<PAGE>
As filed with the Securities and Exchange
Commission on April 28, 2000
333-36297
811-08377
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
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Pre-Effective Amendment No.
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Post-Effective Amendment No. 3
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and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
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Amendment No. 16
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, Esq.
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 effectiveness of the Registration Statement.
It is proposed that this filing will become effective:
immediately upon filing pursuant to paragraph (b) of Rule 485
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X on May 1, 2000 pursuant to paragraph (b) of Rule 485
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60 days after filing pursuant to paragraph (a) (1) of Rule 485
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on pursuant to paragraph (a) (1) of Rule 485
- ------- -------
75 days after filing pursuant to paragraph (a) (2)
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on pursuant to paragraph (a) (2) of Rule 485
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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
PLATINUM
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 Platinum 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 separate account investment choices:
.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
Endeavor Value Equity Portfolio
Endeavor Select 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(R) 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 DowSM Target 10 (July Series)
The DowSM Target 5 (July Series)
The DowSM Target 10 (January Series)
The DowSM Target 5 (January Series)
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
GLOSSARY OF TERMS........................................................... 3
SUMMARY..................................................................... 4
ANNUITY POLICY FEE TABLE.................................................... 8
EXAMPLES.................................................................... 12
1.THE ANNUITY POLICY........................................................ 14
2.PURCHASE.................................................................. 14
Policy Issue Requirements................................................. 14
Premium Payments.......................................................... 14
Initial Premium Requirements.............................................. 14
Additional Premium Payments............................................... 15
Maximum Total Premium Payments............................................ 15
Allocation of Premium Payments............................................ 15
Policy Value.............................................................. 15
3.INVESTMENT CHOICES........................................................ 15
The Separate Accounts..................................................... 15
The Mutual Fund Account................................................... 15
The Target Account........................................................ 16
The Fixed Account......................................................... 21
Transfers................................................................. 22
4.PERFORMANCE............................................................... 23
5.EXPENSES.................................................................. 23
Excess Interest Adjustment................................................ 23
Mortality and Expense Risk Fee............................................ 23
Administrative Charges.................................................... 24
Distribution Financing Charge............................................. 24
Premium Taxes............................................................. 24
Federal, State and Local Taxes............................................ 24
Transfer Fee.............................................................. 24
Family Income Protector................................................... 24
Portfolio Management Fees................................................. 24
Target Account Fees....................................................... 24
6.ACCESS TO YOUR MONEY...................................................... 25
Surrenders................................................................ 25
Delay of Payment and Transfers............................................ 25
Excess Interest Adjustment................................................ 26
7. ANNUITY PAYMENTS
(THE INCOME PHASE)....................................................... 26
Annuity Payment Options................................................... 26
8.DEATH BENEFIT............................................................. 28
When We Pay A Death Benefit............................................... 28
When We Do Not Pay A Death Benefit........................................ 28
Amount of Death Benefit................................................... 29
Guaranteed Minimum Death Benefit.......................................... 29
Adjusted Partial Withdrawal............................................... 30
</TABLE>
<TABLE>
<S> <C>
9. TAXES.................................................................... 30
Annuity Policies in General............................................... 30
Qualified and Nonqualified Policies....................................... 30
Withdrawals - Qualified Policies.......................................... 30
Withdrawals - 403(b) Policies............................................. 31
Tax Status of the Policy.................................................. 31
Withdrawals - Nonqualified Policies....................................... 32
Taxation of Death Benefit Proceeds........................................ 32
Annuity Payments.......................................................... 32
Transfers, Assignments or Exchanges of Policies........................... 33
Possible Tax Law Changes.................................................. 33
10.ADDITIONAL FEATURES...................................................... 33
Systematic Payout Option.................................................. 33
Family Income Protector................................................... 33
Nursing Care and Terminal Condition Withdrawal Option..................... 35
Telephone Transactions.................................................... 35
Dollar Cost Averaging Program............................................. 35
Asset Rebalancing......................................................... 36
11.OTHER INFORMATION........................................................ 36
Ownership................................................................. 36
Assignment................................................................ 36
PFL Life Insurance Company................................................ 36
The Mutual Fund Account................................................... 37
The Target Account........................................................ 37
Mixed and Shared Funding.................................................. 37
Reinstatements............................................................ 37
Voting Rights............................................................. 38
Distributor of the Policies............................................... 38
Variations in Policy Provisions........................................... 38
IMSA...................................................................... 39
Legal Proceedings......................................................... 39
Financial Statements...................................................... 39
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION................ 39
APPENDIX A
Condensed Financial Information
The Mutual Fund Account.................................................. 40
Condensed Financial Information
The Target Account....................................................... 44
APPENDIX B
Historical Performance Data
The Mutual Fund Account.................................................. 46
Historical Performance Data
The Target Strategies and the
Dow Jones Industrial AverageSM........................................... 53
APPENDIX C
Policy Variations........................................................... 57
</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.
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 premium
taxes and family income protector rider fee.
Distribution Financing Charge - A daily charge for the first ten policy years
equal to an effective annual rate of 0.25% of the mutual fund account's and the
target account's net assets. This charge is not deducted after the annuity
commencement date.
DJIA - The Dow Jones Industrial AverageSM. 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 PFL's general assets and are not in the mutual fund account or 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 portfolio of the underlying funds.
Owner - The person who may exercise all rights and privileges under the policy.
The owner during the lifetime of the annuitant and prior to the annuity
commencement date is the person designated as the owner or a successor owner in
the information that we require to issue a policy.
Policy 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 on such withdrawals); plus
. interest credited in the fixed account; plus or minus
. 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.
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.
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. 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.
3. 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 Portfolio(/1/)
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 - Service Class 2
Fidelity - VIP II Contrafund(R) Portfolio - Service Class 2
Fidelity - VIP III Growth Opportunities Portfolio - Service Class 2
Fidelity - VIP III Mid Cap Portfolio - Service Class 2
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
(/1/)Formerly known as Endeavor Select 50.
4
<PAGE>
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.
4. 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.
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.
Full surrenders, partial withdrawals and transfers from a guaranteed period
option of the fixed account may 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 1.25% (if you choose the "Return of Premium Death Benefit")
or 1.40% (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.
To help with the cost of distributing the policies, we also deduct a daily
distribution financing charge equal to an effective annual rate of 0.25%,
during the first ten years of the accumulation phase.
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 receive annuity payments 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. ACCESS TO YOUR MONEY
You can generally take out $500 or more anytime during the accumulation phase
(except under certain qualified policies).
Amounts withdrawn in the first year, or in excess of the 10% free amount, may
be subject to excess interest adjustments. You may have to pay income tax and a
tax penalty on any money you take out.
Access to amounts held in qualified policies may be restricted or prohibited.
7. 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.
5
<PAGE>
8. 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 may generally choose one of the following guaranteed minimum
death benefits:
. 5% Annually Compounding
. Double Enhanced
. Return of Premium
Charges are lower for the Return of Premium Death Benefit than they are for the
other two.
These choices are restricted for annuitants and owners over age 74.
If an owner is not the annuitant, no death benefit is paid if that owner dies.
9. 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.
10. 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 "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 an excess interest
adjustment. This feature is called the "nursing care and terminal condition
withdrawal option."
. 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.
11. 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 20 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
6
<PAGE>
may have more or less than 20 days to return a policy, or receive a refund of
more (or less) than the policy value.
No Probate. Usually, when the annuitant dies, the person you choose as your
beneficiary will receive the death benefit under this policy without going
through probate. State laws vary on how the amount that may be paid is treated
for estate tax purposes.
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 of this policy, such as the
opportunity for lifetime income payments, a guaranteed death benefit, the
guaranteed level of certain charges, and the family income protector, make this
policy appropriate for your needs.
Financial Statements. Financial Statements for PFL, the mutual fund subaccounts
and target series subaccounts are in the SAI.
12. 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
You may check your policy at www.pfllife.com/fmd. Follow the logon
procedures. You will need your pre-assigned Personal Identification Number
("PIN") to access information about your policy.
7
<PAGE>
ANNUITY POLICY FEE TABLE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Policy Owner Transaction Expenses
- --------------------------------------
<S> <C>
Sales Load On Purchase Payments.. 0
</TABLE>
<TABLE>
<CAPTION>
Separate Account Annual Expenses
(as a percentage of average account value)
<S> <C>
Mortality and Expense Risk
Fee(/2/)..................... 1.25%
Administrative Charge......... 0.15%
Distribution Financing
Charge....................... 0.25%
------------
TOTAL SEPARATE ACCOUNT ANNUAL
EXPENSES..................... 1.65%
</TABLE>
<TABLE>
<S> <C>
Annual Service Charge(/1/).. $35 Per Policy
</TABLE>
<TABLE>
<S> <C>
Transfer Fee(/1/)......... Currently No Fee
</TABLE>
- --------------------------------------------------------------------------------
Portfolio Annual Expenses(/3/)
(as a percentage of average net assets and after expense reimbursements)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Total
Total Account
Portfolio and
Management Other Rule Annual Portfolio
Fees Expenses 12b-1 Fees(/4/) Expenses Expenses
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Dreyfus Small Cap
Value(/5/)............. 0.80% 0.10% 0.32% 1.22% 2.87%
Dreyfus U.S. Government
Securities(/6/)........ 0.65% 0.12% -- 0.77% 2.42%
Endeavor Asset
Allocation(/7/)........ 0.75% 0.10% 0.02% 0.87% 2.52%
Endeavor Money Market... 0.50% 0.05% -- 0.55% 2.20%
Endeavor Enhanced
Index.................. 0.75% 0.03% -- 0.78% 2.43%
Endeavor High
Yield(/8/)............. 0.746% 0.504% -- 1.25% 2.90%
Endeavor Janus
Growth(/9/)............ 0.775% 0.055% -- 0.83% 2.48%
Endeavor Opportunity
Value(/10/)............ 0.80% 0.05% 0.06% 0.91% 2.56%
Endeavor Value
Equity(/11/)........... 0.80% 0.07% 0.08% 0.95% 2.60%
Endeavor Select......... 1.00% 0.39% -- 1.39% 3.04%
T. Rowe Price Equity
Income(/12/)........... 0.80% 0.07% 0.01% 0.88% 2.53%
T. Rowe Price Growth
Stock(/13/)............ 0.80% 0.07% 0.01% 0.88% 2.53%
T. Rowe Price
International
Stock(/14/)............ 0.90% 0.10% -- 1.00% 2.65%
Transamerica VIF
Growth(/15/)........... 0.70% 0.15% -- 0.85% 2.50%
Fidelity - VIP Equity-
Income -
Service Class 2(/16/).. 0.48% 0.10% 0.25% 0.83% 2.48%
Fidelity - VIP II
Contrafund(R) -
Service Class 2(/16/).. 0.58% 0.12% 0.25% 0.95% 2.60%
Fidelity - VIP III
Growth Opportunities -
Service Class
2(/16/)................ 0.58% 0.13% 0.25% 0.96% 2.61%
Fidelity - VIP III Mid
Cap -
Service Class 2(/16/).. 0.57% 0.43% 0.25% 1.25% 2.90%
WRL Alger Aggressive
Growth................. 0.80% 0.09% -- 0.89% 2.54%
WRL Goldman Sachs
Growth(/17/)(/18/)..... 0.90% 0.10% -- 1.00% 2.65%
WRL Janus Global(/19/).. 0.80% 0.12% -- 0.92% 2.57%
WRL NWQ Value Equity.... 0.80% 0.10% -- 0.90% 2.55%
WRL Pilgrim Baxter Mid
Cap
Growth(/17/)(/20/)..... 0.90% 0.10% -- 1.00% 2.65%
WRL Salomon All
Cap(/17/)(/21/)........ 0.90% 0.10% -- 1.00% 2.65%
WRL T. Rowe Price
Dividend
Growth(/17/)(/22/)..... 0.90% 0.10% -- 1.00% 2.65%
WRL T. Rowe Price Small
Cap(/17/)(/23/)........ 0.75% 0.25% -- 1.00% 2.65%
The DowSM Target 10
(January)(/24/)(/25/).. 0.69% 0.51% -- 1.20% 2.85%
The DowSM Target 5
(January)(/24/)(/26/).. 0.69% 0.52% -- 1.21% 2.86%
The DowSM Target 10
(July)(/24/)(/27/)..... 0.75% 0.38% -- 1.13% 2.78%
The DowSM Target 5
(July)(/24/)(/28/)..... 0.75% 0.32% -- 1.07% 2.72%
</TABLE>
8
<PAGE>
(/1/) The transfer fee, if any is imposed, applies 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. 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/) Mortality and expense risk fees shown (1.25%) are for the "5% Annually
Compounding Death Benefit" and the "Double Enhanced Death Benefit." This
fee reflects a fee that is 0.15% per year higher than the 1.10%
corresponding fee for the "Return of Premium Death Benefit."
(/3/) 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.
(/4/) 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 investment 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. The 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.
(/5/) For the Dreyfus Small Cap Value Portfolio, the management fees were 0.80%
and other expenses before reimbursements were 0.10%. Therefore, Total
Portfolio Annual Expenses before reimbursements (reduced by custodial
offset arrangements) for the period ended December 31, 1999 were 0.90%.
(/6/) For the Dreyfus U.S. Government Securities Portfolio, the management fees
were 0.65% and other expenses (reduced by custodial offset arrangements)
were 0.08%. Therefore, Total Portfolio Annual Expenses for the period
ended December 31, 1999 were 0.73%.
(/7/) For the Endeavor Asset Allocation Portfolio, the management fees were
0.75% and other expenses before reimbursements were 0.09%. Therefore,
Total Portfolio Annual Expenses and other expenses before reimbursements
(reduced by custodial offset arrangements) for the period ended December
31, 1999 were 0.84%.
(/8/) For the Endeavor High Yield Portfolio, the management fees before waivers
were 0.775% (after waivers 0.746%) and other expenses were 0.47%.
Therefore, Total Portfolio Annual Expenses after waivers (reduced by
custodial offset arrangements) for the period ended December 31, 1999
were 1.22%.
(/9/) For the Endeavor Janus Growth Portfolio, the management fees before
waivers were 0.80% (after waivers 0.775%) and other expenses were 0.055%.
Therefore, Total Portfolio Annual Expenses after waivers (reduced by
custodial offset arrangements) for the period ended December 31, 1999
were 0.83%.
(/10/) For the Endeavor Opportunity Value Portfolio, the management fees were
0.80% and other expenses before reimbursements were 0.05%. Therefore,
Total Portfolio Annual Expenses before reimbursements (reduced by
custodial offset arrangements) for the period ended December 31, 1999
were 0.85%.
(/11/) For the Endeavor Value Equity Portfolio, the management fees were 0.80%
and other expenses before reimbursements were 0.08%. Therefore, Total
Portfolio Annual Expenses before reimbursements (reduced by custodial
offset arrangements) for the period ended December 31, 1999 were 0.88%.
9
<PAGE>
(/12/) For the T. Rowe Price Equity Income Portfolio, the management fees were
0.80% and other expenses before reimbursements were 0.07%. Therefore,
Total Portfolio Annual Expenses before reimbursements (reduced by
custodial offset arrangements) for the period ended December 31, 1999
were 0.87%.
(/13/) For the T. Rowe Price Growth Stock, the management fees were 0.80% and
other expenses before reimbursements were 0.08%. Therefore, Total
Portfolio Annual Expenses before reimbursements (reduced by custodial
offset arrangements) for the period ended December 31, 1999 were 0.87%.
(/14/) For the T. Rowe Price International Stock Portfolio, the management fees
were 0.90% and other expenses (reduced by custodial offset arrangements)
were 0.01%. Therefore, Total Portfolio Annual Expenses for the period
ended December 31, 1999 were 0.91%.
(/15/) For the Transamerica VIF Growth Portfolio, the management fees before
waivers were 0.75% and other expenses before reimbursements were 0.15%.
Therefore, Total Portfolio Annual Expenses before waivers and other
expenses before reimbursements (reduced by custodial offset
arrangements) for the period ended December 31, 1999 were 0.90%.
(/16/) Service Class 2 expenses are based on estimated expenses for the first
year. VIP expenses are without any reimbursement.
(/17/) 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 estimated.
(/18/) For WRL Goldman Sachs Growth, the management fees before waivers were
0.90% and other expenses before reimbursements were 1.78%. Therefore,
Total Portfolio Annual Expenses before waivers and other expenses before
reimbursements (reduced by custodial offset arrangements) for the period
ended December 31, 1999 were 2.68%.
(/19/) For WRL Janus Global, the investment adviser currently waives 0.025% of
its advisory fee on portfolio average daily net assets over $2 billion
(net fee 0.775%). This waiver is voluntary and will be terminated on
June 25, 2000.
(/20/) For WRL Pilgrim Baxter Mid Cap Growth, the management fees before
waivers were 0.90% and other expenses before reimbursements were 0.50%.
Therefore, Total Portfolio Annual Expenses before waivers and other
expenses before reimbursements (reduced by custodial offset
arrangements) for the period ended December 31, 1999 were 1.40%.
(/21/) For WRL Salomon All Cap, the management fees before waivers were 0.90%
and other expenses before reimbursements were 1.97%. Therefore, Total
Portfolio Annual Expenses before waivers and other expenses before
reimbursements (reduced by custodial offset arrangements) for the period
ended December 31, 1999 were 2.87%.
(/22/) For WRL T. Rowe Price Dividend Growth, the management fees before
waivers were 0.90% and other expenses before reimbursements were 1.45%.
Therefore, Total Portfolio Annual Expenses before waivers and other
expenses before reimbursements (reduced by custodial offset
arrangements) for the period ended December 31, 1999 were 2.35%.
(/23/) For WRL T. Rowe Price Small Cap, the management fees before waivers were
0.75% and other expenses before reimbursements were 1.71%. Therefore,
Total Portfolio Annual Expenses before waivers and other expenses before
reimbursements (reduced by custodial offset arrangements) for the period
ended December 31, 1999 were 2.46%.
(/24/) For the target account, 0.15% of the mortality and expense risk fee
included under "Total Separate Account Annual Expenses" in this table is
deducted pursuant to a 12b-1 plan.
(/25/) For The DowSM Target 10 (January), the management fees before waivers
were 0.75% and other expenses before reimbursements were 0.43%.
Therefore, Total Portfolio Annual Expenses before waivers and other
expenses before reimbursements (reduced by custodial offset
arrangements) for the period ended December 31, 1999 were 1.18%.
(/26/) For The DowSM Target 5 (January), the management fees before waivers
were 0.75% and other expenses before reimbursements were 0.46%.
Therefore, Total Portfolio Annual Expenses before waivers and other
expenses before reimbursements (reduced by custodial offset
arrangements) for the period ended December 31, 1999 were 1.21%.
10
<PAGE>
(/27/) For The DowSM Target 10 (July), the management fees before waivers were
0.75% and other expenses before reimbursements were 0.37%. Therefore,
Total Portfolio Annual Expenses before waivers and other expenses before
reimbursements (reduced by custodial offset arrangements) for the period
ended December 31, 1999 were 1.12%.
