial withdrawal because we deduct
any applicable surrender charge (and any negative excess interest adjustment)
from your remaining policy value. You receive your cash value upon full
surrender.
For surrender charge purposes, the oldest premium is considered to be withdrawn
first.
Keep in mind that withdrawals may be taxable, and if made before age 59/1//2,
may be subject to a 10% federal penalty tax. For tax purposes, withdrawals are
considered to come from earnings first.
Surrender charges are waived if you withdraw money under the nursing care and
terminal condition withdrawal option or the unemployment waiver.
Excess Interest Adjustment
- --------------------------
Withdrawals of cash value from the fixed account may be subject to an excess
interest adjustment. This adjustment could retroactively reduce the interest
credited in the fixed account to the guaranteed minimum of 3% per year. See
"Excess Interest Adjustment" in Section 7 of this prospectus.
Mortality and Expense Risk Fee
We charge a fee as compensation for bearing certain mortality and expense risks
under the policy. Examples include a guarantee of annuity rates, the death
benefits, certain expenses of the policy, and assuming the risk that the current
charges will be insufficient in the future to cover costs of administering the
policy. For the Return of Premium Death Benefit the mortality and expense risk
fee is at an annual rate of 1. 25% of assets. During the accumulation phase, for
the 5% Annually Compounding Death Benefit, the Greater of 5% Annually
Compounding through age 80 Death Benefit or the Annual Step-Up through age 80
Death Benefit, and the Monthly Step-Up through age 80 Death Benefit, the
mortality and expense risk fee is at an annual rate of 1. 40% of assets. During
the income phase, the mortality and expense risk fee for these benefits is at an
annual rate of 1.25% of assets. This annual fee is assessed daily based on the
net asset value of each mutual fund subaccount and target series 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 any profit for any proper
purpose, including distribution expenses.
Administrative Charges
We deduct an administrative charge to cover the costs of administering the
policy. This charge is equal to an annual rate of 0.15% of the daily net asset
value of the mutual fund account and the target account.
In addition, an annual service charge of $35 (but not more than 2% of the policy
value) is charged on each policy anniversary and at surrender. The service
charge is waived if your policy value or the sum of your premiums, less all
partial withdrawals, is at least $50,000.
Premium Taxes
Some states assess premium taxes on the premium payments you make. We currently
do not deduct for these taxes at the time you make a premium payment. However,
we will deduct the total amount of premium taxes, if any, from the policy value
when:
. you elect to begin receiving annuity payments;
. you surrender the policy; or
. you die and a death benefit is paid (you must also be the annuitant for the
death benefit to be paid).
Generally, premium taxes range from 0% to 3.50%, depending on the state.
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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
You are allowed to make 12 free transfers per year before the annuity
commencement date. If you make more than 12 transfers per year, we reserve the
right to charge $10 for each additional transfer. Premium payments, asset
rebalancing and dollar cost averaging transfers are not considered transfers.
All transfer requests made at the same time are treated as a single request.
Family Income Protector
If you elect the family income protector, there is an annual rider fee during
the accumulation phase of 0.30% of the minimum annuitization value, and a
guaranteed payment fee during the income phase of 1.25% of the daily net asset
value if you annuitize under the rider. The annual rider fee is also deducted if
you surrender the policy. We may raise these fees in the future.
Portfolio Management Fees
The value of the assets in each mutual fund subaccount will reflect the fees and
expenses paid by the underlying fund. A description of these expenses is found
in the prospectuses for the underlying funds.
Target Account Fees
For its services to the target account, the manager is paid a fee of 0.75% of
the average daily net assets of each target series subaccount. For the adviser's
services to the target account, the manager pays the adviser a fee equal to
0.35% of the average daily net assets of each target series subaccount.
In addition to the management fees, the target account pays all expenses not
assumed by the manager, including, without limitation, the following:
. legal expenses;
. accounting and auditing services;
. interest;
. taxes;
. costs of printing and distributing reports to shareholders;
. proxy materials and prospectuses;
. custodian, transfer agent and dividend disbursing agent charges;
. registration fees;
. fees and expenses of the Board of Managers who are not affiliated persons
of the manager or an adviser;
. insurance;
. brokerage costs
. litigation; and
. other extraordinary or nonrecurring expenses.
All general target account expenses are allocated among and charged to the
assets of the target series subaccounts on a basis that the Board of Managers
deems fair and equitable. This may be on the basis of relative net assets of
each target series subaccount or the nature of the services performed and
relative applicability to each target series subaccount.
6. 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.
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When a non-natural person (e.g., corporation or certain other entities other
than tax-qualified trusts) owns a nonqualified policy, the policy will generally
not be treated as an annuity for tax purposes.
Qualified and Nonqualified Policies
If you purchase the policy under an individual retirement annuity, a pension
plan, or specially sponsored program, your policy is referred to as a qualified
policy.
Qualified policies are issued in connection with the following plans:
. Individual Retirement Annuity (IRA): A traditional IRA allows individuals
to make contributions, which may be deductible, to the policy. A Roth IRA
also allows individuals to make contributions to the policy, but it does
not allow a deduction for contributions, and distributions may be tax-free
if the owner meets certain rules.
. Tax-Sheltered Annuity (403(b) Plan): A 403(b) Plan may be made available to
employees of certain public school systems and tax-exempt organizations and
permits contributions to the policy on a pre-tax basis.
. Corporate Pension and Profit-Sharing and H.R. 10 Plan: Employers and self-
employed individuals can establish pension or profit-sharing plans for
their employees or themselves and make contributions to the policy on a
pre-tax basis.
. Deferred Compensation Plan (457 Plan): Certain governmental and tax-exempt
organizations can establish a plan to defer compensation on behalf of their
employees through contributions to the policy.
If you purchase the policy as an individual and not under an individual
retirement annuity, 403(b) plan, 457 plan, or pension or profit sharing plan,
your policy is referred to as a nonqualified policy.
Withdrawals--Qualified Policies
The above information describing the taxation of nonqualified policies does not
apply to qualified policies. There are special rules that govern with respect to
qualified policies. Generally, these rules restrict:
. the amount that can be contributed to the policy during any year; and
. the time when amounts can be paid from the policies.
In addition, a penalty tax may be assessed on amounts withdrawn from the policy
prior to the date you reach age 59/1//2, unless you meet one of the exceptions
to this rule. You may also be required to begin taking minimum distributions
from the policy by a certain rule. The terms of the plan may limit the rights
otherwise available to you under the policies. We have provided more information
in the SAI.
You should consult your legal counsel or tax adviser if you are considering
purchasing a policy for use with any retirement plan.
Withdrawals--403(b) Policies
The Internal Revenue Code limits the withdrawal of premium payments from certain
403(b) policies. Withdrawals can generally only be made when an owner:
. reaches age 59 1/2;
. leaves his/her job;
. dies;
. 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.
Tax Status of the Policy
The following discussion is based on the assumption that the policy is a non-
qualified policy that 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 mutual fund subaccounts and the
target series subaccounts. The mutual fund account, through its underlying funds
and their portfolios, and the target account, through its subaccounts, intends
to comply with the diversification requirements of the Treasury. PFL has entered
into agreements with each underlying fund which requires the portfolios to be
operated in compliance with the Treasury regulations. PFL has entered into an
agreement with First Trust Advisers, L.P., the adviser of the target account,
which requires the target
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series subaccounts to be operated in compliance with the Treasury regulations.
The adviser reserves the right to depart from either target series subaccount's
investment strategy in order to meet these diversification requirements. See the
SAI for more information concerning diversification requirements.
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 mutual fund account used to support their contracts. In those circumstances,
income and gains from the mutual fund 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 mutual fund account assets. For example,
you have 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. Moreover, the investment strategies for the target series
subaccounts are innovative and have not been addressed by the IRS. These
differences could result in you being treated as the owner of the assets of the
target account. PFL reserves the right to modify the policies as necessary to
attempt to prevent you from being considered the owner of a pro rata share of
the assets of the mutual fund account or the target account.
Distribution Requirements. The policy must meet certain distribution
requirements at the death of an owner in order to be treated as an annuity
policy. These distribution requirements are discussed in the SAI. PFL may modify
the policy to attempt to maintain favorable tax treatment.
Withdrawals--Nonqualified Policies
If you make a withdrawal from your policy before the annuity commencement date,
the Internal Revenue Code treats that withdrawal as first coming from earnings
and then from your premium payments. When you make a withdrawal you are taxed on
the amount of the withdrawal that is earnings. (The excess interest adjustment
resulting from the withdrawal may affect the amount on which you are taxed. 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 the taxpayer dies;
. paid if the taxpayer becomes totally disabled (as that term is defined in
the Internal Revenue Code);
. paid in a series of substantially equal payments made annually (or more
frequently) under a lifetime annuity;
. paid under an immediate annuity; or
. which come from premium payments made prior to August 14, 1982.
All deferred non-qualified 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 distributions occurs.
Taxation of Death Benefit Proceeds
Amounts may be distributed from the policy because of the death of an owner or
the annuitant. Generally, such amounts are includable in the income of the
recipient:
. if distributed in a lump sum, these amounts are taxed in the same manner as
a full surrender; or
. 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). The same tax treatment applies to any amounts
distributed after an owner's death.
Annuity Payments
Although the tax consequences may vary depending on the annuity payment option
you select, in general, for nonqualified and certain qualified policies, only a
portion of the annuity payments you receive will be includable in your gross
income.
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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 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.
7. ACCESS TO YOUR MONEY
Surrenders
During the accumulation phase, you can have access to the money in your policy
in several ways:
. by making a withdrawal (either a complete or partial withdrawal);
. by taking systematic payouts; or
. by taking annuity payments.
If you want to make a complete withdrawal, you will receive:
. the value of your policy; plus or minus
. any excess interest adjustment; minus
. surrender charges; minus
. any applicable premium taxes, service charges, and family income protector
rider fees.
If you want to take a partial withdrawal, in most cases it must be for at least
$500. Unless you tell us otherwise, we will take the withdrawal from each of the
investment choices in proportion to the policy value.
Remember that any withdrawal you take will reduce the policy value, and might
reduce the amount of the death benefit. See Section 9, Death Benefit, for more
details. Withdrawals may be subject to a surrender charge. Withdrawals from the
fixed account may also be subject to an excess interest adjustment. Income
taxes, federal tax penalties and certain restrictions may apply to any
withdrawals you make.
Withdrawals from qualified policies may be restricted or prohibited.
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 mutual fund account or target account for a
surrender, a death benefit, or the death of the owner of a nonqualified policy,
will generally
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occur within seven business days from the date all required information is
received by PFL. PFL may be permitted to defer such payment from the mutual fund
account and target account if:
. the New York Stock Exchange is closed other than for usual weekends or
holidays or trading on the Exchange is otherwise restricted;
. 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 mutual fund subaccounts and target
series subaccounts may be deferred under these circumstances.
Pursuant to the requirements of certain state laws, we reserve the right to
defer payment of the cash value from the fixed account for up to six months.
We may 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, all withdrawals from a guaranteed payment option during the first
policy year are subject to an excess interest adjustment. Any amount withdrawn
during a subsequent policy year in excess of 10% of your cumulative premium
payments is also generally subject to an excess interest adjustment. Beginning
in the second policy year, you can, however, withdraw up to 10% of your
cumulative premium payments each policy year, in one or more withdrawals,
without an excess interest adjustment. This is referred to as the "free
percentage."
There will be no excess interest adjustment on any of the following:
. lump sum withdrawals of the free percentage available;
. nursing care and terminal condition withdrawals;
. unemployment waivers;
. withdrawals to satisfy any minimum distribution requirements; and
. systematic payout option payments, which do not exceed 10% of the premium.
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.
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 the greater of:
. up to 10% (annually) of your premium; and
. any gains in the policy, divided by the number of payouts made per year.
This amount may be taken free of surrender charges and excess interest
adjustments. Payments can be made monthly, quarterly, semi-annually, or
annually. Each payment must be at least $50. Monthly and quarterly payments
must be made by electronic funds transfer directly to your checking or savings
account. There is no charge for this benefit.
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 select this benefit at any time (during the accumulation phase) and
there is no charge for this benefit.
This benefit may not be available in all states. See the policy or endorsement
for details and conditions.
Unemployment Waiver
No surrender charges or excess interest adjustment will
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apply to withdrawals if you or your spouse is unemployed. In order to qualify,
you (or your spouse, whichever is applicable) must have been:
. employed full time for at least two years prior to becoming unemployed; and
. employed full time on the policy date; and
. unemployed for at least 60 days in a row at the time of the withdrawal; and
. must have a minimum cash value at the time of withdrawal of $5,000.
You must provide written proof from your State's Department of Labor, which
verifies that you qualify for and are receiving unemployment benefits at the
time of withdrawal.
You can select this benefit at any time (during the accumulation phase) and
there is no charge for this benefit.
This benefit is also available to the annuitant or annuitant's spouse if the
owner is not a natural person. This benefit may not be available in all states.
See the policy for details.
8. PERFORMANCE
The Mutual Fund Account
PFL periodically advertises performance of the various mutual fund subaccounts.
We may disclose at least four different kinds of performance. First, we may
calculate performance by determining the percentage change in the value of an
accumulation unit by dividing the increase (decrease) for that unit by the value
of the accumulation unit at the beginning of the period. This performance number
reflects the deduction of the mortality and expense risk fees and administrative
charges. It does not reflect the deduction of any applicable premium taxes or
surrender charges. The deduction of any applicable premium taxes or surrender
charges would reduce the percentage increase or make greater any percentage
decrease.
Second, any advertisement will also include total return figures, which reflect
the deduction of the mortality and expense risk fees, administrative charges and
surrender charges.
Third, for periods starting prior to the date the policies were first offered,
the performance will be based on the historical performance of the corresponding
investment portfolios for the periods commencing from the date on which the
particular investment portfolio was made available through the mutual fund
account.
Fourth, in addition, for certain investment portfolios, performance may be shown
for the period commencing from the inception date of the investment portfolio.
These figures should not be interpreted to reflect actual historical performance
of the mutual fund account.
We also may, from time to time, include in our advertising and sales materials,
tax deferred compounding charts and other hypothetical illustrations, which may
include comparisons of currently taxable and tax deferred investment programs,
based on selected tax brackets.
Appendix 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.
The Target Account
Performance information regarding the target series subaccounts is in Appendix B
and in the SAI.
9. DEATH BENEFIT
We will pay a death benefit to your beneficiary, under certain circumstances, if
the annuitant dies before the accumulation phase and the annuitant was also an
owner. (If the annuitant was not an owner, a death benefit may or may not be
paid. See below). The beneficiary may choose an annuity payment option, or may
choose to receive a lump sum.
When We Pay A Death Benefit
Before the Annuity Commencement Date
We will pay a death benefit to your beneficiary IF:
. you are both the annuitant and an owner of the policy; and
. you die before the annuity commencement date.
If the only beneficiary is your surviving spouse, then he or she may elect to
continue the policy as the new annuitant and owner, instead of receiving the
death benefit. All future surrender charges will be waived.
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We will also pay a death benefit to your beneficiary IF:
. you are not the annuitant; and
. the annuitant dies before the annuity commencement date; and
. you specifically requested that the death benefit be paid upon the
annuitant's death.
Distribution requirements apply to the policy value upon the death of any owner.
These requirements are detailed in the SAI.
After the Annuity Commencement Date
The death benefit payable, if any, on or after the annuity commencement date
depends on the annuity payment option selected.
IF:
. you are not the annuitant; and
. you die on or after the annuity commencement date; and
. the entire interest in the policy has not been paid to you;
THEN:
. the remaining portion of such interest in the policy will be distributed at
least as rapidly as under the method of distribution being used as of the
date of your death.
When We Do Not Pay A Death Benefit
No death benefit is paid in the following cases:
IF:
. you are not the annuitant; and
. the annuitant dies prior to the annuity commencement date; and
. you did not specifically request that the death benefit be paid upon the
annuitant's death;
THEN:
. you will become the new annuitant and the policy will continue.
IF:
. you are not the annuitant; and
. you die prior to the annuity commencement date;
THEN:
. the new owner must surrender the policy within five years of your death for
the policy value increased or decreased by an excess interest adjustment.
Note carefully. If the owner does not name a contingent owner, the owner's
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 received by PFL.
Amount of Death Benefit
Death benefit provisions may differ from state to state. The death benefit may
be paid as a lump sum or as annuity payments. The amount of the death benefit
depends on the guaranteed minimum death benefit option you chose when you bought
the policy. The death benefit will be the greatest of:
. policy value on the date we receive the required information; or
. cash value on the date we receive the required information (this could be
more than the policy value if there is a positive excess interest
adjustment that exceeds the surrender charge); or
. guaranteed minimum death benefit, if any, (discussed below), plus premium
payments, less partial withdrawals from the date of death to the date the
death benefit is paid.
Guaranteed Minimum Death Benefit
On the policy application, you generally may choose one of the four guaranteed
minimum death benefit options listed below.
After the policy is issued, you cannot make an election and the death benefit
cannot be changed.
A. 5% Annually Compounding Death Benefit
The 5% Annually Compounding Death Benefit is:
. the total premium payments; less
. any adjusted partial withdrawals; plus
. interest at an effective annual rate of 5% from the premium payment
date or withdrawal date to the date of death.
The 5% Annually Compounding Death Benefit is not available if the owner or
annuitant is 75 or older on the
33
<PAGE>
policy date. There is an extra charge for this death benefit.
B. Greater of 5% Annually Compounding through age 80 Death Benefit or Annual
Step-Up through age 80 Death Benefit
The 5% Annually Compounding through age 80 Death Benefit is:
. the total premium payments; less
. any adjusted partial withdrawals; plus
. interest at an effective annual rate of 5% from the premium payment
date or withdrawal date to the earlier of the annuitant's date of
death or the annuitant's 81st birthday.
The Annual Step-Up through age 80 Death Benefit is equal to:
. the largest policy value on the policy date or on any policy
anniversary prior to the earlier of the annuitant's date of death or
the annuitant's 81st birthday; plus
. any premium payments subsequent to the date of any policy anniversary
with the largest policy value; minus
. any adjusted partial withdrawals subsequent to the date of the policy
anniversary with the largest policy value.
These benefits are not available if the owner or annuitant is age 81 or
older on the policy date.
C. Monthly Step-Up through age 80 Death Benefit
The Monthly Step-Up through age 80 Death Benefit is:
. the largest policy value on the policy date or on any monthly
anniversary prior to the earlier of the annuitant's date of death or
the annuitant's 81st birthday; plus
. any premium payments subsequent to the date of any monthly anniversary
with the largest policy value; minus
. any adjusted partial withdrawals subsequent to the date of the monthly
anniversary with the largest policy value.
This benefit is not available if the owner or annuitant is age 81 or older
on the policy date.
D. Return of Premium Death Benefit
The Return of Premium Death Benefit is:
. total premium payments; less
. any adjusted partial withdrawals (discussed below) as of the date of
death.
The Return of Premium Death Benefit will be in effect if you do not choose
one of the other death benefit options on the policy application. The
charges are lower for this option than for the other three.
IF, under all four death benefit options:
. the surviving spouse elects to continue the policy instead of
receiving the death benefit; and
. the guaranteed minimum death benefit is greater than the policy value;
THEN:
. we will increase the policy value to be equal to the guaranteed
minimum death benefit. This increase is made only at the time the
surviving spouse elects to continue the policy.
Adjusted Partial Withdrawal
When you request a partial withdrawal, your guaranteed minimum death benefit
will be reduced by an amount called the adjusted partial withdrawal. Under
certain circumstances, the adjusted partial withdrawal may be more than the
amount of your withdrawal request. It is also possible that if a death benefit
is paid after you have made a partial withdrawal, then the total amount paid
could be less than the total premium payments. We have included a detailed
explanation of this adjustment in the SAI.
10. 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
34
<PAGE>
with the policy before we receive notice of the assignment. An assignment may be
a taxable event. There may be limitations on your ability to assign a qualified
policy. An assignment may have tax consequences.
PFL Life Insurance Company
PFL Life Insurance Company was incorporated under the laws of the State of Iowa
on April 19, 1961 as NN Investors Life Insurance Company, Inc. It is engaged in
the sale of life and health insurance and annuity policies. PFL is a
Transamerica Company and a wholly owned indirect subsidiary of AEGON USA, Inc.
which conducts most of its operations through subsidiary companies engaged in
the insurance business or in providing non-insurance financial services. All of
the stock of AEGON USA, Inc. is indirectly owned by AEGON N.V. of The
Netherlands, the securities of which are publicly traded. AEGON N.V., a holding
company, conducts its business through subsidiary companies engaged primarily in
the insurance business. PFL is licensed in the District of Columbia, Guam, and
in all states except New York.
All obligations arising under the policies, including the promise to make
annuity payments, are general corporate obligations of PFL.
The Mutual Fund Account
PFL established a mutual fund account, called the PFL Endeavor VA Separate
Account, under the laws of the State of Iowa on January 19, 1990. The mutual
fund account receives and currently invests the premium payments that are
allocated to it for investment in shares of the underlying mutual fund
portfolios.
The mutual fund 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 mutual fund account or PFL. Income,
gains and losses, whether or not realized, from assets allocated to the mutual
fund account are, in accordance with the policies, credited to or charged
against the mutual fund account without regard to PFL's other income, gains or
losses.
The assets of the mutual fund account are held in PFL's name on behalf of the
mutual fund account and belong to PFL. However, those assets that underlie the
policies are not chargeable with liabilities arising out of any other business
PFL may conduct. The mutual fund account includes other subaccounts that are not
available under these policies.
The Target Account
PFL established the PFL Endeavor Target Account under the laws of the state of
Iowa on September 15, 1997.The target account is registered with the SEC under
the 1940 Act, as amended, as an open-end management investment company and meets
the definition of a separate account under federal securities laws. However, the
SEC does not supervise the management or the investment practices or policies of
the target account or PFL.
The two Dow(SM) Target 10 Subaccounts (January and July Series) and the two
Dow(SM) Target 5 Subaccounts (January and July Series) are non-diversified
target series subaccounts of the target account.
Mixed and Shared Funding
Before making a decision concerning the allocation of premium payments to a
particular mutual fund subaccount, please read the prospectuses for the
underlying funds. The underlying funds are not limited to selling their shares
to this mutual fund account and can accept investments from any separate account
or qualified retirement plan of an insurance company. Since the portfolios of
the underlying funds are available to registered separate accounts offering
variable annuity products of PFL, as well as variable annuity and variable life
products of other insurance companies, and qualified retirement plans, there is
a possibility that a material conflict may arise between the interests of this
mutual fund account and one or more of the other accounts of another
participating insurance company. In the event of a material conflict, the
affected insurance companies, including PFL, agree to take any necessary steps
to resolve the matter. This includes removing their mutual fund accounts from
the underlying funds. See the underlying funds' prospectuses for more details.
Reinstatements
You may surrender your policy and transfer your money directly to another life
insurance company (sometimes referred to as a 1035 Exchange or a trustee-to-
trustee transfer). You may also request us to reinstate your policy after such a
transfer by returning the same total dollar
35
<PAGE>
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
Mutual Fund Account. 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.
Target Account. You (or the person receiving annuity payments) can vote on
certain matters with respect to the target series subaccounts you have an
interest in. Such matters include:
. changes in the investment advisory agreement;
. changes in the fundamental investment policies;
. any other matter requiring a vote of persons holding voting interests; and
. matters pursuant to the requirements of Rules 12b-1 and 18f-2 of the
Investment Company Act of 1940.
On certain matters, each target series subaccount may vote separately. Each
person having a voting interest will receive proxy material, reports, and other
materials relating to the appropriate target series subaccount.
Distributor of the Policies
AFSG Securities Corporation is the principal underwriter of the policies. Like
PFL, it is a Transamerica Company and an indirect wholly owned subsidiary of
AEGON USA, Inc. It is located at 4333 Edgewood Road N.E., Cedar Rapids, IA
52499-0001. AFSG Securities Corporation is registered as a broker/dealer under
the Securities Exchange Act of 1934. It is a member of the National Association
of Securities Dealers, Inc.
Commissions of up to 6.25% of premium payments plus an annual continuing fee
based on policy values will be paid to broker/dealers who sell the policies
under agreements with AFSG Securities Corporation. These commissions are not
deducted from premium payments. In addition, certain production, persistency and
managerial bonuses may be paid. PFL may also pay compensation to financial
institutions for their services in connection with the sale and servicing of the
policies.
Non-participating Policy
The policy does not participate or share in the profits or surplus earnings of
PFL. No dividends are payable on the policy.