(/28/) For The DowSM Target 5 (July), the management fees before waivers were
0.75% and other expenses before reimbursements were 0.29%. Therefore,
Total Portfolio Annual Expenses before waivers and other expenses before
reimbursements (reduced by custodial offset arrangements) for the period
ended December 31, 1999 were 1.04%.
11
<PAGE>
EXAMPLES
You would pay the following expenses on a $1,000 investment, assuming a
hypothetical 5% annual return on assets, and assuming the entire policy value
is in the applicable mutual fund subaccount or target series subaccount, and
assuming the family income protector benefit has not been selected:
The expenses reflect different mortality and expense risk fees depending on
which death benefit you select:
A = Return of Premium Death Benefit (1.10% charge)
B = 5% Annually Compounding Death Benefit or the Double Enhanced Death Benefit
(1.25% charge)
<TABLE>
<CAPTION>
1 3 5 10
Subaccounts Year Years Years Years
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Dreyfus Small Cap Value A $28 $85 $145 $307
-----------------------------
B $29 $89 $152 $321
- -----------------------------------------------------------------------------
Dreyfus U.S. Governement Securities A $23 $71 $122 $262
-----------------------------
B $25 $76 $130 $277
- -----------------------------------------------------------------------------
Endeavor Asset Allocation A $24 $75 $127 $272
-----------------------------
B $26 $79 $135 $287
- -----------------------------------------------------------------------------
Endeavor Money Market A $21 $65 $111 $240
-----------------------------
B $23 $69 $119 $255
- -----------------------------------------------------------------------------
Endeavor Enhanced Index A $23 $72 $123 $263
-----------------------------
B $25 $76 $130 $278
- -----------------------------------------------------------------------------
Endeavor High Yield A $28 $86 $146 $310
-----------------------------
B $29 $90 $154 $324
- -----------------------------------------------------------------------------
Endeavor Janus Growth A $24 $73 $125 $268
-----------------------------
B $25 $78 $133 $283
- -----------------------------------------------------------------------------
Endeavor Opportunity Value A $25 $76 $129 $276
-----------------------------
B $26 $80 $137 $291
- -----------------------------------------------------------------------------
Endeavor Value Equity A $25 $77 $131 $280
-----------------------------
B $26 $81 $139 $295
- -----------------------------------------------------------------------------
Endeavor Select A $29 $90 $153 $323
-----------------------------
B $31 $94 $161 $337
- -----------------------------------------------------------------------------
T. Rowe Price Equity Income A $24 $75 $128 $273
-----------------------------
B $26 $79 $135 $288
- -----------------------------------------------------------------------------
T. Rowe Price Growth Stock A $24 $75 $128 $273
-----------------------------
B $26 $79 $135 $288
- -----------------------------------------------------------------------------
T. Rowe Price International Stock A $26 $78 $134 $285
-----------------------------
B $27 $83 $141 $300
- -----------------------------------------------------------------------------
Transamerica VIF Growth A $24 $74 $126 $270
-----------------------------
B $26 $78 $134 $285
- -----------------------------------------------------------------------------
Fidelity - VIP Equity-Income Service Class 2 A $24 $73 $125 $268
-----------------------------
B $25 $78 $133 $283
- -----------------------------------------------------------------------------
Fidelity - VIP II Contrafund(R) Service Class 2 A $25 $77 $131 $280
-----------------------------
B $26 $81 $139 $295
- -----------------------------------------------------------------------------
Fidelity - VIP III Growth Opportunities Service
Class 2 A $25 $77 $132 $281
-----------------------------
B $27 $82 $139 $296
</TABLE>
- --------------------------------------------------------------------------------
12
<PAGE>
EXAMPLES continuted
<TABLE>
<CAPTION>
1 3 5 10
Subaccounts Year Years Years Years
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Fidelity - VIP III Mid Cap Service Class 2 A $28 $86 $146 $310
------------------------
B $29 $90 $154 $324
- ------------------------------------------------------------------------
WRL Alger Aggressive Growth A $24 $75 $128 $274
------------------------
B $26 $80 $136 $289
- ------------------------------------------------------------------------
WRL Goldman Sachs Growth A $26 $78 $134 $285
------------------------
B $27 $83 $141 $300
- ------------------------------------------------------------------------
WRL Janus Global A $25 $76 $130 $277
------------------------
B $26 $80 $137 $292
- ------------------------------------------------------------------------
WRL NWQ Value Equity A $25 $75 $129 $275
------------------------
B $26 $80 $136 $290
- ------------------------------------------------------------------------
WRL Pilgrim Baxter Mid Cap Growth A $26 $78 $134 $285
------------------------
B $27 $83 $141 $300
- ------------------------------------------------------------------------
WRL Salomon All Cap A $26 $78 $134 $285
------------------------
B $27 $83 $141 $300
- ------------------------------------------------------------------------
WRL T. Rowe Price Dividend Growth A $26 $78 $134 $285
------------------------
B $27 $83 $141 $300
- ------------------------------------------------------------------------
WRL T. Rowe Price Small Cap A $26 $78 $134 $285
------------------------
B $27 $83 $141 $300
- ------------------------------------------------------------------------
The DowSM Target 10 (January Series) A $27 $84 $144 $305
------------------------
B $29 $89 $151 $319
- ------------------------------------------------------------------------
The DowSM Target 5 (January Series) A $28 $85 $144 $306
------------------------
B $29 $89 $152 $320
- ------------------------------------------------------------------------
The DowSM Target 10 (July Series) A $27 $82 $140 $298
------------------------
B $28 $87 $148 $313
- ------------------------------------------------------------------------
The DowSM Target 5 (July Series) A $26 $80 $137 $292
------------------------
B $28 $85 $145 $307
</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 estimated 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
0.0181% based on average policy value of $193,841.00.
These examples do not reflect the annual fee of 0.30% of the minimum
annuitization value for the family income protector rider. The above expense
figures would be approximately $3 per year higher if you elected that rider.
Financial Information. Condensed financial information for the mutual fund
subaccounts and target series subaccounts are in Appendix A to this prospectus.
13
<PAGE>
1. THE ANNUITY POLICY
This prospectus describes The Endeavor Platinum Variable Annuity policy offered
by PFL Life Insurance Company.
An annuity is a policy between you, the owner, and an insurance company (in
this case PFL), where the insurance company promises to pay you an income in
the form of annuity payments. These payments begin on a designated date,
referred to as the annuity commencement date. Until the annuity commencement
date, your annuity is in the accumulation phase and the earnings (if any) are
tax deferred. Tax deferral means you generally are not taxed on your annuity
until you take money out of your annuity. After the annuity commencement date,
your annuity switches to the income phase.
The policy is a flexible premium variable annuity. You can use the policy to
accumulate funds for retirement or other long-term financial planning purposes.
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 an interest
rate 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. 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
. The 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.
14
<PAGE>
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 prior to 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 the 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 instructions 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 on or after the date we receive the change request.
Policy Value
You should expect your policy value to change from valuation period to
valuation period. A valuation period begins at the close of trading on the New
York Stock Exchange on each business day and ends at the close of trading on
the next succeeding business day. A business day is each day that the New York
Stock Exchange is open. The New York Stock Exchange generally closes at 4:00
p.m. eastern time. Holidays are generally not business days.
3. INVESTMENT CHOICES
The Separate 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).
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 Small Cap Value Portfolio
Dreyfus U.S. Government Securities Portfolio
Subadvised by Morgan Stanley Asset Management
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 Portfolio
Subadvised by T. Rowe Price Associates, Inc.
T. Rowe Price Equity Income Portfolio
15
<PAGE>
T. Rowe Price Growth Stock Portfolio
Subadvised by Rowe Price-Fleming International, Inc.
T. Rowe Price International Stock Portfolio
TRANSAMERICA VARIABLE INSURANCE FUND, INC.
Managed by Transamerica Investment Management, LLC
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(R) Portfolio
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 different for different funds and portfolios and 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 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 DowSM Target 10 (January Series)
The DowSM Target 5 (January Series)
The DowSM Target 10 (July Series)
The DowSM 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
16
<PAGE>
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
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.
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 DowSM Target 10 Subaccounts will invest in the
common stock 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.
Each of The DowSM 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 DowSM
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.
There are currently four target series subaccounts. There are two "The DowSM
Target 10 Subaccounts," which contain a July Series (a
17
<PAGE>
June 30, 1998 initial stock selection date) and a January Series (a December
31, 1998 initial stock selection date). Similarly, there are two "The DowSM
Target 5 Subaccounts," which contain a July Series (June 30, 1998 initial stock
selection date) and a January Series (December 31, 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).
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 date.
As of each 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 shares 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 shares 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.
The DowSM Target 10 Subaccounts and The DowSM 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.
The Dow Jones Industrial AverageSM. 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 March 23, 2000.
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ALCOA Inc.
American Express Company
AT&T Corporation
Boeing Company
Caterpillar Inc.
Citigroup Inc.
Coca Cola Company
Walt Disney Company
E.I. du Pont de Nemours & Company
Eastman Kodak Company
Exxon Mobil Corporation
General Electric Company
General Motors Corporation
Hewlett Packard Company
Home Depot Inc.
Honeywell International
Intel Corporation
International Business Machines Corporation
International Paper Company
Johnson & Johnson
J.P. Morgan & Company, Inc.
McDonald's Corporation
Merck & Company, Inc.
Microsoft Corporation
Minnesota Mining & Manufacturing Company
Philip Morris Companies, Inc.
Procter & Gamble Company
S B C Communications Inc.
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 AverageSM. 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.
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.
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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 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.
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.
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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 policy 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.
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We guarantee that the interest credited to the fixed account will not be less
than 3% per year. At the end of the 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 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:
. Within 30 days prior to the end of the guaranteed period, you must notify us
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 transfer 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
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the right to prohibit transfers to the fixed account if we are crediting an
effective annual interest rate of 3.0% (the guaranteed minimium).
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 or
if an underlying portfolio would reject our purchase order.
4. PERFORMANCE
PFL periodically advertises performance of the various 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. The deduction of any applicable premium taxes 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 and administrative
charges.
Third, for the mutual fund subaccounts, 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, for the mutual fund subaccounts, 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.
Additional performance Information regarding the target series subaccount is in
Appendix B and in the SAI.
5. EXPENSES
There are charges and expenses associated with your policy that reduce the
return on your investment in the policy.
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 6 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 1.10% of assets. For the
5% Annually Compounding Death
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Benefit and the Double Enhanced Death Benefit, the mortality and expense risk
fee is at an annual rate of 1.25% of assets. This annual fee is assessed daily
based on the net asset value of each 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 at 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.
Distribution Financing Charge
We deduct a distribution financing charge to cover the cost of distributing the
policies for the first ten policy years. This daily charge is equal to an
effective annual rate of 0.25% of the daily net asset value of the mutual fund
account and the target account. This charge is not deducted after the annuity
commencement date. This is deemed to be a deferred sales charge.
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.
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.
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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. ACCESS TO YOUR MONEY
During the accumulation phase, you can have access to the money in your policy
in several ways:
. by making a withdrawal (either a complete or partial withdrawal); or
. by taking systematic payouts.
Surrenders
If you want to make a complete withdrawal, you will receive:
. the value of your policy; plus or minus
. any excess interest adjustment; minus
. 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 8, Death Benefit, for more
details.
Withdrawals from the fixed account may 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 occur within seven business days from the date PFL receives all
required information. PFL may 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; or
. an emergency exists as defined by the SEC or the SEC requires that trading
be restricted; or
. the SEC permits a delay for the protection of owners.
In addition, transfers of amounts from the 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
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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 policy value is also
generally subject to an excess interest adjustment. Beginning in the second
policy year, you can, however, withdraw up to 10% of your policy value 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;
. withdrawals to satisfy any minimum distribution requirements; and
. systematic payout option payments, which do not exceed 10% of the policy
value.
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.
7. ANNUITY PAYMENTS
(THE INCOME PHASE)
You choose the annuity commencement date. You can change this date by giving us
written notice 30 days before the current annuity commencement date. The new
annuity commencement date must be at least 30 days after we receive notice of
the change. The latest annuity commencement date generally cannot be after the
policy month following the month in which the annuitant attains age 85 (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 become the new annuitant).
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.)
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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 annuitant and a joint
annuitant of your selection. Payments will be made as long as either person
is living.
Variable Payments
. Payments are made during the joint lifetime of the annuitant and a joint
annuitant of your selection. Payments will be made as long as either person
is living.
Other annuity payment options may be arranged by agreement with PFL. Certain
annuity payment options 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 (third, fourth,
etc.) annuity payment;
THEN:
. we may make only one (two, three, etc.) annuity payments.
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IF:
. you choose Income for a Specified Period, Life Income with 10 years Certain,
Life Income with Guaranteed Return of Policy Proceeds, or Income of a
Specified Amount; and
. the person receiving payments dies prior to the end of the guaranteed
period;
THEN:
. the remaining guaranteed payments will be continued to that person's
beneficiary, or their present value may be paid in a single sum.
We will not pay interest on amounts represented by uncashed annuity payment
checks if the postal or other delivery service is unable to deliver checks to
the payee's address of record. The person receiving payments is responsible for
keeping PFL informed of their current address.
8. 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.
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
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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); 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 three 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. 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 two.
B. 5% Annually Compounding Death Benefit
The 5% Annually Compounding Death Benefit is:
. 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 policy date. There is an extra charge for
this death benefit.
C. Double Enhanced Death Benefit
The Double Enhanced Death Benefit is the greater of the following:
. 5% Annually Compounding Death Benefit - total premium payments, less
any adjusted partial withdrawals, plus interest at an effective annual
rate of 5% from the premium payment date or withdrawal date to the date
of death (but not later than your 81st birthday).
. Step-Up Death Benefit - the largest policy value on the policy date or
on any policy anniversary before you reach age 81; plus any premium
payments you have made since then; minus any adjusted partial
withdrawals we have paid to you since then.
The Double Enhanced Death Benefit is not available if the owner or
annuitant is 81 or older on the policy date. There is an extra charge for
this death benefit.
IF, under all three 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
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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.
9. TAXES
NOTE: PFL has prepared the following information on federal income taxes as a
general discussion of the subject. It is not intended as tax advice to any
individual. You should consult your own tax adviser about your own
circumstances. PFL has included an additional discussion regarding taxes in the
SAI.
Annuity Policies in General
Deferred annuity policies are a way of setting aside money for future needs
like retirement. Congress recognized how important saving for retirement is and
provided special rules in the Internal Revenue Code for annuities.
Simply stated, these rules provide that generally you will not be taxed on the
earnings, if any, on the money held in your annuity policy until you take the
money out. This is referred to as tax deferral. There are different rules as to
how you will be taxed depending on how you take the money out and the type of
policy - qualified or nonqualified (discussed below).
You will not be taxed on increases in the value of your policy until a
distribution occurs - either as a withdrawal or as annuity payments.
When a non-natural person (e.g., corporation or certain other entities other
than tax-qualified trusts) owns a nonqualified policy, the policy will
generally not be treated as an annuity for tax purposes.
Qualified and Nonqualified Policies
If you purchase the policy under an individual retirement annuity, a pension
plan, or specially sponsored program, your policy is referred to as a qualified
policy.
Qualified policies are issued in connection with the following plans:
. Individual Retirement Annuity (IRA): A traditional IRA allows individuals to
make contributions, which may be deductible, to the contract. A Roth IRA
also allows individuals to make contributions to the contract, but it does
not allow a deduction for contributions, and distributions may be tax-free
if the owner meets certain rules.
. Tax-Sheltered Annuity (403(b) Plan): A 403(b) Plan may be made available to
employees of certain public school systems and tax-exempt organizations and
permits contributions to the contract on a pre-tax basis.
. Corporate Pension and Profit - Sharing and H.R. 10 Plan: Employers and self-
employed individuals can establish pension or profit-sharing plans for their
employees or themselves and make contributions to the contract on a pre-tax
basis.
. Deferred Compensation Plan (457 Plan): Certain governmental and tax-exempt
organizations can establish a plan to defer compensation on behalf of their
employees through contributions to the contract.
If you purchase the policy as an individual and not under an individual
retirement annuity, 403(b) plan, 457 plan, or pension or profit sharing plan,
your policy is referred to as a nonqualified policy.
Withdrawals - Qualified Policies
The information herein describing the taxation of nonqualified policies does
not apply to qualified policies.
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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 date. The terms of the plan may limit the rights
otherwise available to you under the policies. We have provided more
information in the SAI.
You should consult your legal counsel or tax adviser if you are considering
purchasing a policy for use with any retirement plan.
Withdrawals - 403(b) Policies
The Internal Revenue Code limits withdrawal from certain 403(b) policies.
Withdrawals can generally only be made when an owner:
. reaches age 59 1/2;
. leaves his/her job;
. dies;
. becomes disabled (as that term is defined in the Internal Revenue Code); or
. declares 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
nonqualified 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 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.
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 mutual fund account or 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 also meet certain distribution
requirements at the
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death of an owner in order to be treated as an annuity policy. These
diversification and distribution requirements are discussed in the SAI. PFL may
modify the policy to attempt to maintain favorable tax treatment.
Withdrawals - Nonqualified Policies
If you make a withdrawal from your policy 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 an owner dies;
. paid if the taxpayer becomes totally disabled (as that term is defined in
the Internal Revenue Code);
. paid in a series of substantially equal payments made annually (or more
frequently) under a lifetime annuity;
. paid under an immediate annuity; or
. which come from premium payments made prior to August 14, 1982.
All deferred nonqualified annuity policies that are issued by PFL (or its
affiliates) to the same owner during any calendar year are treated as one
annuity for purposes of determining the amount includable in the owner's income
when a taxable distribution occurs.
Taxation of Death Benefit Proceeds
Amounts may be distributed from the policy because of the death of an owner or
the annuitant. Generally, such amounts are includable in the income of the
recipient:
. if distributed in a lump sum, these amounts are taxed in the same manner as
a full surrender; or
. if distributed under an annuity payment option, these amounts are taxed in
the same manner as annuity payments.
For these purposes, the "investment in the contract" is not affected by the
owner's or annuitant's death. That is, the "investment in the contract" remains
generally the total premium payments (less amounts received which were not
includable in gross income).
Annuity Payments
Although the tax consequences may vary depending on the annuity payment option
you select, in general, for nonqualified and certain qualified policies, only a
portion of the annuity payments you receive will be includable in your gross
income.
In general, the excludable portion of each annuity payment you receive will be
determined as follows:
. Fixed payments - by dividing the "investment in the contract" on the annuity
commencement date by the total expected value of the annuity payments for
the term of the payments. This is the percentage of each annuity payment
that is excludable.
. Variable payments - by dividing the "investment in the contract" on the
annuity commencement date by the total number of expected periodic payments.
This is the amount of each annuity payment that is excludable.