Variations in Policy Provisions
Certain provisions of the policies may vary from the descriptions in this
prospectus in order to comply with different state laws. See your policy for
variations since any such state variations will be included in your policy or in
riders or endorsements attached to your policy.
IMSA
PFL is a charter member of the Insurance Marketplace Standards Association
(IMSA). IMSA is an independent, voluntary organization of life insurance
companies. It promotes high ethical standards in the sales, advertising and
servicing of individual life insurance and annuity products. Companies must
undergo a rigorous self and independent assessment of their practices to become
a member of IMSA. The IMSA logo in our sales literature shows our ongoing
commitment to these standards.
Legal Proceedings
There are no legal proceedings to which the mutual fund account or target
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
36
<PAGE>
time there are no pending or threatened lawsuits that are reasonably likely to
have a material adverse impact on the mutual fund account, target account or
PFL.
Financial Statements
The financial statements of PFL, the mutual fund account, and the target account
are included in the SAI.
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION
Glossary of Special Terms
The Policy--General Provisions
Certain Federal Income Tax Consequences
Investment Experience
Family Income Protector--Hypothetical Illustration
Historical Performance Data
The Target Account
Published Ratings
State Regulation of PFL
Administration
Records and Reports
Distribution of the Policies
Other Products
Custody of Assets
Legal Matters
Independent Auditors
Other Information
Financial Statements
37
<PAGE>
APPENDIX A
CONDENSED FINANCIAL INFORMATION
The Mutual Fund Account
The accumulation unit values and the number of accumulation units outstanding
for each mutual fund subaccount from the date of inception are shown in the
following tables.
5% Annually Compounding Death Benefit or Double Enhanced Death Benefit *
(Total Mutual Fund Account Annual Expenses: 1.55%)
<TABLE>
<CAPTION>
==========================================================================================================
Accumulation Accumulation Number of
Unit Value Unit Value Accumulation
at Beginning at End Units at
of Year of Year End of Year
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Merrill Lynch Basic Value Focus ML Subaccount
1999
1998....................................................... $ 1.045149 $ 1.128892 1,297,000.676
1997(1).................................................... $ 1.000000 $ 1.045149 1,158,912.186
- ---------------------------------------------------------------------------------------------------------
Merrill Lynch High Current Income ML Subaccount
1999.......................................................
1998....................................................... $ 1.036753 $ 0.991602 1,798,460.840
1997(1).................................................... $ 1.000000 $ 1.036753 1,515,274.846
- ---------------------------------------------------------------------------------------------------------
Merrill Lynch Developing Capital Markets Focus
ML Subaccount
1999.......................................................
1998....................................................... $ .776036 $ 0.540808 265,187.471
1997(1).................................................... $ 1.000000 $ 0.776036 731,215.174
- ---------------------------------------------------------------------------------------------------------
Dreyfus Small Cap Value ML Subaccount
1999.......................................................
1998....................................................... $ 1.849865 $ 1.785929 767,224.503
1997(1).................................................... $ 1.763002 $ 1.849865 1,303,710.955
- ---------------------------------------------------------------------------------------------------------
Dreyfus U.S. Government Securities ML Subaccount
1999.......................................................
1998....................................................... $ 1.214143 $ 1.286733 1,216,510.180
1997(1).................................................... $ 1.156486 $ 1.214143 250,859.166
- ---------------------------------------------------------------------------------------------------------
Endeavor Asset Allocation ML Subaccount
1999.......................................................
1998....................................................... $ 2.170350 $ 2.535888 581,570.894
1997(1).................................................... $ 2.073492 $ 2.170350 560,006.492
- ---------------------------------------------------------------------------------------------------------
Endeavor Money Market ML Subaccount
1999.......................................................
1998....................................................... $ 1.195541 $ 1.239556 358,756.987
1997(1).................................................... $ 1.174747 $ 1.195541 237,144.180
- ---------------------------------------------------------------------------------------------------------
Endeavor Enhanced Index ML Subaccount
1999.......................................................
1998....................................................... $ 1.216754 $ 1.577775 972,108.717
1997(1).................................................... $ 1.140312 $ 1.216754 842,854.350
- ---------------------------------------------------------------------------------------------------------
Endeavor High Yield ML Subaccount
1999.......................................................
1998(3).................................................... $ 1.000000 $ 0.961203 121,411.851
- ---------------------------------------------------------------------------------------------------------
Endeavor Janus Growth ML Subaccount
1999.......................................................
1998....................................................... $19.650673 $31.898334 90,917.724
1997(1).................................................... $19.367467 $19.650673 134,838.617
=========================================================================================================
</TABLE>
38
<PAGE>
5% Annually Compounding Death Benefit or Double Enhanced Death Benefit *
(Total Mutual Fund Account Annual Expenses: 1.55%)
continued........
<TABLE>
<CAPTION>
=======================================================================================================
Accumulation Accumulation Number of
Unit Value Unit Value Accumulation
at Beginning at End Units at
of Year of Year End of Year
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Endeavor Opportunity Value ML Subaccount
1999.......................................................
1998....................................................... $1.156145 $1.200101 602,380.346
1997(1).................................................... $1.103566 $1.156145 823,035.993
- --------------------------------------------------------------------------------------------------------
Endeavor Value Equity ML Subaccount
1999.......................................................
1998....................................................... $2.084599 $2.212928 504,437.700
1997(1).................................................... $1.951455 $2.084599 695,791.985
- --------------------------------------------------------------------------------------------------------
Endeavor Select 50 ML Subaccount
1999.......................................................
1998(2).................................................... $1.000000 $1.052609 282,424.968
- --------------------------------------------------------------------------------------------------------
T. Rowe Price Equity Income ML Subaccount
1999.......................................................
1998....................................................... $1.923605 $2.065623 1,136,105.291
1997(1).................................................... $1.757991 $1.923605 1,205,031.181
- --------------------------------------------------------------------------------------------------------
T. Rowe Price Growth Stock ML Subaccount
1999.......................................................
1998....................................................... $2.041994 $2.593121 648,309.723
1997(1).................................................... $1.905196 $2.041994 863,752.125
- --------------------------------------------------------------------------------------------------------
T. Rowe Price International Stock ML Subaccount
1999.......................................................
1998....................................................... $1.345562 $1.533035 716,581.848
1997(1).................................................... $1.490376 $1.345562 1,418,820.061
========================================================================================================
</TABLE>
39
<PAGE>
Return of Premium Death Benefit *
(Total Mutual Fund Account Annual Expenses: 1.40%)
<TABLE>
<CAPTION>
========================================================================================================
Accumulation Accumulation Number of
Unit Value Unit Value Accumulation
at Beginning at End Units at End
of Year of Year of Year
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Merrill Lynch Basic Value Focus ML Subaccount
1999.......................................................
1998....................................................... $ 1.045922 $ 1.126397 5,316,789.797
1997(1).................................................... $ 1.000000 $ 1.045922 279,869.269
- --------------------------------------------------------------------------------------------------------
Merrill Lynch High Current Income ML Subaccount
1999.......................................................
1998....................................................... $ 1.037515 $ 0.989413 5,690,546.719
1997(1).................................................... $ 1.000000 $ 1.037515 296,791.692
- --------------------------------------------------------------------------------------------------------
Merrill Lynch Developing Capital Markets Focus
ML Subaccount
1999.......................................................
1998....................................................... $ 0.776606 $ 0.539622 1,369,352.447
1997(1).................................................... $ 1.000000 $ 0.776606 190,773.375
- --------------------------------------------------------------------------------------------------------
Dreyfus Small Cap Value ML Subaccount
1999.......................................................
1998....................................................... $ 1.851229 $ 1.781970 4,007,192.724
1997(1).................................................... $ 1.763002 $ 1.851229 427,723.238
- --------------------------------------------------------------------------------------------------------
Dreyfus U.S. Government Securities ML Subaccount
1999.......................................................
1998....................................................... $ 1.215033 $ 1.283878 2,530,595.105
1997(1).................................................... $ 1.156486 $ 1.215033 142,705.078
- --------------------------------------------------------------------------------------------------------
Endeavor Asset Allocation ML Subaccount
1999.......................................................
1998....................................................... $ 2.171948 $ 2.530280 2,567,841.512
1997(1).................................................... $ 2.073492 $ 2.171948 146,972.115
- --------------------------------------------------------------------------------------------------------
Endeavor Money Market ML Subaccount
1999.......................................................
1998....................................................... $ 1.196418 $ 1.236824 1,488,032.472
1997(1).................................................... $ 1.174747 $ 1.196418 186,769.997
1997(1).................................................... $ 1.757991 $ 1.925022 399,676.687
- --------------------------------------------------------------------------------------------------------
Endeavor Enhanced Index ML Subaccount
1999.......................................................
1998....................................................... $ 1.217647 $ 1.574288 4,212,857.466
1997(1).................................................... $ 1.140312 $ 1.217647 517,261.206
- --------------------------------------------------------------------------------------------------------
Endeavor High Yield ML Subaccount
1999.......................................................
1998(3).................................................... $ 1.000000 $ 0.960378 277,923.144
- --------------------------------------------------------------------------------------------------------
Endeavor Janus Growth ML Subaccount
1999.......................................................
1998....................................................... $19.665157 $31.827882 468,647.981
1997(1).................................................... $19.367467 $19.665157 22,707.469
- --------------------------------------------------------------------------------------------------------
Endeavor Opportunity Value ML Subaccount
1999.......................................................
1998....................................................... $ 1.156993 $ 1.197456 4,355,754.613
1997(1).................................................... $ 1.103566 $ 1.156993 278,938.732
- --------------------------------------------------------------------------------------------------------
Endeavor Value Equity ML Subaccount
1999.......................................................
1998....................................................... $ 2.086130 $ 2.208027 3,058,826.681
1997(1).................................................... $ 1.951455 $ 2.086130 185,606.823
========================================================================================================
</TABLE>
40
<PAGE>
Return of Premium Death Benefit *
(Total Mutual Fund Account Annual Expenses: 1.40%)
continued........
<TABLE>
<CAPTION>
==================================================================================================
<S> <C> <C> <C>
Endeavor Select 50 ML Subaccount
1999.......................................................
1998(2).................................................... $1.000000 $1.051197 2,154,769.996
- --------------------------------------------------------------------------------------------------
T. Rowe Price Growth Stock ML Subaccount
1999.......................................................
1998....................................................... $2.043487 $2.587405 3,959,439.113
1997(1).................................................... $1.905196 $2.043487 275,873.510
- --------------------------------------------------------------------------------------------------
T. Rowe Price International Stock ML Subaccount
1999.......................................................
1998....................................................... $1.346560 $1.529630 3,171,012.285
1997(1).................................................... $1.490376 $1.346560 396,884.393
==================================================================================================
</TABLE>
(1) Period from July 3, 1997 through December 31, 1997.
(2) Period from February 2, 1998 through December 31, 1998.
(3) Period from June 2, 1998 through December 31, 1998.
* As of May 1, 2000 the death benefits available under this policy have been
changed to (1) 5% Annually Compounding Death Benefit, (2) Greater of 5%
Annually Compounding through age 80 Death Benefit or Annual Step-Up through
age 80 Death Benefit, (3) Monthly Step-Up Death Benefit, and (4) Return of
Premium. However, the corresponding unit values for each death benefit did
not change.
The Transamerica VIF Growth Subaccount, Fidelity - VIP Equity-Income Subaccount,
Fidelity - VIP II Contrafund Subaccount, Fidelity - VIP III Growth Opportunities
Subaccount, Fidelity - VIP III Mid Cap Subaccount, WRL Alger Aggressive Growth
Subaccount, WRL Goldman Sachs Growth Subaccount, WRL Janus Global Subaccount,
WRL NWQ Value Equity Subaccount, WRL Pilgrim Baxter Mid Cap Growth Subaccount,
WRL Salomon All Cap Subaccount, WRL T. Rowe Price Dividend Growth Subccount, and
WRL T. Rowe Price Small Cap Subaccount had not commenced operations as of
December 31, 1999, therefore, comparable data is not available.
41
<PAGE>
CONDENSED FINANCIAL INFORMATION
The Target Account
5% Annually Compounding Death Benefit or Double Enhanced Death Benefit *
<TABLE>
<CAPTION>
==================================================================================================================================
The Dow Target 10 The Dow Target The Dow Target The Dow Target
Subaccount 5 Subaccount 10 Subaccount 5 Subaccount
(January Series) (January Series) (July Series) (July Series)
- ----------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Investment Income
1999 (2)............................................
1998 (1)............................................ N/A N/A .0090092 .0049654
- ----------------------------------------------------------------------------------------------------------------------------------
Expenses
1999 (2)............................................
1998 (1)............................................ N/A N/A (.0081752) (.0021646)
- ----------------------------------------------------------------------------------------------------------------------------------
Net investment income
1999 (2)............................................
1998 (1)............................................ N/A N/A .0083407 .00280077
- ----------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gains (losses)
on securities
1999 (2)............................................
1998 (1)............................................ N/A N/A .0331629 .1185332
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in Accumulation unit value
1999 (2)............................................
1998 (1)............................................ N/A N/A .033997 .121334
- ----------------------------------------------------------------------------------------------------------------------------------
Accumulation unit value at beginning of period
1999 (2)............................................
1998 (1)............................................ N/A N/A 1.000000 1.000000
- ----------------------------------------------------------------------------------------------------------------------------------
Accumulation unit value at end of period
1999 (2)............................................
1998 (1)............................................ N/A N/A 1.033997 1.121334
- ----------------------------------------------------------------------------------------------------------------------------------
Expenses to average net assets
1999 (2)............................................
1998 (1)............................................ N/A N/A 1.30% 1.30%
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rates
1999 (2)............................................
1998 (1)............................................ N/A N/A 0% 0%
- ----------------------------------------------------------------------------------------------------------------------------------
Number of accumulation units Outstanding
at end of period
1999 (2)............................................
1998 (1)............................................ N/A N/A 1,304,684 662,269
====================================================================================================================================
</TABLE>
42
<PAGE>
Return of Premium Death Benefit *
<TABLE>
<CAPTION>
====================================================================================================================================
The Dow Target 10 The Dow Target 5 The Dow Target 10 The Dow Target 5
Subaccount Subaccount Subaccount Subaccount
(January Series) (January Series) (July Series) (July Series)
- ------------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Investment Income
1999 (2)
1998(1)............................................. N/A N/A .0013818 .0009835
- ------------------------------------------------------------------------------------------------------------------------------------
Expenses
1999 (2)............................................
1998 (1)............................................ N/A N/A (.0011218) (.0004288)
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income
1999 (2)............................................
1998 (1)............................................ N/A N/A .00026003 .00055475
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gains (losses) on
securities
1999 (2)............................................
1998 (1)............................................ N/A N/A .0345040 .1216153
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in Accumulation unit value
1999 (2)............................................
1998 (1)............................................ N/A N/A .034764 .122170
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulation unit value at beginning of period
1999 (2)............................................
1998 (1)............................................ N/A N/A 1.000000 1.000000
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulation unit value at end of period
1999 (2)............................................
1998 (1)............................................ N/A N/A 1.034764 1.122170
- ------------------------------------------------------------------------------------------------------------------------------------
Expenses to average net assets
1999 (2)............................................
1998 (1)............................................ N/A N/A 1.30% 1.30%
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rates
1999 (2)............................................
1998 (1)............................................ N/A N/A 0% 0%
- ------------------------------------------------------------------------------------------------------------------------------------
Number of accumulation units Outstanding at end
of period
1999 (2)............................................
1998 (1)............................................ N/A N/A 141,796 175,738
====================================================================================================================================
</TABLE>
(1) Period from July 1, 1998 through December 31, 1998 for The Dow<SM> Target
10 (July Series) and The Dow<SM> Target 5 (July Series). The Dow<SM> Target
10 (January Series) and The Dow<SM> Target 5 (January Series) had not
commenced operations as of December 31, 1998, therefore there was no
Condensed Financial Information to report for that period.
(2) Period from January 1, 1999 through December 31, 1999 for The Dow<SM>
Target 10 (January Series), The Dow<SM> Target 5 (January Series), The
Dow<SM> Target 10 (July Series), and The Dow<SM> Target 5 (July Series).
* As of May 1, 2000 the death benefits available under this policy have been
changed to (1) 5% Annually Compounding Death Benefit, (2) Greater of 5%
Annually Compounding through age 80 Death Benefit or Annual Step-Up through
age 80 Death Benefit, (3) Monthly Step-Up Death Benefit, and (4) Return of
Premium. However, the corresponding unit values for each death benefit did
not change.
43
<PAGE>
APPENDIX B
HISTORICAL PERFORMANCE DATA
THE MUTUAL FUND ACCOUNT
Standardized Performance Data
PFL may advertise historical yields and total returns for the subaccounts of the
mutual fund account. In addition, PFL may advertise the effective yield of the
subaccount investing in the Endeavor Money Market Portfolio (the "Endeavor Money
Market Subaccount"). These figures are calculated according to standardized
methods prescribed by the SEC. They are based on historical earnings and are not
intended to indicate future performance.
Endeavor Money Market Subaccount. The yield of the Endeavor Money Market
Subaccount for a policy refers to the annualized income generated by an
investment under a policy in the subaccount over a specified seven-day period.
The yield is calculated by assuming that the income generated for that seven-day
period is generated each seven-day period over a 52-week period and is shown as
a percentage of the investment. The effective yield is calculated similarly but,
when annualized, the income earned by an investment under a policy in the
subaccount is assumed to be reinvested. The effective yield will be slightly
higher than the yield because of the compounding effect of this assumed
reinvestment.
Other Subaccounts. The yield of a mutual fund subaccount (other than the
Endeavor Money Market Subaccount) for a policy refers to the annualized income
generated by an investment under a policy in the subaccount over a specified
thirty-day period. The yield is calculated by assuming that the income generated
by the investment during that thirty-day period is generated each thirty-day
period over a 12-month period and is shown as a percentage of the investment.
The total return of a subaccount 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 one, five, and ten
years, respectively, the total return for these periods will be provided. The
total return quotations for a subaccount will represent the average annual
compounded rates of return that equate an initial investment of $1,000 in the
subaccount to the redemption value of that investment as of the last day of each
of the periods for which total return quotations are provided.
The yield and total return calculations for a subaccount do not reflect the
effect of any premium taxes that may be applicable to a particular policy, and
they do not reflect the rider charge for the optional family income protector.
To the extent that any or all of a premium tax is applicable to a particular
policy, the yield and/or total return of that policy will be reduced. For
additional information regarding yields and total returns calculated using the
standard formats briefly summarized above, please refer to the Statement of
Additional Information, a copy of which may be obtained from the administrative
and service office upon request.
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 the administrative charges. Performance figures may reflect
the 1.40% mortality and expense risk fee for the 5% Annually Compounding and
Double Enhanced Death Benefits, or the 1. 25% mortality and expense risk fee for
the Return of Premium Death Benefit. Standard total return calculations will
reflect the effect of surrender charges that may be applicable to a particular
period.
44
<PAGE>
<TABLE>
<CAPTION>
=============================================================================================================
TABLE 1 - A
Standard Average Annual Total Returns
- -------------------------------------------------------------------------------------------------------------
5% Annually Compounding Death Benefit or Double Enhanced Death Benefit *
(Total Mutual Fund Account Annual Expenses: 1.55%)
- -------------------------------------------------------------------------------------------------------------
Inception
1 Year 5 Year of the Subaccount
Ended Ended Subaccount Inception
Subaccount 12/31/99 12/31/99 to 12/31/99 Date/(6)/
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Merrill Lynch Basic Value Focus(1) July 2, 1997
Merrill Lynch High Current Income(1) July 2, 1997
Merrill Lynch Developing Capital Markets Focus(1) July 2, 1997
Dreyfus Small Cap Value(2) May 4, 1993
Dreyfus U.S. Government Securities May 9, 1994
Endeavor Asset Allocation April 8, 1991
Endeavor Enhanced Index May 1, 1997
Endeavor High Yield June 2, 1998
Endeavor Janus Growth(3) July 1, 1992
Endeavor Value Equity May 27, 1993
Endeavor Opportunity Value November 18, 1996
Endeavor Select 50 February 2, 1998
T. Rowe Price Equity Income January 3, 1995
T. Rowe Price Growth Stock January 3, 1995
T. Rowe Price International Stock(4) April 8, 1991
Transamerica VIF Growth (5) N/A N/A N/A N/A
Fidelity - VIP Equity-Income (5) N/A N/A N/A N/A
Fidelity - VIP II Contrafund (5) N/A N/A N/A N/A
Fidelity - VIP III Growth Opportunities (5) N/A N/A N/A N/A
Fidelity - VIP III Mid Cap (5) N/A N/A N/A N/A
WRL Alger Aggressive Growth (5) N/A N/A N/A N/A
WRL Goldman Sachs Growth (5) N/A N/A N/A N/A
WRL Janus Global (5) N/A N/A N/A N/A
WRL NWQ Value Equity (5) N/A N/A N/A N/A
WRL Pilgrim Baxter Mid Cap Growth (5) N/A N/A N/A N/A
WRL Salomon All Cap (5) N/A N/A N/A N/A
WRL T. Rowe Price Dividend Growth (5) N/A N/A N/A N/A
WRL T. Rowe Price Small Cap (5) N/A N/A N/A N/A
=============================================================================================================
</TABLE>
45
<PAGE>
<TABLE>
<CAPTION>
=============================================================================================================
TABLE 1 - B
Standard Average Annual Total Returns
=============================================================================================================
Return of Premium Death Benefit *
(Total Mutual Fund Account Annual Expenses: 1.40%)
- -------------------------------------------------------------------------------------------------------------
Inception
1 Year 5 Year of the Subaccount
Ended Ended Subaccount Inception
Subaccount 12/31/99 12/31/99 to 12/31/99 Date/(6)/
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Merrill Lynch Basic Value Focus(1) July 2, 1997
Merrill Lynch High Current Income(1) July 2, 1997
Merrill Lynch Developing Capital Markets Focus(1) July 2, 1997
Dreyfus Small Cap Value(2) May 4, 1993
Dreyfus U.S. Government Securities May 9, 1994
Endeavor Asset Allocation April 8, 1991
Endeavor Enhanced Index May 1, 1997
Endeavor High Yield June 2, 1998
Endeavor Janus Growth(3) July 1, 1992
Endeavor Opportunity Value November 18, 1996
Endeavor Value Equity May 27, 1993
Endeavor Select 50 February 2, 1998
T. Rowe Price Equity Income January 3, 1995
T. Rowe Price Growth Stock January 3, 1995
T. Rowe Price International Stock(4) April 8, 1991
Transamerica VIF Growth (5) N/A N/A N/A N/A
Fidelity - VIP Equity-Income (5) N/A N/A N/A N/A
Fidelity - VIP II Contrafund (5) N/A N/A N/A N/A
Fidelity - VIP III Growth Opportunities (5) N/A N/A N/A N/A
Fidelity - VIP III Mid Cap (5) N/A N/A N/A N/A
WRL Alger Aggressive Growth (5) N/A N/A N/A N/A
WRL Goldman Sachs Growth (5) N/A N/A N/A N/A
WRL Janus Global (5) N/A N/A N/A N/A
WRL NWQ Value Equity (5) N/A N/A N/A N/A
WRL Salomon All Cap (5) N/A N/A N/A N/A
WRL Pilgrim Baxter Mid Cap Growth (5) N/A N/A N/A N/A
WRL T. Rowe Price Dividend Growth (5) N/A N/A N/A N/A
WRL T. Rowe Price Small Cap (5) N/A N/A N/A N/A
=============================================================================================================
</TABLE>
(1) The Subaccounts invest in Class A shares of Merrill Lynch Variable Series
Funds, Inc. portfolios. There are no 12b-1 fees deducted from Class A
shares.
(2) Effective September 16, 1996, The Dreyfus Corporation became the adviser to
the Dreyfus Small Cap Value Portfolio, formerly known as Quest for Value
Small Cap Portfolio. The portfolio was previously advised by OpCap
Advisors.
(3) Effective April 30, 1999, shares of the WRL Janus Growth Portfolio were
removed and replaced with shares of the Endeavor Janus Growth Portfolio.
The Endeavor Janus Growth Portfolio has the same investment objectives, the
same investment adviser (Janus Capital Corporation) and the same advisory
fees as the WRL Janus Growth Portfolio. Performance prior to May 1, 1999
reflects performance of the annuity subaccount while it was invested in the
WRL Janus Growth Portfolio.
(4) Effective January 1, 1995, Rowe-Price Fleming International, Inc. became
the Adviser to the T. Rowe Price International Stock Portfolio. The
Portfolio's name was changed from the Global Growth Portfolio and the
Portfolio's shareholders approved a change in investment objective from
investments in small capitalization companies on a global basis to
investments in a broad range of companies on an international basis (i.e.,
non-U.S. companies).
(5) The Transamerica VIF Growth Subaccount, Fidelity - VIP Equity-Income
Subaccount, Fidelity - VIP II Contrafund Subaccount, Fidelity - VIP III
Growth Opportunities Subaccount, Fidelity - VIP III Mid Cap Subaccount, WRL
Alger Aggressive Growth Subaccount, , WRL Goldman Sachs Growth Subaccount,
WRL Janus Global Subaccount, WRL NWQ Value Equity Subaccount, WRL Pilgrim
Baxter Mid Cap Growth Subaccount , WRL Salomon All Cap Subaccount, WRL T.
Rowe Price Dividend Growth Subaccount, and WRL T. Rowe Price Small Cap
Subaccount had not commenced operations as
46
<PAGE>
of December 31, 1999, therefore, comparable information is not available.
(6) Performance prior to July 3, 1997, reflects performance of PFL Endeavor
Variable Annuity Subaccounts prior to the offering of the Policies through
Merrill Lynch.
* As of May 1, 2000 the death benefits available under this policy have been
changed to (1) 5% Annually Compounding Death Benefit, (2) Greater of 5%
Annually Compounding through age 80 Death Benefit or Annual Step-Up through
age 80 Death Benefit, (3) Monthly Step-Up Death Benefit, and (4) Return of
Premium. However, the total separate account annual expenses for each death
benefit did not change.
The figures for the "five year" and "from inception" periods in the above tables
reflect waiver of advisory fees and reimbursement of other expenses for all
portfolios except the T. Rowe Price Equity Income Portfolio and T. Rowe Price
Growth Stock Portfolio. In the absence of such waivers, the average annual total
return figures above for the from the five year and from inception periods would
have been lower.
Non-Standardized Performance Data
In addition to the standardized data discussed above, similar performance data
for other periods may also be shown.
PFL may also advertise or disclose average annual total return or other
performance data in non-standard formats for a subaccount of the mutual fund
account. The non-standardized performance data may assume that no surrender
charge is applicable, and may also make other assumptions such as the amount
invested in a subaccount, differences in time periods to be shown, or the effect
of partial withdrawals or annuity payments.
All non-standardized performance data will be advertised only if the
standardized performance data is also disclosed. For additional information
regarding the calculation of other performance data, please refer to the
Statement of Additional Information.
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. Also, Table 2 does not reflect the rider charge
for the optional family income protector.
47
<PAGE>
<TABLE>
<CAPTION>
TABLE 2 - A
Non-Standardized Average Annual Total Returns
(Assuming No Surrender Charge)
=============================================================================================================
5% Annually Compounding Death Benefit or Double Enhanced Death Benefit *
(Total Mutual Fund Account Annual Expenses: 1.55%)
- -------------------------------------------------------------------------------------------------------------
Inception
1 Year 5 Year of the Subaccount
Ended Ended Subaccount Inception
Subaccount 12/31/99 12/31/99 to 12/31/99 Date/(6)/
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Merrill Lynch Basic Value Focus(1) July 2, 1997
Merrill Lynch High Current Income(1) July 2, 1997
Merrill Lynch Developing Capital Markets Focus(1) July 2, 1997
Dreyfus Small Cap Value(2) May 4, 1993
Dreyfus U.S. Government Securities May 9, 1994
Endeavor Asset Allocation April 8, 1991
Endeavor Enhanced Index May 1, 1997
Endeavor High Yield June 2, 1998
Endeavor Janus Growth(3) July 1, 1992
Endeavor Opportunity Value November 18, 1996
Endeavor Value Equity May 27, 1993
Endeavor Select 50 February 2, 1998
T. Rowe Price Equity Income January 3, 1995
T. Rowe Price Growth Stock January 3, 1995
T. Rowe Price International Stock(4) April 8, 1991
Transamerica VIF Growth (5) N/A N/A N/A N/A
Fidelity - VIP Equity-Income (5) N/A N/A N/A N/A
Fidelity - VIP II Contrafund (5) N/A N/A N/A N/A
Fidelity - VIP III Growth Opportunities (5) N/A N/A N/A N/A
Fidelity - VIP III Mid Cap (5) N/A N/A N/A N/A
WRL Alger Aggressive Growth (5) N/A N/A N/A N/A
WRL Goldman Sachs Growth (5) N/A N/A N/A N/A
WRL Janus Global (5) N/A N/A N/A N/A
WRL NWQ Value Equity (5) N/A N/A N/A N/A
WRL Pilgrim Baxter Mid Cap Growth (5) N/A N/A N/A N/A
WRL Salomon All Cap (5) N/A N/A N/A N/A
WRL T. Rowe Price Dividend Growth (5) N/A N/A N/A N/A
WRL T. Rowe Price Small Cap (5) N/A N/A N/A N/A
=============================================================================================================
</TABLE>
48
<PAGE>
<TABLE>
<CAPTION>
=============================================================================================================
TABLE 2 - B
Non-Standardized Average Annual Total Returns
(Assuming No Surrender Charge)
Return of Premium Death Benefit *
(Total Mutual Fund Account Annual Expenses: 1.40%)
- -------------------------------------------------------------------------------------------------------------
Inception
1 Year 5 Year of the Subaccount
Ended Ended Subaccount Inception
Subaccount 12/31/99 12/31/99 to 12/31/99 Date/(6)/
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Merrill Lynch Basic Value Focus(1) July 2, 1997
Merrill Lynch High Current Income(1) July 2, 1997
Merrill Lynch Developing Capital Markets Focus(1) July 2, 1997
Dreyfus Small Cap Value(2) May 4, 1993
Dreyfus U.S. Government Securities May 9, 1994
Endeavor Asset Allocation April 8, 1991
Endeavor Enhanced Index May 1, 1997
Endeavor High Yield June 2, 1998
Endeavor Janus Growth(3) July 1, 1992
Endeavor Opportunity Value November 18, 1996
Endeavor Value Equity May 27, 1993
Endeavor Select 5 February 2, 1998
T. Rowe Price Equity Income January 3, 1995
T. Rowe Price Growth Stock January 3, 1995
T. Rowe Price International Stock(4) April 8, 1991
Transamerica VIF Growth(5) N/A N/A N/A N/A
Fidelity - VIP Equity-Income(5) N/A N/A N/A N/A
Fidelity - VIP II Contrafund(5) N/A N/A N/A N/A
Fidelity - VIP III Growth Opportunities(5) N/A N/A N/A N/A
Fidelity - VIP III Mid Cap(5) N/A N/A N/A N/A
WRL Alger Aggressive Growth(5) N/A N/A N/A N/A
WRL Goldman Sachs Growth(5) N/A N/A N/A N/A
WRL Janus Global(5) N/A N/A N/A N/A
WRL NWQ Value Equity(5) N/A N/A N/A N/A
WRL Pilgrim Baxter Mid Cap Growth(5) N/A N/A N/A N/A
WRL Salomon All Cap(5) N/A N/A N/A N/A
WRL T. Rowe Price Dividend Growth(5) N/A N/A N/A N/A
WRL T. Rowe Price Small Cap(5) N/A N/A N/A N/A
=============================================================================================================
</TABLE>
(1) The Subaccounts invest in Class A shares of Merrill Lynch Variable Series
Funds, Inc. portfolios. There are no 12b-1 fees deducted from Class A
shares.
(2) Effective September 16, 1996, The Dreyfus Corporation became the adviser to
the Dreyfus Small Cap Value Portfolio, formerly known as Quest for Value
Small Cap Portfolio. The portfolio was previously advised by OpCap
Advisors.
(3) Effective April 30, 1999, shares of the WRL Janus Growth Portfolio were
removed and replaced with shares of the Endeavor Janus Growth Portfolio.
The Endeavor Janus Growth Portfolio has the same investment objectives, the
same investment adviser (Janus Capital Corporation) and the same advisory
fees as the WRL Janus Growth Portfolio. Performance prior to May 1, 1999
reflects performance of the annuity subaccount while it was invested in the
WRL Janus Growth Portfolio.
(4) Effective January 1, 1995, Rowe-Price Fleming International, Inc. became
the Adviser to the T. Rowe Price International Stock Portfolio. The
Portfolio's name was changed from the Global Growth Portfolio and the
Portfolio's shareholders approved a change in investment objective from
investments in small capitalization companies on a global basis to
investments in a broad range of companies on an international basis (i.e.,
non-U.S. companies).
(5) The Transamerica VIF Growth Subaccount, Fidelity - VIP Equity-Income
Subaccount, Fidelity - VIP II Contrafund Subaccount, Fidelity - VIP III
Growth Opportunities Subaccount, Fidelity - VIP III Mid Cap Subaccount, WRL
Alger Aggressive Growth Subaccount, WRL Goldman Sachs Growth Subaccount,
WRL Janus Global Subaccount, WRL NWQ Value Equity Subaccount, WRL Pilgrim
Baxter Mid Cap Growth Subaccount , WRL Salomon All Cap Subaccount, WRL T.
Rowe Price Dividend Growth Subaccount, and WRL T. Rowe Price Small Cap
Subaccount had not commenced operations as of December 31, 1999, therefore,
comparable information is not available.
(6) Performance prior to July 3, 1997, reflects performance of PFL Endeavor
Variable Annuity Subaccounts prior to the offering of the Policies through
Merrill Lynch.
49
<PAGE>
* As of May 1, 2000 the death benefits available under this policy have been
changed to (1) 5% Annually Compounding Death Benefit, (2) Greater of 5%
Annually Compounding through age 80 Death Benefit or Annual Step-Up through
age 80 Death Benefit, (3) Monthly Step-Up Death Benefit, and (4) Return of
Premium. However, the total separate account annual expenses for each death
benefit did not change.
The figures for the "five year" and "from inception" periods in the above tables
reflect waiver of advisory fees and reimbursement of other expenses for all
portfolios except the T. Rowe Price Equity Income Portfolio and T. Rowe Price
Growth Stock Portfolio. In the absence of such waivers, the average annual total
return figures above for the from the five year and from inception periods would
have been lower.
Merrill Lynch Variable Series Funds, Inc.-- Adjusted Historical Data. Prior to
July 3, 1997, the Merrill Lynch Basic Value Focus Subaccount, the Merrill Lynch
Developing Capital Markets Focus Subaccount and the Merrill Lynch High Current
Income Subaccount (the "Merrill Lynch Subaccounts") had not yet commenced
operations. However, Table 3 shows average annual total return information based
on the hypothetical assumption that those subaccounts have been available to the
PFL Endeavor ML Variable Annuity Account since inception of the underlying
portfolios.
<TABLE>
<CAPTION>
===============================================================================================
TABLE 3
===============================================================================================
5% Annually Compounding Death Benefit or Double Enhanced Death Benefit *
(Total Separate Account Annual Expenses: 1.55%)
- -----------------------------------------------------------------------------------------------
Corresponding
10 Year or Portfolio
Portfolio 1 Year 5 Year Inception Inception Date(1)
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Merrill Lynch Basic Value Focus April 20, 1982
Merrill Lynch High Current Income July 1, 1993
Merrill Lynch Developing Capital Markets Focus May 2, 1994
- -----------------------------------------------------------------------------------------------
<CAPTION>
Return of Premium Death Benefit *
(Total Separate Account Annual Expenses: 1.40%)
===============================================================================================
Corresponding
10 Year or Portfolio
Portfolio 1 Year 5 Year Inception Inception Date(1)
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Merrill Lynch Basic Value Focus April 20, 1982
Merrill Lynch High Current Income July 1, 1993
Merrill Lynch Developing Capital Markets Focus May 2, 1994
- -----------------------------------------------------------------------------------------------
+ Ten Year Date
===============================================================================================
</TABLE>
(1) The Subaccounts invest in Class A shares of the Merrill Lynch Variable
Series Funds, Inc. portfolios. The performance data for periods prior to
the date the Merrill Lynch Subaccounts commenced operations is based on the
performance of the underlying portfolios and the assumption that the
Merrill Lynch Subaccounts were in existence for the same period as the
corresponding portfolios, with a level of charges equal to those currently
assessed against the Subaccount or against owners' policy values under the
Policies. The Merrill Lynch Basic Value Focus Fund commenced operations on
July 1, 1993; the Merrill Lynch Developing Capital Markets Focus Fund
commenced operations on May 2, 1994; and the Merrill Lynch High Current
Income Fund commenced operations on April 20, 1982. For purposes of the
calculation of the performance data prior to dates of inception of the
subaccounts, the deductions for the mortality and expense risk fee, and
administrative charge are made on a monthly basis, rather than a daily
basis. The monthly deduction is made at the beginning of each month and in
PFL's opinion generally approximates the performance that would have
resulted if the Merrill Lynch Subaccounts had actually been in existence
since the inception of the underlying portfolios. Performance data for
periods of less than seven years reflect deduction of the surrender charge.
* As of May 1, 2000 the death benefits available under this policy have been
changed to (1) 5% Annually Compounding Death Benefit, (2) Greater of 5%
Annually Compounding through age 80 Death Benefit or Annual Step-Up through
age 80 Death Benefit, (3) Monthly Step-Up Death Benefit, and (4) Return of
Premium. However, the total separate account annual expenses for each death
benefit did not change.
50
<PAGE>
HISTORICAL PERFORMANCE DATA
THE TARGET STRATEGIES AND THE DOW JONES INDUSTRIAL AVERAGE(SM)
The total return for each target series subaccount will also reflect the
managers fee and other operating expenses.
Target Strategies--Performance Data
Certain aspects of the investment strategies can be demonstrated using
historical data.
The following table contains three columns that show the performance of:
<TABLE>
<CAPTION>
<S> <C>
Column One: the Ten Highest Dividend Yielding Stocks Strategy for the DJIA;
Column Two: Five Lowest Priced Stocks of the Ten Highest Dividend Yielding
Stocks Strategies in the DJIA; and
Column Three: the performance of the DJIA.
</TABLE>
The returns shown in the following table and graphs are not guarantees of future
performance and should not be used as predictors of returns to be expected in
connection with a target series subaccount. Both stock prices (which may
appreciate or depreciate) and dividends (which may be increased, reduced or
eliminated) will affect the returns. Each strategy under-performed its
respective index in certain years. Accordingly, there can be no assurance that a
target series subaccount will outperform its respective index over the life of a
target series subaccount or over consecutive rollover periods, if available.
An investor in a target series subaccount would not necessarily realize as high
a total return on an investment in the stocks upon which the hypothetical
returns are based for the following reasons: the total return figures shown do
not reflect brokerage commissions, target series subaccount0 expenses or taxes;
the target series subaccounts are established at different times of the year;
and the target series subaccounts may not be fully invested at all times or
equally weighted in all stocks comprising a strategy. If the above-mentioned
charges were reflected in the hypothetical returns, the returns would be lower
than those presented here.
51
<PAGE>
COMPARISON OF TOTAL RETURN(2)
<TABLE>
<CAPTION>
Index
--------------
Strategy Total Returns Total Returns
------------------------------------------ --------------
5 Lowest Priced
---------------
of the 10
-----------
10 Highest Dividend Highest Dividend
--------------------- ------------------
Year Yielding Stocks(1) Yielding Stocks(1) DJIA
- ----- --------------------- ------------------- ------
<S> <C> <C> <C>
1975.............................................. 56.10% 64.77% 44.46%
1976.............................................. 35.18% 40.96% 22.80%
1977.............................................. (1.95)% 5.49% (12.91)%
1978.............................................. 0.03% 1.23% 2.66%
1979.............................................. 13.01% 9.84% 10.60%
1980.............................................. 27.90% 41.69% 21.90%
1981.............................................. 7.46% 3.19% (3.61)%
1982.............................................. 27.12% 43.37% 26.85%
1983.............................................. 39.07% 36.38% 25.82%
1984.............................................. 6.22% 11.12% 1.29%
1985.............................................. 29.54% 38.34% 33.28%
1986.............................................. 35.63% 30.89% 27.00%
1987.............................................. 5.59% 10.69% 5.66%
1988.............................................. 24.57% 21.47% 16.03%
1989.............................................. 26.97% 10.55% 32.09%
1990.............................................. (7.82)% (15.74)% (0.73)%
1991.............................................. 34.20% 62.03% 24.19%
1992.............................................. 7.69% 22.90% 7.39%
1993.............................................. 27.08% 34.01% 16.87%
1994.............................................. 4.21% 8.27% 5.03%
1995.............................................. 36.85% 30.50% 36.67%
1996.............................................. 28.35% 26.20% 28.71%
1997.............................................. 21.68% 19.97% 24.82%
1998.............................................. 10.59% 12.36% 18.03%
1999..............................................
</TABLE>
(1) The Ten Highest Dividend Yielding Stocks and the Five Lowest Priced Stocks
of the Ten Highest Dividend Yielding Stocks in the DJIA for any given
period were selected by ranking the dividend yields for each of the stocks
in the index, as of the beginning of the period, and dividing by the
stock's market value on the first trading day on the exchange where that
stock principally trades in the given period.
(2) Total Return represents the sum of the percentage change in market value
of each group of stocks between the first trading day of a period and the
total dividends paid on each group of stocks during the period divided by
the opening market value of each group of stocks as of the first trading
day of a period. Total Return does not take into consideration any sales
charges, commissions, expenses or taxes. Total Return dividends are
reinvested semi-annually and all returns are stated in terms of the United
States dollar. Based on the year-by-year returns contained in the table,
over the twenty-five years listed above, the Ten Highest Dividend Yielding
Stocks in the DJIA achieved an average annual total return of _____%, while
the Five Lowest Priced Stocks of the Ten Highest Dividend Yielding Stocks
in the DJIA achieved an average annual total return of _____%. In addition,
over this period, the individual strategies achieved a greater average
annual total return than that of the DJIA, which was _____%. Although each
target series subaccount seeks to achieve a better performance than the
index as a whole, there can be no assurance that a target series subaccount
will achieve a better performance.
The performance shown for the strategies do not guarantee future success, nor
should it be used as a predictor of returns. The Dow(SM) Target 5 strategy and
The Dow(SM) Target 10 strategy under-performed the DJIA in 8 and 9,
respectively, of the 25 years shown. There can be no assurance that the
strategies will outperform a given index over any time period, or that they will
have positive results. They have the potential for loss.
The results of the strategies do not represent actual investment advice of First
Trust Advisors L.P. or any actual trading using client assets. They were
achieved by the retroactive application of a model designed with the benefit of
hindsight and should not be considered indicative of the competence or skill of
First Trust Advisors L.P. In addition, the strategy results do not reflect the
52
<PAGE>
impact material, economic, and market factors might have had on First Trust
Advisors L.P.'s decision making, if First Trust Advisors L.P. had actually
managed client money during the period indicated.
First Trust Advisors L.P. advisory services, though currently offered for the
strategies, were not offered during the entire 25 year period since First Trust
Advisors L.P. was founded in 1991, and began supervising unit investment trusts
invested in the strategies in 1994. First Trust Advisors L.P.'s investment
advisory clients have received results different from that set forth above.
Past Performance of the DJIA
LOGO
The chart above represents past performance of the DJIA, the Ten Highest
Dividend Yielding DJIA Stocks and the Five Lowest Priced Stocks of the Ten
Highest Yielding DJIA Stocks (but not The Dow(SM) Target 10 Subaccount or The
Dow(SM) Target 5 Subaccount) from January 1, 1975 through December 31, 1999 and
should not be considered indicative of future results. Further, these results
are hypothetical. The chart assumes that all dividends during a year are
reinvested semi-annually and does not reflect sales charges, commissions,
expenses or taxes. There can be no assurance that either The Dow(SM) Target 10
Subaccount or The Dow(SM) Target 5 Subaccount will outperform the DJIA.
Investors should not rely on the preceding financial information as an
indication of the past or future performance of the target series subaccounts.
Standardized Performance Data
PFL may advertise historical total returns for the target series subaccounts.
These figures will be calculated according to standardized methods prescribed by
the SEC. They will be based on historical earnings and are not intended to
indicate future performance.
The total return calculations for a target series subaccount do not reflect the
effect of any premium taxes that may be applicable to a particular policy. To
the extent that any or all of a premium tax is applicable to a particular
policy, the total return of that policy will be reduced. For additional
information regarding total returns calculated using the standard formats
briefly summarized above, please refer to the Statement of Additional
Information.
Based on the method of calculation described in the Statement of Additional
Information, the average annual total returns for periods from inception of the
subaccounts 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 the administrative
charges. Performance figures may reflect the 1. 40% mortality and expense risk
fee for the 5% Annually Compounding and Double Enhanced Death Benefits, or the
1.25% mortality and expense risk fee for the Return of Premium Death Benefit.
Standard total return calculations will reflect the effect of surrender charges
that may be applicable to a particular period. Also, Table 1 reflects the rider
charge for the optional family income protector rider.
53
<PAGE>
<TABLE>
<CAPTION>
=========================================================================================
TABLE 1
Standard Average Annual Total Returns
=========================================================================================
5% Annually Compounding Death Benefit or Double Enhanced Death Benefit *
(Total Separate Account Annual Expenses: 1.55%)
- -----------------------------------------------------------------------------------------
Inception
1 Year of the Subaccount
Ended Subaccount Inception
Subaccount 12/31/99 to 12/31/99 Date
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
The Dow(SM) Target 10 (January Series) January 4, 1999
The Dow(SM) Target 5 (January Series) January 4, 1999
The Dow(SM) Target 10 (July Series) July 1, 1998
The Dow(SM) Target 5 (July Series) July 1, 1998
- -----------------------------------------------------------------------------------------
<CAPTION>
Return of Premium Death Benefit *
(Total Separate Account Annual Expenses: 1.40%)
=========================================================================================
Inception
1 Year of the Subaccount
Ended Subaccount Inception
Subaccount 12/31/99 to 12/31/99 Date
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
The Dow(SM) Target 10 (January Series) January 4, 1999
The Dow(SM) Target 5 (January Series) January 4, 1999
The Dow(SM) Target 10 (July Series) July 1, 1998
The Dow(SM) Target 5 (July Series) July 1, 1998
========================================================================================
</TABLE>
* As of May 1, 2000 the death benefits available under this policy have been
changed to (1) 5% Annually Compounding Death Benefit, (2) Greater of 5%
Annually Compounding through age 80 Death Benefit or Annual Step-Up through
age 80 Death Benefit, (3) Monthly Step-Up Death Benefit, and (4) Return of
Premium. However, the total separate account annual expenses for each death
benefit did not change.
Non-Standardized Performance Data
PFL may also advertise or disclose average annual total return or other
performance data in non-standard formats for a target series subaccount. The
non-standardized data may assume that the policy remains in force and therefore
not reflect the surrender charge. The non-standardized performance data may make
other assumptions such as the amount invested in a target series subaccount,
differences in time periods to be shown, or the effect of partial withdrawals or
annuity payments and may also make other assumptions.
All non-standardized performance data will be advertised only if the
standardized performance data is also disclosed. For additional information
regarding the calculation of other performance data, please refer to the SAI.
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. Also, Table 2, does not reflect the rider
charge for the optional family income protector.
54
<PAGE>
<TABLE>
<CAPTION>
=========================================================================================
TABLE 2
Average Annual Total Returns
(Assuming No Surrender Charge)
=========================================================================================
5% Annually Compounding Death Benefit or Double Enhanced Death Benefit *
(Total Separate Account Annual Expenses: 1.55%)
- -----------------------------------------------------------------------------------------
Inception
1 Year of the Subaccount
Ended Subaccount Inception
Subaccount 12/31/99 to 12/31/99 Date
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
The Dow(SM) Target 10 (January Series) January 4, 1999
The Dow(SM) Target 5 (January Series) January 4, 1999
The Dow(SM) Target 10 (July Series) July 1, 1998
The Dow(SM) Target 5 (July Series) July 1, 1998
- -----------------------------------------------------------------------------------------
<CAPTION>
Return of Premium Death Benefit
(Total Separate Account Annual Expenses: 1.40%) *
- -----------------------------------------------------------------------------------------
Inception
1 Year of the Subaccount
Ended Subaccount Inception
Subaccount 12/31/99 to 12/31/99 Date
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
The Dow(SM) Target 10 (January Series) January 4, 1999
The Dow(SM) Target 5 (January Series) January 4, 1999
The Dow(SM) Target 10 (July Series) July 1, 1998
The Dow(SM) Target 5 (July Series) July 1, 1998
========================================================================================
</TABLE>
* As of May 1, 2000 the death benefits available under this policy have been
changed to (1) 5% Annually Compounding Death Benefit, (2) Greater of 5%
Annually Compounding through age 80 Death Benefit or Annual Step-Up through
age 80 Death Benefit, (3) Monthly Step-Up Death Benefit, and (4) Return of
Premium. However, the total separate account annual expenses for each death
benefit did not change.