The remainder of each annuity payment is includable in gross income. Once the
"investment in the contract" has been fully recovered, the full amount of any
additional annuity payments is includable in gross income.
If you select more than one annuity payment option, special rules govern the
allocation of the policy's entire "investment in the contract" to each such
option, for purposes of determining the excludable amount of each payment
received
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under that option. We advise you to consult a competent tax adviser as to the
potential tax effects of allocating amounts to any particular annuity payment
option.
If, after the annuity commencement date, annuity payments stop because an
annuitant died, the excess (if any) of the "investment in the contract" as of
the annuity commencement date over the aggregate amount of annuity payments
received that was excluded from gross income is generally allowable as a
deduction for your last taxable year.
Transfers, Assignments or Exchanges of Policies
A transfer of ownership or assignment of a policy, the designation of an
annuitant or payee or other beneficiary who is not also the owner, the
selection of certain annuity commencement dates, or a change of annuitant, may
result in certain income or gift tax consequences to the owner that are beyond
the scope of this discussion. An owner contemplating any such transfer,
assignment, selection, or change should contact a competent tax adviser with
respect to the potential tax effects of such a transaction.
Possible Tax Law Changes
Although the likelihood of legislative changes is uncertain, there is always
the possibility that the tax treatment of the policy could change by
legislation or otherwise. You should consult a tax adviser with respect to
legal developments and their effect on the policy.
10. ADDITIONAL FEATURES
Systematic Payout Option
You can receive regular payments from your policy by using the systematic
payout option. Under this option, you can receive up to 10% (annually) of your
policy value. This amount may be taken free of excess interest adjustments
(after the first policy year).
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.
Family Income Protector
The family income protector may vary by state and may not be available in all
states.
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 a minimum amount for 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
. an adjustment for any withdrawals made after the date the rider is issued,
. which is 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
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protector payment options and may not be used with any of the annuity payment
options listed in section 7. 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 solely to calculate the family income
protector annuity payments. 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.
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 85th 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
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payment will increase or decrease depending on the performance of the
investment options you selected (but will never be less than the initial
payment), 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 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.
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.
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 94th birthday (earlier if
required by state law).
Nursing Care and Terminal Condition Withdrawal Option
No excess interest adjustment will apply if you or your spouse has been:
. confined in a hospital or nursing facility for 30 days in a row; or
. diagnosed with a terminal condition (usually a life expectancy of 12 months
or less).
This benefit is also available to the annuitant or annuitant's spouse if the
owner is not a natural person.
You may exercise this benefit at any time (during the accumulation phase) and
there is no charge for this benefit.This benefit may not be available in all
states. See the policy or endorsement for details and conditions.
Telephone Transactions
You may make transfers and change the allocation of additional premium payments
by telephone IF:
. you select the "Telephone Transfer/Reallocation Authorization" box in the
policy application or enrollment information; or
. you later complete an authorization form.
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.
Dollar Cost Averaging Program
During the accumulation phase, you may instruct us to automatically transfer
money from the
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dollar cost averaging fixed account option, the Endeavor Money Market
Subaccount, or the Dreyfus U.S. Government Securities Subaccount, into any
other mutual fund subaccounts and/or target series subaccounts. There is no
charge for this program.
Complete and clear instructions must be received before a dollar cost averaging
program will begin. The instructions must include:
. the subaccounts into which money from the dollar cost averaging fixed
account (or other subaccount(s) used for dollar cost averaging) is to be
transferred; and
. either the dollar amount to transfer monthly or quarterly (each transfer
must be at least $500) or the number of transfers (minimum of 6 monthly or 4
quarterly and maximum of 24 monthly or 8 quarterly).
Transfers must begin within 30 days. We will make the transfers on the 28th day
of the applicable month. You may change your allocations at anytime.
Only one dollar cost averaging program can run at one time. This means that any
addition to a dollar cost averaging program must change either the length of
the program or the dollar amount of the transfers. New instructions must be
received each time there is an addition to a dollar cost averaging program.
Any amount in the dollar cost averaging fixed account (or other subaccount(s)
used for dollar cost averaging) for which we have not received complete and
clear instructions will remain in the dollar cost averaging fixed account (or
other such subaccount) until we receive the instructions. If we have not
received complete and clear instructions within 30 days, the interest credited
in the dollar cost averaging fixed account may be adjusted downward, but not
below the guaranteed effective annual interest rate of 3%.
Dollar cost averaging buys more accumulation units when prices are low and
fewer accumulation units when prices are high. It does not guarantee profits or
assure that you will not experience a loss. You should consider your ability to
continue the dollar cost averaging program during all economic conditions.
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 you request a transfer, we will honor the
requested transfer and discontinue asset rebalancing. New instructions are
required to start asset rebalancing. Asset rebalancing ignores amounts in the
fixed account. You can choose to rebalance monthly, quarterly, semi-annually,
or annually.
11. OTHER INFORMATION
Ownership
You, as owner of the policy, exercise all rights under the policy. You can
change the owner at any time by notifying us in writing. An ownership change
may be a taxable event.
Assignment
You can also assign the policy any time during your lifetime. PFL will not be
bound by the assignment until we receive written notice of the assignment. We
will not be liable for any payment or other action we take in accordance with
the policy before we receive notice of the assignment. There may be limitations
on your ability to assign a qualified policy. An assignment may have tax
consequences.
PFL Life Insurance Company
PFL Life Insurance Company was incorporated under the laws of the State of Iowa
on April 19,
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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 fund 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 amount of funds
37
<PAGE>
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 targetseries subaccounts you have an
interest in. Such matters include:
. changes in the management 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 Rule 12b-1 and 18f-2 of the
Investment Company Act of 1940.
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.
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 is 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 2.50% 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.
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.
38
<PAGE>
IMSA
PFL is a member of the Insurance Marketplace Standards Association (IMSA). IMSA
is an independent, voluntary organization of life insurance companies. It
promotes high ethical standards in the sales and advertising of individual life
insurance and annuity products. Companies must undergo a rigorous self and
independent assessment of their 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 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 subaccounts, and the target
series subaccounts are included in the SAI.
TABLE OF CONTENTS OF THE STATEMENT
OF ADDITIONAL INFORMATION
<TABLE>
<S> <C>
Glossary of Terms
The Policy - General Provisions
Certain Federal Income Tax Consequences
Investment Experience
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
</TABLE>
39
<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: 1.65%)
<TABLE>
<CAPTION>
Accumulation Unit Accumulation Unit Number of
Value Value Accumulation
at Beginning of Year at End of Year Units at End of Year
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Dreyfus Small Cap Value
Subaccount
1999................... $1.656056 $2.107984 11,265,409.515
1998................... $1.720848 $1.656056 12,396,813.175
1997................... $1.394113 $1.720848 9,576,109.396
1996................... $1.127390 $1.394113 5,378,653.976
1995................... $1.004766 $1.124390 2,577,504.165
1994(/1/).............. $0.958389 $1.004766 673,042.726
- --------------------------------------------------------------------------------------
Dreyfus U.S. Government
Securities Subaccount
1999................... $1.273389 $1.239850 11,107,749.467
1998................... $1.205408 $1.273389 10,994,883.018
1997................... $1.122583 $1.205408 5,825,613.204
1996................... $1.120922 $1.122583 3,772,426.054
1995................... $0.985254 $1.120922 2,656,099.798
1994(/1/).............. $1.000769 $0.985254 450,510.347
- --------------------------------------------------------------------------------------
Endeavor Asset
Allocation Subaccount
1999................... $1.890033 $2.350088 14,835,442.284
1998................... $1.622765 $1.890033 13,176,237.016
1997................... $1.372991 $1.622765 10,247,121.752
1996................... $1.184740 $1.372991 6,522,822.306
1995................... $0.979750 $1.184740 3,313,507.707
1994(/1/).............. $0.974417 $0.979750 1,329,672.671
- --------------------------------------------------------------------------------------
Endeavor Money Market
Subaccount
1999................... $1.161504 $1.197052 25,237,355.183
1998................... $1.123834 $1.161504 21,549,058.171
1997................... $1.086872 $1.123834 11,807,740.323
1996................... $1.053205 $1.086872 9,416,706.021
1995................... $1.014839 $1.053205 3,516,158.473
1994(/1/).............. $1.003677 $1.014839 1,522,675.448
- --------------------------------------------------------------------------------------
Endeavor Enhanced Index
Subaccount
1999................... $1.571311 $1.826512 18,365,179.331
1998................... $1.215643 $1.571311 9,104,248.582
1997(/2/).............. $1.000000 $1.215643 2,781,467.718
- --------------------------------------------------------------------------------------
Endeavor High Yield
Subaccount
1999................... $0.959834 $0.999195 3,556,578.835
1998(/3/).............. $1.000000 $0.959834 1,896,873.105
</TABLE>
40
<PAGE>
5% Annually Compounding Death Benefit or Double Enhanced Death Benefit
(Total Mutual Fund Account Annual Expenses: 1.65%)
continued . . .
<TABLE>
<CAPTION>
Accumulation Unit Accumulation Unit Number of
Value Value Accumulation
at Beginning of Year at End of Year Units at End of Year
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Endeavor Janus Growth
Subaccount
1999................... $29.951933 $46.884691 2,898,149.189
1998................... $18.510625 $29.951933 2,161,710.616
1997................... $16.007469 $18.510625 1,859,927.519
1996................... $13.795672 $16.007469 1,130,886.988
1995................... $9.531263 $13.795672 442,772.285
1994(/1/).............. $9.418271 $9.531263 182,787.313
- --------------------------------------------------------------------------------------
Endeavor Opportunity
Value Subaccount
1999................... $1.193867 $1.230758 4,953,615.990
1998................... $1.153823 $1.193867 5,698,749.848
1997................... $1.004062 $1.153823 3,224,648.503
1996(/4/).............. $0.999910 $1.004062 205,301.400
- --------------------------------------------------------------------------------------
Endeavor Value Equity
Subaccount
1999................... $2.114561 $2.016675 13,878,688.966
1998................... $1.998321 $2.114561 16.532,987.864
1997................... $1.627513 $1.998321 15,288,077.864
1996................... $1.336071 $1.627513 9,053,564.567
1995................... $1.009026 $1.336071 2,808,066.903
1994(/1/).............. $0.977843 $1.009026 740,211.153
- --------------------------------------------------------------------------------------
Endeavor Select
Subaccount
1999................... $1.050254 $1.527569 7,900,925.826
1998(/5/).............. $1.000000 $1.050254 7,586,217.992
- --------------------------------------------------------------------------------------
T. Rowe Price Equity
Income Subaccount
1999................... $2.045410 $2.082011 17,239,278.320
1998................... $1.910886 $2.045410 17,687,561.131
1997................... $1.514228 $1.910886 13,838,945.338
1996................... $1.284124 $1.514228 7,413,620.068
1995(/6/).............. $0.999237 $1.284124 1,786,079.570
- --------------------------------------------------------------------------------------
T. Rowe Price Growth
Stock Subaccount
1999................... $2.567729 $3.086714 13,962,698.692
1998................... $2.028458 $2.567729 12,796,138.800
1997................... $1.603706 $2.028458 10,504,253.629
1996................... $1.350045 $1.603706 5,893,560.949
1995(/7/).............. $0.999910 $1.350045 1,611,995.783
- --------------------------------------------------------------------------------------
T. Rowe Price
International Stock
Subaccount
1999................... $1.328767 $1.730178 14,886,967.987
1998................... $1.170007 $1.328767 14,769,680.537
1997................... $1.159025 $1.170007 13,715,298.844
1996................... $1.022539 $1.159025 8,619,163.798
1995................... $0.940071 $1.022539 3,606,823.400
1994(/1/).............. $0.978667 $0.940071 1,444,711.154
</TABLE>
41
<PAGE>
Return of Premium Death Benefit
(Total Mutual Fund Account Annual Expenses: 1.50%)
<TABLE>
<CAPTION>
Accumulation Unit Accumulation Unit Number of
Value Value Accumulation
at Beginning of Year at End of Year Units at End of Year
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Dreyfus Small Cap Value
Subaccount
1999................... $ 1.659586 $ 2.115582 1,150,008.250
1998................... $ 1.721966 $ 1.659586 916,216.066
1997(/8/).............. $ 1.680492 $ 1.721966 201,510.890
- --------------------------------------------------------------------------------------
Dreyfus U.S. Government
Securities Subaccount
1999................... $ 1.276099 $ 1.246338 2,509,680.360
1998................... $ 1.206194 $ 1.276099 1,684,993.398
1997(/8/).............. $ 1.165042 $ 1.206194 125,603.264
- --------------------------------------------------------------------------------------
Endeavor Asset
Allocation Subaccount
1999................... $ 1.894059 $ 2.358574 1,347,870.453
1998................... $ 1.623829 $ 1.894059 864,583.172
1997(/8/).............. $ 1.619154 $ 1.623829 265,868.401
- --------------------------------------------------------------------------------------
Endeavor Money Market
Subaccount
1999................... $ 1.163970 $ 1.201368 7,359,736.147
1998................... $ 1.124560 $ 1.163970 3,455,455.634
1997(/8/).............. $ 1.107029 $ 1.124560 1,018,549.909
- --------------------------------------------------------------------------------------
Endeavor Enhanced Index
Subaccount
1999................... $ 1.574648 $ 1.833086 3,446,692.138
1998................... $ 1.216436 $ 1.574648 1,594,101.412
1997(/8/).............. $ 1.183597 $ 1.216436 143,726.569
- --------------------------------------------------------------------------------------
Endeavor High Yield
Subaccount
1999................... $ 0.960653 $ 1.001525 1,167,355.038
1998(/3/).............. $ 1.000000 $ 0.960653 586,051.988
- --------------------------------------------------------------------------------------
Endeavor Janus Growth
Subaccount
1999................... $30.015641 $47.053720 383,039.881
1998................... $18.522685 $30.015641 123,204.749
1997(/8/).............. $19.289712 $18.522685 25,575.434
- --------------------------------------------------------------------------------------
Endeavor Opportunity
Value Subaccount
1999................... $ 1.196411 $ 1.235199 729,063.601
1998................... $ 1.154569 $ 1.196411 834,616.338
1997(/8/).............. $ 1.133494 $ 1.154569 164,076.542
- --------------------------------------------------------------------------------------
Endeavor Value Equity
Subaccount
1999................... $ 2.119071 $ 2.023956 924,905.846
1998................... $ 1.999623 $ 2.119071 854,044.377
1997(/8/).............. $ 1.912635 $ 1.999623 221,576.305
- --------------------------------------------------------------------------------------
Endeavor Select
Subaccount
1999................... $ 1.051668 $ 1.531878 878,307.676
1998(/5/).............. $ 1.000000 $ 1.051668 592,043.370
- --------------------------------------------------------------------------------------
T. Rowe Price Equity
Income Subaccount
1999................... $ 2.049755 $ 2.089513 1,724,375.455
1998................... $ 1.912129 $ 2.049755 1,462,715.818
1997(/8/).............. $ 1.776425 $ 1.912129 392,308.493
</TABLE>
42
<PAGE>
Return of Premium Death Benefit
(Total Mutual Fund Account Annual Expenses: 1.50%)
continued. . .
<TABLE>
<CAPTION>
Accumulation Unit Accumulation Unit Number of
Value Value Accumulation
at Beginning of Year at End of Year Units at End of Year
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
T. Rowe Price Growth
Stock Subaccount
1999................... $2.573188 $3.097854 1,048,447.131
1998................... $2.026778 $2.573188 833,778.344
1997(/8/).............. $1.957595 $2.029778 184,298.595
- --------------------------------------------------------------------------------------
T. Rowe Price
International Stock
Subaccount
1999................... $1.331580 $1.736396 1,699,977.857
1998................... $1.170767 $1.331580 880,651.775
1997(/8/).............. $1.314403 $1.170767 164,219.793
</TABLE>
(/1/)Period from July 5, 1994 through December 31, 1994.
(/2/)Period from May 1, 1997 through December 31, 1997.
(/3/)Period from June 2, 1998 through December 31, 1998.
(/4/)Period from November 20, 1996 through December 31, 1996.
(/5/)Period from February 2, 1998 through December 31, 1998.
(/6/)Period from January 20, 1995 through December 31, 1995.
(/7/)Period from January 5, 1995 through December 31, 1995.
(/8/)Period from July 23, 1997 through December 31, 1997.
The Transamerica VIF Growth Subaccount, Fidelity - VIP Equity-Income
Subaccount, Fidelity - VIP II Contrafund(R) 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.