55
<PAGE>
APPENDIX C
POLICY VARIATIONS
The dates shown below are the approximate first issue dates of the various
versions of the policy. These dates will vary by state in many cases. This
Appendix describes certain of the more significant differences in features of
the various versions of the policy. There may be additional variations. Please
see your actual policy and any attachments for determining your specific
coverage.
- --------------------------------------------------------------------------------
Policy Form/Endorsement Approximate First Issue Date
AV201 101 65 189 (Policy Form) January 1991
AE830 292 (endorsement) May 1992
AE847 394 (endorsement) June 1994
AE871 295 (endorsement) May 1995
AV254 101 87 196 (Policy Form) June 1996
AE909 496 (endorsement) June 1996
AE890 196 (endorsement) June 1996
AV320 101 99 197 (Policy Form) May 1997
AE945 197 (endorsement) May 1997
AV376 101 106 1197 (Policy Form) May 1998
AV432 101 114 199 (Group Policy Form) May 2000
AV494 101 124 100 (Individual Policy Form) May 2000
- --------------------------------------------------------------------------------
56
<PAGE>
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Product Feature AV201 101 65 189 AV201 101 65 189, AV201 101 65 189, AV254 101 87 196,
AE830 292, and AE847 394, and AE909 496, and
AE847 394 AE871 295 AE890 196
- ------------------------------------------------------------------------------------------------------------------------------------
Excess Interest N/A N/A N/A Yes
Adjustment
- ------------------------------------------------------------------------------------------------------------------------------------
Guaranteed Minimum Death Total premiums paid, less 5% Annually Compounding 5% Annually Compounding 5% Annually Compounding
Benefit Option(s) any partial withdrawals (Option A). (Option A) or Annual (Option A) or Annual
and any surrender Step-Up (Option B). Step-Up (Option B).
charges made before Option A is only Option A is only
death, accumulated at 4% available if owner and available if owner and
to the date we receive annuitant are both under annuitant are both under
due proof of death or age 75. age 75.
the policy value on the
date we receive due
proof of death, which
ever is greater.
- ------------------------------------------------------------------------------------------------------------------------------------
Guaranteed Period 1 and 3 year guaranteed 1 and 3 year guaranteed 1 and 3 year guaranteed 1, 3, 5, and 7 year
Options (available in periods available. periods available. periods available. guaranteed periods
the fixed account) available.
- ------------------------------------------------------------------------------------------------------------------------------------
Minimum effective annual 4% 4% 4% 3%
interest rate
applicable to the fixed
account
- ------------------------------------------------------------------------------------------------------------------------------------
Asset Rebalancing N/A N/A N/A Yes
- ------------------------------------------------------------------------------------------------------------------------------------
Death Proceeds Greater of 1) the policy Greater of (a) policy Greatest of (a) policy Greatest of (a) annuity
value on the date we value and (b) 5% value and (b) guaranteed purchase value, (b) cash
receive due proof of Annually Compounding minimum death benefit value, and (c)
death, or 2) the total Death Benefit guaranteed minimum death
premiums paid for this benefit.
policy, less any partial
withdrawals and any
surrender charges made
before death,
accumulated at 4%
interest per annum to
the date we receive due
proof of death
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Product Feature AV320 101 99 197 and AV376 101 106 1197 and AV432 101 114 199 and
AE945 197 AE 945 197 AV494 101 124 100
- -------------------------------------------------------------------------------------------------------------------------
Excess Interest Yes Yes Yes
Adjustment
- -------------------------------------------------------------------------------------------------------------------------
Guaranteed Minimum Death 5% Annually Compounding 5% Annually Compounding 5% Annually Compounding
Benefit Option(s) (Option A), Annual Step-Up (Option A), Double (Option A), Greater of 5%
(Option B), or Return of Enhanced (Option B), or Annually Compounding
Premium (Option C). Option Return of Premium (Option through age 80 or Annual
A is only available if C). Option A is only Step-Up through age 80
owner and annuitant are available if owner and (Option B), Return of
both under age 75. Option annuitant are both under Premium (Option C), and
B is only available if Age 75. Option B is only Monthly Step-Up through age
owner and annuitant are available if owner and 80 (Option D). Option A is
under age 81. annuitant are both under only available if owner and
age 81. annuitant are both under
age 75. Option B and D are
only available if owner and
annuitant are both under
age 81.
- -------------------------------------------------------------------------------------------------------------------------
Guaranteed Period 1, 3, 5 and 7 year 1, 3, 5, and 7 year 1, 3, 5, and 7 year
Options (available in guaranteed periods guaranteed periods guaranteed periods
the fixed account) available. available. available.
- -------------------------------------------------------------------------------------------------------------------------
Minimum effective annual 3% 3% 3%
interest rate
applicable to the fixed
account
- -------------------------------------------------------------------------------------------------------------------------
Asset Rebalancing Yes Yes Yes
- -------------------------------------------------------------------------------------------------------------------------
Guaranteed Minimum Death Greatest of (a) policy Greatest of (a) policy Greatest of (a) policy
Benefit Option(s) value, (b) cash value, and value, (b) cash value, and value, (b) cash value, and
(c) guaranteed minimum (c) guaranteed minimum (c) guaranteed minimum
death benefit. death benefit. death benefit.
</TABLE>
57
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Distribution Financing N/A N/A N/A N/A
Charge
- ------------------------------------------------------------------------------------------------------------------------------------
Is Mortality & Expense No No No No
Risk Fee different
after the annuity
commencement date?
- ------------------------------------------------------------------------------------------------------------------------------------
Product Feature AV201 101 65 189 AV201 101 65 189, AV201 101 65 189, AV254 101 87 196,
AE830 292, and AE847 394, and AE909 496, and
AE847 394 AE871 295 AE890 196
- ------------------------------------------------------------------------------------------------------------------------------------
Dollar Cost Averaging N/A N/A N/A Yes
Fixed Account Option
- ------------------------------------------------------------------------------------------------------------------------------------
Service Charge $35 assessed on each $35 assessed on each Assessed only on a Assessed only on a policy
policy anniversary. Not policy anniversary. Not policy anniversary; anniversary; Waived if
deducted from the fixed deducted from the fixed Waived if sum of premium sum of premium payments
account. account. payments less partial less partial withdrawals
withdrawals is at least is at least $50,000 on
$50,000 on the policy the policy anniversary.
anniversary. Not Not deducted from the
deducted from the fixed fixed account.
account.
- ------------------------------------------------------------------------------------------------------------------------------------
Nursing Care and N/A Yes Yes Yes
Terminal Condition
Withdrawal Option
- ------------------------------------------------------------------------------------------------------------------------------------
Unemployment Waiver N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Distribution Financing Applicable Applicable N/A
Charge
- ------------------------------------------------------------------------------------------------------------------
Is Mortality & Expense No Yes (1.10%, plus Yes (1.25%, plus
Risk Fee different administrative charge, administrative charge,
after the annuity regardless of death regardless of death benefit
commencement date? benefit chosen prior to chosen prior to the annuity
the annuity commencement commencement date).
date)
- ------------------------------------------------------------------------------------------------------------------
Product Feature AV320 101 99 197 and AV376 101 106 1197 and AV432 101 114 199 and
AE945 197 AE 945 197 AV494 101 124 100
- ------------------------------------------------------------------------------------------------------------------
Dollar Cost Averaging Yes Yes Yes
Fixed Account Option
- ------------------------------------------------------------------------------------------------------------------
Service Charge Assessed either on a policy Assessed either on a policy Assessed either on a policy
anniversary or on anniversary or on anniversary or on
surrender; Waived if sum surrender; Waived if sum surrender; Waived if sum of
of premium payments less of premium payments less premium payments less
partial withdrawals or the partial withdrawals or the partial withdrawals or the
policy value is at least policy value is at least policy value is at least
$50,000 on the policy $50,000 on the policy $50,000 on The policy
anniversary or at the time anniversary or at the time anniversary or at the time
of surrender. The service of surrender. The service of surrender. The service
charge is deducted pro-rata charge is deducted pro-rata charge is deducted pro-rata
from the investment from the investment from the investment options.
options. options.
- ------------------------------------------------------------------------------------------------------------------
Nursing Care and Yes Yes Yes
Terminal Condition
Withdrawal Option
- ------------------------------------------------------------------------------------------------------------------
Unemployment Waiver N/A N/A Yes
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
58
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
THE ENDEAVOR ML VARIABLE ANNUITY
Issued through
PFL ENDEAVOR VARIABLE ANNUITY ACCOUNT
and
PFL ENDEAVOR TARGET ACCOUNT
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 Endeavor ML Variable Annuity offered by PFL Life
Insurance Company. You may obtain a copy of the prospectus dated May 1, 2000 by
calling 1-800-525-6205, or by writing to the Administrative and Service Office,
Financial Markets Division--Variable Annuity Dept., 4333 Edgewood Road, N.E.,
Cedar Rapids, Iowa 52499-0001. Terms used in the current prospectus for the
policy are incorporated in this Statement of Additional Information.
This Statement of Additional Information (SAI) is not a prospectus and should be
read only in conjunction with the prospectuses for the policy and the underlying
fund portfolios.
Dated: May 1, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
Page
----
<S> <C>
GLOSSARY OF TERMS ..........................................................
THE POLICY--GENERAL PROVISIONS .............................................
Owner ....................................................................
Entire Policy ............................................................
Misstatement of Age or Sex ...............................................
Addition, Deletion or Substitution of Investments ........................
Excess Interest Adjustment ...............................................
Reallocation of Policy Values After the Annuity Commencement Date ........
Annuity Payment Options ..................................................
Death Benefit ............................................................
Death of Owner ...........................................................
Assignment ...............................................................
Evidence of Survival .....................................................
Non-Participating ........................................................
Amendments ...............................................................
Employee and Agent Purchases .............................................
CERTAIN FEDERAL INCOME TAX CONSEQUENCES ....................................
Tax Status of the Policy .................................................
Taxation of PFL ..........................................................
INVESTMENT EXPERIENCE ......................................................
Accumulation Units .......................................................
Annuity Unit Value and Annuity Payment Rates .............................
FAMILY INCOME PROTECTOR--ADDITIONAL INFORMATION ............................
HISTORICAL PERFORMANCE DATA ................................................
Money Market Yields ......................................................
Other Subaccount Yields ..................................................
Total Returns ............................................................
Other Performance Data ...................................................
Adjusted Historical Performance Data--The Mutual Fund Account ............
THE TARGET ACCOUNT .........................................................
What is the Investment Strategy? .........................................
Determination of Unit Value; Valuation of Securities .....................
The Board of Managers ....................................................
The Investment Advisory Services .........................................
The Manager ..............................................................
Operating Expenses .......................................................
Transfer Agent and Custodian .............................................
Brokerage Allocation .....................................................
Investment Restrictions ..................................................
Fundamental Policies .....................................................
Operating Policies .......................................................
Options and Futures Strategies ...........................................
Securities Lending .......................................................
Tax Limitation ...........................................................
PUBLISHED RATINGS ..........................................................
STATE REGULATION OF PFL ....................................................
ADMINISTRATION .............................................................
RECORDS AND REPORTS ........................................................
DISTRIBUTION OF THE POLICIES ...............................................
VOTING RIGHTS ..............................................................
The Mutual Fund Account ..................................................
The Target Account .......................................................
OTHER PRODUCTS .............................................................
CUSTODY OF ASSETS ..........................................................
LEGAL MATTERS ..............................................................
INDEPENDENT AUDITORS .......................................................
OTHER INFORMATION ..........................................................
FINANCIAL STATEMENTS .......................................................
</TABLE>
2
<PAGE>
GLOSSARY OF TERMS
Accumulation Unit--An accounting unit of measure used in calculating the policy
value in the mutual fund account and the target 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--Financial Markets Division--Variable Annuity
Dept., PFL Life Insurance Company, 4333 Edgewood Road, N.E., Cedar Rapids, Iowa
52499-0001.
Annual Stock Selection Date--The last business day of a specified 12-month
period.
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.
Beneficiary--The person who has the right to the death benefit set forth in the
policy.
Business Day--A day when the New York Stock Exchange is open for business.
Cash Value--The policy value increased or decreased by an excess interest
adjustment, less the annual service charge, and less any applicable premium
taxes, surrender charge, and family income protector rider fee.
Code--The Internal Revenue Code of 1986, as amended.
DJIA--The Dow Jones Industrial Average/sm/. Thirty stocks chosen by the editors
of The Wall Street Journal as representative of the broad market and of American
industry.
Enrollment form--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.
Excess Interest Adjustment--A positive or negative adjustment to amounts
withdrawn upon partial withdrawals, full surrenders, or transfers from the
guaranteed period options, or to amounts applied to annuity payment options. The
adjustment reflects changes in the interest rates declared by PFL since the date
any payment was received by, or an amount was transferred to, the guaranteed
period option. The excess interest adjustment can either decrease or increase
the amount to be received by the owner upon full surrender or commencement of
annuity payments, depending upon whether there has been an increase or decrease
in interest rates, respectively.
Fixed Account--One or more investment choices under the policy that are part of
the general assets of PFL and which are not in the separate accounts.
Guaranteed Period Options--The various guaranteed interest rate periods of the
fixed account, which PFL may offer, into which premiums may be paid or amounts
may be transferred.
3
<PAGE>
Initial Stock Selection Date--The date is June 30, 1998 for the July Series. The
date is December 31, 1998 for the January Series.
Mutual Fund Account--PFL Endeavor VA Separate Account, a separate account
established and registered as a unit investment trust under the Investment
Company Act of 1940 (the "1940 Act"), as amended, to which premium payments
under the policies may be allocated.
Mutual Fund Subaccount--A subdivision within the mutual fund account, the assets
of which are invested in a specified portfolio of the underlying funds.
Nonqualified Policy--A policy other than a qualified policy.
Owner--Depending upon the state of issue, owner means either:
. the individual or entity that owns a certificate under a group contract; or
. the individual or entity that owns an individual policy.
Participant--A person who makes premium payments or for whom premium payments
are made under the policy.
Policy--Depending upon the state of issue, policy means either:
. the individual certificate under a group contract; or
. the individual policy.
Policy Value--On or before the annuity commencement date, the policy value is
equal to the owner's:
. premium payments; minus
. partial withdrawals (including any applicable excess interest adjustments
and/or surrender charges on such withdrawals); plus
. interest credited in the fixed account; plus
. accumulated gains or losses in the mutual fund account and the target
account; minus
. service charges, premium taxes, rider fees, and transfer fees, if any.
Policy Year--A policy year begins on the policy date in which the policy becomes
effective and on each anniversary thereof.
Premium Payment--An amount paid to PFL by the owner or on the owner's behalf as
consideration for the benefits provided by the policy.
Qualified Policy--A policy issued in connection with retirement plans that
qualify for special federal income tax treatment under the Code.
Service Charge--An annual charge on each policy anniversary (and a charge at the
time of surrender during any policy year) for policy maintenance and related
administrative expenses. This annual charge is $35, but will not exceed 2% of
the policy value.
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--A percentage of each premium payment in an amount from 7% to
0% depending upon the length of time from the date of each premium payment. The
surrender charge is assessed on surrenders of, or partial withdrawals from, the
policy. A surrender charge may also be referred to as a "contingent deferred
sales charge."
Target Account--A separate account established and registered as a management
investment company under the 1940 Act, to which premium payments under the
policies may be allocated.
4
<PAGE>
Target Series Subaccount--A subdivision within the target account, the assets of
which are invested in common stocks selected according to a specified investment
strategy, with a specified stock selection date.
Valuation Period--The period of time from one determination of accumulation unit
values and annuity unit values to the next subsequent determination of values.
Such determination shall be made on each business day.
Variable Annuity Payments--Payments made pursuant to an annuity payment option
which fluctuate as to dollar amount or payment term in relation to the
investment performance of the specified subaccounts within the mutual fund
account or the target account.
Written Notice or Written Request--Written notice, signed by the owner, that
gives PFL the information it requires and is received at the administrative and
service office. For some transactions, PFL may accept an electronic notice such
as telephone instructions. Such electronic notice must meet the requirements PFL
establishes for such notices.
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. Words printed in italics in this SAI are defined in the
Glossary of Terms, found on page 3.
THE POLICY--GENERAL PROVISIONS
Owner
The policy shall belong to the owner upon issuance of the policy after
completion of an enrollment form 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 your 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 enrollment form, information provided in
lieu thereof, or in a written notice. The successor owner will become the new
owner upon your death, if you predecease the annuitant. If no successor owner
survives you and you predecease the annuitant, your estate will become the
owner.
Note carefully. If the owner does not name a contingent owner, the owner's
estate will become the new owner. If no probate estate is opened because the
owner has precluded the opening of a probate estate by means of a trust or other
instrument, unless PFL has received written notice of the trust as a successor
owner signed prior to the owner's death, that trust may not exercise ownership
rights to the policy. It may be necessary to open a probate estate in order to
exercise ownership rights to the policy if no contingent owner is named in a
written notice received by PFL.
The owner may change the ownership of the policy in a written notice. When this
change takes effect, all rights of ownership in the policy will pass to the new
owner. A change of ownership may have tax consequences.
When there is a change of owner or successor owner, the change will not be
effective until it is recorded in our records, Once recorded, it will take
effect as of the date the owner signs the written notice, subject to any payment
PFL has made or action PFL has taken before recording the change. Changing the
owner or naming a new successor owner cancels any prior choice of successor
owner, but does not change the designation of the beneficiary or the annuitant.
If ownership is transferred (except to the owner's spouse) because the owner
dies before the annuitant, the cash value generally must be distributed to the
successor owner within five years of the owner's death, or payments must be made
for a period certain or for the successor owner's lifetime so long as any period
certain does not exceed that successor owner's life expectancy, if the first
payment begins within one year of your death.
Entire Policy
The policy, any endorsements thereon, the enrollment form, or information
provided in lieu thereof, constitute the entire contract between PFL and the
owner. All statements in the enrollment form 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 enrollment form or information
provided in lieu thereof.
Misstatement of Age or Sex
If the age or sex of the annuitant or owner 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
6
<PAGE>
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 or owner 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 will always be
available for premium payments, allocations, or transfers. PFL retains the
right, subject to any applicable law, to make certain changes in the mutual fund
account and its investments. PFL reserves the right to eliminate the shares of
any portfolio held by a mutual fund subaccount and to substitute shares of
another portfolio of the underlying funds, or of another registered open-end
management investment company for the shares of any portfolio, if the shares of
the portfolio are no longer available for investment or if, in PFL's judgment,
investment in any portfolio would be inappropriate in view of the purposes of
the mutual fund account. To the extent required by the 1940 Act, substitutions
of shares attributable to your interest in a mutual fund subaccount will not be
made without prior notice to you and the prior approval of the SEC. PFL retains
the right, subject to any applicable law, to make certain changes in the target
account and its investments. PFL reserves the right to eliminate a target series
subaccount if, in PFL's judgment, investment in any target series subaccount
would be inappropriate in view of the purposes of the policy. Nothing contained
herein shall prevent the mutual fund account from purchasing other securities
for other series or classes of variable annuity policies, or from effecting an
exchange between series or classes of variable annuity policies on the basis of
your requests.
New subaccounts may be established when, in the sole discretion of PFL,
marketing, tax, investment or other conditions warrant. Any new subaccounts may
be made available to existing owners on a basis to be determined by PFL. Each
additional subaccount will purchase shares in a mutual fund portfolio, other
investment vehicle, or, in the case of the target account, in shares of common
stock. 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 you and request a
reallocation of the amounts invested in the eliminated subaccount. If no such
reallocation is provided by you, PFL will reinvest the amounts in the subaccount
that invests in the Endeavor Money Market Portfolio (or in a similar portfolio
of money market instruments), in another subaccount, or in the fixed account, 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
mutual fund account may be (i) operated as a management company under the 1940
Act or any other form permitted by law, (ii) deregistered under the 1940 Act in
the event such registration is no longer required or (iii) combined with one or
more other mutual fund accounts, and the target account may be (i) operated in
any 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
mutual fund accounts. To the extent permitted by applicable law, PFL also may
transfer the assets of the mutual fund account or the target account associated
with the policies to another account or accounts.
Excess Interest Adjustment
Money that you withdraw from, transfer out of, or apply to an annuity payment
option from a guaranteed period option of the fixed account before the end of
its guaranteed period (the number of years you specified the money would remain
in the guaranteed period option) may be subject to an excess interest
adjustment. At the time you request a withdrawal, if interest rates 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 premium payments and transfers to that
guaranteed period option, less any prior partial withdrawals and transfers
7
<PAGE>
from the 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 in effect for the policy
C = Current Guaranteed Interest Rate then being offered on new premiums for the
next longer option period than "M". If this policy form or such an option
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 option period, rounded up to the
next higher whole number of months.
* = multiplication
= exponentiation
Example 1 (Surrender, rates increase by 3%):
<TABLE>
<S> <C>
Single premium: $50,000.00
Guarantee period: 5 Years
Guarantee rate: 5.50% per annum
Surrender: middle of contract year 2
Policy value at middle of contract year 2 = 50,000.00 * (1.055) /\ 1.5 = 54,181.21
Penalty free amount at middle of contract year 2 = 50,000.00 * .10 = 5,000.00
(assume any gains in the policy is less than 10% of premium)
Amount subject to excess interest adjustment = 54,181.21 - 5,000.00 = 49,181.21
Excess interest adjustment floor = 50,000.00 * (1.03) /\ 1.5 = 52,266.79
Excess interest adjustment
G = .055
C = .085
M = 18
Excess interest adjustment = S * (G-C) * (M/12)
= 49,181.21 * (.055 - .085) * (18/12)
= -2,213.15, but excess interest adjustment cannot cause the
adjusted policy value to fall below the excess interest
adjustment floor, so the adjustment is limited to 52,266.79
- 54,181.21 = -1,914.42
Adjusted policy value = policy value + excess interest adjustment
= 54,181.21 + (-2,213.15) = 51,968.06
Surrender charges = (50,000.00 - 5,000.00) * .07 = 3,150.00
Net surrender value at middle of contract year 2 = 54,181.21 - 3,150.00 = 51,031.21
</TABLE>
8
<PAGE>
Example 2 (Surrender, rates decrease by 1%):
<TABLE>
<S> <C>
Single premium: $50,000.00
Guarantee period: 5 Years
Guarantee rate: 5.50% per annum
Surrender: middle of contract year 2
Policy value at middle of contract year 2 = 50,000.00 * (1.055) /\ 1.2 = 54,181.21
Penalty free amount at middle of contract year 2 = 50,000.00 * .10 = 5,000.00
(assume any gain in the policy is less than 10% of premium)
Amount subject to excess interest adjustment = 54,181.21 - 5,000.00 = 49,181.21
EIA Floor = 50,000.00 * (1.03) /\ 1.5 = 52,266.79
Excess interest adjustment
G = .055
C = .045
M = 18
Excess interest adjustment = S * (G - C) * (M/12)
= 49,181.21 * (.055 - .045) * (18/12) = 737.72
Adjusted policy value = 54,181.21 + 737.72 = 54,918.93
Surrender charges = (50,000.00 - 5,000.00) * .07 = 3,150.00
Net surrender value at middle of contract year 2 = 54,918.93 - 3,150.00 = 51,768.93
</TABLE>
On a partial withdrawal, PFL will pay the policyholder the full amount of
withdrawal requested (as long as the policy value is sufficient). Amounts
withdrawn will reduce the policy value by an amount equal to:
R - E + SC
R = the requested partial withdrawal;
E = the excess interest adjustment; and
SC = the surrender charges on (EPW - E); where
EPW = the excess partial withdrawal amount.
Example 3 (Partial Withdrawal, rates increase by 1%):
<TABLE>
<S> <C>
Single premium: $50,000.00
Guarantee period: 5 Years
Guarantee rate: 5.50% per annum
Partial withdrawal: $20,000.00; middle of contract year 2
Policy value at middle of contract year 2 = 50,000.00 * (1.055) /\ 1.2 = 54,181.21
Penalty Free Amount at middle of contract year 2 = 50,000.00 * .10 = 5,000.00
(assume any gain in the policy is less than 10% of premium)
Excess interest adjustment / surrender charge
S = 20,000 - 5,000.00 = 15,000.00
G = .055
C = .065
M = 18
E = 15,000.00 * (.055 - .065) * (18/12) = -225.00
EPW = 20,000.00 - 5,000.00 = 15,000.00
SC = .07 * (15,000.00 - (-225.00) = 1,065.75
Remaining policy value at middle of contract year 2 = 54,181.21 - (R - E + surrender charge)
= 54,181.21 - (20,000 - (-225.00) + 1,065.75) = 32,890.46
</TABLE>
9
<PAGE>
Example 4 (Partial Withdrawal, rates decrease by 1%):
<TABLE>
<S> <C>
Single premium: $50,000.00
Guarantee period: 5 Years
Guarantee rate: 5.50% per annum
Partial withdrawal: $20,000.00; middle of contract year 2
Policy value at middle of contract year 2 = 50,000.00 * (1.055) /\ 1.5 = 54,181.21
Penalty free amount at middle of contract year 2 = 50,000.00 * .10 = 5,000.00
(assume any gain in the policy is less than 10% of premium)
Excess interest adjustment / surrender charge
S = 20,000.00 - 5,000.00 = 15,000.00
G = .055
C = .045
M = 18
E = 15,000.00 * (.055 - .045) * (18/12) = 225.00
EPW = 20,000.00 - 5,000.00 = 15,000.00
SC = .07 * (15,000.00 - 225.00) = 1,034.25
Remaining policy value at middle of contract year 2 = 54,181.21 - (R - E + surrender charge)
= 54,181.21 - (20,000.00 - 225.00 + 1,034.25) = 33,371.96
</TABLE>
Reallocation of Policy Values After the Annuity Commencement Date
After the annuity commencement date, you may reallocate the value of a
designated number of annuity units of a mutual fund subaccount or of a target
series subaccount then credited to a policy into an equal value of annuity units
of one or more other mutual fund subaccounts, target series subaccounts 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 annuity
units 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 mutual fund account or the target 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 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 mutual fund account and the target 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.
10
<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 maturing 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 mutual fund account and
the target account selected by the annuitant or beneficiary.
Determination of the First Variable Payment. The amount of the first variable
- --------------------------------------------
payment depends upon the sex (if consideration of sex is allowed under state
law) and adjusted age of the annuitant. The adjusted age is the annuitant's
actual age nearest birthday, on the annuity commencement date, adjusted as
follows:
Annuity Commencement Date Adjusted Age
------------------------- ------------
Before 2001 Actual Age
2001-2010 Actual Age minus 1
2011-2020 Actual Age minus 2
2021-2030 Actual Age minus 3
2031-2040 Actual Age minus 4
After 2040 As determined by PFL
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 Withdrawals, where gross partial withdrawal =
requested withdrawal - excess interest adjustment + surrender charges on
(excess partial withdrawal - excess interest adjustment); and
(2) is the adjustment factor = current death benefit prior to the withdrawal
divided by the current policy value prior to the withdrawal.
The following examples describe the effect of a withdrawal on the guaranteed
minimum death benefit and policy value.
11
<PAGE>
EXAMPLE 1
(Assumed Facts for Example)
$75,000 current guaranteed minimum death benefit before withdrawal
$50,000 current policy value before withdrawal
$75,000 current death benefit (larger of policy value and guaranteed
minimum death benefit)
6% current surrender charge percentage
$15,000 requested withdrawal
$ 5,000 surrender charge-free amount (assumes penalty free withdrawal is
available)
$10,000 excess partial withdrawal- (amount subject to surrender charge)
$ 100 excess interest adjustment (assumes interest rates have decreased
since initial guarantee)
$ 594 surrender charge on (excess partial withdrawal less excess
interest adjustment) = 0.06 * (10,000 - 100)
$10,494 reduction in policy value due to excess partial withdrawal =
10,000 - 100 + 594
$23,241 adjusted partial withdrawal = $5,000 + 10,494* (75,000/50,000)
$51,759 New guaranteed minimum death benefit (after withdrawal) = 75,000
- 23,241
$34,506 New policy value (after withdrawal) = 50,000 - 15,494
Summary:
- -------
Reduction in guaranteed minimum death benefit = $23,241
Reduction in policy value = $15,494
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.
Example 2
(Assumed Facts for Example)
<TABLE>
<S> <C>
$50,000 current guaranteed minimum death benefit before withdrawal
$75,000 current policy value before withdrawal
$75,000 current death benefit (larger of policy value and guaranteed
minimum death benefit)
6% current surrender charge percentage
$15,000 requested withdrawal
$ 7,500 surrender charge-free amount (assumes penalty free withdrawal is
available)
$ 7,500 excess partial withdrawal- (amount subject to surrender charge)
$ -100 excess interest adjustment
(assumes interest rates have increased since initial guarantee)
$ 456 surrender charge on (excess partial withdrawal less excess
interest adjustment) = 0.06*[(7500 - (-100)]
$ 8,056 reduction in policy value due to excess partial withdrawal = 7,500
- (-100) + 456 = 7,500 + 100 + 456
$15,556 adjusted partial withdrawal = (7,500 + 8,056)* (75,000/75,000)
$34,444 New guaranteed minimum death benefit (after withdrawal) = 50,000 -
15,556
$59,444 New policy value (after withdrawal) = 75,000 - 15,556
</TABLE>
Summary:
- --------
Reduction in guaranteed minimum death benefit = $15,556
Reduction in policy value = $15,556
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 that 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
12
<PAGE>
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.
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.
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 enrollment form 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" for more information about these rules. Other rules may
apply to qualified policies.
Assignment
During the lifetime of the annuitant you may assign any rights or benefits
provided by the policy if your policy is a nonqualified policy. An assignment
will not be binding on PFL until a copy has been filed at its administrative and
service office. Your rights and benefits and those of the beneficiary are
subject to the rights of the assignee. PFL assumes no responsibility for the
validity or effect of any assignment. Any claim made under an assignment shall
be subject to proof of interest and the extent of the assignment. An assignment
may have tax consequences.
Unless you so direct by filing written notice with PFL, no beneficiary may
assign any payments under the policy before they are due. To the extent
permitted by law, no payments will be subject to the claims of any beneficiary's
creditors.
Ownership under qualified policies is restricted to comply with the Code.
Evidence of Survival
PFL reserves the right to require satisfactory evidence that a person is alive
if a payment is based on that person being alive. No payment will be made until
PFL receives such evidence.
13
<PAGE>
Non-Participating
The policy will not share in PFL's surplus earnings; no dividends will be paid.
Amendments
No change in the policy is valid unless made in writing by PFL and approved by
one of PFL's officers. No registered representative has authority to change or
waive any provision of the policy.
PFL reserves the right to amend the policies to meet the requirements of the
Code, regulations or published rulings. You can refuse such a change by giving
written notice, but a refusal may result in adverse tax consequences.
Employee and Agent Purchases
The policy may be acquired by an employee or registered representative of any
broker/dealer authorized to sell the policy or their spouse or minor children,
or by an officer, director, trustee or bona-fide full-time employee of PFL or
its affiliated companies or their spouse or minor children. In such a case, PFL
may credit an amount equal to a percentage of each premium payment to the policy
due to lower acquisition costs PFL experiences on those purchases. The credit
will be reported to the Internal Revenue Service as taxable income to the
employee or registered representative. PFL may offer certain employer sponsored
savings plans, in its discretion, reduced fees and charges including, but not
limited to, the annual service charge, the surrender charges, the mortality and
expense risk fee and the administrative charge for certain sales under
circumstances which may result in savings of certain costs and expenses. In
addition, there may be other circumstances of which PFL is not presently aware
which could result in reduced sales or distribution expenses. Credits to the
policy or reductions in these fees and charges will not be unfairly
discriminatory against any owner.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following summary does not constitute tax advice. It is a general discussion
of certain of the expected federal income tax consequences of investment in and
distributions with respect to a policy, based on the 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.
Distribution Requirements. The Code requires that nonqualified policies contain
- --------------------------
specific provisions for distribution of policy proceeds upon the death of any
owner. In order to be treated as an annuity contract for federal income tax
purposes, the Code requires that such policies provide that if any owner dies on
or after the annuity commencement date and before the entire interest in the
policy has been distributed, the remaining portion must be distributed at least
as rapidly as under the method in effect on such owner's death. If any owner
dies before the annuity commencement date, the entire interest in the policy
must generally be distributed within 5 years after such owner's date of death or
be used to purchase 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 beneficiary0
or for a period not extending beyond the life expectancy of the "designated
beneficiary" as defined in Section 72(s) of the Code. However, if upon such
owner's death prior to the annuity commencement date, such owner's surviving
spouse becomes the sole new owner under the policy, then the policy may be
continued with the surviving spouse as the new owner. Under the policy, the
beneficiary is the designated beneficiary of an owner/annuitant and the
successor owner is the designated beneficiary of an owner who is not the
annuitant. If any owner is not a natural person, then for purposes of these
14
<PAGE>
distribution requirements, the primary annuitant shall be treated as an owner
and any death or change of such primary annuitant shall be treated as the death
of an owner. The nonqualified policies contain 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 assure that they comply with the Code requirements when
clarified by regulation or otherwise.
Withholding. The portion of any distribution under a policy that is includable
- ------------
in gross income will be subject to federal income tax withholding unless the
recipient of such distribution elects not to have federal income tax withheld.
Election forms will be provided at the time distributions are requested or made.
For certain qualified policies, certain distributions are subject to mandatory
withholding. The withholding rate varies according to the type of distribution
and the owner's tax status. For qualified policies, "eligible rollover
distributions" from Section 401(a) plans and Section 403(b) tax-sheltered
annuities are subject to a mandatory federal income tax withholding of 20%. An
eligible rollover distribution is the taxable portion of any distribution from
such a plan, except certain distributions such as distributions required by the
Code or distributions in a specified annuity form. The 20% withholding does not
apply, however, if the owner chooses a "direct rollover" from the plan to
another tax-qualified plan or IRA. Different withholding requirements may apply
in the case of non-United States persons.
Qualified Policies. The qualified policy is designed for use with several types
- -------------------
of tax-qualified retirement plans. The tax rules applicable to participants and
beneficiaries in tax-qualified retirement plans vary according to the type of
plan and the terms and conditions of the plan. Special favorable tax treatment
may be available for certain types of contributions and distributions. Adverse
tax consequences may result from contributions in excess of specified limits;
distributions prior to age 59 1/2 (subject to certain exceptions); distributions
that do not conform to specified commencement and minimum distribution rules;
and in other specified circumstances. Some retirement plans are subject to
distribution and other requirements that are not incorporated into our policy
administration procedures. Owners, participants and beneficiaries are
responsible for determining that contributions, distributions and other
transactions with respect to the policies comply with applicable law.
For qualified plans under Section 401(a), 403(a), 403(b), and 457, the Code
requires that distributions generally must commence no later than the later of
April 1 of the calendar year following the calendar year in which the owner (or
plan participant) (i) reaches age 70 1/2 or (ii) retires, and must be made in a
specified form or manner. If the plan participant is a "5 percent owner" (as
defined in the Code), distributions generally must begin no later than April 1
of the calendar year in which the owner (or plan participant) reaches age 70
1/2. Each owner is responsible for requesting distributions under the policy
that satisfy applicable tax rules.
PFL makes no attempt to provide more than general information about use of the
policy with the various types of retirement plans. Purchasers of policies for
use with any retirement plan should consult their legal counsel and tax adviser
regarding the suitability of the policy.
Individual Retirement Annuities. In order to qualify as a traditional individual
- --------------------------------
retirement annuity under Section 408(b) of the Code, a policy must contain
certain provisions: (i) the owner must be the annuitant; (ii) the policy
generally is not transferable by the owner, e.g., the owner may not designate a
new owner, designate a contingent owner or assign the policy as collateral
security; (iii) the total premium payments for any calendar year may not exceed
$2,000, except in the case of a rollover amount or contribution under Section
402(c), 403(a)(4), 403(b)(8) or 408(d)(3) of the Code; (iv) annuity payments or
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; and
(vi) certain payments of death benefits must be made in the event the annuitant
dies prior to the distribution of the policy value. 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.
15
<PAGE>
Section 408 of the Code also indicates that no part of the funds for a
traditional individual retirement account or annuity should be invested in a
life insurance contract, but the regulations thereunder allow such funds to be
invested in an annuity contract that provides a death benefit that equals the
greater of the premiums paid or the cash value for the contract. The policy
provides an enhanced death benefit that could exceed the amount of such a
permissible death benefit, but it is unclear to what extent such an enhanced
death benefit could disqualify the policy under Section 408 of the Code. The
Internal Revenue Service has not reviewed the policy for qualification as an
IRA, and has not addressed in a ruling of general applicability whether an
enhanced death benefit provision, such as the provision in the policy, comports
with IRA qualification requirements.
Roth Individual Retirement Annuities (Roth IRA). The Roth IRA, under Section
- ------------------------------------------------
408A of the Code, contains many of the same provisions as a traditional IRA.
However, there are some differences. First, the contributions are not deductible
and must be made in cash or as a rollover or transfer from another Roth IRA or
other IRA. A rollover from or conversion of an IRA to a Roth IRA may be subject
to tax and other special rules may apply. You should consult a tax adviser
before combining any converted amounts with any other Roth IRA contributions,
including any other conversion amounts from other tax years. The Roth IRA is
available to individuals with earned income and whose adjusted gross income is
under $110,000 for single filers, $160,000 for married filing jointly, and
$10,000 for married filing separately. The amount per individual that may be
contributed to all IRAs (Roth and traditional) is $2,000. Secondly, the
distributions are taxed differently. The Roth IRA offers tax-free distributions
when made from assets which have been held in the account for 5 tax years and
are made after attaining age 59/1//2, to pay for qualified first time homebuyer
expenses (lifetime maximum of $10,000) or due to death or disability. All other
distributions are subject to income tax when made from earnings and may be
subject to a premature withdrawal penalty tax unless an exception applies.
Unlike the traditional IRA, there are no minimum required distributions during
the owner's lifetime; however, required distributions at death are the same.
Section 403(b) Plans. Under Section 403(b) of the Code, payments made by public
- ---------------------
school systems and certain tax exempt organizations to purchase policies for
their employees are excludable from the gross income of the employee, subject to
certain limitations. However, such payments may be subject to FICA (Social
Security) taxes. The policy includes a death benefit that in some cases may
exceed the greater of the premium payments or the policy value. The death
benefit could be characterized as an incidental benefit, the amount of which is
limited in any tax-sheltered annuity under Section 403(b). Because the death
benefit may exceed this limitation, employers using the policy in connection
with such plans should consult their tax adviser. Additionally, in accordance
with the requirements of the Code, Section 403(b) annuities generally may not
permit distribution of (i) elective contributions made in years beginning after
December 31, 1988, and (ii) earnings on those contributions and (iii) earnings
on amounts attributed to elective contributions held as of the end of the last
year beginning before January 1, 1989. Distributions of such amounts will be
allowed only upon the death of the employee, on or after attainment of age
59/1//2, separation from service, disability, or financial hardship, except that
income attributable to elective contributions may not be distributed in the case
of hardship.
Corporate Pension and Profit-Sharing Plans and H.R. 10 Plans. Sections 401(a)
- -------------------------------------------------------------
and 403(a) of the Code permit corporate employers to establish various types of
retirement plans for employees and self-employed individuals to establish
qualified plans for themselves and their employees. Such retirement plans may
permit the purchase of the policies to accumulate retirement savings. Adverse
tax consequences to the plan, the participant or both may result if the policy
is assigned or transferred to any individual as a means to provide benefit
payments. The policy includes a death benefit that in some cases may exceed the
greater of the premium payments or the policy value. The death benefit could be
characterized as an incidental benefit, the amount of which is limited in an
pension or profit sharing plan. Because the death benefit may exceed this
limitation, employers using the policy in connection with such plans should
consult their tax adviser.
Deferred Compensation Plans. Section 457 of the Code, while not actually
- ----------------------------
providing for a qualified plan as that term is normally used, 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 Section 457 plans, all such investments,
however, are owned by, and are subject to, the claims of the general creditors
of the
16
<PAGE>
sponsoring employer. Depending on the terms of the particular plan, a non-
government 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 policy 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 this 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 qualified under Section 457) or (iv) a
single-payment annuity where the annuity commencement date is no later than one
year from the date of the single premium payment; instead, such policies are
taxed as described above under the heading "Taxation of Annuities."
Taxation of PFL
PFL at present is taxed as a life insurance company under part I of Subchapter L
of the Code. The mutual fund account and the target account are treated as part
of PFL and, accordingly, will not be taxed separately as "regulated investment
companies" under Subchapter M of the Code. PFL does not expect to incur any
federal income tax liability with respect to investment income and net capital
gains arising from the activities of the mutual fund account or the target
account retained as part of the reserves under the policy. Based on this
expectation, it is anticipated that no charges will be made against the mutual
fund account or the target account for federal income taxes. If, in future
years, any federal income taxes are incurred by PFL with respect to the mutual
fund account or the target account, PFL may make a charge to that 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 mutual fund or target series
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 mutual fund or target
series subaccount by the accumulation unit value of the mutual fund or target
series subaccount as of the end of the valuation period during which the
allocation is made. For each mutual fund or target series 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.
Upon allocation to the selected mutual fund subaccount or target series
subaccount, 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 enrollment form is completed, whichever
is later. The value of an accumulation unit for each mutual fund subaccount was
arbitrarily established at $1 and at $10 for each target series subaccount at
the inception of each subaccount. Thereafter, the value of an accumulation unit
is determined as of the close of trading on each day the New York Stock Exchange
is open for business.
17
<PAGE>
For the mutual fund account and the target account, 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. You bear 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 mutual fund subaccount20 or target series
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 credit or charge for any taxes determined by PFL to have
resulted during the valuation period from the investment operations of
the subaccount;
(b) is the net asset value per share of the shares held in the subaccount
determined as of the end of the immediately preceding valuation period.
(c) is the charge for mortality and expense risk during the valuation period,
equal on an annual basis to 1.40% (for each of the 5% Annually Compounding
Death Benefit, the Greater of 5% Annually Compounding through age 80 Death
Benefit or Annual Step-Up Death Benefit, and the Monthly Step-Up through age
80 Death Benefit) and 1. 25% (for the Return of Premium Death Benefit) of the
daily net asset value of the subaccount, plus the 0.15% administrative
charge.
Illustration of Separate Account Accumulation Unit Value Calculations
(Assumes 5% Annually Compounding Death Benefit)
Formula and Illustration for Determining the Net Investment Factor
Net Investment Factor=(A+B-C)-E
---------
D
Where: A =The net asset value of an underlying fund share as of the end of
the current valuation Period.
Assume A = $11.57
B =The per share amount of any dividend or capital gains distribution
since the end of the Immediately preceding valuation period.
Assume B = 0
C =The per share charge or credit for any taxes reserved for at the
end of the current Valuation period.
Assume C = 0
D =The net asset value of an underlying fund share at the end of the
immediately preceding Valuation period.
Assume D = $11.40
E =The daily deduction for the mortality and expense risk fee and
the administrative charge, which totals 1.55% on an annual
basisyears. On a daily basis, E equals .0000421409.
Then, the net investment factor=(11.57+0-0)-.0000421409 = Z = 1.0148701398
-----------
(11.40)
18
<PAGE>
Formula and Illustration for Determining Accumulation Unit Value
Accumulation Unit Value = A * B
Where: A= The accumulation unit value for the immediately preceding valuation
period.
Assume =$X
B= The net investment factor for the current valuation period.
Assume =Y
Then, the accumulation unit value =$X*Y=$Z
Annuity Unit Value and Annuity Payment Rates
For both the mutual fund account and the target account, the amount of variable
annuity payments will vary with annuity unit values. Annuity unit values rise if
the net investment performance of the subaccount exceeds the assumed interest
rate of 5% annually. Conversely, annuity unit values fall if the net investment
performance of the subaccount is less than the assumed rate. The value of a
variable annuity unit in each subaccount was established at $1.00 on the date
operations began for that subaccount. For the mutual fund account, 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 on the immediately preceding
business day;
(b) is the net investment factor 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.
For the target account, at the end of each valuation period, the annuity unit
value is established by multiplying the value of an annuity unit determined at
the end of the immediately preceding valuation period by a net investment factor
for the current valuation period, and then multiplying that product by an
investment result adjustment factor for the purpose of offsetting the effect of
an assumed investment return of 5.0% per annum which is assumed in the annuity
conversion rates for the contracts. The net investment factor for the target
series subaccounts is very similar to the net investment factor for the mutual
fund account, except that it is based upon the value of the assets in the
subaccount, instead of the net asset value for a mutual fund share. The net
investment factor includes a charge for mortality and expense risks, that is,
the mortality and expense risk fee, and administrative charge.
The dollar amount of subsequent variable annuity payments will depend upon
changes in applicable annuity unit values.
The annuity payment rates vary according to the annuity option elected and the
sex and adjusted age of the annuitant at the annuity commencement date. The
policy also contains a table for determining the adjusted age of the annuitant.
Illustration of Calculations for Annuity Unit Value
and Variable Annuity Payments
Formula and Illustration for Determining Annuity Unit Value
Annuity Unit Value=A*B*C
Where: A=annuity unit value for the immediately preceding valuation period.
Assume =$X
19
<PAGE>
B =net investment factor for the valuation period for which the
annuity unit value is being calculated.
Assume = Y
C =A factor to neutralize the assumed interest rate of 5% built into
the annuity tables used.
Assume = Z
Then, the annuity unit value is:
$X*Y*Z=$Q
Formula and Illustration for Determining Amount of
First Monthly Variable Annuity Payment
First monthly variable annuity payment=A*B
-----
$1,000
Where: A =The adjusted policy value as of the annuity commencement date.
Assume =$X
B =The annuity purchase rate per $1,000 of adjusted policy value based
upon the option selected, the sex and adjusted age of the annuitant
according to the tables contained in the policy. Assume =$Y
Then, the first monthly variable annuity payment =$X*$Y=$Z
-------
1,000
Formula and Illustration for Determining the Number of Annuity Units
Represented by Each Monthly Variable Annuity Payment
Number of annuity units = A
-
B
Where: A =The dollar amount of the first monthly variable annuity payment.
Assume =$X
B =The annuity unit value for the valuation date on which the first
monthly payment is due.
Assume =$Y
Then, the number of annuity units = $X=Z
--
$Y
FAMILY INCOME PROTECTOR -- ADDITIONAL INFORMATION
The amounts shown below are hypothetical guaranteed minimum monthly payment
amounts under the "family income protector" for a $100,000 premium when annuity
payments do not begin until the rider anniversary indicated in the left-hand
column. These figures assume the following:
. there were no subsequent premium payments, or withdrawals;
. there were no premium taxes;
. the $100,000 premium is subject to the family income protector;
. the annuitant is (or both annuitants are) 60 years old when the rider is
issued;
. the annual growth rate is 6.0% (once established, an annual growth rate
will not change during the life of the family income protector rider); and
20
<PAGE>
. there was no upgrade of the minimum annuitization value.
Six different annuity payment options are illustrated: a male annuitant, a
female annuitant and a joint and survivor annuity, each on a Life Only and a
Life with 10-Year Certain basis. The figures below, which are the amount of the
first monthly payment, are based on an assumed investment return of 3%.
Subsequent payments will never be less than the amount of the first payment
(although subsequent payments are calculated using a 5% assumed investment
return).
<TABLE>
<CAPTION>
Life Only = Life Annuity with No Period Certain Life 10 = Life Annuity with 10 Years Certain
- ------------------------------------------------------------------------------------------------------
Rider Anniversary at
Exercise Date Male Female Joint & Survivor
- ------------------------------------------------------------------------------------------------------
Life Only Life 10 Life Only Life 10 Life Only Life 10
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
10 (age 70) $1,135 $1,067 $ 976 $ 949 $ 854 $ 852
- ------------------------------------------------------------------------------------------------------
15 1,833 1,634 1,562 1,469 1,332 1,318
- ------------------------------------------------------------------------------------------------------
20 (age 80) 3,049 2,479 2,597 2,286 2,145 2,078
- ------------------------------------------------------------------------------------------------------
</TABLE>
This hypothetical illustration should not be deemed representative of past or
future performance of any underlying variable investment option.
Withdrawals will affect the minimum annuitization value as follows: Each policy
year, withdrawals up to the limit of the total free amount (the minimum
annuitization value on the last policy anniversary multiplied by the annual
growth rate) reduce the minimum annuitization value on a dollar-for-dollar
basis. Withdrawals over this free amount will reduce the minimum annuitization
value on a pro rata basis by an amount equal to the minimum annuitization value
immediately prior to the excess withdrawal multiplied by the percentage
reduction in the policy value resulting from the excess withdrawal. The free
amount will always be a relatively small fraction of the minimum annuitization
value.