43
<PAGE>
CONDENSED FINANCIAL INFORMATION
The Target Account
5% Annually Compounding Death Benefit or Double Enhanced Death Benefit
<TABLE>
<CAPTION>
The DowSM Target The DowSM Target The DowSM Target The DowSM Target
10 Subaccount 5 Subaccount 10 Subaccount 5 Subaccount
(January Series) (January Series) (July Series) (July Series)
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Income
1999(/2/).............. .0284000 .0293112 .0285420 .0313698
1998(/1/).............. N/A N/A .0248160 .0320585
- -----------------------------------------------------------------------------------------------
Expenses
1999(/2/).............. (.028021) (.027291) (.028994) (.030431)
1998(/1/).............. N/A N/A (.0235516) (.0139757)
- -----------------------------------------------------------------------------------------------
Net investment income
1999(/2/).............. .00037855 .00202073 (.00045196) .00093903
1998(/1/).............. N/A N/A .0012644 .01808286
- -----------------------------------------------------------------------------------------------
Net realized and
unrealized gains
(losses) on securities
1999(/2/).............. (.0183985) (.0928527) (.024125) (.1605930)
1998(/1/).............. N/A N/A .0322216 .1026951
- -----------------------------------------------------------------------------------------------
Net increase (decrease)
in accumulation unit
value
1999(/2/).............. (.018020) (.090832) (.024577) (.159654)
1998(/1/).............. N/A N/A .033486 .120778
- -----------------------------------------------------------------------------------------------
Accumulation unit value
at beginning of period
1999(/2/).............. 1.000000 1.000000 1.033486 1.20778
1998(/1/).............. N/A N/A 1.000000 1.000000
- -----------------------------------------------------------------------------------------------
Accumulation unit value
at end of period
1999(/2/).............. .981980 .909168 1.008909 .961124
1998(/1/).............. N/A N/A 1.033486 1.120778
- -----------------------------------------------------------------------------------------------
Expenses to average net
assets
1999(/2/).............. 1.18% 1.21% 1.12% 1.04%
1998(/1/).............. N/A N/A 1.30% 1.30%
- -----------------------------------------------------------------------------------------------
Portfolio turnover rates
1999(/2/).............. 0% 0% 0% 0%
1998(/1/).............. N/A N/A 0% 0%
- -----------------------------------------------------------------------------------------------
Number of accumulation
units outstanding at
end of period
1999(/2/).............. 3,491,645 1,837,281 5,174,488 3,743,680
1998(/1/).............. N/A N/A 3,299,993 3,672,232
</TABLE>
44
<PAGE>
Return of Premium Death Benefit
<TABLE>
<CAPTION>
The DowSM Target The DowSM Target The DowSM Target The DowSM Target
10 Subaccount 5 Subaccount 10 Subaccount 5 Subaccount
(January Series) (January Series) (July Series) (July Series)
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Income
1999(/2/).............. .0282362 .0292712 .0285257 .0313607
1998(/1/).............. N/A N/A .0043200 .0177564
- -----------------------------------------------------------------------------------------------
Expenses
1999(/2/).............. (.026037) (.026916) (.027888) (.0286007)
1998(/1/).............. N/A N/A (.0039100) (.0077407)
- -----------------------------------------------------------------------------------------------
Net investment income
1999(/2/).............. .00219964 .00235505 .00063755 .00276002
1998(/1/).............. N/A N/A .00040997 .01001566
- -----------------------------------------------------------------------------------------------
Net realized and
unrealized gains
(losses) on securities
1999(/2/).............. (.0187836) (.0918571) (.0237316) (.1611130)
1998(/1/).............. N/A N/A .0338400 .1115943
- -----------------------------------------------------------------------------------------------
Net increase (decrease)
in accumulation unit
value
1999(/2/).............. (.016584) (.08950200) (.023094) (.158353)
1998(/1/).............. N/A N/A .034250 .121610
- -----------------------------------------------------------------------------------------------
Accumulation unit value
at beginning of period
1999(/2/).............. 1.000000 1.000000 1.034250 1.121610
1998(/1/).............. N/A N/A 1.000000 1.000000
- -----------------------------------------------------------------------------------------------
Accumulation unit value
at end of period
1999(/2/).............. .983416 .910498 1.011156 .963257
1998(/1/).............. N/A N/A 1.034250 1.121610
- -----------------------------------------------------------------------------------------------
Expenses to average net
assets
1999(/2/).............. 1.18% 1.21% 1.12% 1.04%
1998(/1/).............. N/A N/A 1.30% 1.30%
- -----------------------------------------------------------------------------------------------
Portfolio turnover rates
1999(/2/).............. 0% 0% 0% 0%
1998(/1/).............. N/A N/A 0% 0%
- -----------------------------------------------------------------------------------------------
Number of accumulation
units outstanding at
end of period
1999(/2/).............. 352,437 712,871 674,030 2,408,403
1998(/1/).............. N/A N/A 626,722 2,070,742
</TABLE>
(/1/)Period from July 1, 1998 through December 31, 1998 for The DowSM Target 10
(July Series) and The DowSM Target 5 (July Series). The DowSM Target 10
(January Series) and The DowSM 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 DowSM Target
10 (January Series), The DowSM Target 5 (January Series), The DowSM Target
10 (July Series), and The DowSM Target 5 (July Series).
45
<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, the distribution financing charge and the administrative
charges. Performance figures may reflect the 1.25% mortality and expense risk
fee for the 5% Annually Compounding and Double Enhanced Death Benefits, or the
1.10% mortality and expense risk fee for the Return of Premium Death Benefit.
46
<PAGE>
TABLE 1 - A
Standard Average Annual Total Returns
(Assuming No Family Income Protector)
- --------------------------------------------------------------------------------
5% Annually Compounding Death Benefit or Double Enhanced Death Benefit
(Total Mutual Fund Account Annual Expenses: 1.65%)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Inception
of the
1 Year 5 Year Subaccount Subaccount
Ended Ended to Inception
Subaccount 12/31/99 12/31/99 12/31/99 Date
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Dreyfus Small Cap
Value(/1/)................ 27.27% 15.96% 15.41% July 5, 1994
Dreyfus U.S. Government
Securities................ (2.65%) 4.69% 4.02% August 3, 1994
Endeavor Asset Allocation.. 24.33% 19.11% 17.37% July 5, 1994
Endeavor Enhanced Index.... 16.23% N/A 25.31% May 1, 1997
Endeavor High Yield........ 4.08% N/A (0.07%) June 2, 1998
Endeavor Janus
Growth(/2/)............... 56.52% 37.51% 33.92% July 5, 1994
Endeavor Opportunity
Value..................... 3.07% N/A 6.89% November 20, 1996
Endeavor Value Equity...... (4.65%) 14.84% 14.07% July 5, 1994
Endeavor Select............ 45.43% N/A 24.82% February 2, 1998
T. Rowe Price Equity
Income.................... 1.77% N/A 15.98% January 20, 1995
T. Rowe Price Growth
Stock..................... 20.20% N/A 25.33% January 5, 1995
T. Rowe Price International
Stock(/3/)................ 30.19% 12.96% 10.91% July 5, 1994
Transamerica VIF
Growth(/4/)............... N/A N/A N/A May 1, 2000
Fidelity - VIP Equity-
Income - Service Class
2(/4/).................... N/A N/A N/A May 1, 2000
Fidelity - VIP II
Contrafund(R) - Service
Class 2(/4/).............. N/A N/A N/A May 1, 2000
Fidelity - VIP III Growth
Opportunities - Service
Class 2(/4/).............. N/A N/A N/A May 1, 2000
Fidelity - VIP III Mid
Cap - Service Class
2(/4/).................... N/A N/A N/A May 1, 2000
WRL Alger Aggressive
Growth(/4/)............... N/A N/A N/A May 1, 2000
WRL Goldman Sachs
Growth(/4/)............... N/A N/A N/A May 1, 2000
WRL Janus Global(/4/)...... N/A N/A N/A May 1, 2000
WRL NWQ Value Equity(/4/).. N/A N/A N/A May 1, 2000
WRL Pilgrim Baxter Mid Cap
Growth(/4/)............... N/A N/A N/A May 1, 2000
WRL Salomon All Cap(/4/)... N/A N/A N/A May 1, 2000
WRL T. Rowe Price Dividend
Growth(/4/)............... N/A N/A N/A May 1, 2000
WRL T. Rowe Price Small
Cap(/4/).................. N/A N/A N/A May 1, 2000
</TABLE>
47
<PAGE>
TABLE 1 - B
Standard Average Annual Total Returns
(Assuming No Family Income Protector)
- --------------------------------------------------------------------------------
Return of Premium Death Benefit
(Total Mutual Fund Account Annual Expenses: 1.50%)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Inception
of the
1 Year 5 Year Subaccount Subaccount
Ended Ended to Inception
Subaccount 12/31/99 12/31/99 12/31/99 Date
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Dreyfus Small Cap
Value(/1/).................. 27.46% 16.13% 15.56% July 5, 1994
Dreyfus U.S. Government
Securities.................. (2.35%) 4.88% 4.21% August 3, 1994
Endeavor Asset Allocation.... 24.51% 19.28% 17.47% July 5, 1994
Endeavor Enhanced Index...... 16.40% N/A 25.49% May 1, 1997
Endeavor High Yield.......... 4.24% N/A 0.08% June 2, 1998
Endeavor Janus Growth(/2/)... 56.75% 37.61% 34.08% July 5, 1994
Endeavor Opportunity Value... 3.23% N/A 7.04% November 20, 1996
Endeavor Value Equity........ (4.50%) 15.01% 14.17% July 5, 1994
Endeavor Select.............. 45.65% N/A 25.01% February 2, 1998
T. Rowe Price Equity Income.. 1.92% N/A 16.72% January 20, 1995
T. Rowe Price Growth Stock... 20.37% N/A 26.82% January 5, 1995
T. Rowe Price International
Stock(/3/).................. 30.39% 13.13% 11.01% July 5, 1994
Transamerica VIF
Growth(/4/)................. N/A N/A N/A May 1, 2000
Fidelity - VIP Equity-
Income - Service Class
2(/4/)...................... N/A N/A N/A May 1, 2000
Fidelity - VIP II
Contrafund(R) - Service
Class 2(/4/)................ N/A N/A N/A May 1, 2000
Fidelity - VIP III Growth
Opportunities - Service
Class 2(/4/)................ N/A N/A N/A May 1, 2000
Fidelity - VIP III Mid Cap -
Service Class 2(/4/)....... N/A N/A N/A May 1, 2000
WRL Alger Aggressive
Growth(/4/)................. N/A N/A N/A May 1, 2000
WRL Goldman Sachs
Growth(/4/)................. N/A N/A N/A May 1, 2000
WRL Janus Global(/4/)........ N/A N/A N/A May 1, 2000
WRL NWQ Value Equity(/4/).... N/A N/A N/A May 1, 2000
WRL Pilgrim Baxter Mid Cap
Growth(/4/)................. N/A N/A N/A May 1, 2000
WRL Salomon All Cap(/4/)..... N/A N/A N/A May 1, 2000
WRL T. Rowe Price Dividend
Growth(/4/)................. N/A N/A N/A May 1, 2000
WRL T. Rowe Price Small
Cap(/4/).................... N/A N/A N/A May 1, 2000
</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(R) 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.
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.
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 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 SAI.
Adjusted Historical Performance Data of the Portfolios. Prior to July 5, 1994,
the subaccounts had not yet commenced operations. The following performance
data for the periods prior to the date the subaccount commenced operations is
based on the performance of the corresponding portfolio and the assumption that
the applicable subaccount was in existence for the same period as the
corresponding portfolio with a level of charges equal to those currently
assessed against the subaccount or against owner's policy values.
In addition, PFL may present historic performance data for the portfolios since
their inception reduced by some or all the fees and charges under the policy.
Such adjusted historic performance includes data that precedes the inception
dates on the subaccounts. This data is designed to show the performance that
would have resulted if the policy had been in existence during that time.
49
<PAGE>
For instance, as shown in Table 2 below, PFL may disclose average annual total
returns for the portfolios reduced by all fees and charges under the policy, as
if the policy had been in existence. Such fees and charges include the
mortality and expense risk fee of either 1.10% or 1.25% (depending on the Death
Benefit Option), an administrative charge of 0.15%, and a distribution
financing charge of 0.25%.
TABLE 2 - A
Adjusted Historical Average Annual Total Returns(/1/)
(Assming No Surender Charge or Family Income Protector)
- --------------------------------------------------------------------------------
5% Annually Compounding Death Benefit or Double Enhanced Death Benefit
(Total Separate Account Annual Expenses: 1.65%)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
10 Year Corresponding
or Portfolio
Portfolio 1 Year 5 Year Inception Inception Date
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Dreyfus Small Cap Value(/2/)... 27.29% 15.97% 11.84% May 4, 1993
Dreyfus U.S. Government
Securities.................... (2.63%) 4.70% 3.90% May 4, 1994
Endeavor Asset Allocation...... 24.34% 19.12% 10.27% April 8, 1991
Endeavor Enhanced Index........ 16.24% N/A 25.33% May 1, 1997
Endeavor High Yield............ 4.10% N/A (0.05%) June 2, 1998
Endeavor Janus Growth.......... 56.53% 37.52% 22.86% May 1, 1999
Endeavor Opportunity Value..... 3.09% N/A 6.89% November 18, 1996
Endeavor Value Equity.......... (4.63%) 14.85% 11.23% May 27, 1993
Endeavor Select................ 45.45% N/A 24.84% February 2, 1998
T. Rowe Price Equity Income.... 1.79% N/A 16.12% January 3, 1995
T. Rowe Price Growth Stock..... 20.21% N/A 25.33% January 3, 1995
T. Rowe Price International
Stock(/3/).................... 30.21% 12.98% 6.48% April 8, 1991
Transamerica VIF
Growth(/4/)(/5/).............. 35.59% 46.17% 27.83%+ February 26, 1969
Fidelity - VIP Equity-Income -
Service Class 2(/4/)(/6/).... 4.52% 16.65% 12.61%+ October 9, 1986
Fidelity - VIP II
Contrafund(R) - Service Class
2(/4/)(/6/)................... 22.15% N/A 25.64% January 3, 1995
Fidelity - VIP III Growth
Opportunities - Service Class
2(/4/)(/6/)................... 2.48% N/A 19.54% January 3, 1995
Fidelity - VIP III Mid Cap -
Service Class 2(/4/)(/6/).... 46.58% N/A 50.60% December 28, 1998
WRL Alger Aggressive
Growth(/4/)................... 66.34% 34.43% 28.25% March 1, 1994
WRL Goldman Sachs Growth(/4/).. N/A N/A 16.55% May 3, 1999
WRL Janus Global(/4/).......... 68.42% 30.81% 25.86% December 3, 1992
WRL NWQ Value Equity(/4/)...... 6.18% N/A 8.95% May 1, 1996
WRL Pilgrim Baxter Mid Cap
Growth(/4/)................... N/A N/A 76.39% May 3, 1999
WRL Salomon All Cap(/4/)....... N/A N/A 14.33% May 3, 1999
WRL T. Rowe Price Dividend
Growth(/4/)................... N/A N/A (8.42%) May 3, 1999
WRL T. Rowe Price Small
Cap(/4/)...................... N/A N/A 37.04% May 3, 1999
- -------------------------------------------------------------------------------
</TABLE>
+ Ten Year Date
50
<PAGE>
TABLE 2 - B
Adjusted Historical Average Annual Total Returns(/1/)
(Assuming No Family Income Protector)
- --------------------------------------------------------------------------------
Return of Premium Death Benefit
(Total Separate Account Annual Expenses: 1.50%)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
10 Year Corresponding
or Portfolio
Portfolio 1 Year 5 Year Inception Inception Date
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Dreyfus Small Cap Value(/2/)... 27.48% 16.14% 13.03% May 4, 1993
Dreyfus U.S. Government
Securities.................... (2.33%) 4.89% 4.07% May 4, 1994
Endeavor Asset Allocation...... 24.52% 19.30% 13.92% April 8, 1991
Endeavor Enhanced Index........ 16.41% N/A 25.51% May 1, 1997
Endeavor High Yield............ 4.25% N/A 0.10% June 2, 1998
Endeavor Janus Growth.......... 56.76% 37.62% 23.78% May 1, 1999
Endeavor Opportunity Value..... 3.24% N/A 7.04% November 18, 1996
Endeavor Value Equity.......... (4.49%) 15.02% 11.87% May 27, 1993
Endeavor Select................ 45.66% N/A 25.03% February 2, 1998
T. Rowe Price Equity Income.... 1.94% N/A 16.53% January 3, 1995
T. Rowe Price Growth Stock..... 20.39% N/A 26.77% January 3, 1995
T. Rowe Price International
Stock(/3/).................... 30.40% 13.14% 8.12% April 8, 1991
Transamerica VIF
Growth(/4/)(/5/).............. 35.78% 45.74% 27.74%+ February 26, 1969
Fidelity - VIP Equity-Income -
Service Class 2(/4/)(/6/).... 4.68% 16.82% 12.78%+ October 9, 1986
Fidelity - VIP II
Contrafund(R) - Service Class
2(/4/)(/6/)................... 22.33% N/A 25.82% January 3, 1995
Fidelity - VIP III Growth
Opportunities - Service Class
2(/4/)(/6/)................... 2.64% N/A 19.71% January 3, 1995
Fidelity - VIP III Mid Cap -
Service Class 2(/4/)(/6/).... 46.80% N/A 50.82% December 28, 1998
WRL Alger Aggressive
Growth(/4/)................... 66.59% 34.63% 28.44% March 1, 1994
WRL Goldman Sachs Growth(/4/).. N/A N/A 16.66% May 3, 1999
WRL Janus Global(/4/).......... 68.66% 31.01% 26.04% December 3, 1992
WRL NWQ Value Equity(/4/)...... 6.34% N/A 9.12% May 1, 1996
WRL Pilgrim Baxter Mid Cap
Growth(/4/)................... N/A N/A 76.35% May 3, 1999
WRL Salomon All Cap(/4/)....... N/A N/A 14.44% May 3, 1999
WRL T. Rowe Price Dividend
Growth(/4/)................... N/A N/A (8.33%) May 3, 1999
WRL T. Rowe Price Small
Cap(/4/)...................... N/A N/A 37.17% May 3, 1999
- -------------------------------------------------------------------------------
</TABLE>
+ Ten Year Date
(/1/)The calculation of total return performance for periods prior to inception
of the subaccounts reflects deductions for the mortality and expense risk
fee and administrative charge on a monthly basis, rather than a daily
basis. The monthly deduction is made at the beginning of each month and
generally approximates the performance that would have resulted if the
subaccounts had actually been in existence since the inception of the
portfolio.
(/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/)This portfolio began operations on April 8, 1991, as the Global Growth
Portfolio. However, effective January 1, 1995, Rowe Price-Fleming
International, Inc. became the new adviser to the Global Growth Portfolio.
The Portfolio's name changed to the T. Rowe Price International Stock
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 (that is, non-U.S. companies).
(/4/)The Transamerica VIF Growth Subaccount, Fidelity - VIP Equity-Income
Subaccount, Fidelity - VIP II Contrafund(R) 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.
51
<PAGE>
(/5/)The Growth Portfolio of the Transamerica Variable Insurance Fund, Inc., is
the successor to Separate Account Fund C of Transamerica Occidental Life
Insurance Company, a management investment company funding variable
annuities, through a reorganization on November 1, 1996. Accordingly, the
performance data for the Transamerica VIF Growth Portfolio include
performance of its predecessor.
(/6/)Returns prior to January 12, 2000 for the portfolios are based on
historical returns for Initial Class Shares.
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 the T. Rowe
Price Growth Stock Portfolio. In the absence of such waivers, the average
annual total return figures above from the five year and from inception periods
would have been lower.
52
<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:
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 any charges (eg.,
brokerage commissions, management fees) were reflected in the hypothetical
returns, the returns would be lower than those presented here.
53
<PAGE>
COMPARISON OF TOTAL RETURN(/2/)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Strategy Total Returns
--------------------------------
10 Highest 5 Lowest Priced
Dividend of the 10 Highest Index
Yielding Dividend Total Returns
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............................. 5.06% (7.28%) 27.06%
- --------------------------------------------------------------------------------
</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 19.01%,
while the Five Lowest Priced Stocks of the Ten Highest Dividend Yielding
Stocks in the DJIA achieved an average annual total return of 20.97%. In
addition, over this period, the individual strategies achieved a greater
average annual total return than that of the DJIA, which was 16.83%.
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 does not guarantee future success, nor
should it be used as a predictor of returns. The DowSM Target 5 strategy and
The DowSM Target 10 strategy under-performed the DJIA in 8 and 10,
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
54
<PAGE>
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
[GRAPH]
[PLOT POINTS TO COME]
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
DowSM 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 DowSM Target 10
Subaccount or The DowSM 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 year period ended December 31,
55
<PAGE>
1999 are shown in Table 1 below. Total returns shown reflect deductions for the
mortality and expense risk fee, the distribution financing charge and the
administrative charges. The total return for each target series subaccount will
also reflect the manager's fee and other operating expenses. Performance
figures may reflect the 1.25% mortality and expense risk fee for the 5%
Annually Compounding and Double Enhanced Death Benefits, or the 1.10% mortality
and expense risk fee for the Return of Premium Death Benefit. Table 1 reflects
the rider charge for the optional family income protector.