Examples of the effect of withdrawals on the minimum annuitization value are as
follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
EXAMPLE 1
- ----------------------------------------------------------------------------------------------
Assumptions
- ----------------------------------------------------------------------------------------------
<S> <C>
. minimum annuitization value on last policy anniversary: $10,000
- ----------------------------------------------------------------------------------------------
. minimum annuitization value at time of distribution: $10,500
- ----------------------------------------------------------------------------------------------
. policy value at time of distribution: $15,000
- ----------------------------------------------------------------------------------------------
. distribution amount: $500
- ----------------------------------------------------------------------------------------------
. prior distribution in current policy year: None
- ----------------------------------------------------------------------------------------------
Calculations
- ----------------------------------------------------------------------------------------------
. maximum annual free amount: $10,000 x 6% = $600
- ----------------------------------------------------------------------------------------------
. policy value after distribution: $15,000 - $500 = $14,500
- ----------------------------------------------------------------------------------------------
. minimum annual value after distribution: $10,500 - $500 = $10,000
- ----------------------------------------------------------------------------------------------
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
EXAMPLE 2
- ----------------------------------------------------------------------------------------------------------------
Assumptions
- ----------------------------------------------------------------------------------------------------------------
<S> <C>
. minimum annuitization value on last policy anniversary: $10,000
- ----------------------------------------------------------------------------------------------------------------
. minimum annuitization value at time of distribution: $10,500
- ----------------------------------------------------------------------------------------------------------------
. policy value at time of distribution: $15,000
- ----------------------------------------------------------------------------------------------------------------
. distribution amount: $1,500
- ----------------------------------------------------------------------------------------------------------------
. prior distribution in current policy year: $1,000
- ----------------------------------------------------------------------------------------------------------------
Calculations
- ----------------------------------------------------------------------------------------------------------------
. maximum annual free amount: $0.0
- ----------------------------------------------------------------------------------------------------------------
(prior distributions have exceeded the current year free amount of $600 [$10,000 x 6% = $600])
- ----------------------------------------------------------------------------------------------------------------
. policy value after distribution: $15,000 - $1,500 = $13,500
- ----------------------------------------------------------------------------------------------------------------
(since the policy value is reduced 10% ($1,500/$15,000), the minimum annuitization value is also reduced 10%)
- ----------------------------------------------------------------------------------------------------------------
. minimum annual value after distribution: $10,500 - (10% x $10,500) = $9,450
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
EXAMPLE 3
- ----------------------------------------------------------------------------------------------------------------
Assumptions
- ----------------------------------------------------------------------------------------------------------------
<S> <C>
. minimum annuitization value on last policy anniversary: $10,000
- ----------------------------------------------------------------------------------------------------------------
. minimum annuitization value at time of distribution: $10,500
- ----------------------------------------------------------------------------------------------------------------
. policy value at time of distribution: $7,500
- ----------------------------------------------------------------------------------------------------------------
. distribution amount: $1,500
- ----------------------------------------------------------------------------------------------------------------
. prior distribution in current policy year: $1,000
- ----------------------------------------------------------------------------------------------------------------
Calculations
- ----------------------------------------------------------------------------------------------------------------
. maximum annual free amount: $0.0
- ----------------------------------------------------------------------------------------------------------------
(prior distributions have exceeded the current year free amount of $600 [$10,000 x 6% = $600])
- ----------------------------------------------------------------------------------------------------------------
. policy value after distribution: $7,500 - $1,500 = $6,000
- ----------------------------------------------------------------------------------------------------------------
(since the policy value is reduced 20% ($1,500/$7,500), the minimum annuitization value is also reduced 20%)
- ----------------------------------------------------------------------------------------------------------------
. minimum annual value after distribution: $10,500 - (20% x $10,500) = $8,400
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
The amount of the first payment provided by the family income protector will be
determined by multiplying each $1,000 of minimum annuitization value by the
applicable annuity factor shown on Schedule I of the family income protector
rider. The applicable annuity factor depends upon the annuitant's (and joint
annuitant's, if any) sex (or without regard to gender if required by law), age,
and the family income protector payment option selected and is based on a
guaranteed interest rate of 3% and the "1983 Table a" mortality table with
projection using projection Scale G factors, assuming a maturity date in the
year 2000. Subsequent payments will be calculated as described in the family
income protector rider using a 5% assumed investment return. Subsequent payments
may fluctuate annually in accordance with the investment performance of the
annuity subaccounts. However, subsequent payments are guaranteed to never be
less than the initial payment.
The stabilized payment on each subsequent policy anniversary after annuitization
using the family income protector will equal the greater of the initial payment
or the payment supportable by the annuity units in the selected subaccounts. The
supportable payment is equal to the number of variable annuity units in the
selected subaccounts multiplied by the variable annuity unit values in those
subaccounts on the date the payment is made. The variable annuity unit values
used to calculate the supportable payment will assume a 5% assumed investment
return. If the supportable payment at any payment date during a policy year is
greater than the stabilized payment for that policy year, the excess will be
used to purchase additional annuity units. Conversely, if the supportable
payment at any payment date during a policy year is less than the stabilized
payment for that policy year, there will be a reduction in the number of annuity
units credited to the policy to fund the deficiency. In the case of a reduction,
you will not participate as fully in the future investment performance of the
subaccounts you selected since fewer annuity units are credited to your policy.
Purchases and reductions will be allocated to each subaccount on a proportionate
basis.
22
<PAGE>
PFL bears the risk that it will need to make payments if all annuity units have
been used in an attempt to maintain the stabilized payment at the initial
payment level. In such an event, PFL will make all future payments equal to the
initial payment. Once all the annuity units have been used, the amount of your
payment will not increase or decrease and will not depend upon the performance
of any subaccounts. To compensate PFL for this risk, a stabilized payment fee
will be deducted.
HISTORICAL PERFORMANCE DATA
Money Market Yields
PFL may from time to time disclose the current annualized yield of the Endeavor
Money Market Subaccount, which invests in the Endeavor Money Market Portfolio,
for a 7-day period in a manner which does not take into consideration any
realized or unrealized gains or losses on shares of the Endeavor Money Market
Portfolio or on its portfolio securities. This current annualized yield is
computed by determining the net change (exclusive of realized gains and losses
on the sale of securities and unrealized appreciation and depreciation and
income other than investment income) at the end of the 7-day period in the value
of a hypothetical account having a balance of 1 unit of the Endeavor Money
Market Subaccount at the beginning of the 7-day period, dividing such net change
in account value by the value of the account at the beginning of the period to
determine the base period return, and annualizing this quotient on a 365-day
basis. The net change in account value reflects (i) net income from the
portfolio attributable to the hypothetical account; and (ii) charges and
deductions imposed under a policy that are attributable to the hypothetical
account. The charges and deductions include the per unit charges for the
hypothetical account for (i) the administrative charges; and (ii) the mortality
and expense risk fee. Current yield will be calculated according to the
following formula:
Current Yield = ((NCS - ES)/UV) * (365/7)
Where:
NCS= The net change in the value of the portfolio (exclusive of realized
gains and losses on the sale of securities and unrealized appreciation
and depreciation and income other than investment income) for the 7-day
period attributable to a hypothetical account having a balance of 1
subaccount unit.
ES = Per unit expenses of the subaccount for the 7-day period.
UV = The unit value on the first day of the 7-day period.
Because of the charges and deductions imposed under a policy, the yield for the
Endeavor Money Market Subaccount will be lower than the yield for the Endeavor
Money Market Portfolio. The yield calculations do not reflect the effect of any
premium taxes that may be applicable to a particular policy.
PFL may also disclose the effective yield of the Endeavor Money Market
Subaccount for the same 7-day period, determined on a compounded basis. The
effective yield is calculated by compounding the base period return according to
the following formula:
Effective Yield = (1 + ((NCS - ES)/UV))/365/7/ - 1
Where:
NCS= The net change in the value of the portfolio (exclusive of realized
gains and losses on the sale of securities and unrealized appreciation
and depreciation and income other than investment income) for the 7-day
period attributable to a hypothetical account having a balance of 1
subaccount unit.
ES = Per unit expenses of the subaccount for the 7-day period.
UV = The unit value on the first day of the 7-day period.
The yield on amounts held in the Endeavor Money Market Subaccount normally will
fluctuate on a daily basis. Therefore, the disclosed yield for any given past
period is not an indication or representation of future yields or rates of
return. The Endeavor Money Market Subaccount's actual yield is affected by
changes in interest rates on money market securities, average portfolio maturity
of the Endeavor Money Market Portfolio, the types and quality of
23
<PAGE>
portfolio securities held by the Endeavor Money Market Portfolio and its
operating expenses. For the seven days ended December 31, 1999, the yield of the
Endeavor Money Market Subaccount was _____%, and the effective yield was _____%
for the 5% Annually Compounding Death Benefit and the Double Enhanced Death
Benefit. For the seven days ended December 31, 1999, the yield of the Endeavor
Money Market Subaccount was _____%, and the effective yield was _____% for the
Return of Premium Death Benefit.
Other Subaccount Yields
PFL may from time to time advertise or disclose the current annualized yield of
one or more of the mutual fund subaccounts and the target series subaccounts
(except the Endeavor Money Market Subaccount) for 30-day periods. The annualized
yield of a subaccount refers to income generated by the subaccount over a
specific 30-day period. Because the yield is annualized, the yield generated by
a subaccount during the 30-day period is assumed to be generated each 30-day
period over a 12-month period. The yield is computed by: (i) dividing the net
investment income of the subaccount less subaccount expenses for the period, by
(ii) the maximum offering price per unit on the last day of the period times the
daily average number of units outstanding for the period, (iii) compounding that
yield for a 6-month period, and (iv) multiplying that result by 2. Expenses
attributable to the subaccount include (i) the administrative charges; (ii) the
mortality and expense risk fee; and (iii) the distribution financing charge. The
30-day yield is calculated according to the following formula:
Yield = 2 * ((((NI - ES)/(U - UV)) + 1)/6/ -1)
Where:
NI = Net investment income of the subaccount for the 30-day period
attributable to the subaccount's unit.
ES = Expenses of the subaccount for the 30-day period.
U = The average number of units outstanding.
UV = The unit value at the close (highest) of the last day in the 30-day
period.
Because of the charges and deductions imposed by the mutual fund account, the
yield for a mutual fund subaccount will be lower than the yield for its
corresponding portfolio. The yield calculations do not reflect the effect of any
premium taxes that may be applicable to a particular policy.
The yield on amounts held in the mutual fund subaccounts and the target series
subaccounts normally will fluctuate over time. Therefore, the disclosed yield
for any given past period is not an indication or representation of future
yields or rates of return. The types and quality of its investments and its
operating expenses affect a subaccount's actual yield.
Total Returns
PFL may from time to time also advertise or disclose total returns for one or
more of the mutual fund subaccounts or the target series subaccounts 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 mutual fund
account's underlying portfolio, and the target series subaccount's common
shares, and the deductions for the mortality and expense risk fee, the
distribution financing charges, and the administrative charges. The total return
for each target series subaccount will also reflect the manager's fee and other
operating expenses. 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:
24
<PAGE>
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.
CTR = (ERV/P) -1
Where:
CTR = The cumulative total return net of subaccount recurring charges for the
period.
ERV = The ending redeemable value of the hypothetical investment at the end
of the period.
P = A hypothetical initial payment of $1,000.
All non-standard performance data will only be advertised if the standard
performance data for the same period, as well as for the required period, is
also disclosed.
Adjusted Historical Performance Data--The Mutual Fund Account
From time to time, sales literature or advertisements may quote average annual
total returns for periods prior to the date a particular mutual fund subaccount
commenced operations. Such performance information for the mutual fund
subaccounts will be calculated based on the performance of the various
portfolios and the assumption that the mutual fund 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.
THE TARGET ACCOUNT
What is the Investment Strategy?
The objective of each of the target series subaccounts is to provide an above-
average total return through a combination of dividend income and capital
appreciation. While the objectives of the target series subaccounts are the
same, each target series subaccount follows a different investment strategy (set
forth below) in order to achieve its stated objective.
Each target series subaccount will initially invest in equal amounts in the
common stock described below for each target series subaccount (the "common
shares") determined as of a specified business day (initial stock selection
date). The Dow Target 10 Subaccount will invest in the common stock of the ten
companies in the Dow Jones Industrial Average (DJIA) that have the highest
dividend yield. The Dow Target 5 Subaccount will invest in the common stock of
the five companies with the lowest per share stock price of the ten companies in
The Dow Target 10 Subaccount. These stocks will be held for approximately one
year.
At the initial stock selection date, a percentage relationship among the number
of common shares in a target series subaccount will be established. When
additional funds are deposited into the target series subaccount, additional
common shares will be purchased in such numbers reflecting as nearly as
practicable the percentage relationship of
25
<PAGE>
the number of common shares established at the initial purchase. Sales of common
shares by the target series subaccount will likewise attempt to replicate the
percentage relationship of common shares. The percentage relationship among the
number of common shares in the target series subaccount should therefore remain
stable. However, given the fact that the market price of such common shares will
vary throughout the year, the value of the common shares of each of the
companies as compared to the total assets of the target series subaccount will
fluctuate during the year, above and below the proportion established on a stock
selection date. On the last business day of the 12-month period following the
preceding stock selection date (annual stock selection date), a new percentage
relationship will be established among the number of common shares described
above for each target series subaccount on such date. Common shares may be sold
or new equity securities bought so that the target series subaccount is equally
invested in the common stock of each company meeting the target series
subaccount's investment criteria. Thus the target series subaccount may or may
not hold equity securities of the same companies as the previous year. Any
purchase or sale of additional common shares during the year will duplicate, as
nearly as practicable, the percentage relationship among the number of common
shares as of the annual stock selection date since the relationship among the
value of the common shares on the date of any subsequent transactions may be
different than the original relationship among their value.
The yield for each equity security listed on the DJIA is calculated by
annualizing the last quarterly or semi-annual ordinary dividend declared and
dividing the result by the market value of such equity security as of the close
of business on the stock selection date.
The publishers of the DJIA are not affiliated with PFL, Endeavor, or First Trust
Advisers L.P. and have not participated in the creation of the target series
subaccounts or the selection of the equity securities included therein. Any
changes in the components of any of the respective indices made after a stock
selection date will not cause a change in the identity of the common shares
included in a target series subaccount, including any additional common shares
purchased thereafter, until the next annual stock selection date.
Investors should note that the above criteria were applied and will in the
future be applied to the common shares selected for inclusion in the target
series subaccounts as of the respective stock selection date. Additional common
shares, which were originally selected through this process, may be purchased
throughout the year, as investors may continue to invest in the target series
subaccounts, even though the yields on these common shares may have changed
subsequent to the previous stock selection date. These common shares may no
longer be included in the index, or may not meet a target series subaccount's
selection criteria at that time, and therefore, such common shares would no
longer be chosen for inclusion in the target series subaccounts if the selection
process were to be performed again at that time. The equity securities selected
as common shares and the percentage relationship among the number of shares will
not change for purchase or sales by a target series subaccount until the next
annual stock selection date.
Determination of Unit Value; Valuation of Securities
PFL determines the unit value of each target series subaccount each business
day. This daily determination of unit value is made by dividing the total assets
of a target series subaccount, less all of its liabilities, by the total number
of units outstanding at the time the determination is made. This is made as of
the close of regular trading on the New York Stock Exchange, currently 4:00 p.m.
New York time, unless the Exchange closes earlier. Purchases and redemptions
will be effected at the time of determination of unit value next following the
receipt of any purchase or redemption order deemed to be in good order.
Equity securities are valued at the last sale price on the exchange on which
they are primarily traded or at the ask price on the NASDAQ system for unlisted
national market issues, or at the last quoted bid price for securities in which
there were no sales during the day or for unlisted securities not reported on
the NASDAQ system. Short-term obligations, which mature in 60 days or less, are
valued at amortized cost, which approximates fair value as determined by the
Board of Managers. Futures and option contracts that are traded on commodities
or securities exchanges are normally valued at the settlement price on the
exchange on which they are traded. Securities (other than short-term
obligations) for which there are no such quotations or valuations are valued at
fair value as determined in good faith by or at the direction of the Board of
Managers of the target account.
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<PAGE>
The Board of Managers
The members of the Board of Managers of the target account, and their principal
occupations during the past five years are set forth below. Their titles may
have varied during that period. Unless otherwise indicated, the address of each
member is 2101 East Coast Highway, Suite 300, Corona del Mar, California 92625.
<TABLE>
<CAPTION>
Name, Age and Address Held With Registrant During Past 5 Years
- ---------------------------------------- ----------------------- ------------------------------------------------------
<S> <C> <C>
*+ Vincent J. McGuinness, Jr. (34) President and Chief From February 1997 to December 1997, Executive
1960 Post Ramsgate Place Financial Officer Vice-President, Chief of Operations, from March 1997
Newport Beach, CA 92660 (Treasurer) to October 1999, Director, from December 1997 to
October 1999, Chief Operating Officer, and from June
1998 to October 1999, Chief Financial Officer, from
July 1999 to October 1999, Chief Executive Officer of
Endeavor Group; from September 1996 to June 1997, and
from June 1998 to October 1999, Chief Financial
Officer, since May 1996, Director, and from June 1997
to October 1998, Executive Vice President --
Administration, from October 1998 to October 1999,
President, and from July 1999 to October 1999, Chief
Executive Officer of Endeavor Management Co.; since
August 1996, Chief Financial Officer of VJM
Corporation; from May 1996 to January 1997, Executive
Vice President and Director of Sales, Western
Division of Endeavor Group; since May 1996, Chief
Financial Officer of McGuinness & Associates; from
July 1993 to August 1995 Rocky Mountain Regional
Marketing Director for Endeavor Group; President,
Chief Financial Officer, and Trustee of Endeavor
Series Trust.
* Vincent J. McGuinness (64) Manager Director of Endeavor Group and Endeavor Management
1901 Ocean Way Co.; President of VJM Corporation (oil and gas);
Laguna Beach, CA 92651 since February 1996, President of McGuinness and
Associates; until July 1999, Chairman, Chief
Executive Office and Director of McGuinness &
Associates and VJM Corporation; until July 1996,
Chairman, Chief Executive Officer and Director of
McGuinnes Group (insurance marketing); from
September 1988 to July 1999, Chief Executive
Officer of Endeavor Management Co.; until October
1998, President of Endeavor Management Co.; Trustee,
Endeavor Series Trust.
Timothy A. Devine (64) Manager Vice President, Plant Control, Inc.
1424 Dolphin Terrace (landscape contracting and maintenance);
Corona del Mar, California 92625 Trustee, Endeavor Series Trust.
Thomas J. Hawekotte (64) Manager President, Thomas Hawekotte, P.C. (law
1200 Lake Shore Drive practice); Trustee, Endeavor Series Trust.
Chicago, Illinois 60610
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
Name, Age and Address Held With Registrant During Past 5 Years
- ----------------------------------------- -------------------- ------------------------------------------------------
<S> <C> <C>
Steven L. Klosterman (47) Manager Since July 1995, President of Klosterman Capital
5973 Avenida Encinas, #300 Corporation (investment adviser); Investment
Carlsbad, California 92008 Counselor, Robert J. Metcalf & Associates, Inc.
(investment adviser) from August 1990 to June 1995;
Trustee, Endeavor Series Trust.
Halbert D. Lindquist (53) Manager President, Lindquist, Stephenson & White (investment
1650 E. Fort Lowell Road adviser) and since December 1987 Tucson Asset
Suite 203 Management Inc. (commodity trading advisor), and
Tucson, Arizona 85719-2324 since November 1987, Presidio Government Securities,
Incorporated (broker-dealer); since January 1998,
Chief Investment Officer, Blackstone Alternative Asset
Management, Trustee, Endeavor Series Trust.
Keith H. Wood (63) Manager Since 1972, Chairman and Chief Executive Officer of
Jamison, Eaton & Wood (investment adviser) and since
1978 to December 1997, President of Ivory & Sime
International, Inc. (investment adviser); Trustee,
Endeavor Series Trust.
Peter F. Muratore (67) Manager From June, 1989 to March 1998, President of OCC
Too Far Posthouse Road Distributors (broker/dealer), a subsidiary of
Morristown, NJ 07960 Oppenheimer Capital; Trustee, Endeavor Series Trust.
*Larry N. Norman (47) Manager Executive Vice-President, PFL Life Insurance Company.
4333 Edgewood Road N.E.
Cedar Rapids, Iowa 52499-0001
Michael Pond (46) Executive Vice Since November 1, 1998, Executive Vice President --
President -- Administrator and Compliance of Endeavor Group; from
Administration November 1, 1998 to October 1999, Executive Vice
and Compliance President-Adminstration and Compliance and Chief
Investment Officer of Endeavor Management Co.; since
October 1999, President, Chief Executive Officer and
Chief Investment Officer of Endeavor
Management Co.; from November 1991 to November 1996,
Chairman and President, the Preferred Group of Mutual
Funds; from October 1989 to November 1996,
President of Caterpillar Securities, Inc. and
Caterpillar Investment Manager, Ltd.
Gail A. Hanson (57) Secretary Since September 1994, Vice President for PFPC, Inc.
(formerly known as First Data Investor Services
Group, Inc.) (mutual fund administration)
</TABLE>
- ---------------------------------------------
* An "interested person" of the target account as defined in the 1940 Act.
+ Vincent J. McGuinness, Jr. is the son of Vincent J. McGuinness.
The "rules and regulations" of the target account provide that the target
account will indemnify its Board of Managers and officers against liabilities
and expenses incurred in connection with litigation in which they may be
involved because of their offices with the target account, except if it is
determined in the manner specified in the rules and regulations that they have
not acted in good faith in the reasonable belief that their actions were in the
best
28
<PAGE>
interests of the target account or that such indemnification would relieve
any officer or member of the Board of Managers of any liability to the target
account or its shareholders by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of his duties. The target account, at its
expense, provides liability insurance for the benefit of its Board of Managers
and officers.
Compensation. For the period ending December 31, 1999, the following
- ------------
compensation was paid to members of the Board of Managers:
<TABLE>
<CAPTION>
Aggregate Total Compensation
Compensation From Account and Fund
Name of Person From Account Complex Paid to Managers
- -------------- ------------ ------------------------
<S> <C> <C>
Vincent J. McGuinness........................................ -0- -0-
Timothy A. Devine ...........................................
Thomas J. Hawekotte .........................................
Steven L. Klosterman ........................................
Halbert D. Lindquist ........................................
Keith H. Wood ...............................................
Vincent J. McGuinness, Jr. .................................. -0- -0-
William L. Busler (resigned as of November 15, 1999) ........ -0- -0-
Peter F. Muratore ...........................................
Larry N. Norman..............................................
</TABLE>
The Investment Advisory Services
First Trust Advisors L.P. (the "adviser") is the target account's investment
adviser. The adviser manages the assets of each target series subaccount,
consistent with the investment objective and policies described herein and in
the prospectus, pursuant to investment advisory agreements (the "advisory
agreements") with Endeavor Management Co., the target account's manager.
The adviser's address is 1001 Warrenville Road, Lisle, Illinois 60532. First
Trust Advisers L.P. is a limited partnership with one limited partner, Grace
Partners of Dupage L.P., and one general partner, Nike Securities Corporation.
Grace Partners of Dupage L.P. is a limited partnership with one general partner.
Nike Securities Corporation, and a number of limited partners. Nike Securities
Corporation is an Illinois corporation controlled by the Robert Donald Van
Kampen family.
Under the advisory agreements, the adviser provides each target series
subaccount with discretionary investment services. Specifically, the adviser is
responsible for supervising and directing the investments of each target series
subaccount in accordance with each target series subaccount's investment
objective, program, and restrictions as provided in the prospectus and this
Statement of Additional Information. The adviser is also responsible for
effecting all security transactions on behalf of each target series subaccount.
As compensation for its services, the adviser receives a fee of 0.35% of the
average daily net assets of each target series subaccount, which is paid by the
manager. The amount that Endeavor Management Co. paid to the adviser during 1998
and 1999 was $19,594 and $____________, respectively. No fees were paid prior to
1998 because the target account had not commenced operations. Each target
series subaccount's advisory agreement provides that the adviser, its directors,
officers, employees, and certain other persons performing specific functions for
the target series subaccounts will only be liable to the target series
subaccount for losses resulting from willful misfeasance, bad faith, gross
negligence, or reckless disregard of duty.
The adviser is also the portfolio supervisor of certain unit investment trusts
sponsored by Nike Securities L.P. ("Nike Securities") which are substantially
similar to the target series subaccounts in that they have the same investment
objectives as the target series subaccounts but have a life of approximately one
year. Nike Securities specializes in the underwriting, trading and distribution
of unit investment trusts and other securities. Nike Securities, an Illinois
limited partnership formed in 1991, acts as sponsor for successive series of The
First Trust
29
<PAGE>
Combined Series, The First Trust Special Situations Trust, the First Trust
Insured Corporate Trust, The First Trust of Insured Municipal Bonds and the
First Trust GNMA. First Trust introduced the first insured unit investment trust
in 1974 and to date more than $11 billion in First Trust unit investment trusts
have been deposited.
The Manager
The target account is managed by Endeavor Management Co. ("the manager") which,
subject to the supervision and direction of the target account's Board of
Managers, has overall responsibility for the general management and
administration of the target account. All of the outstanding common stock of
Endeavor Management Co. is owned by AUSA Holding company, an affiliate of
PFL.
The manager is responsible for providing investment management to the target
account and in the exercise of such responsibility selects an investment adviser
for each of the target series subaccounts (the "adviser") and monitors the
adviser's investment program and results, reviews brokerage matters, oversees
compliance by the target account with various federal and state statutes, and
carries out the directives of the Board of Managers. The manager is responsible
for providing the target account with office space, office equipment, and
personnel necessary to operate and administer the target account's business, and
also supervises the provision of services by third parties such as the target
account's custodian, transfer agent and administrator. Pursuant to an
administration agreement, PFPC, Inc. assists the manager in the performance of
its administrative responsibilities to the target account. For its
administrative responsibilities, the target account pays PFPC, Inc. a flat fee
of $10,000 per annum per subaccount and any out-of-pocket fees of the
expenses.
As compensation for its services, the manager receives a fee equal to 0.75% of
the average daily net assets of each target series subaccount. The amount that
the target account paid the manager during 1998 and 1999 was $38,590 and
$__________, respectively. No fees were paid prior to 1998 because the target
account had not commenced operations.
Operating Expenses.
In addition to the management fees, the target account pays all expenses not
assumed by the manager, including, without limitation, expenses for legal,
accounting and auditing services, interest, taxes, costs of printing and
distributing reports to shareholders, proxy materials and prospectuses, charges
of its custodian, transfer agent and dividend disbursing agent, registration
fees, fees and expenses of the Board of Managers who are not affiliated persons
of the manager or an adviser, insurance, brokerage costs, litigation, and other
extraordinary or nonrecurring expenses. All general target account expenses are
allocated among and charged to the assets of the target series subaccounts on a
basis that the Board of Managers deems fair and equitable, which may be on the
basis of relative net assets of each target series subaccount or the nature of
the services performed and relative applicability to each target series
subaccount. The manager has agreed to limit each target series subaccount's
management fee and operating expenses during its first year of operations to an
annual rate of 1.30% of the target series subaccount's average net assets. (This
limit does not include other fees and deductions such as the mortality and
expense risk fee and administrative charge.)
Transfer Agent and Custodian
Boston Safe Deposit and Trust Company hold all cash and securities of each
target series subaccount as custodian. PFPC, Inc., located at 4400 Computer
Drive, Westborough, Massachusetts 01581, serves as transfer agent for the target
account.
Brokerage Allocation
The adviser invests all assets of the target series subaccounts in common stock
and incurs brokerage costs in connection therewith.
30
<PAGE>
Allocations of transactions by the target series subaccounts, including their
frequency, to various dealers is determined by the adviser in its best judgment
and in a manner deemed to be in the best interest of the investors in the target
series subaccount rather than by any formula. The primary consideration is
prompt execution of orders in an effective manner at the most favorable price.
Purchases and sales of securities may be principal transactions; that is,
securities may be purchased directly from the issuer or from an underwriter or
market maker for the securities. Any transactions for which the target series
subaccounts pays a brokerage commission will be effected at the best price and
execution available. Purchases from underwriters of securities include a
commission or concession paid by the issuer to the underwriter, and purchases
from dealers serving as market makers include the spread between the bid and the
asked price. Brokerage may be allocated based on the sale of policies by dealers
or activities in support of sales of the policies. The target account has
adopted a Brokerage Enhancement Plan, whereby all or a portion of certain
brokerage commissions paid by the target series subaccounts may be allocated or
credited to the distributor or other entities marketing the policies, to help
finance sales activities.
The target account did not pay compensation to any affiliated broker of Endeavor
Management Co. or First Trust Advisors L.P. during 1999. [UPDATE for 1999]
Investment Restrictions
Fundamental policies of the target series subaccounts may not be changed without
the approval of the lesser of (1) 67% of the persons holding voting interests
(generally owners) present at a meeting if the holders of more than 50% are
present in person or by proxy or (2) more than 50% of the persons holding voting
interests. Other restrictions, in the form of operating policies, are subject to
change by the Board of Managers without the approval of persons holding a voting
interest. Any investment restriction which involves a maximum percentage of
securities or assets shall not be considered to be violated unless an excess
over the percentage occurs immediately after, and is caused by, an acquisition
of securities or assets of, or borrowings by, a target subaccount.
Fundamental Policies
As a matter of fundamental policy, each target series subaccount may not:
. Borrowing. Borrow money, except each target series subaccount may borrow as
a temporary measure for extraordinary or emergency purposes, and then only
in amounts not exceeding 30% of its total assets valued at market. Each
target series subaccount will not borrow in order to increase income
(leveraging), but only to facilitate redemption requests which might
otherwise require untimely investment liquidations;
. Loans. Make loans, although the target series subaccounts may purchase
money market securities and enter into repurchase agreements; and they may
lend their common shares.
. Margin. Purchase securities on margin;
. Mortgaging. Mortgage, pledge, hypothecate or, in any manner, transfer any
security owned by the target series subaccounts as security for
indebtedness except as may be necessary in connection with permissible
borrowings, in which event such mortgaging, pledging, or hypothecating may
not exceed 30% of each target series subaccount's total assets, valued at
market;
. Real Estate. Purchase or sell real estate;
. Senior Securities. Issue senior securities (except permitted borrowings);
. Short Sales. Effect short sales of securities; or
. Underwriting. Underwrite securities issued by other persons, except to the
extent the target series subaccounts may be deemed to be underwriters
within the meaning of the Securities Act of 1933 in connection with the
purchase and sale of their portfolio securities in the ordinary course of
pursuing their investment programs.
In addition, as a matter of fundamental policy, each target series subaccount
may engage in futures and options transactions and hold warrants.
The investment objective of each target series subaccount is also a fundamental
policy and may not be changed without the necessary approval described above.
31
<PAGE>
Operating Policies
As a matter of operating policy, each target series subaccount may not:
. Control of Companies. Invest in companies for the purpose of exercising
management or control;
. Illiquid Securities. Purchase a security if, as a result of such purchase,
more than 15% of the value of each target series subaccount's net assets
would be invested in illiquid securities or other securities that are not
readily marketable.
. Oil and Gas Programs. Purchase participations or other direct interests or
enter into leases with respect to, oil, gas, other mineral exploration or
development programs.
Options and Futures Strategies.
A target series subaccount may at times seek to hedge against either a decline
in the value of its portfolio securities or an increase in the price of
securities which the adviser plans to purchase through the writing and purchase
of options and the purchase or sale of future contracts and related options.
Expenses and losses incurred as a result of such hedging strategies will reduce
a target series subaccount's current return.
The ability of a target series subaccount to engage in the options and futures
strategies described below will depend on the availability of liquid markets in
such instruments. It is impossible to predict the amount of trading interest
that may exist in various types of options or futures. Therefore no assurance
can be given that a target series subaccount will be able to utilize these
instruments effectively for the purposes stated below.
Writing Covered Options on Securities. A target series subaccount may write
covered call options and covered put options on optionable securities of the
types in which it is permitted to invest from time to time as the adviser
determines is appropriate in seeking to attain the target series subaccount's
investment objective. Call options written by a target series subaccount give
the holder the right to buy the underlying security from the target series
subaccount at a stated exercise price; put options give the holder the right to
sell the underlying security to the target series subaccount at a stated price.
A target series subaccount may only write call options on a covered basis or for
cross-hedging purposes and will only write covered put options. A put option
would be considered "covered" if the target series subaccount owns an option to
sell the underlying security subject to the option having an exercise price
equal to or greater than the exercise price of the "covered" option at all times
while the put option is outstanding. A call option is covered if the target
series subaccount owns or has the right to acquire the underlying securities
subject to the call option (or comparable securities satisfying the cover
requirements of securities exchanges) at all times during the option period. A
call option is for cross-hedging purposes if it is not covered, but is designed
to provide a hedge against another security which the target series subaccount
owns or has the right to acquire. In the case of a call written for cross-
hedging purposes or a put option, the target series subaccount will maintain in
a segregated account at the target series subaccount's custodian bank cash or
short-term U.S. government securities with a value equal to or greater than the
target series subaccount's obligation under the option. A target series
subaccount may also write combinations of covered puts and covered calls on the
same underlying security.
A target series subaccount will receive a premium from writing an option, which
increases the target series subaccount's return in the event the option expires
unexercised or is terminated at a profit. The amount of the premium will
reflect, among other things, the relationship of the market price of the
underlying security to the exercise price of the option, the term of the option,
and the volatility of the market price of the underlying security. By writing a
call option, a target series subaccount will limit its opportunity to profit
from any increase in the market value of the underlying security above the
exercise price of the option. By writing a put option, a target series
subaccount will assume the risk that it may be required to purchase the
underlying security for an exercise price higher than its then current market
price, resulting in a potential capital loss if the purchase price exceeds the
market price plus the amount of the premium received.
A target series subaccount may terminate an option, which it has written prior
to its expiration, by entering into a closing purchase transaction in which it
purchases an option having the same terms as the option written. The target
32
<PAGE>
series subaccount will realize a profit (or loss) from such transaction if the
cost of such transaction is less (or more) than the premium received from the
writing of the option. Because increases in the market price of a call option
will generally reflect increases in the market price of the underlying security,
any loss resulting from the repurchase of a call option may be offset in whole
or in part by unrealized appreciation of the underlying security owned by the
target series subaccount.
Purchasing Put and Call Options on Securities. A target series subaccount may
purchase put options to protect its portfolio holdings in an underlying security
against a decline in market value. This protection is provided during the life
of the put option since the target series subaccount, as holder of the put, is
able to sell the underlying security at the exercise price regardless of any
decline in the underlying security's market price. For the purchase of a put
option to be profitable, the market price of the underlying security must
decline sufficiently below the exercise price to cover the premium and
transaction costs. By using put options in this manner, any profit which the
target series subaccount might otherwise have realized on the underlying
security will be reduced by the premium paid for the put option and by
transaction costs.
A target series subaccount may also purchase a call option to hedge against an
increase in price of a security that it intends to purchase. This protection is
provided during the life of the call option since the target series subaccount,
as holder of the call, is able to buy the underlying security at the exercise
price regardless of any increase in the underlying security's market price. For
the purchase of a call option to be profitable, the market price of the
underlying security must rise sufficiently above the exercise price to cover the
premium and transaction costs. By using call options in this manner, any profit
which the target series subaccount might have realized had it brought the
underlying security at the time it purchased the call option will be reduced by
the premium paid for the call option and by transaction costs.
No target series subaccount intends to purchase put or call options if, as a
result of any such transaction, the aggregate cost of options held by the target
series subaccount at the time of such transaction would exceed 5% of its total
assets.
Limitations. A target series subaccount will not purchase or sell futures
contracts or options on futures contracts for non-hedging purposes if, as a
result, the sum of the initial margin deposits on its existing futures contracts
and related options positions and premiums paid for options on futures contracts
would exceed 5% of the net assets of the target series subaccount unless the
transaction meets certain "bona fide hedging" criteria.
Risks of Options and Futures Strategies. The effective use of options and
futures strategies depends, among other things, on a target series subaccount's
ability to terminate options and futures positions at times when the adviser
deems it desirable to do so. Although a target series subaccount will not enter
into an option or futures position unless the adviser believes that a liquid
market exists for such option or future, there can be no assurance that a target
series subaccount will be able to effect closing transactions at any particular
time or at an acceptable price. The adviser generally expects that options and
futures transactions for the target series subaccounts will be conducted on
recognized exchanges. In certain instances, however, a target series subaccount
may purchase and sell options in the over-the-counter market. The staff of the
SEC considers over-the-counter options to be illiquid. A target series
subaccount's ability to terminate option positions established in the over-the-
counter market may be more limited than in the case of exchange traded options
and may also involve the risk that securities dealers participating in such
transactions would fail to meet their obligations to the target series
subaccount.
The use of options and futures involves the risk of imperfect correlation
between movements in options and futures prices and movements in the price of
the securities that are the subject of the hedge. The successful use of these
strategies also depends on the ability of the target series subaccounts' adviser
to forecast correctly interest rate movements and general stock market price
movements. The risk increases as the composition of the securities held by the
target series subaccount diverges from the composition of the relevant option or
futures contract.
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<PAGE>
Securities Lending
Each target series subaccount may also lend common shares to broker-dealers and
financial institutions to realize additional income. As an operating policy, the
target series subaccounts will not lend common shares or other assets, if as a
result, more than 33% of each subaccount's total assets would be lent to other
parties. Under applicable regulatory requirements (which are subject to change),
the following conditions apply to securities loans: (a) the loan must be
continuously secured by liquid assets maintained on a current basis in an amount
at least equal to the market value of the securities loaned; (b) each target
series subaccount must receive any dividends or interest paid by the issuer on
such securities; (c) each target series subaccount must have the right to call
the loan and obtain the securities loaned at any time upon notice of not more
than five business days, including the right to call the loan to permit voting
of the securities; and (d) each target series subaccount must receive either
interest from the investment of collateral or a fixed fee from the borrower.
Securities loaned by a target series subaccount remain subject to fluctuations
in market value. A target series subaccount may pay reasonable finders,
custodian and administrative fees in connection with a loan. Securities lending,
as with other extensions of credit, involves the risk that the borrower may
default. Although securities loans will be fully collateralized at all times, a
target series subaccount may experience delays in, or be prevented from,
recovering the collateral. During the period that the target series subaccount
seeks to enforce its rights against the borrower, the collateral and the
securities loaned remain subject to fluctuations in market value. The target
series subaccount does not have the right to vote securities on loan, but would
terminate the loan and regain the right to vote if it was considered important
with respect to the investment. A target series subaccount may also incur
expenses in enforcing its rights. If a target series subaccount has sold a
loaned security, it may not be able to settle the sale of the security and may
incur potential liability to the buyer of the security on loan for its costs to
cover the purchase.
Tax Limitation
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 target series subaccounts. To qualify as "adequately diversified,"
each subaccount may have:
. No more than 55% of the value of its total assets represented by any one
investment;
. No more than 70% of the value of its total assets represented by any two
investments;
. No more than 80% of the value of its total assets represented by any three
investments; and
. No more than 90% of the value of its total assets represented by any four
investments.
The target account, through the target series subaccounts, intends to comply
with the section 817(h) diversification requirements. PFL has entered into an
agreement with the manager, who in turn, has entered into a contract with the
adviser, that requires the target series subaccounts be operated in compliance
with Treasury regulations. Therefore, each target series subaccount may deviate
from its strategy to the extent necessary to comply with these requirements.
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. The ratings should not be
considered as bearing on the investment performance of assets held in the mutual
fund account or the target account or of the safety or riskiness of an
investment in the mutual fund account or the target 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
34
<PAGE>
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 (i.e., debt/commercial paper).
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 mutual fund account and the target
account will be maintained by PFL. As presently required by the 1940 Act, as
amended, and regulations promulgated thereunder, PFL will mail to all owners at
their last known address of record, at least annually, reports containing such
information as may be required under that Act or by any other applicable law or
regulation. Owners will also receive confirmation of each financial transaction
and any other reports required by law or regulation.
DISTRIBUTION OF THE POLICIES
The policies are offered to the public through brokers licensed under the
federal securities laws and state insurance laws. The offering of the policies
is continuous and PFL does not anticipate discontinuing the offering of the
policies, however, PFL reserves the right to do so.
AFSG Securities Corporation, an affiliate of PFL, is the principal underwriter
of the policies and may enter into agreements with broker-dealers for the
distribution of the policies. During 1999 and 1998 the amount paid to AFSG
Securities Corporation was $_______________ and $13,075,039.78, respectively.
Prior to April 30, 1998, AEGON USA Securities, Inc. (also an affiliate of PFL)
was the principal underwriter. During 1998 and 1997, the amount paid to AEGON
USA Securities, Inc. and/or the broker-dealers for their services was
$8,891,105.79 and $29,678,498, respectively.
The target account has adopted a distribution plan in accordance with Rule 12b-1
under the 1940 Act (the "distribution plan") because a portion of the mortality
and expense risk fee (0.15% of separate account assets) may be deemed to be a
distribution charge. The distribution plan has been approved by a majority of
the disinterested members of the Board of Managers of the target account. The
distribution plan is designed to partially compensate PFL for the cost of
distributing the policies. Charges under the distribution plan will be used to
support marketing efforts, training of representatives and reimbursement of
expenses incurred by broker/dealers who sell the policies, and will be based on
a percentage of the daily net assets of the target account. The distribution
plan may be terminated at any time by a vote of a majority of the disinterested
members of the target account's Board of Managers, or by a vote of the majority
of its outstanding shares.
35
<PAGE>
VOTING RIGHTS
The Mutual Fund Account
To the extent required by law, PFL will vote the underlying funds' shares held
by the mutual fund account at 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.
The Target Account
The target account is the legal owner of the common stock held in the target
series subaccounts and as such has the right to vote upon any matter that may be
voted by shareholders. However, you or persons receiving income payments may
vote on certain aspects of the governance of the target series subaccounts.
Matters on which persons holding voting interests may vote include the
following: (1) approval of any change in the investment advisory agreement
corresponding to a target series subaccount; (2) any change in the fundamental
investment policies of a target series subaccount; or (3) any other matter
requiring a vote of persons holding voting interests in the target series
subaccount. With respect to approval of the investment advisory agreements or
any change in a fundamental investment policy, owners participating in that
target series subaccount will vote separately on the matter pursuant to the
requirements of Rule 18f-2 under the 1940 Act.
Before the annuity commencement date, you hold the voting interest in the
selected target series subaccounts. The number of votes that you have will be
calculated separately for each target series subaccount. The number of votes
that you have for a target series subaccount will be determined by dividing your
policy value in the target series subaccount into the total assets of the target
series subaccount and multiplying this by the total number of votes.
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
36
<PAGE>
number of votes will be determined by dividing the reserve for the policy
allocated to the applicable target series subaccount into the total assets of
the target series subaccount and multiplying this by the total number of votes.
PFL does not intend to hold annual or other periodic meetings of owners. PFL
will solicit proxies by sending you or other persons entitled to vote written
requests for proxies prior to the vote. Where timely proxies are not received,
the voting interests will be voted in proportion to the proxies that are
received with respect to all policies participating in the same target series
subaccount.
PFL may, if required by state insurance officials, disregard proxies which would
require voting to cause a change in the subclassification or investment
objectives or policies of one or more of the target series subaccounts, or to
approve or disapprove an investment adviser or principal underwriter for one or
more of the target series subaccounts. In addition, PFL may disregard proxies
that would require changes in the investment objectives or policies of any
target series subaccount or in an investment adviser or principal underwriter,
if PFL reasonably disapproves those changes in accordance with applicable
federal regulations. If PFL disregards proxies, it will advise those persons who
may give proxies of that action and its reasons for the action in the next
semiannual report.
OTHER PRODUCTS
PFL makes other variable annuity policies available that may also be funded
through the mutual fund account and/or the target account. These variable
annuity policies may have different features, such as different investment
options or charges.
CUSTODY OF ASSETS
PFL holds the assets of each of the mutual fund subaccounts and the target
series subaccounts. The assets of each of the subaccounts 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 mutual fund subaccounts,
and of all purchases and sales of common stock held by each of the target series
subaccounts. Additional protection for the assets of the mutual fund account and
the target 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
relating to certain matters under the federal securities laws applicable to the
issue and sale of the policies to PFL.
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 the subaccounts of PFL Endeavor VA
Separate Account, which are available for investment by The Endeavor ML Variable
Annuity policyowners, as of December 31, 1999 and for the two years in the
period then ended, included in this Statement of Additional Information have
been audited by Ernst & Young LLP, Independent Auditors, 801 Grand Avenue, Suite
3400, Des Moines, Iowa 50309.
The financial statements of the PFL Endeavor Target Account as of December 31,
1999 and December 31, 1998, and for each of the year ended December 31, 1999 and
for the period July 1, 1998 (commencement of operations) through December 31,
1998, included in this Statement of Additional Information have been audited by
Ernst & Young LLP.
37
<PAGE>
OTHER INFORMATION
A registration statement has been filed with the Securities and Exchange
Commission, under the Securities Act of 1933 as amended, with respect to the
policies discussed in this Statement of Additional Information. Not all of the
information set forth in the Registration Statement, amendments and exhibits
thereto has been included in the prospectus or this Statement of Additional
Information. Statements contained in the Prospectus and this Statement of
Additional Information concerning the content of the policies and other legal
instruments are intended to be summaries. For a complete statement of the terms
of these documents, reference should be made to the instruments filed with the
Securities and Exchange Commission.
FINANCIAL STATEMENTS
The values of your interest in the mutual fund account or the target account
will be affected solely by the investment results of the selected subaccount(s).
Financial statements of certain subaccounts of The PFL Endeavor VA Separate
Account, which are available for investment by the PFL Endeavor ML Variable
Annuity contract owners, and the financial statements of The PFL Endeavor Target
Account are contained herein. The statutory-basis financial statements of PFL,
which are included in this Statement of Additional Information, should be
considered only as bearing on the ability of PFL to meet its obligations under
the policies. They should not be considered as bearing on the investment
performance of the assets held in the mutual fund account or the target account.
38
<PAGE>
PART C
OTHER INFORMATION
Item 28. Financial Statements and Exhibits
(a) Financial Statements:
All required financial statements are included in Part B of this
Registration Statement.
(b) Exhibits:
(1) Resolution of the Board of Directors of PFL Life Insurance
Company authorizing the establishment of the Target Account.
(Note 8)
(2) Rules and Regulations of the Target Account. (Note 11)
(3)(a) Custodian Agreement between the Target Account and Boston Safe
Deposit and Trust Company. (Note 11)
(3)(b) Not Applicable.
(4)(a) Management Agreement between the Target Account and Endeavor
Investment Advisers. (Note 11)
(4)(b)(1) Investment Advisory Agreement between Endeavor Investment
Advisers and First Trust Advisers L.P. (DJIA Target 5) (Note
11)
(4)(b)(2) Investment Advisory Agreement between Endeavor Investment
Advisers and First Trust Advisers L.P. (DJIA Target 10) (Note
11)
(5)(a) Principal Underwriting Agreement by and between PFL Life
Insurance Company on its own behalf and on behalf of the
Target Account, and AEG0N USA Securities, Inc. (Note 2)
(5)(a)(1) Principal Underwriting Agreement by and between PFL Life
Insurance Company on its own behalf and on behalf of the
Target Account, and AFSG Securities Corporation. (Note 9)
(5)(a)(2) Termination of Principal Underwriting Agreement by and between
AGEON USA Securities, Inc., formerly known as, MidAmerica
Management Corporation and PFL Life Insurance Company on its
own behalf and on the behalf of PFL Endeavor Variable Annuity
Account. (Note 11)
(5)(b) Form of Broker-Dealer Supervision and Sales Agreement by and
between AFSG Securities Corporation and the Broker-Dealer.
(Note 9)
(6)(a) Form of Policy for the Endeavor Variable Annuity. (Note 2)
(6)(b) Form of Policy Endorsement (Required Distributions) (Note 2)
(6)(c) Form of Policy Endorsement (Death Benefits) (Note 3)
(6)(d) Form of Policy Endorsement (Nursing Care) (Note 4)
(6)(e) Form of Policy Endorsement (Death Benefit) (Note 5)
(6)(f) Form of Policy for the Endeavor Variable Annuity. (Note 6)
(6)(g) Form of Policy Endorsement. (Nursing Care) (Note 6)
(6)(h) Form of Policy for the Endeavor FI Variable Annuity. (Note 7)
(6)(i) Form of Policy Endorsement for Endeavor FI. (Nursing Care)
(Note 7)
(6)(j) Form of Policy Endorsement. (Nursing Care) (Note 7)
<PAGE>
(6)(k) Form of Policy for the Endeavor Variable Annuity. (Note 9)
(6)(l) Form of Policy Endorsement (New Separate Accounts and Annuity
Commencement Date). (Note 9)
(6)(m) Form of Policy Endorsement for the PFL Endeavor and PFL
Endeavor ML Variable Annuity. (GMIB) (Note 11)
(6)(n) Form of Group Master Policy and Optional Riders for the
Endeavor Variable Annuity. Note 14
(6)(o) Form of Group Certificate for the Endeavor Variable Annuity.