TABLE 1
Standardized Average Annual Total Returns
- --------------------------------------------------------------------------------
5% Annually Compounding Death Benefit or Double Enhanced Death Benefit
(Total Mutual Fund Account Annual Expenses: 1.65%)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1 Year 5 Year Inception of the
Ended Ended Subaccount Subaccount
Subaccount 12/31/99 12/31/99 To 12/31/99 Inception Date
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
The Dow SM Target 10
(January Series)......... N/A N/A (1.82%) January 4, 1999
The Dow SM Target 5
(January Series)......... N/A N/A (9.10%) January 4, 1999
The Dow SM Target 10 (July
Series).................. (2.39%) N/A 0.58% July 1, 1998
The Dow SM Target 5 (July
Series).................. (14.26%) N/A (2.62%) July 1, 1998
- -------------------------------------------------------------------------------
Return of Premium Death Benefit
(Total Mutual Fund Account Annual Expenses: 1.50%)
- -------------------------------------------------------------------------------
<CAPTION>
1 Year 5 Year Inception of the
Ended Ended Subaccount Subaccount
Subaccount 12/31/99 12/31/99 To 12/31/99 Inception Date
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
The Dow SM Target 10
(January Series)......... N/A N/A (1.67%) January 4, 1999
The Dow SM Target 5
(January Series)......... N/A N/A (8.97%) January 4, 1999
The Dow SM Target 10 (July
Series).................. (2.25%) N/A 0.73% July 1, 1998
The Dow SM Target 5 (July
Series).................. (14.13%) N/A (2.48%) July 1, 1998
- -------------------------------------------------------------------------------
</TABLE>
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 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.
56
<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.
<TABLE>
<S> <C>
Policy Form/Endorsement............................. Approximate First Issue Date
AV212 101 75 1292 (Policy Form)..................... May 1993
V829 & S831 (replacement pages for 1.65 M&E)........ January 1994
AE872 395 (endorsement)............................. May 1995
AV265 101 89 396 (Policy Form)...................... June 1996
AE900 396 (endorsement)............................. June 1996
AV339 101 101 497 (Policy Form)..................... July 1997
AE957 497 (endorsement)............................. July 1997
AV400 101 107 1197 (Policy Form).................... May 1998
- ------------------------------------------------------------------------------------
</TABLE>
57
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Product Feature AV212 101 75 1292 AV212 101 75 1292, AV265 101 89 396 AV339 101 101 497 AV400 101 107 198
V829 and S831 and AE900 396 and AE957 497 with
AE957 497
Excess Interest N/A N/A Yes Yes Yes
Adjustment
Guaranteed Minimum Total Premiums Total Premiums 5% Annually 5% Annually 5% Annually
Death Benefit Paid, less any Paid, less any Compounding (Option Compounding (Option Compounding (Option
Option(s) partial withdrawals partial withdrawals A) or Annual Step- A) or Annual Step- A), Double Enhanced
made before death, made before death, Up (Option B). Up (Option B), or (Option B), or
accumulated at 5% accumulated at 5% Option A is only Return of Premium Return of Premium
to the date we to the date we available if Owner (Option C). Option (Option C). Option
receive due proof receive due proof and Annuitant are A is only available A is only available
of death or the of death or the both under age 75. if Owner and if Owner and
Policy Value on the Policy Value on the Annuitant are both Annuitant are both
date we receive due date we receive due under age 75. under age 75.
proof of death, proof of death, Option B is only Option B is only
which ever is which ever is available if Owner available if Owner
greater. greater. and Annuitant are and Annuitant are
under age 81. under age 81.
Guaranteed Period N/A N/A 1, 3 and 5 year 1, 3, and 5 year 1, 3, and 5 year
Options (available in Guaranteed Periods Guaranteed Periods Guaranteed Periods
the Fixed Account) available. available. available.
Minimum effective N/A N/A 3% 3% 3%
annual interest rate
applicable to the
fixed account
Asset Rebalancing N/A N/A Yes Yes Yes
Death Proceeds Greater of 1) the Greater of 1) the Greatest of (a) Greatest of (a) Greatest of (a)
Policy Value on the Policy Value on the Policy Value, (b) Policy Value, (b) Policy Value, (b)
date we receive due date we receive due Cash Value, and (c) Cash Value, and (c) Cash Value, and (c)
proof of death, or proof of death, or Guaranteed Minimum Guaranteed Minimum Guaranteed Minimum
2) the total 2) the total Death Benefit. Death Benefit. Death Benefit.
premiums paid for premiums paid for
this policy, less this policy, less
any partial any partial
withdrawals made withdrawals made
before death, before death,
accumulated at 5% accumulated at 5%
interest per annum interest per annum
to the date we to the date we
receive due proof receive due proof
of death. of death.
Distribution N/A Applicable Applicable Applicable Applicable
Financing Charge
Is Mortality & No No No No Yes 1.10% plus
Expense Risk Fee and Administrative
Administrative Charge Charge, regardless
different after the of death benefit
Annuity Commencement chosen prior to the
Date? Annuity
Commencement Date.
Dollar Cost Averaging N/A N/A Yes Yes Yes
Fixed Account Option
Service Charge $35 assessed on $35 assessed on $35 assessed on $35 assessed either $35 assessed either
each Policy each Policy each Policy on a Policy on a Policy
Anniversary. Anniversary. Anniversary; waived Anniversary or on Anniversary or on
if Sum of Premium Surrender; waived Surrender; waived
Payments less if sum of Premium if sum of Premium
partial withdrawals Payments less Payments less
is at least $50,000 partial withdrawals partial withdrawals
on the Policy or the Policy Value or the Policy Value
Anniversary. Not is at least $50,000 is at least $50,000
deducted from the on the Policy on the Policy
Fixed Account. Anniversary or at Anniversary or at
the time of the time of
Surrender. The Surrender. The
Service Charge is Service Charge is
deducted pro-rata deducted pro-rata
from the Investment from the Investment
Options. Options.
Nursing Care and N/A N/A Yes Yes Yes
Terminal Condition
Withdrawal Option
</TABLE>
- --------------------------------------------------------------------------------
58
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
THE ENDEAVOR PLATINUM 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 Platinum 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
-1-
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
GLOSSARY OF TERMS.......................................................... 4
THE POLICY--GENERAL PROVISIONS............................................. 7
Owner.................................................................... 7
Entire Policy............................................................ 7
Misstatement of Age or Sex............................................... 8
Addition, Deletion or Substitution of Investments........................ 8
Excess Interest Adjustment............................................... 9
Reallocation of Policy Values After the Annuity Commencement Date........ 13
Annuity Payment Options.................................................. 13
Death Benefit............................................................ 14
Death of Owner........................................................... 16
Assignment............................................................... 17
Evidence of Survival..................................................... 17
Non-Participating........................................................ 17
Amendments............................................................... 17
Employee and Agent Purchases............................................. 17
CERTAIN FEDERAL INCOME TAX CONSEQUENCES.................................... 17
Tax Status of the Policy................................................. 18
Taxation of PFL.......................................................... 21
INVESTMENT EXPERIENCE...................................................... 21
Accumulation Units....................................................... 21
Annuity Unit Value and Annuity Payment Rates............................. 23
FAMILY INCOME PROTECTOR--ADDITIONAL INFORMATION............................ 25
HISTORICAL PERFORMANCE DATA................................................ 28
Money Market Yields...................................................... 28
Other Subaccount Yields.................................................. 29
Total Returns............................................................ 30
Other Performance Data................................................... 30
Adjusted Historical Performance Data--The Mutual Fund Account............ 31
THE TARGET ACCOUNT......................................................... 31
What is the Investment Strategy?......................................... 31
Determination of Unit Value; Valuation of Securities..................... 32
The Board of Managers.................................................... 33
The Investment Advisory Services......................................... 36
The Manager.............................................................. 37
Operating Expenses....................................................... 37
Transfer Agent and Custodian............................................. 38
Brokerage Allocation..................................................... 38
Investment Restrictions.................................................. 38
Fundamental Policies..................................................... 38
Operating Policies....................................................... 39
Options and Futures Strategies........................................... 39
Securities Lending....................................................... 41
Tax Limitation........................................................... 42
PUBLISHED RATINGS.......................................................... 42
STATE REGULATION OF PFL.................................................... 43
ADMINISTRATION............................................................. 43
RECORDS AND REPORTS........................................................ 43
DISTRIBUTION OF THE POLICIES............................................... 43
</TABLE>
-2-
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
VOTING RIGHTS.............................................................. 44
The Mutual Fund Account.................................................. 44
The Target Account....................................................... 44
OTHER PRODUCTS............................................................. 45
CUSTODY OF ASSETS.......................................................... 45
LEGAL MATTERS.............................................................. 46
INDEPENDENT AUDITORS....................................................... 46
OTHER INFORMATION.......................................................... 46
FINANCIAL STATEMENTS....................................................... 46
</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.
Application--A written application, order form, or any other information
received electronically or otherwise upon which the policy is issued and/or is
reflected on the data or specifications page.
Beneficiary--The person who has the right to the death benefit set forth in the
policy.
Business Day--A day when the New York Stock Exchange is open for business.
Cash Value--The policy value increased or decreased by an excess interest
adjustment, less the annual service charge, and less any applicable premium
taxes 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.
Excess Interest Adjustment--A positive or negative adjustment to amounts
withdrawn upon partial withdrawals or full surrenders or 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.
-4-
<PAGE>
Fixed Account--One or more investment choices under the policy that are part of
PFL's general assets 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.
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 a specified portfolio of the underlying funds.
Nonqualified Policy--A policy other than a qualified policy.
Owner--The person who may exercise all rights and privileges under the policy.
The owner during the lifetime of the annuitant and prior to the annuity
commencement date is the person designated as the owner or a successor owner in
the application.
Policy Value--On or before the annuity commencement date, the policy value is
equal to the owner's:
. premium payments; minus
. partial withdrawals (including any applicable excess interest adjustments on
such withdrawals); plus
. interest credited in the fixed account; plus or minus
. 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 policy 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.
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 you.
THE POLICY--GENERAL PROVISIONS
Owner
The policy shall belong to the owner, upon issuance of the policy after
completion of an application and delivery of the initial premium payment. While
the annuitant is living, the owner may: (1) assign the policy; (2) surrender
the policy; (3) amend or modify the policy with PFL's consent; (4) receive
annuity payments or name a payee to receive the payments; and (5) exercise,
receive and enjoy every other right and benefit contained in the policy. The
exercise of these rights may be subject to the consent of any assignee or
irrevocable beneficiary; and of 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 application, 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 adverse tax consequences.
When there is a change of owner or successor owner, the change will not be
effective until it is recorded in our records. Once recorded, it will take
effect as of the date the owner signs the written notice, subject to any
payment PFL has made or action PFL has taken before recording the change.
Changing the owner or naming a new successor owner cancels any prior choice of
successor owner, but does not change the designation of the beneficiary or the
annuitant.
If ownership is transferred (except to the owner's spouse) because the owner
dies before the annuitant, the 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, and the application or information
provided in lieu thereof, constitute the entire contract between PFL and the
owner. All statements in the
-7-
<PAGE>
application are representations and not warranties. No statement will cause the
policy to be void or to be used in defense of a claim unless contained in the
application or information provided in lieu thereof.
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 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 subaccout 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 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
-8-
<PAGE>
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 cash 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
-9-
<PAGE>
Example 1 (Full Surrender, rates increase by 3%):
<TABLE>
<S> <C>
Single premium: $50,000
- -----------------------------------------------------------------------------------------
Guarantee period: 5 Years
- -----------------------------------------------------------------------------------------
Guarantee rate: 5.50% per annum
- -----------------------------------------------------------------------------------------
Surrender: middle of contract year 3
- -----------------------------------------------------------------------------------------
Policy value at middle of contract year 3 = 50,000* (1.055)/\ 2.5 = 57,161.18
- -----------------------------------------------------------------------------------------
Adjustment free amount at middle of
contract year 3 = 57,161.18* .10 = 5,716.12
- -----------------------------------------------------------------------------------------
Amount subject to excess interest = 57,161.18 - 5,716.12 = 51,445.06
adjustment
- -----------------------------------------------------------------------------------------
Excess interest adjustment floor = 50,000* (1.03)/\ 2.5 = 53,834.80
- -----------------------------------------------------------------------------------------
Excess interest adjustment
G = .055
C = .085
M = 30
- -----------------------------------------------------------------------------------------
Excess interest adjustment = S* (G-C)* (M/12)
- -----------------------------------------------------------------------------------------
= 51,445.06* (.055-.085)* (30/12)
- -----------------------------------------------------------------------------------------
= - 3,858.38, but excess interest
adjustment cannot cause the adjusted policy
value to fall below the excess interest
adjustment floor, so the adjustment is
limited to 53,834.80
- 57,161.18 = - 3,326.38
- -----------------------------------------------------------------------------------------
Adjusted policy value = net surrender value
- -----------------------------------------------------------------------------------------
= policy value + excess interest adjustment
= 57,161.18 + (- 3,326.38)
- -----------------------------------------------------------------------------------------
= 53,834.80
</TABLE>
-10-
<PAGE>
Example 2 (Surrender, rates decrease by 1%):
<TABLE>
<S> <C>
Single premium: $50,000
- ---------------------------------------------------------------------------------
Guarantee period: 5 Years
- ---------------------------------------------------------------------------------
Guarantee rate: 5.50% per annum
- ---------------------------------------------------------------------------------
Surrender: middle of contract year 3
- ---------------------------------------------------------------------------------
Policy value at middle of contract year 3 = 50,000* (1.055)/\ 2.5 = 57,161.18
- ---------------------------------------------------------------------------------
Adjustment free amount at middle of
contract year 3 = 57,161.18* .10 = 5,716.12
- ---------------------------------------------------------------------------------
Amount subject to excess interest = 57,161.18 - 5,716.12 = 51,445.06
adjustment
- ---------------------------------------------------------------------------------
Excess interest adjustment floor = 50,000* (1.03)/\ 2.5 = 53,834.80
- ---------------------------------------------------------------------------------
Excess interest adjustment
G = .055
C = .045
M = 30
- ---------------------------------------------------------------------------------
Excess interest adjustment = S* (G - C)* (M/12)
- ---------------------------------------------------------------------------------
= 51,445.06* (.055 - .045)* (30/12)
- ---------------------------------------------------------------------------------
= 1,286.13
- ---------------------------------------------------------------------------------
Adjusted policy value = net surrender value
- ---------------------------------------------------------------------------------
= 57,161.18 + 1,286.13 = 58,447.31
</TABLE>
On a partial withdrawal, PFL will pay the policyholder the full amount of
withdrawal requested (as long as the annuity purchase value is sufficient).
Amounts withdrawn will reduce the policy value by an amount equal to:
R - E
where:
R=the requested partial withdrawal
E=the excess interest adjustment
-11-
<PAGE>
Example 3 (partial withdrawal, rates increase by 1%):
<TABLE>
<S> <C>
Single premium: $50,000
- ---------------------------------------------------------------------------------
Guarantee period: 5 Years
- ---------------------------------------------------------------------------------
Guarantee rate: 5.50% per annum
- ---------------------------------------------------------------------------------
Partial withdrawal: $20,000; middle of contract year 3
- ---------------------------------------------------------------------------------
Policy value at middle of contract year 3 = 50,000* (1.055)/\ 2.5 = 57,161.18
- ---------------------------------------------------------------------------------
Adjustment free amount at middle of
contract year 3 = 57,161.18* .10 = 5,716.12
- ---------------------------------------------------------------------------------
Excess interest adjustment
S = 20,000 - 5,716.12 = 14,283.88
G = .055
C = .065
M = 30
- ---------------------------------------------------------------------------------
Excess interest adjustment = S* (G - C)* (M/12)
- ---------------------------------------------------------------------------------
= 14,283.88* (.055 - .065)* (30/12)
- ---------------------------------------------------------------------------------
= -357.10
- ---------------------------------------------------------------------------------
Remaining policy value at middle of
contract year 3 = 57,161.18 - (R - E)
- ---------------------------------------------------------------------------------
= 57,161.18 - (20,000 - (- 357.10))
- ---------------------------------------------------------------------------------
= 36,804.08
</TABLE>
Example 4 (partial withdrawal, rates decrease by 1%):
<TABLE>
<S> <C>
Single premium: $50,000
- ---------------------------------------------------------------------------------
Guarantee period: 5 Years
- ---------------------------------------------------------------------------------
Guarantee rate: 5.50% per annum
- ---------------------------------------------------------------------------------
Partial surrender: $20,000; middle of contract year 3
- ---------------------------------------------------------------------------------
Policy value at middle of contract year 3 = 50,000* (1.055) 2.5 = 57,161.18
- ---------------------------------------------------------------------------------
Adjustment free amount at middle of
contract year 3 = 57,161.18* .10 = 5,716.12
- ---------------------------------------------------------------------------------
Excess interest adjustment
S = 20,000 - 5,716.12 = 14,283.88
G = .055
C = .045
M = 30
- ---------------------------------------------------------------------------------
Excess interest adjustment = 14,283.88* (.055 - .045)* (30/12)
- ---------------------------------------------------------------------------------
= 357.10
- ---------------------------------------------------------------------------------
Remaining policy value at middle of
contract year 3 = 57,161.18 - (R - E)
- ---------------------------------------------------------------------------------
= 57,161.18 - (20,000 - 357.10)
- ---------------------------------------------------------------------------------
= 37,518.28
</TABLE>
-12-
<PAGE>
Reallocation of Annuity Units 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 or target series
subaccounts. 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 or 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.
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
or 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
-13-
<PAGE>
annuitant. The adjusted age is the annuitant's actual age nearest birthday, on
the annuity commencement date, adjusted as follows:
<TABLE>
<CAPTION>
Annuity Commencement Date Adjusted Age
------------------------- --------------------
<S> <C>
Before 2001 Actual Age
2001-2010 Actual Age minus 1
2011-2020 Actual Age minus 2
2021-2030 Actual Age minus 3
2031-2040 Actual Age minus 4
After 2040 As determined by PFL
</TABLE>
This adjustment assumes an increase in life expectancy, and therefore it
results in lower payments than without such an adjustment.
Determination of Additional Variable Payments. All variable annuity payments
other than the first are calculated using annuity units that are credited to
the policy. The number of annuity units to be credited in respect of a
particular subaccount is determined by dividing that portion of the first
variable annuity payment attributable to that subaccount by the annuity unit
value of that subaccount on the annuity commencement date. The number of
annuity units of each particular subaccount credited to the policy then remains
fixed, assuming no transfers to or from that subaccount occur. The dollar value
of variable annuity units in the chosen subaccount will increase or decrease
reflecting the investment experience of the chosen subaccount. The dollar
amount of each variable annuity payment after the first may increase, decrease
or remain constant, and is equal to the sum of the amounts determined by
multiplying the number of annuity units of each particular subaccount credited
to the policy by the annuity unit value for the particular subaccount on the
date the payment is made.