Note 14
(6)(p) Form of Individual Policy for the Endeavor Variable Annuity.
Note 14
(7)(a) Form of Application for the PFL Endeavor Variable Annuity.
(Note 7)
(7)(b) Form of Application for the PFL Endeavor FI Variable Annuity.
(Note 7)
(7)(c) Form of Application for the Endeavor ML Variable Annuity.
(Note 7)
(7)(d) Form of Application for the PFL Endeavor Variable Annuity.
(Note 9)
(7)(e) Form of Application for ML PFL Endeavor Variable Annuity
(Note 11)
(7)(f) Form of Application for the PFL Endeavor ML Variable Annuity
(Note 11)
(7)(g) Form of Group Master Application for the Endeavor Variable
Annuity. Note 14
(7)(h) Form of Group Certificate Enrollment Application for the
Endeavor Variable Annuity. Note 14
(7)(i) Form of Individual Application for the Endeavor Variable
Annuity. Note 14.
(8)(a) Articles of Incorporation of PFL Life Insurance Company.
(Note 9)
(8)(b) Bylaws of PFL Life Insurance Company. (Note 9)
(9) Not Applicable.
(10) Not Applicable.
(11)(a) Distribution Plan (Note 11).
(11)(b) Administrative Services Agreement with First Data Investors
Services Group (Note 11)
(11)(b)(1) Amended Schedule A and Schedule B to the Administrative
Services Agreement. Note 13
(11)(c) Brokerage Enhancement Plan. (Note 11)
(11)(d) Sublicense Agreement between Dow Jones, First Trust Advisers
L.P. and the Target Account. (Note 12)
(11)(e) Distribution Agreement. (Note 11)
(12) Opinion and Consent of Counsel. (Note 9)
(13)(a) Opinion and Consent of Actuary. (Note 14)
(13)(b) Consent of Independent Auditors. (Note 14)
(14) Not Applicable.
(15) Not Applicable.
(16) Performance Data Calculations. (Note 12)
(17) Financial Data Schedules. (Note 12)
- ----------------------
Note 1. Filed with the initial filing of Form N-4 Registration Statement
(File No. 33-33085) on January 23, 1990 and incorporated herein by
reference.
Note 2. Filed with Post-Effective Amendment No. 2 to Form N-4 Registration
Statement (File No. 33-33085) on April 1, 1991 and is filed
herewith.
Note 3. Filed with Post-Effective Amendment No. 3 to Form N-4 Registration
Statement (File No. 33-33085) on April 29, 1992 and is filed
herewith.
Note 4. Filed with Post-Effective Amendment No. 7 to Form N-4 Registration
Statement (File No. 33-33085) on March 29, 1994 and is filed
herewith.
Note 5. Filed with Post-Effective Amendment No. 10 to Form N-4 Registration
Statement (File No. 33-33085) on April 27, 1995 and incorporated
herein by reference.
<PAGE>
Note 6. Filed with Post-Effective Amendment No. 12 to Form N-4 Registration
Statement (File No. 33-33085) on February 28, 1997 and incorporated
herein by reference.
Note 7. Filed with Post-Effective Amendment No. 13 to Form N-4 Registration
Statement (File No. 33-33085) on April 29, 1997.
Note 8. Filed with the initial filing of Form N-3 Registration Statement (File
No. 333-36297) on September 24, 1997 and incorporated herein by
reference.
Note 9. Filed with the initial filing of Form N-3 Registration Statement (File
No. 333-47027) on February 27, 1998.
Note 10. Filed with Pre-Effective Amendment No. 1 to this form N-3 Registration
Statement (File. No. 333-47027) on April 29, 1998
Note 11. Filed with Post-Effective Amendment No. 1 to this Form N-3
Registration Statement (File No. 333-47027) on September 28, 1998.
Note 12 Filed with Post-Effective Amendment No. 2 to this Form N-3
Registration Statement (File No 333-47027) on April 28, 1999.
Note 13 Filed herewith
Note 14 To be filed by Amendment.
<PAGE>
Item 29. Directors and Officers of the Insurance Company
<TABLE>
<CAPTION>
Name and Principal Business Positions and Offices with Insurance Positions and Offices with
Address Company Registrant
- ------- ------- ----------
<C> <S> <C>
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, and
4333 Edgewood Road N.E. Chief Investment Office, Corporate
Cedar Rapids, Iowa Actuary
52499-0001
Larry N. Norman Director, and Executive Vice President
4333 Edgewood Road N.E.
Cedar Rapids, Iowa
52499-0001
Robert J. Kontz Vice President and
4333 Edgewood Road N.E. Corporate Controller
Cedar Rapids, Iowa
52499-0001
Brenda K. Clancy Vice President, Treasurer and Chief
4333 Edgewood Road N.E. Financial Officer
Cedar Rapids, Iowa
52499-0001
</TABLE>
Item 30. Persons Controlled by or Under Common Control with the Insurance
Company or Registrant
<TABLE>
<CAPTION>
Jurisdiction of Percent of Voting
Name Incorporation Securities Owned Business
- ---- ------------- ---------------- --------
<S> <C> <C> <C>
AEGON N.V. Netherlands 53.63% of Vereniging Holding company
Corporation AEGON Netherlands
Membership Association
Groninger Financieringen B.V. Netherlands 100% of AEGON N.V. Holding company
Corporation Netherlands Corporation
AEGON Netherland N.V. Netherlands 100% of AEGON N.V. Holding company
Corporation Netherlands Corporation
AEGON Nevak Holding B.V. Netherlands 100% of AEGON N.V. Holding company
Corporation Netherlands Corporation
AEGON International N.V. Netherlands 100% of AEGON N.V. Holding company
Corporation Netherlands Corporation
Voting Trust Delaware Voting Trust
Trustees:
K.J. Storm
Donald J. Shepard
H.B. Van Wijk
Dennis Hersch
AEGON U.S. Holding Delaware 100% of Voting Trust Holding company
Corporation
Short Hills Management New Jersey 100% of AEGON U.S. Holding company
Company Holding Corporation
CORPA Reinsurance New York 100% of AEGON U.S. Holding company
Company Holding Corporation
AEGON Management Indiana 100% of AEGON U.S. Holding company
Company Holding Corporation
RCC North America Inc. Delaware 100% of AEGON U.S. Holding company
Holding Corporation
AEGON USA, Inc. Iowa 100% AEGON U.S. Holding company
Holding Corporation
AUSA Holding Company Maryland 100% AEGON USA, Inc. Holding company
Monumental General Insurance Maryland 100% AUSA Holding Co. Holding company
Group, Inc.
Trip Mate Insurance Agency, 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
Diversified Investment Delaware 100% AUSA Holding Co. Registered investment advisor
Advisors, Inc.
Diversified Investors Securities Delaware 100% Diversified Investment Broker-Dealer
Corp. Advisors, Inc.
AEGON USA Securities, Inc. Iowa 100% AUSA Holding Co. Broker-Dealer
Supplemental Ins. Division, Inc. Tennessee 100% AUSA Holding Co. Insurance
Creditor Resources, Inc. Michigan 100% AUSA Holding Co. Credit insurance
CRC Creditor Resources Canada 100% Creditor Resources, Inc. Insurance agency
Canadian Dealer Network Inc.
AEGON USA Investment Iowa 100% AUSA Holding Co. Investment advisor
Management, Inc.
AEGON USA Realty Iowa 100% AUSA Holding Co. Provides real estate
Advisors, Inc. administrative and real
estate investment services
Quantra Corporation Delaware 100% AEGON USA Realty Real estate and financial
Advisors, Inc. software production and sales
Quantra Software Corporation Delaware 100% Quantra Corporation Manufacture and sell
mortgage loan and security
management software
Landauer Realty Advisors, Inc. Iowa 100% AEGON USA Realty Real estate counseling
Advisors, Inc.
Landauer Associates, Inc. Delaware 100% AEGON USA Realty Real estate counseling
Advisors, Inc.
Realty Information Systems, Inc. Iowa 100% AEGON USA Realty Information Systems for
Advisors, Inc. real estate investment
management
AEGON USA Realty Iowa 100% AEGON USA Real estate management
Management, Inc Realty Advisors, Inc.
USP Real Estate Investment Trust Iowa 21.89% 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.
AUSA Financial Markets, Inc. Iowa 100% AUSA Holding Co. Marketing
Endeavor Investment Advisors California 49.9% AUSA Financial General Partnership
Markets, Inc.
Universal Benefits Corporation Iowa 100% AUSA Holding Co. Third party administrator
Investors Warranty of Iowa 100% AUSA Holding Co. Provider of automobile
America, Inc. extended maintenance
contracts
Massachusetts Fidelity Trust Co. Iowa 100% AUSA Holding Co. Trust company
Money Services, Inc. Delaware 100% AUSA Holding Co. Provides financial counseling
for employees and agents of
affiliated companies
Zahorik Company, Inc. California 100% AUSA Holding Co. Broker-Dealer
ZCI, Inc. Alabama 100% Zahorik Company, Inc. Insurance agency
AEGON Asset Management Delaware 100% AUSA Holding Co. Registered investment advisor
Services, Inc.
Intersecurities, Inc. Delaware 100% AUSA Holding Co. Broker-Dealer
ISI Insurance Agency, Inc. California 100% Intersecurities, Inc. Insurance agency
ISI Insurance Agency Ohio 100% ISI Insurance Agency, Inc. Insurance agency
of Ohio, Inc.
ISI Insurance Agency Texas 100% ISI Insurance Agency, Inc. Insurance agency
of Texas, Inc.
ISI Insurance Agency Massachusetts 100% ISI Insurance Agency Inc. Insurance Agency
of Massachusetts, Inc.
Associated Mariner Financial Michigan 100% Intersecurities, Inc. Holding co./management
Group, Inc. services
Mariner Financial Services, Inc. Michigan 100% Associated Mariner Broker/Dealer
Financial Group, Inc.
Mariner Planning Corporation Michigan 100% Mariner Financial Financial planning
Services, Inc.
Associated Mariner Agency, Inc. Michigan 100% Associated Mariner Insurance agency
Financial Group, Inc.
Associated Mariner Agency Hawaii 100% Associated Mariner Insurance agency
of Hawaii, Inc. Agency, Inc.
Associated Mariner Ins. Agency Massachusetts 100% Associated Mariner Insurance agency
of Massachusetts, Inc. Agency, Inc.
Associated Mariner Agency Ohio 100% Associated Mariner Insurance agency
Ohio, Inc. Agency, Inc.
Associated Mariner Agency Texas 100% Associated Mariner Insurance agency
Texas, Inc. Agency, Inc.
Associated Mariner Agency New Mexico 100% Associated Mariner Insurance agency
New Mexico, Inc. Agency, Inc.
Mariner Mortgage Corp. Michigan 100% Associated Mariner Mortgage origination
Financial Group, Inc.
Idex Investor Services, Inc. Florida 100% AUSA Holding Co. Shareholder services
Idex Management, Inc. Delaware 50% AUSA Holding Co. Investment advisor
50% Janus Capital Corp.
IDEX II Series Fund Massachusetts Various Mutual fund
First AUSA Life Insurance Maryland 100% AEGON USA, Inc. Insurance holding company
Company
AUSA Life Insurance New York 100% First AUSA Life Insurance
Company, Inc. Insurance Company
Life Investors Insurance Iowa 100% First AUSA Life Ins. Co. Insurance
Company of America
Aegon Equity Group, Inc. Florida 100% Western Reserve Life Insurance Agency
Assurance Co. of Ohio
Bankers United Life Iowa 100% Life Investors Ins. Insurance
Assurance Company Company of America
Life Investors Agency Iowa 100% Life Investors Ins. Marketing
Group, Inc. Company of America
PFL Life Insurance Company Iowa 100% First AUSA Life Ins. Co. Insurance
AEGON Financial Services Minnesota 100% PFL Life Insurance Co. Marketing
Group, Inc.
AEGON Assignment Corporation Kentucky 100% AEGON Financial Administrator of structured
of Kentucky Services Group, Inc. settlements
Life Investors Alliance, LLC Delaware 100% LIICA Purchase, own, and hold
the equity interest of
other entities
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
Aegon Assignment Corporation Illinois 100% Aegon Financial Services Administrator of Structured
Group, Inc. Settlements
Monumental Life Insurance Co. Maryland 100% First AUSA Life Ins. Co. Insurance
AEGON Special Markets Maryland 100% Monumental Life Ins. Co. Marketing
Group, Inc.
Monumental General Casualty Co. Maryland 100% First AUSA Life Ins. Co. Insurance
United Financial Services, Inc. Maryland 100% First AUSA Life Ins. Co. General agency
Bankers Financial Life Ins. Co. Arizona 100% First AUSA Life Ins. Co. Insurance
The Whitestone Corporation Maryland 100% First AUSA Life Ins. Co. Insurance agency
Cadet Holding Corp. Iowa 100% First AUSA Life Holding company
Insurance Company
Commonwealth General Delaware 100% AEGON USA Holding company
Corporation ("CGC")
PB Series Trust Massachusetts N/A Mutual fund
Monumental Agency Group, Inc. Kentucky 100% CGC Provider of srvcs. to ins. cos.
Benefit Plans, Inc. Delaware 100% CGC TPA for Peoples Security Life
Insurance Company
Durco Agency, Inc. Virginia 100% Benefit Plans, Inc. General agent
Commonwealth General. Kentucky 100% CGC Administrator of structured
Assignment Corporation settlements
AFSG Securities Corporation Pennsylvania 100% CGC Broker-Dealer
PB Investment Advisors, Inc. Delaware 100% CGC Registered investment advisor
Diversified Financial Products Inc. Delaware 100% CGC Provider of investment,
marketing and admin.
services to ins. cos.
AEGON USA Real Estate Delaware 100% Diversified Financial Real estate and mortgage
Services, Inc. Products Inc. holding company
Capital Real Estate Delaware 100% CGC Furniture and equiment lessor
Development Corporation
Capital General Development Delaware 100% CGC Holding company
Corporation
Ammest Realty Corporation Texas 100% Peoples Security Life Special purpose subsidiary
Insurance Company
JMH Operating Company, Inc. Mississippi 100% Peoples Security Life Real estate holdings
Insurance Company
Independence Automobile Florida 100% Capital Security Automobile Club
Association, Inc. Life Insurance Company
Independence Automobile Georgia 100% Capital Security Automobile Club
Club, Inc. Life Insurance Company
Capital 200 Block Corporation Delaware 100% CGC Real estate holdings
Capital Broadway Corporation Kentucky 100% CGC Real estate holdings
Southlife, Inc. Tennessee 100% CGC Investment subsidiary
Ampac Insurance Agency, Inc. Pennsylvania 100% CGC Provider of management
(EIN 23-1720755) support services
National Home Life Corporation Pennsylvania 100% Ampac Insurance Special-purpose subsidiary
Agency, Inc.
Compass Rose Development Pennsylvania 100% Ampac Insurance Special-purpose subsidiary
Corporation Agency, Inc.
Frazer Association Consultants, Illinois 100% Ampac Insurance TPA license-holder
Inc. Agency, Inc.
Valley Forge Associates, Inc. Pennsylvania 100% Ampac Insurance Furniture & equipment lessor
Agency, Inc.
Veterans Benefits Plans, Inc. Pennsylvania 100% Ampac Insurance Administator of group
Agency, Inc. insurance programs
Veterans Insurance Services, Inc. Delaware 100% Ampac Insurance Special-purpose subsidiary
Agency, Inc.
Financial Planning Services, Inc. Dist. Columbia 100% Ampac Insurance Special-purpose subsidiary
Agency, Inc.
Academy Insurance Group, Inc. Delaware 100% CGC Holding company
Academy Life Insurance Co. Missouri 100% Academy Insurance Insurance company
Group, Inc.
Pension Life Insurance New Jersey 100% Academy Insurance Insurance company
Company of America Group, Inc.
Academy Services, Inc. Delaware 100% Academy Insurance Special-purpose subsidiary
Group, Inc.
Ammest Development Corp. Inc. Kansas 100% Academy Insurance Special-purpose subsidiary
Group, Inc.
Ammest Insurance Agency, Inc. California 100% Academy Insurance General agent
Group, Inc.
Ammest Massachusetts Massachusetts 100% Academy Insurance Special-purpose subsidiary
Insurance Agency, Inc. Group, Inc.
Ammest Realty, Inc. Pennsylvania 100% Academy Insurance Special-purpose subsidiary
Group, Inc.
Ampac, Inc. Texas 100% Academy Insurance Managing general agent
Group, Inc.
Ampac Insurance Agency, Inc. Pennsylvania 100% Academy Insurance Special-purpose subsidiary
(EIN 23-2364438) Group, Inc.
Data/Mark Services, Inc. Delaware 100% Academy Insurance Provider of mgmt. services
Group, Inc.
Force Financial Group, Inc. Delaware 100% Academy Insurance Special-purpose subsidiary
Group, Inc.
Force Financial Services, Inc. Massachusetts 100% Force Fin. Group, Inc. Special-purpose subsidiary
Military Associates, Inc. Pennsylvania 100% Academy Insurance Special-purpose subsidiary
Group, Inc.
NCOA Motor Club, Inc. Georgia 100% Academy Insurance Automobile club
Group, Inc.
NCOAA Management Company Texas 100% Academy Insurance Special-purpose subsidiary
Group, Inc.
Unicom Administrative Pennsylvania 100% Academy Insurance Provider of admin. services
Services, Inc. Group, Inc.
Unicom Administrative Germany 100%Unicom Administrative Provider of admin. servcies
Services, GmbH Services, Inc.
Capital Liberty, L.P. Delaware 79.2% Commonwealth Life Holding Company
Insurance Company
19.8% Peoples Security Life
Insurance Company
1% CGC
Commonwealth General LLC Turks & 100% CGC Special-purpose subsidiary
Caicos Islands
Peoples Benefit Life Missouri 3.7% CGC Insurance company
Insurance Company 20% Capital Liberty, L.P.
76.3% Monumental Life Ins. Co.
Veterans Life Insurance Co. Illinois 100% Providian Life and Insurance company
Health Insurance Company
Peoples Benefit Services, Inc. Pennsylvania 100% Veterans Life Ins. Co. Special-purpose subsidiary
</TABLE>
Item 31. Number of Contract Owners
As of December 31, 1999, there were _____ Owners of the Policies.
Item 32. 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.
<PAGE>
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Depositor pursuant to the foregoing provisions, or otherwise, the Depositor has
been advised that, in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Depositor of expenses incurred
or paid by a director, officer or controlling person in connection with the
securities being registered), the Depositor will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
Item 33. Business and Other Connections of Investment Adviser
Manager - Endeavor Management Co.
The Manager is a registered investment adviser providing investment
management and administrative services to the Registrant.
The list required by this Item 33 of partners, officers and directors of
the Manager together with information as to any other business, profession,
vocation or employment of a substantial nature engaged in by such officers and
directors during the past two years is incorporated by reference to Schedule B
and D of Form ADV filed by the Manager pursuant to the Investment Advisers Act
of 1940 (SEC No. 801-41827).
Advisers - First Trust Advisers L.P.
The list required by Item 33 of partners, officers and directors of the
Adviser together with information as to any other business, profession, vocation
or employment of a substantial nature engaged in by such officers and directors
during the past two years is incorporated by reference to Schedule B and D of
Form ADV filed by the Adviser pursuant to the Investment Advisers Act of 1940
(SEC No. 801-39950).
Item 34. 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:
<TABLE>
<CAPTION>
Positions and Offices with Positions and Offices with
Name Underwriter Registrant
- ---- ----------- ----------
<S> <C>
Larry N. Norman Director and President
Frank A. Camp Director and Secretary
Lisa Wachendorf Vice President and Chief
Compliance Officer
Debra C. Cubero Vice President
Priscilla Hechler Assistant Vice President
and Assistant Secretary
Thomas Pierpan Assistant Vice President
and Assistant Secretary
Anne Spaes Vice President
Sarah J. Strange Director and Vice President
Darin Smith Assistant Vice President
and Assistant Secretary
Robert Warner Assistant Compliance
Officer
Emily Bates Assistant Treasurer
Clifton Flenniken Assistant Treasurer
</TABLE>
<PAGE>
Linda Gilmer Treasurer / Controller
Priscilla Hechler Assistant Vice President
and Assistant Secretary
Thomas Pierpan Assistant Vice President
and Assistant Secretary
The principal business address of each person listed is AFSG Securities
Corporation, 4333 Edgewood Road N.E., Cedar Rapids, IA 52499-0001.
AFSG Securities Corporation, the broker/dealer, received $____ and $626,924
from the Registrant for the year ending December 31, 1999 and from July 1,1998
through December 31, 1998, respectively, 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 35. 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 36. Management Services
All management Contracts are discussed in Part A or Part B.
Item 37. Undertakings
(a) Registrant undertakes to file a post-effective amendment, using
financial statements of the Registrant which need not be certified, within four
to six months from the effective date of the Registrant's 1933 Act registration
statement.
(b) 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.
(c) 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.
(d) 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.
(e) PFL Life Insurance Company hereby represents that the fees and
charges deducted under the policies, in the aggregate, are reasonable in
relation to the services rendered, the expenses expected to be incurred, and the
risks assumed by PFL Life Insurance Company.
<PAGE>
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 PFL Endeavor Target Account has caused this Registration Statement to
be signed on its behalf in the City of Corona Del Mar and State of California on
this 11th day of February, 2000.
PFL ENDEAVOR TARGET ACCOUNT
By: /s/ Vincent J. McGuinness, Jr.
--------------------------------
Vincent J. McGuinness, Jr.
President
PFL LIFE INSURANCE COMPANY
By: /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.
Signature Title Date
--------- ----- ----
/s/ Vincent J. McGuinnes Manager February 11 , 2000
- ------------------------------- ------------
Vincent J. McGuinness
/s/ Timothy A. Devine Manager February 11 , 2000
- ------------------------------- ------------
Timothy A. Devine
/s/ Thomas J. Hawekotte Manager February 11 , 2000
- ------------------------------- ------------
Thomas J. Hawekotte
/s/ Steven L. Klosterman Manager February 11 , 2000
- ------------------------------- ------------
Steven L. Klosterman
/s/ Halbert D. Lindquist Manager February 11 , 2000
- ------------------------------- ------------
Halbert D. Lindquist
/s/ Peter F. Muratore Manager February 11 , 2000
- ------------------------------- ------------
Peter F. Muratore
/s/ Vincent J. McGuinness, Jr. Treasurer and February 11 , 2000
- ------------------------------- Chief Investment Officer ------------
Vincent J. McGuinness, Jr.
<PAGE>
/s/ Keith H. Wood Manager February 11 , 2000
- ------------------------------- ------------
Keith H. Wood
/s/ Larry Norman Manager February 11 , 2000
- ------------------------------- ------------
Larry Norman
/s/ Robert Hickey Power of Attorney February 11 , 2000
- ------------------------------- ------------
Robert Hickey
<PAGE>
Registration No.
333-47027
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
EXHIBITS
TO
FORM N-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
FOR
PFL ENDEAVOR TARGET ACCOUNT
---------------
<PAGE>
EXHIBIT INDEX
Exhibit No. Description of Exhibit Page No. *
- ----------- ---------------------- ----------
(11)(b)(1) Amended Schedule A and Schedule B to the
Administrative Services Agreement.
* Page numbers included only in manually executed original, in compliance
with Rule 403(d).
<PAGE>
EXHIBIT (11)(b)(1)
AMENDED SCHEDULE A AND SCHEDULE B
TO THE ADMINISTRATIVE SERVICES AGREEMENT
<PAGE>
ADMINISTRATION AGREEMENT
AMENDED SCHEDULE A
(as of December 31, 1998)
The Dow Target 5 Subaccount
July Series
January Series
The Dow Target 10 Subaccount
July Series
January Series
Accepted by:
/s/ William L. Busler /s/ James Fox
- ---------------------------------- ---------------------------------
PFL Life Insurance Company, on behalf of First Data Investor Services Group,
PFL Endeavor Target Account Inc.
<PAGE>
ADMINISTRATION AGREEMENT
AMENDED SCHEDULE B
FEE SCHEDULE
(as of December 31, 1998)
The Account shall pay Investor Services Group the following fees:
. a flat fee of $10,000 per annum per Series of each Subaccount
. Investor Services Group shall be entitled to collect all out-
of-pocket fees described in Schedule C
Accepted by:
/s/ William L. Busler /s/ James Fox
- ---------------------------------- --------------------------------
PFL Life Insurance Company, on behalf of First Data Investor Services Group,
PFL Endeavor Target Account Inc.