Death Benefit
Adjusted Partial Withdrawal. The amount of your guaranteed minimum death
benefit is reduced due to a partial withdrawal called the adjusted partial
withdrawal. The reduction amount depends on the relationship between your
guaranteed minimum death benefit and policy value. The adjusted partial
withdrawal is (1) multiplied by (2), where:
(1) is the gross partial withdrawal, where the gross partial withdrawal =
requested partial withdrawal minus excess interest adjustment; and
(2) is the adjustment factor, which = current death benefit prior to the
withdrawal divided by the current policy value prior to the withdrawal.
-14-
<PAGE>
The following examples describe the effect of a withdrawal on the guaranteed
minimum death benefit and policy value.
EXAMPLE 1
(Assumed Facts for Example)
- --------------------------------------------------------------------------------
<TABLE>
<C> <S>
$75,000 current guaranteed minimum death benefit before withdrawal
- ------------------------------------------------------------------------------
$50,000 current policy value before withdrawal
- ------------------------------------------------------------------------------
$75,000 current death benefit (larger of policy value and guaranteed minimum
death benefit)
- ------------------------------------------------------------------------------
$15,000 requested withdrawal
- ------------------------------------------------------------------------------
$ 5,000 Excess interest adjustment-free amount (assumes 10% penalty free
withdrawal is available)
- ------------------------------------------------------------------------------
$ 100 excess interest adjustment (assumes interest rates have decreased
since initial guarantee)
- ------------------------------------------------------------------------------
$14,900 reduction in policy value = 15000 - 100
- ------------------------------------------------------------------------------
$22,350 adjusted partial withdrawal = 14,900 * (75,000/50,000)
- ------------------------------------------------------------------------------
$52,650 new guaranteed minimum death benefit (after withdrawal) = 75,000 -
22,350
- ------------------------------------------------------------------------------
$35,100 new policy value (after withdrawal) = 50,000 - 14,900
</TABLE>
<TABLE>
<CAPTION>
Summary:
- --------
<S> <C>
Reduction in guaranteed minimum death benefit = $22,350
Reduction in policy value = $14,900
</TABLE>
Note, guaranteed minimum death benefit is reduced more than the policy value
since the guaranteed minimum death benefit was greater than the policy value
just prior to the withdrawal.
EXAMPLE 2
(Assumed Facts for Example)
- --------------------------------------------------------------------------------
<TABLE>
<C> <S>
$50,000 current guaranteed minimum death benefit before withdrawal
- ------------------------------------------------------------------------------
$75,000 current policy value before withdrawal
- ------------------------------------------------------------------------------
$75,000 current death benefit (larger of policy value and guaranteed minimum
death benefit)
- ------------------------------------------------------------------------------
$15,000 requested withdrawal
- ------------------------------------------------------------------------------
$ 7,550 excess interest adjustment-free amount (assumes 10% penalty free
withdrawal is available)
- ------------------------------------------------------------------------------
$ -100 excess interest adjustment (assumes interest rates have increased
since initial guarantee)
- ------------------------------------------------------------------------------
$15,100 reduction in policy value = $15,000 - (- 100) = 15,000 + 100
- ------------------------------------------------------------------------------
$15,100 adjusted partial withdrawal = $15,100 * (75,000/75,000)
- ------------------------------------------------------------------------------
$34,900 new guaranteed minimum death benefit (after withdrawal) = 50,000 -
15,100
- ------------------------------------------------------------------------------
$59,900 new policy value (after withdrawal) = 75,000 - 15,100
</TABLE>
<TABLE>
<CAPTION>
Summary:
- --------
<S> <C>
Reduction in guaranteed minimum death benefit = $15,100
Reduction in policy value = $15,100
</TABLE>
-15-
<PAGE>
Note, guaranteed minimum death benefit and policy value are reduced by the same
amount since the policy value was higher than the guaranteed minimum death
benefit just prior to the withdrawal.
Due proof of death of the annuitant is proof that the annuitant who is the
owner died prior to the commencement of annuity payments. A certified copy of a
death certificate, a certified copy of a decree of a court of competent
jurisdiction as to the finding of death, a written statement by the attending
physician, or any other proof satisfactory to PFL will constitute due proof of
death. Upon receipt of this proof and an election of a method of settlement and
return of the policy, the death benefit generally will be paid within seven
days, or as soon thereafter as PFL has sufficient information about the
beneficiary to make the payment. The beneficiary may receive the amount payable
in a lump sum cash benefit, or, subject to any limitation under any state or
federal law, rule, or regulation, under one of the annuity payment options
described above, unless a settlement agreement is effective at the death of the
owner preventing such election.
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 application will remain in
effect until changed. The owner may change the designated beneficiary by
sending written notice to PFL. The beneficiary's consent to such change is not
required unless the beneficiary was irrevocably designated or law requires
consent. (If an irrevocable beneficiary dies, the owner may then designate a
new beneficiary.) The change will take effect as of the date the owner signs
the written notice, whether or not the owner is living when the notice is
received by PFL. PFL will not be liable for any payment made before the written
notice is received. If more than one beneficiary is designated, and the owner
fails to specify their interests, they will share equally.
Death of Owner
Federal tax law requires that if any owner (including any joint owner or any
successor owner who has become a current owner) dies before the annuity
commencement date, then the entire value of the policy must generally be
distributed within five years of the date of death of such owner. Certain rules
apply where (1) the spouse of the deceased owner is the sole beneficiary,
(2) the owner is not a natural person and the primary annuitant dies or is
changed, or (3) any owner dies after the annuity commencement date. See
"Certain Federal Income Tax Consequences" for more information about these
rules. Other rules may apply to qualified policies.
-16-
<PAGE>
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.
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 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
-17-
<PAGE>
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 also requires that nonqualified policies
contain specific provisions for distribution of policy proceeds upon the death
of any owner. In order to be treated as an annuity contract for federal income
tax purposes, the Code requires that such policies provide that if any owner
dies on or after the annuity commencement date and before the entire interest
in the policy has been distributed, the remaining portion must be distributed
at least as rapidly as under the method in effect on such 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 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. The withholding rate varies according to the type of distribution and the
owner's tax status. For qualified policies, "eligible rollover distributions"
from Section 401(a) plans, Section 403(a) annuities, and Section 403(b) tax-
sheltered annuities are subject to a mandatory federal income tax withholding
of 20%. An eligible rollover distribution is the taxable portion of any
distribution from such a plan, except certain distributions such as
distributions required by the Code or distributions in a specified annuity
form. The 20% withholding does not apply, however, if the owner chooses a
"direct rollover" from the plan to another tax-qualified plan or IRA. Different
withholding requirements may apply in the case of non-United States persons.
Qualified Policies. The qualified policy is designed for use with several types
of tax-qualified retirement plans. The tax rules applicable to participants and
beneficiaries in tax-qualified retirement plans vary according to the type of
plan and the terms and conditions of the plan.
-18-
<PAGE>
Special favorable tax treatment may be available for certain types of
contributions and distributions. Adverse tax consequences may result from
contributions in excess of specified limits; distributions prior to age 59 1/2
(subject to certain exceptions); distributions that do not conform to specified
commencement and minimum distribution rules; and in other specified
circumstances. Some retirement plans are subject to distribution and other
requirements that are not incorporated into the policies or 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 a traditional individual
retirement annuities under Section 408(b) of the Code contain such provisions.
Amounts in the IRA (other than nondeductible contributions) are taxed when
distributed from the IRA. Distributions prior to age 59 1/2 (unless certain
exceptions apply) are subject to a 10% penalty tax.
No part of the funds for an individual retirement account (including a Roth
IRA) or annuity 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 as an IRA. The Internal Revenue Service has not reviewed the policy for
qualification as an IRA, and has not addressed in a ruling of general
applicability whether an enhanced death benefit provision, such as the
provision in the policy, comports with IRA qualification requirements.
Roth Individual Retirement Annuities (Roth IRA). The Roth IRA, under Section
408A of the Code, contains many of the same provisions as a traditional IRA.
However, there are some differences. First, the contributions are not
deductible and must be made in cash or as a rollover or transfer from another
Roth IRA or other IRA. A rollover from or conversion of an IRA to a Roth IRA
may be subject to tax and other special rules may apply to the rollover or
conversion and to distribution s attributable thereto. You should consult a tax
adviser before combining any
-19-
<PAGE>
converted amounts with any other Roth IRA contributions, including any other
conversion amounts from other tax years. The Roth IRA is available to
individuals with earned income and whose modified adjusted gross income is
under $110,000 for single filers, $160,000 for married filing jointly, and
$10,000 for married filing separately. The amount per individual that may be
contributed to all IRAs (Roth and traditional) is $2,000. Secondly, the
distributions are taxed differently. The Roth IRA offers tax-free distributions
when made 5 tax years after the first contribution to any Roth IRA of the
individual and made after attaining age 59 1/2, to pay for qualified first time
homebuyer expenses (lifetime maximum of $10,000) or due to death or disability.
All other distributions are subject to income tax when made from earnings and
may be subject to a premature withdrawal penalty tax unless an exception
applies. Unlike the traditional IRA, there are no minimum required
distributions during the owner's lifetime; however, required distributions at
death are generally the same.
Section 403(b) Plans. Under Section 403(b) of the Code, payments made by public
school systems and certain tax exempt organizations to purchase policies for
their employees are excludable from the gross income of the employee, subject
to certain limitations. However, such payments may be subject to FICA (Social
Security) taxes. The policy includes a death benefit that in some cases may
exceed the greater of the premium payments or the policy value. The death
benefit could be characterized as an incidental 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-government 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.
-20-
<PAGE>
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
-21-
<PAGE>
payment is received at the administrative and service office or, in the case of
the initial premium payment, when the application is completed, whichever is
later. The value of an accumulation unit 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 result of the net asset value per share of the shares held
in the subaccount determined as of the end of the immediately preceding
valuation period; and
(c) is the charge for mortality and expense risk during the valuation
period, equal on an annual basis to 1.25% (for both the 5% Annually
Compounding Death Benefit and the Double Enhanced Death Benefit) and
1.10% (for the Return of Premium Death Benefit) of the daily net asset
value of the subaccount, plus the .15% administrative charge, plus the
distribution financing charge of .25%. The distribution financing
charge is assessed only during the first ten policy years and prior to
the annuity commencement date.
-22-
<PAGE>
Illustration of Mutual Fund Account and
Target Account Accumulation Unit Value Calculations
Formula and Illustration for Determining the Net Investment Factor
Net Investment Factor = (A + B - C) - E
----------
D
<TABLE>
<C> <S> <C>
Where: A = The net asset value of an underlying fund share as of the end of the
current valuation period.
Assume..................................... A = $11.57
B = The per share amount of any dividend or capital gains distribution
since the end of the immediately preceding valuation period.
Assume.......................................... B = 0
C = The per share charge or credit for any taxes reserved for at the end
of the current valuation period.
Assume.......................................... C = 0
D = The net asset value of an underlying fund share at the end of the
immediately preceding valuation period.
Assume..................................... D = $11.40
E = The daily deduction for the mortality and expense risk fee, the
administrative charge, and the distribution financing charge, which
totals 1.65% on an annual basis for the first ten years and 1.40%
thereafter. On a daily basis, E equals .0000448376 for the first ten
years and .0000380909 thereafter.
</TABLE>
Then, the net investment factor = (11.57 + 0 - 0) .0000448376 = Z = 1.0148674431
---------------
(11.40)
for the first ten years, and (11.57 + 0 - 0) .0000380909 = 1.0148741898
thereafter. ---------------
11.40
Formula and Illustration for Determining Accumulation Unit Value
Accumulation Unit Value = A * B
<TABLE>
<C> <S> <C>
Where: A = The accumulation unit value for the immediately preceding valuation
period.
Assume........................................... = $X
B = The net investment factor for the current valuation period.
Assume............................................ = Y
</TABLE>
Then, the accumulation unit value = $X * Y = $Z
Annuity Unit Value And Annuity Payment Rates
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.
-23-
<PAGE>
The investment result adjustment factor for the valuation period is the product
of discount factors of .99986634 per day to recognize the 5% effective annual
assumed investment return. The valuation period is the period from the close of
the immediately preceding business day to the close of the current business
day.
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 the 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 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
<TABLE>
<C> <S> <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
</TABLE>
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
<TABLE>
<C> <S> <C>
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
</TABLE>
Then, the first monthly variable annuity payment = $X * $Y = $Z
--------
1,000
-24-
<PAGE>
Formula and Illustration for Determining the Number of Annuity Units
Represented by Each Monthly Variable Annuity Payment
Number of annuity units = A
---
B
<TABLE>
<C> <S> <C>
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
</TABLE>
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;
. that 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);
. 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
<TABLE>
<CAPTION>
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
-25-
<PAGE>
1value 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:
EXAMPLE 1
Assumptions
<TABLE>
- ------------------------------------------------------------------------------
<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
EXAMPLE 2
Assumptions
- ------------------------------------------------------------------------------
. 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>
-26-
<PAGE>
EXAMPLE 3
Assumptions
<TABLE>
- ------------------------------------------------------------------------------
<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.
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
-27-
<PAGE>
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; (ii) the mortality and
expense risk fee, and (iii) the distribution financing charge. 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
-28-
<PAGE>
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
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 3.76%, and the effective yield was
3.83% 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 3.87%, and the effective yield was 3.94%
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 X ((((NI-ES)/(U X UV)) + 1)/6/ - 1)
Where:
NI=
Net investment income of the subaccount for the 30-day period
attributable to the subaccount's unit.
ES= Expenses of the subaccount for the 30-day period.
U= The average number of units outstanding.
UV= The unit value at the close (highest) of the last day in the 30-day
period.
Because of the charges and deductions imposed by the mutual fund account, the
yield for a 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.
-29-
<PAGE>
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. 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.
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.
-30-
<PAGE>
All non-standardized performance data will only be advertised if the
standardized performance data for the same period, as well as for the required
period, is also disclosed.
Adjusted Historical Performance Data--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 (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.
At the initial stock selection date, a percentage relationship among the number
of common shares in a target subaccout 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 subaccout 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.
-31-
<PAGE>
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 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.
-32-
<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. President and Chief From February 1997 to December
(34)....................... Financial Officer 1997, Executive Vice-President,
(Treasurer) Chief of Operations, from March
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, from May 1996 to
December 31, 1999, 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 (oil
and gas); 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; President, Chief
Financial Officer, and Trustee of
Endeavor Series Trust.
</TABLE>
-33-
<PAGE>
<TABLE>
<CAPTION>
Name, Age and Address Held With Registrant During Past 5 Years
--------------------- -------------------- -------------------
<S> <C> <C>
*Vincent J. McGuinness Manager Until December 31, 1999, Director
(65)....................... of Endeavor Group and Endeavor
1901 Ocean Way Management Co.; President of VJM
Laguana Beach, CA 92651 Corporation (oil and gas); 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 (65)...... Manager President, Chief Executive
1424 Dolphin Terrace Corona Officer, Devine Properties, Inc.
del Mar, California 92625 (landscape contracting and
maintenance); Consultant, Plant
Control, Inc.; Trustee, Endeavor
Series Trust.
Thomas J. Hawekotte (64).... Manager President, Thomas Hawekotte, P.C.
6007 North Sheridan Road (law practice); Trustee, Endeavor
Chicago, Illinois 60660 Series Trust.
Steven L. Klosterman (48)... Manager Since July 1995, President of
5973 Avenida Encinas, #300 Klosterman Capital Corporation
Carlsbad, California 92008 (investment adviser); Investment
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 and
1650 E. Fort Lowell Road Associates (investment adviser)
Suite 203 Tucson, Arizona and since December, 1987 Tucson
85719-2324 Asset Management Inc. (commodity
trading advisor), and since
November, 1987, Presidio
Government Securities,
Incorporated (broker-dealer);
from January 1998 to January
1999, Chief Investment Officer
and since January 1999,
Consultant, Blackstone
Alternative Asset Management;
Trustee, Endeavor Series Trust.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Name, Age and Address Held With Registrant During Past 5 Years
--------------------- -------------------- -------------------
<S> <C> <C>
Keith H. Wood (63).......... Manager Since 1972, Chairman and Chief
Executive Officer of Jamison,
Eaton & Wood (investment adviser)
and from 1978 to December 1997,
President of Ivory & Sime
International, Inc. (investment
adviser); since 1999, President
Wood & Anthony, LLC (investment
advisor); Trustee, Endeavor
Series Trust.
Peter F. Muratore (67)...... Manager From June 1989 to March 1998,
Too Far Posthouse Road President of OCC Distributors
Morristown, NJ 07960 (broker/dealer), a subsidiary of
Oppenheimer Capital; Trustee,
Endeavor Series Trust.
*Larry N. Norman (47)....... Manager Executive Vice-President, PFL
4333 Edgewood Road N.E. Life Insurance Company.
Cedar Rapids, Iowa
52499-0001
Michael Pond (46)........... Executive Vice Since November 1, 1998, Executive
President-- Vice President--Administrator and
Administration and Compliance of Transamerica
Compliance Capital, Inc.; from November 1,
1998 to October 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.
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
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<PAGE>
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>
Total Compensation
Aggregate From Account
Compensation and Fund Complex
Name of Person From Account Paid to Managers
-------------- ------------ ------------------
<S> <C> <C>
Vincent J. McGuinness......................... -0- -0-
Timothy A. Devine............................. $1,400 $19,400
Thomas J. Hawekotte........................... $1,400 $19,900
Steven L. Klosterman.......................... $1,400 $20,400
Halbert D. Lindquist.......................... $1,300 $19,300
Keith H. Wood................................. $1,400 $19,900
Vincent J. McGuinness, Jr. ................... -0- -0-
William L. Busler (resigned as of November 15,
1999)........................................ -0- -0-
Peter F. Muratore............................. $1,400 $19,900
Larry N. Norman............................... -0- -0-
</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
SAI. 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
1999 and 1998 was $160,506 and $19,594, respectively. No fees were paid prior
to 1998 because the target account had not commenced operations. Each target
series subaccount's advisory agreement also 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.
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<PAGE>
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 flat fee of $10,000 per annum per subaccount and all out-of-pocket fees
and 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 1999 and 1998 was $343,942 and
$38,590, 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 targer 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, administrative charge, and distribution financing
charge.)
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<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 or 1998.
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 policy 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 series 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;
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<PAGE>
. 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.
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; or
. Oil and Gas Programs. Purchase participations or other direct interests or
enter into leases with respect to, oil, gas, other mineral exploration or
development program.
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
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<PAGE>
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
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.
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<PAGE>
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 matter, 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.
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
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<PAGE>
not more than five business days, including the right to call the loan to
permit voting of the securities; and (d) each target subaccout 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 do not have the right to vote securities on loan, but
would terminate the loan and regain the right to vote if it were considered
important with respect to the investment. A target series subaccounts 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 &
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,
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<PAGE>
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, 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 $7,011,101.50 and $4,066,996.67, 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 $1,962,658.71
and $3,281,871, respectively.
The target account has adopted a distribution plan in accordance with Rule 12b-
1 under the 1940 Act for the distribution financing charge (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
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<PAGE>
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.
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 regular and special shareholder meetings of the
Underlying Funds in accordance with instructions received from persons having
voting interests in the portfolios, although none of the underlying funds hold
regular annual shareholder meetings. If, however, the 1940 Act or any
regulation thereunder should be amended or if the present interpretation
thereof should change, and as a result PFL determines that it is permitted to
vote the underlying funds shares in its own right, it may elect to do so.
Before the annuity commencement date, you hold the voting interest in the
selected Portfolios. The number of votes that you have the right to instruct
will be calculated separately for each subaccount. The number of votes that you
have the right to instruct for a particular subaccount will be determined by
dividing your policy value in the subaccount by the net asset value per share
of the corresponding Portfolio in which the subaccount invests. Fractional
shares will be counted.
After the annuity commencement date, the person receiving annuity payments has
the voting interest, and the number of votes decreases as annuity payments are
made and as the reserves for the policy decrease. The person's number of votes
will be determined by dividing the reserve for the policy allocated to the
applicable subaccount by the net asset value per share of the corresponding
Portfolio. Fractional shares will be counted.
The number of votes that you or the person receiving income payments has the
right to instruct will be determined as of the date established by the
underlying funds for determining shareholders eligible to vote at the meeting
of the underlying funds. 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 funds.
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
-44-
<PAGE>
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 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 acccount and/or the target account. These variable
annuity policies may have different features, such as different investment
options or charges.
CUSTODY OF ASSETS
The assets of each of the mutual fund subaccounts and the target series
subaccounts are held by PFL. 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.
-45-
<PAGE>
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 The PFL
Endeavor VA Separate Account, which are available for investment by The
Endeavor Platinum Variable Annuity contract owners at December 31, 1999 and for
each of the two years in the period then ended, included in this SAI have been
audited by Ernst & Young LLP, Independent Auditors, 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 the year ended December 31, 1999 and for
the period July 1, 1998 (commencement of operations) through December 31, 1998,
included in this SAI 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 SAI. Not all of the information set forth in the
Registration Statement, amendments and exhibits thereto has been included in
the prospectus or this SAI. Statements contained in the prospectus and this SAI
concerning the content of the policies and other legal instruments are intended
to be summaries. For a complete statement of the terms of these documents,
reference should be made to the instruments filed with the 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
Platinum Variable Annuity contract owners, and the financial statements of The
PFL Endeavor Target Account are contained herein. The statutory-basis financial
statements and schedules of PFL, which are included in this SAI, should be
considered only as bearing on the ability of PFL to meet its obligations under
the policies. They should not be considered as bearing on the investment
performance of the assets held in the mutual fund account or the target
account.
-46-
<PAGE>
Financial Statements--Statutory Basis
PFL Life Insurance Company
Years ended December 31, 1999, 1998 and 1997
with Report of Independent Auditors
<PAGE>
PFL Life Insurance Company
Financial Statements--Statutory Basis
Years ended December 31, 1999, 1998 and 1997
Contents
<TABLE>
<S> <C>
Report of Independent Auditors.............................................. 1
Audited Financial Statements
Balance Sheets--Statutory Basis........................................... 3
Statements of Operations--Statutory Basis................................. 5
Statements of Changes in Capital and Surplus--Statutory Basis............. 6
Statements of Cash Flows--Statutory Basis................................. 7
Notes to Financial Statements--Statutory Basis............................ 9
Statutory-Basis Financial Statement Schedules
Summary of Investments--Other Than Investments in Related Parties......... 28
Supplementary Insurance Information....................................... 29
Reinsurance............................................................... 31
</TABLE>
<PAGE>
[LETTERHEAD OF ERNST & YOUNG LLP APPEARS HERE]
Report of Independent Auditors
The Board of Directors
PFL Life Insurance Company
We have audited the accompanying statutory-basis balance sheets of PFL Life
Insurance Company, an indirect wholly-owned subsidiary of AEGON N.V., as of
December 31, 1999 and 1998, and the related statutory-basis statements of
operations, changes in capital and surplus, and cash flows for each of the
three years in the period ended December 31, 1999. Our audits also included
the accompanying statutory-basis financial statement schedules required by
Article 7 of Regulation S-X. These financial statements and schedules are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and schedules based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
As described in Note 1 to the financial statements, the Company presents its
financial statements in conformity with accounting practices prescribed or
permitted by the Insurance Division, Department of Commerce, of the State of
Iowa, which practices differ from accounting principles generally accepted in
the United States. The variances between such practices and accounting
principles generally accepted in the United States also are described in Note
1. The effects on the financial statements of these variances are not
reasonably determinable but are presumed to be material.
In our opinion, because of the effect of the matter described in the preceding
paragraph, the financial statements referred to above do not present fairly,
in conformity with accounting principles generally accepted in the United
States, the financial position of PFL Life Insurance Company at December 31,
1999 and 1998, or the results of its operations or its cash flows for each of
the three years in the period ended December 31, 1999.
1
<PAGE>
However, in our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of PFL Life Insurance
Company at December 31, 1999 and 1998, and the results of its operations and
its cash flows for each of the three years in the period ended December 31,
1999, in conformity with accounting practices prescribed or permitted by the
Insurance Division, Department of Commerce, of the State of Iowa. Also, in our
opinion, the related financial statement schedules, when considered in
relation to the basic statutory-basis financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
/s/ Ernst & Young LLP
Des Moines, Iowa
February 18, 2000
2
<PAGE>
PFL Life Insurance Company
Balance Sheets--Statutory Basis
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
December 31
1999 1998
----------- ----------
<S> <C> <C>
Admitted Assets
Cash and invested assets:
Cash and short-term investments........................ $ 53,695 $ 83,289
Bonds.................................................. 4,892,156 4,822,442
Stocks:
Preferred............................................ 17,074 14,754
Common (cost: 1999--$61,813; 1998--$34,731).......... 71,658 49,448
Affiliated entities (cost: 1999--$10,318; 1998--
$8,060)............................................. 6,764 5,613
Mortgage loans on real estate.......................... 1,339,202 1,012,433
Real estate, at cost less accumulated depreciation
($10,891 in 1999; $9,500 in 1998):
Home office properties............................... 7,829 8,056
Properties acquired in satisfaction of debt.......... 16,336 11,778
Investment properties................................ 33,707 44,325
Policy loans........................................... 59,871 60,058
Other invested assets.................................. 123,722 76,482
----------- ----------
Total cash and invested assets..................... 6,622,014 6,188,678
Premiums deferred and uncollected....................... 14,656 15,318
Accrued investment income............................... 65,364 65,308
Receivable from affiliate............................... -- 643
Federal income taxes recoverable........................ 1,335 639
Transfers from separate accounts due or accrued......... 92,309 70,866
Other assets............................................ 30,119 29,511
Separate account assets................................. 4,905,374 3,348,611
----------- ----------
Total admitted assets................................... $11,731,171 $9,719,574
=========== ==========
</TABLE>
3
<PAGE>
PFL Life Insurance Company
Balance Sheets--Statutory Basis
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
December 31
1999 1998
----------- ----------
<S> <C> <C>
Liabilities and Capital and Surplus
Liabilities:
Aggregate reserves for policies and contracts:
Life................................................. $ 1,552,781 $1,357,175
Annuity.............................................. 4,036,751 3,925,293
Accident and health.................................. 254,571 205,736
Policy and contract claim reserves:
Life................................................. 8,681 9,101
Accident and health.................................. 37,466 48,906
Other policyholders' funds............................. 172,774 162,266
Remittances and items not allocated.................... 33,020 19,690
Asset valuation reserve................................ 103,193 91,588
Interest maintenance reserve........................... 36,120 50,575
Short-term notes payable to affiliates................. 144,500 9,421
Other liabilities...................................... 70,717 76,766
Payable for securities................................. 15,136 57,645
Payable to affiliates.................................. 11,517 --
Separate account liabilities........................... 4,899,289 3,342,884
----------- ----------
Total liabilities....................................... 11,376,516 9,357,046
Commitments and contingencies (Note 10)
Capital and surplus:
Common stock, $10 par value, 500,000 shares autho-
rized, 266,000 issued and outstanding................. 2,660 2,660
Paid-in surplus........................................ 154,282 154,282
Unassigned surplus..................................... 197,713 205,586
----------- ----------
Total capital and surplus............................... 354,655 362,528
----------- ----------
Total liabilities and capital and surplus............... $11,731,171 $9,719,574
=========== ==========
</TABLE>
See accompanying notes.
4
<PAGE>
PFL Life Insurance Company
Statements of Operations--Statutory Basis
(Dollars in thousands)
<TABLE>
<CAPTION>
Year ended December 31
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Premiums and other considerations, net of
reinsurance:
Life.................................... $ 227,510 $ 516,111 $ 202,435
Annuity................................. 1,413,049 667,920 657,695
Accident and health..................... 160,570 178,593 207,982
Net investment income..................... 437,549 446,984 446,424
Amortization of interest maintenance re-
serve.................................... 7,588 8,656 3,645
Commissions and expense allowances on
reinsurance ceded........................ 24,741 32,781 49,859
Separate account fee income............... 49,826 37,137 --
---------- ---------- ----------
2,320,833 1,888,182 1,568,040
Benefits and expenses:
Benefits paid or provided for:
Life and accident and health benefits... 115,621 135,184 146,583
Surrender benefits...................... 1,046,611 732,796 658,071
Other benefits.......................... 169,479 152,209 126,495
Increase (decrease) in aggregate
reserves for policies and contracts:
Life.................................... 195,606 473,158 149,575
Annuity................................. 111,427 (278,665) (203,139)
Accident and health..................... 48,835 36,407 30,059
Other................................... 10,480 17,550 16,998
---------- ---------- ----------
1,698,059 1,268,639 924,642
Insurance expenses:
Commissions............................... 167,146 136,569 157,300
General insurance expenses................ 54,191 48,018 57,571
Taxes, licenses and fees.................. 12,382 19,166 8,715
Net transfers to separate accounts........ 309,307 302,839 297,480
Other expenses............................ 229 1,016 119
---------- ---------- ----------
543,255 507,608 521,185
---------- ---------- ----------
2,241,314 1,776,247 1,445,827
---------- ---------- ----------
Gain from operations before federal income
tax expense and net realized capital gains
on investments............................. 79,519 111,935 122,213
Federal income tax expense.................. 25,316 49,835 43,381
---------- ---------- ----------
Gain from operations before net realized
capital gains on investments............... 54,203 62,100 78,832
Net realized capital gains on investments
(net of related federal income taxes and
amounts transferred to interest maintenance
reserve)................................... 6,365 3,398 7,159
---------- ---------- ----------
Net income.................................. $ 60,568 $ 65,498 $ 85,991
========== ========== ==========
</TABLE>
See accompanying notes.
5
<PAGE>
PFL Life Insurance Company
Statements of Changes in Capital and Surplus--Statutory Basis
(Dollars in thousands)
<TABLE>
<CAPTION>
Total
Capital
Common Paid-in Unassigned and
Stock Surplus Surplus Surplus
------ -------- ---------- --------
<S> <C> <C> <C> <C>
Balance at January 1, 1997 $2,660 $154,129 $261,558 $418,347
Capital contribution.................... -- 153 -- 153
Net income.............................. -- -- 85,991 85,991
Change in net unrealized capital gains.. -- -- 3,592 3,592
Change in non-admitted assets........... -- -- (481) (481)
Change in asset valuation reserve....... -- -- (14,974) (14,974)
Dividend to stockholder................. -- -- (62,000) (62,000)
Surplus effect of sale of a division.... -- -- (161) (161)
Surplus effect of ceding commissions
associated with the sale of a
division............................... -- -- 5 5
Amendment of reinsurance agreement...... -- -- 389 389
Surplus effect of reinsurance
agreement.............................. -- -- 402 402
Change in liability for reinsurance in
unauthorized companies................. -- -- (1,901) (1,901)
------ -------- -------- --------
Balance at December 31, 1997 2,660 154,282 272,420 429,362
Net income.............................. -- -- 65,498 65,498
Change in net unrealized capital gains.. -- -- 4,504 4,504
Change in non-admitted assets........... -- -- (260) (260)
Change in asset valuation reserve....... -- -- (21,763) (21,763)
Dividend to stockholder................. -- -- (120,000) (120,000)
Increase in liability for reinsurance in
unauthorized companies................. -- -- 2,036 2,036
Tax benefit on stock options exercised.. -- -- 2,476 2,476
Change in surplus in separate accounts.. -- -- 675 675
------ -------- -------- --------
Balance at December 31, 1998 2,660 154,282 205,586 362,528
Net income.............................. -- -- 60,568 60,568
Change in net unrealized capital gains.. -- -- (20,217) (20,217)
Change in non-admitted assets........... -- -- (980) (980)
Change in asset valuation reserve....... -- -- (11,605) (11,605)
Dividend to stockholder................. -- -- (40,000) (40,000)
Tax benefit on stock options exercised.. -- -- 1,305 1,305
Change in surplus in separate accounts.. -- -- 245 245
Settlement of prior period tax returns
and other tax-related adjustments...... -- -- 2,811 2,811
------ -------- -------- --------
Balance at December 31, 1999.............. $2,660 $154,282 $197,713 $354,655
====== ======== ======== ========
</TABLE>
See accompanying notes.
6
<PAGE>
PFL Life Insurance Company
Statements of Cash Flows--Statutory Basis
(Dollars in thousands)
<TABLE>
<CAPTION>
Year ended December 31
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Operating activities
Premiums and other considerations, net
of reinsurance......................... $ 1,830,365 $ 1,396,428 $ 1,119,936
Net investment income................... 441,737 469,246 452,091
Life and accident and health claims..... (124,178) (138,249) (154,383)
Surrender benefits and other fund
withdrawals............................ (1,046,611) (732,796) (658,071)
Other benefits to policyholders......... (169,476) (152,167) (126,462)
Commissions, other expenses and other
taxes.................................. (238,192) (197,135) (225,042)
Net transfers to separate accounts...... (280,923) (276,375) (319,146)
Federal income taxes.................... (24,709) (72,176) (47,909)
Cash paid in conjunction with an
amendment of a reinsurance agreement... -- -- (4,826)
Cash received in connection with a
reinsurance agreement.................. -- -- 1,477
Other, net.............................. (23,047) (93,095) 89,693
----------- ----------- -----------
Net cash provided by operating
activities............................. 364,966 203,681 127,358
Investing activities
Proceeds from investments sold, matured
or repaid:
Bonds and preferred stocks............ 3,283,038 3,347,174 3,284,095
Common stocks......................... 60,293 34,564 34,004
Mortgage loans on real estate......... 158,739 192,210 138,162
Real estate........................... 13,367 5,624 6,897
Policy loans.......................... 186 -- --
Cash received from ceding commissions
associated with the sale of a
division............................. -- -- 8
Other................................. 6,133 7,210 57,683
----------- ----------- -----------
3,521,756 3,586,782 3,520,849
Cost of investments acquired:
Bonds and preferred stocks............ (3,398,158) (3,251,822) (3,411,442)
Common stocks......................... (76,200) (36,379) (37,339)
Mortgage loans on real estate......... (480,750) (257,039) (159,577)
Real estate........................... (7,568) (11,458) (2,013)
Policy loans.......................... -- (2,922) (2,922)
Cash paid in association with the sale
of a division........................ -- -- (591)
Other................................. (48,719) (44,514) (15,674)
----------- ----------- -----------
(4,011,395) (3,604,134) (3,629,558)
----------- ----------- -----------
Net cash used in investing activities... (489,639) (17,352) (108,709)
</TABLE>
7
<PAGE>
PFL Life Insurance Company
Statements of Cash Flows--Statutory Basis
(Dollars in thousands)
<TABLE>
<CAPTION>
Year ended December 31
1999 1998 1997
-------- -------- -------
<S> <C> <C> <C>
Financing activities
Issuance (repayment) of short-term intercompany
notes payable................................... $135,079 $ (6,979) $16,400
Capital contribution............................. -- -- 153
Dividends to stockholder......................... (40,000) (120,000) (62,000)
-------- -------- -------
Net cash provided by (used in) financing
activities...................................... 95,079 (126,979) (45,447)
-------- -------- -------
Increase (decrease) in cash and short-term
investments..................................... (29,594) 59,350 (26,798)
Cash and short-term investments at beginning of
year............................................ 83,289 23,939 50,737
-------- -------- -------
Cash and short-term investments at end of year... $ 53,695 $ 83,289 $23,939
======== ======== =======
</TABLE>
See accompanying notes.
8
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis
(Dollars in thousands)
December 31, 1999
1. Organization and Summary of Significant Accounting Policies
Organization
PFL Life Insurance Company ("the Company") is a stock life insurance company
and is a wholly-owned subsidiary of First AUSA Life Insurance Company ("First
AUSA"), which, in turn, is a wholly-owned subsidiary of AEGON USA, Inc.
("AEGON"). AEGON is an indirect wholly-owned subsidiary of AEGON N.V., a
holding company organized under the laws of The Netherlands.
Nature of Business
The Company sells individual non-participating whole life, endowment and term
contracts, as well as a broad line of single fixed and flexible premium
annuity products. In addition, the Company offers group life, universal life,
and individual and specialty health coverages. The Company is licensed in 49
states and the District of Columbia and Guam. Sales of the Company's products
are primarily through the Company's agents and financial institutions.
Basis of Presentation
The preparation of financial statements of insurance companies requires
management to make estimates and assumptions that affect amounts reported in
the financial statements and accompanying notes. Actual results could differ
from those estimates.
Significant estimates and assumptions are utilized in the calculation of
aggregate policy reserves, policy and contract claim reserves, guaranty fund
assessment accruals and valuation allowances on investments. It is reasonably
possible that actual experience could differ from the estimates and
assumptions utilized which could have a material impact on the financial
statements.
The accompanying financial statements have been prepared on the basis of
accounting practices prescribed or permitted by the Insurance Division,
Department of Commerce, of the State of Iowa ("Insurance Department"), which
practices differ in some respects from generally accepted accounting
principles. The more significant of these differences are as follows: (a)
bonds are generally reported at amortized cost rather than segregating the
portfolio into held-to-maturity (reported at amortized cost), available-for-
sale (reported at fair value), and trading (reported at fair value)
classifications; (b) acquisition costs of acquiring new business are charged
to current operations as incurred rather than deferred and amortized over the
life of the policies; (c) policy reserves on traditional life products
9
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
1. Organization and Summary of Significant Accounting Policies (continued)
are based on statutory mortality rates and interest which may differ from
reserves based on reasonable assumptions of expected mortality, interest, and
withdrawals which include a provision for possible unfavorable deviation from
such assumptions; (d) policy reserves on certain investment products use
discounting methodologies based on statutory interest rates rather than full
account values; (e) reinsurance amounts are netted against the corresponding
asset or liability rather than shown as gross amounts on the balance sheet;
(f) deferred income taxes are not provided for the difference between the
financial statement and income tax bases of assets and liabilities; (g) net
realized gains or losses attributed to changes in the level of interest rates
in the market are deferred and amortized over the remaining life of the bond
or mortgage loan, rather than recognized as gains or losses in the statement
of operations when the sale is completed; (h) potential declines in the
estimated realizable value of investments are provided for through the
establishment of a formula-determined statutory investment reserve (reported
as a liability), changes to which are charged directly to surplus, rather than
through recognition in the statement of operations for declines in value, when
such declines are judged to be other than temporary; (i) certain assets
designated as "non-admitted assets" have been charged to surplus rather than
being reported as assets; (j) revenues for universal life and investment
products consist of premiums received rather than policy charges for the cost
of insurance, policy administration charges, amortization of policy initiation
fees and surrender charges assessed; (k) pension expense is recorded as
amounts are paid; (l) stock options settled in cash are recorded as expense of
the Company's indirect parent rather than charged to current operations; (m)
adjustments to federal income taxes of prior years are charged or credited
directly to unassigned surplus, rather than reported as a component of expense
in the statement of operations; (n) gains or losses on dispositions of
business are charged or credited directly to unassigned surplus rather than
being reported in the statement of operations; and (o) a liability is
established for "unauthorized reinsurers" and changes in this liability are
charged or credited directly to unassigned surplus. The effects of these
variances have not been determined by the Company but are presumed to be
material.
In 1998, the National Association of Insurance Commissioners ("NAIC") adopted
codified statutory accounting principles ("Codification") effective January 1,
2001. Codification will likely change, to some extent, prescribed statutory
accounting practices and may result in changes to the accounting practices
that the Company uses to prepare its statutory-basis financial statements.
Codification will require adoption by the various states before it becomes the
prescribed statutory basis of accounting for insurance companies domesticated
within those states. Accordingly, before Codification becomes effective for
the Company, the State of Iowa must adopt Codification as the prescribed basis
of accounting on which domestic insurers must report their statutory-basis
results to the Insurance Department. At this time, it is anticipated that the
State of Iowa will adopt Codification. However, based on current guidance,
management believes that the impact of Codification will not be material to
the Company's statutory-basis financial statements.
10
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
1. Organization and Summary of Significant Accounting Policies (continued)
Cash and Short-Term Investments
For purposes of the statements of cash flows, the Company considers all highly
liquid investments with remaining maturity of one year or less when purchased
to be short-term investments.
Investments
Investments in bonds (except those to which the Securities Valuation Office of
the NAIC has ascribed a value), mortgage loans on real estate and short-term
investments are reported at cost adjusted for amortization of premiums and
accrual of discounts. Amortization is computed using methods which result in a
level yield over the expected life of the investment. The Company reviews its
prepayment assumptions on mortgage and other asset-backed securities at
regular intervals and adjusts amortization rates retrospectively when such
assumptions are changed due to experience and/or expected future patterns.
Investments in preferred stocks in good standing are reported at cost.
Investments in preferred stocks not in good standing are reported at the lower
of cost or market. Common stocks of unaffiliated and affiliated companies,
which includes shares of mutual funds and real estate investment trusts, are
carried at market value. Real estate is reported at cost less allowances for
depreciation. Depreciation is computed principally by the straight-line
method. Policy loans are reported at unpaid principal. Other invested assets
consist principally of investments in various joint ventures and are recorded
at equity in underlying net assets. Other "admitted assets" are valued,
principally at cost, as required or permitted by Iowa Insurance Laws.
Net realized capital gains and losses are determined on the basis of specific
identification and are recorded net of related federal income taxes. The Asset
Valuation Reserve ("AVR") is established by the Company to provide for
potential losses in the event of default by issuers of certain invested
assets. These amounts are determined using a formula prescribed by the NAIC
and are reported as a liability. The formula for the AVR provides for a
corresponding adjustment for realized gains and losses. Under a formula
prescribed by the NAIC, the Company defers, in the Interest Maintenance
Reserve ("IMR"), the portion of realized gains and losses on sales of fixed
income investments, principally bonds and mortgage loans, attributable to
changes in the general level of interest rates and amortizes those deferrals
over the remaining period to maturity of the security.
Interest income is recognized on an accrual basis. The Company does not accrue
income on bonds in default, mortgage loans on real estate in default and/or
foreclosure or which are delinquent more than twelve months, or on real estate
where rent is in arrears for more than three months. Further, income is not
accrued when collection is uncertain. During 1999, 1998 and 1997, the Company
excluded investment income due and accrued of $530, $102 and $177,
respectively, with respect to such practices.
11
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
1. Organization and Summary of Significant Accounting Policies (continued)
The Company uses interest rate swaps and caps as part of its overall interest
rate risk management strategy for certain life insurance and annuity products.
The Company entered into several interest rate swap contracts to modify the
interest rate characteristics of the underlying liabilities. The net interest
effect of such swap transactions is reported as an adjustment of interest
income from the hedged items as incurred.
The Company has entered into an interest rate cap agreement to hedge the
exposure of changing interest rates. The cash flows from the interest rate cap
will help offset losses that might occur from changes in interest rates. The
cost of such agreement is included in interest expense ratably during the life
of the agreement. Income received as a result of the cap agreement will be
recognized in investment income as earned. Unamortized cost of the agreement
is included in other invested assets.
Aggregate Policy Reserves
Life, annuity and accident and health benefit reserves are developed by
actuarial methods and are determined based on published tables based on
statutorily specified interest rates and valuation methods that will provide,
in the aggregate, reserves that are greater than or equal to the minimum
required by law.
The aggregate policy reserves for life insurance policies are based
principally upon the 1941, 1958 and 1980 Commissioners' Standard Ordinary
Mortality and American Experience Mortality Tables. The reserves are
calculated using interest rates ranging from 2.00 to 6.00 percent and are
computed principally on the Net Level Premium Valuation and the Commissioners'
Reserve Valuation Methods. Reserves for universal life policies are based on
account balances adjusted for the Commissioners' Reserve Valuation Method.
Deferred annuity reserves are calculated according to the Commissioners'
Annuity Reserve Valuation Method including excess interest reserves to cover
situations where the future interest guarantees plus the decrease in surrender
charges are in excess of the maximum valuation rates of interest. Reserves for
immediate annuities and supplementary contracts with life contingencies are
equal to the present value of future payments assuming interest rates ranging
from 2.50 to 11.25 percent and mortality rates, where appropriate, from a
variety of tables.
Accident and health policy reserves are equal to the greater of the gross
unearned premiums or any required midterminal reserves plus net unearned
premiums and the present value of amounts not yet due on both reported and
unreported claims.
12
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
1. Organization and Summary of Significant Accounting Policies (continued)
Policy and Contract Claim Reserves
Claim reserves represent the estimated accrued liability for claims reported
to the Company and claims incurred but not yet reported through the statement
date. These reserves are estimated using either individual case-basis
valuations or statistical analysis techniques. These estimates are subject to
the effects of trends in claim severity and frequency. The estimates are
continually reviewed and adjusted as necessary as experience develops or new
information becomes available.
Separate Accounts
Assets held in trust for purchases of variable annuity contracts and the
Company's corresponding obligation to the contract owners are shown separately
in the balance sheets. The assets in the separate accounts are valued at
market. Income and gains and losses with respect to the assets in the separate
accounts accrue to the benefit of the contract owners and, accordingly, the
operations of the separate accounts are not included in the accompanying
financial statements. The separate accounts do not have any minimum guarantees
and the investment risks associated with market value changes are borne
entirely by the contract owners. The Company received variable contract
premiums of $486,282, $345,319 and $281,095 in 1999, 1998 and 1997,
respectively. All variable account contracts are subject to discretionary
withdrawal by the contract owner at the market value of the underlying assets
less the current surrender charge.
Stock Option Plan
AEGON N.V. sponsors a stock option plan for eligible employees of the Company.
Under this plan, certain employees have indicated a preference to immediately
sell shares received as a result of their exercise of the stock options; in
these situations, AEGON N.V. has settled such options in cash rather than
issuing stock to these employees. These cash settlements are paid by the
Company, and AEGON N.V. subsequently reimburses the Company for such payments.
Under statutory accounting principles, the Company does not record any expense
related to this plan, as the expense is recognized by AEGON N.V. However, the
Company is allowed to record a deduction in the consolidated tax return filed
by the Company and certain affiliates. The tax benefit of this deduction has
been credited directly to surplus.
Reclassifications
Certain reclassifications have been made to the 1998 and 1997 financial
statements to conform to the 1999 presentation.
13
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
2. Fair Values of Financial Instruments
Statement of Financial Accounting Standard ("SFAS") No. 107, Disclosures about
Fair Value of Financial Instruments, requires disclosure of fair value
information about financial instruments, whether or not recognized in the
statutory-basis balance sheet, for which it is practicable to estimate that
value. SFAS No. 119, Disclosures about Derivative Financial Instruments and
Fair Value of Financial Instruments, requires additional disclosure about
derivatives. In cases where quoted market prices are not available, fair
values are based on estimates using present value or other valuation
techniques. Those techniques are significantly affected by the assumptions
used, including the discount rate and estimates of future cash flows. In that
regard, the derived fair value estimates cannot be substantiated by
comparisons to independent markets and, in many cases, could not be realized
in immediate settlement of the instrument. SFAS No. 107 and No. 119 exclude
certain financial instruments and all nonfinancial instruments from their
disclosure requirements and allow companies to forego the disclosures when
those estimates can only be made at excessive cost. Accordingly, the aggregate
fair value amounts presented do not represent the underlying value of the
Company.
The following methods and assumptions were used by the Company in estimating
its fair value disclosures for financial instruments:
Cash and short-term investments: The carrying amounts reported in the
balance sheet for these instruments approximate their fair values.
Investment securities: Fair values for fixed maturity securities (including
redeemable preferred stocks) are based on quoted market prices, where
available. For fixed maturity securities not actively traded, fair values
are estimated using values obtained from independent pricing services or,
in the case of private placements, are estimated by discounting expected
future cash flows using a current market rate applicable to the yield,
credit quality, and maturity of the investments. The fair values for equity
securities, including affiliated mutual funds and real estate investment
trusts, are based on quoted market prices.
Mortgage loans and policy loans: The fair values for mortgage loans are
estimated utilizing discounted cash flow analyses, using interest rates
reflective of current market conditions and the risk characteristics of the
loans. The fair value of policy loans is assumed to equal their carrying
amount.
Investment contracts: Fair values for the Company's liabilities under
investment-type insurance contracts are estimated using discounted cash
flow calculations, based on interest rates currently being offered for
similar contracts with maturities consistent with those remaining for the
contracts being valued.
14
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
2. Fair Values of Financial Instruments (continued)
Interest rate cap and interest rate swaps: Estimated fair value of the
interest rate cap is based upon the latest quoted market price. Estimated
fair value of interest rate swaps are based upon the pricing differential
for similar swap agreements.
Short-term notes payable to affiliates: The fair values for short-term
notes payable to affiliates are assumed to equal their carrying amount.
Fair values for the Company's insurance contracts other than investment
contracts are not required to be disclosed. However, the fair values of
liabilities under all insurance contracts are taken into consideration in the
Company's overall management of interest rate risk, which minimizes exposure
to changing interest rates through the matching of investment maturities with
amounts due under insurance contracts.
The following sets forth a comparison of the fair values and carrying amounts
of the Company's financial instruments subject to the provisions of SFAS No.
107 and No. 119:
<TABLE>
<CAPTION>
December 31
1999 1998
--------------------- ---------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Admitted assets
Cash and short-term investments... $ 53,695 $ 53,695 $ 83,289 $ 83,289
Bonds............................. 4,892,156 4,757,325 4,822,442 4,900,516
Preferred stocks.................. 17,074 15,437 14,754 14,738
Common stocks..................... 71,658 71,658 49,448 49,448
Affiliated common stock........... 6,764 6,764 5,613 5,613
Mortgage loans on real estate..... 1,339,202 1,299,160 1,012,433 1,089,315
Policy loans...................... 59,871 59,871 60,058 60,058
Interest rate cap................. 4,959 1,784 4,445 725
Interest rate swaps............... 8,134 10,609 1,916 6,667
Separate account assets........... 4,905,374 4,905,374 3,348,611 3,348,611
Liabilities
Investment contract liabilities... 4,207,369 4,059,842 4,084,683 4,017,509
Separate account liabilities...... 4,377,676 4,212,615 3,271,005 3,213,251
Short-term notes payable to
affiliates....................... 144,500 144,500 9,421 9,421
</TABLE>
15
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
3. Investments
The carrying amounts and estimated fair values of investments in debt
securities were as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Carrying Unrealized Unrealized Fair
Amount Gains Losses Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
December 31, 1999
Bonds:
United States Government and
agencies........................ $ 141,390 $ 142 $ 4,520 $ 137,012
State, municipal and other
government...................... 137,745 5,168 1,627 141,286
Public utilities................. 219,791 1,148 6,777 214,162
Industrial and miscellaneous..... 2,078,145 20,042 84,919 2,013,268
Mortgage and other asset-backed
securities...................... 2,315,085 24,214 87,702 2,251,597
---------- -------- -------- ----------
4,892,156 50,714 185,545 4,757,325
Preferred stocks................... 17,074 2 1,639 15,437
---------- -------- -------- ----------
$4,909,230 $ 50,716 $187,184 $4,772,762
========== ======== ======== ==========
December 31, 1998
Bonds:
United States Government and
agencies........................ $ 150,085 $ 2,841 $ 321 $ 152,605
State, municipal and other
government...................... 62,948 918 1,651 62,215
Public utilities................. 139,732 5,053 2,555 142,230
Industrial and miscellaneous..... 2,068,086 78,141 34,493 2,111,734
Mortgage and other asset-backed
securities...................... 2,401,591 45,185 15,044 2,431,732
---------- -------- -------- ----------
4,822,442 132,138 54,064 4,900,516
Preferred stocks................... 14,754 75 91 14,738
---------- -------- -------- ----------
$4,837,196 $132,213 $ 54,155 $4,915,254
========== ======== ======== ==========
</TABLE>
The carrying amounts and estimated fair values of bonds at December 31, 1999,
by contractual maturity, are shown below. Expected maturities may differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Carrying Estimated
Amount Fair Value
---------- ----------
<S> <C> <C>
Due in one year or less............................... $ 194,654 $ 192,453
Due after one year through five years................. 1,151,170 1,121,353
Due after five years through ten years................ 908,926 873,402
Due after ten years................................... 322,321 318,520
---------- ----------
2,577,071 2,505,728
Mortgage and other asset-backed securities............ 2,315,085 2,251,597
---------- ----------
$4,892,156 $4,757,325
========== ==========
</TABLE>
16
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
3. Investments (continued)
A detail of net investment income is presented below:
<TABLE>
<CAPTION>
Year ended December 31
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Interest on bonds and preferred stock............... $347,639 $374,478 $373,496
Dividends on equity investments..................... 734 1,357 1,460
Interest on mortgage loans.......................... 92,325 77,960 80,266
Rental income on real estate........................ 7,322 6,553 7,501
Interest on policy loans............................ 4,141 4,080 3,400
Other investment income............................. 7,978 2,576 613
-------- -------- --------
Gross investment income............................. 460,139 467,004 466,736
Less investment expenses............................ 22,590 20,020 20,312
-------- -------- --------
Net investment income............................... $437,549 $446,984 $446,424
======== ======== ========
</TABLE>
Proceeds from sales and maturities of debt securities and related gross
realized gains and losses were as follows:
<TABLE>
<CAPTION>
Year ended December 31
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Proceeds.................................... $3,283,038 $3,347,174 $3,284,095
========== ========== ==========
Gross realized gains........................ $ 21,171 $ 48,760 $ 30,094
Gross realized losses....................... (32,259) (8,072) (17,265)
---------- ---------- ----------
Net realized gains (losses)................. $ (11,088) $ 40,688 $ 12,829
========== ========== ==========
</TABLE>
At December 31, 1999, investments with an aggregate carrying value of
$6,346,831 were on deposit with regulatory authorities or were restrictively
held in bank custodial accounts for the benefit of such regulatory authorities
as required by statute.
17
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
3. Investments (continued)
Realized investment gains (losses) and changes in unrealized gains (losses)
for investments are summarized below:
<TABLE>
<CAPTION>
Realized
----------------------------
Year ended December 31
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Debt securities......... $(11,088) $ 40,688 $ 12,829
Equity securities....... 11,433 (879) 6,972
Mortgage loans on real
estate................. 4,661 12,637 2,252
Real estate............. 900 3,176 4,252
Short-term investments.. (1,407) 1,533 (19)
Other invested assets... 534 (2,523) 1,632
-------- -------- --------
5,033 54,632 27,918
Tax effect.............. (5,535) (22,290) (10,572)
Transfer from (to)
interest maintenance
reserve................ 6,867 (28,944) (10,187)
-------- -------- --------
Net realized gains...... $ 6,365 $ 3,398 $ 7,159
======== ======== ========
<CAPTION>
Change in Unrealized
----------------------------
Year ended December 31
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Bonds................... $(12,711) $ (836) $ 2,498
Preferred stocks........ (2,753) -- --
Common stocks........... (3,980) 3,751 1,097
Mortgage loans.......... (147) (150) --
Other invested assets... (626) 1,739 (3)
-------- -------- --------
Change in unrealized.... $(20,217) $ 4,504 $ 3,592
======== ======== ========
Gross unrealized gains and gross unrealized losses on equity securities are as
follows:
<CAPTION>
December 31
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Unrealized gains........ $ 11,369 $ 15,980 $ 10,356
Unrealized losses....... (5,078) (3,710) (3,836)
-------- -------- --------
Net unrealized gains.... $ 6,291 $ 12,270 $ 6,520
======== ======== ========
</TABLE>
18
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
3. Investments (continued)
During 1999, the Company issued mortgage loans with interest rates ranging
from 6.42% to 8.67%. The maximum percentage of any one mortgage loan to the
value of the underlying real estate at origination was 84%. Mortgage loans
with a carrying value of $248 were non-income producing for the previous
twelve months. Accrued interest of $95 related to these mortgage loans was
excluded from investment income. The Company requires all mortgaged properties
to carry fire insurance equal to the value of the underlying property.
At December 31, 1999 and 1998, the Company held a mortgage loan loss reserve
in the asset valuation reserve of $15,173 and $16,104, respectively. The
mortgage loan portfolio is diversified by geographic region and specific
collateral property type as follows:
Geographic Distribution
<TABLE>
<CAPTION>
December 31
1999 1998
----- -----
<S> <C> <C>
South Atlantic.......... 27% 32%
Pacific................. 18 15
E. North Central........ 17 16
Middle Atlantic......... 15 10
Mountain................ 9 10
W. South Central........ 6 6
W. North Central........ 4 5
E. South Central........ 3 3
New England............. 1 3
</TABLE>
<TABLE>
<CAPTION>
Property Type Distribution
December 31
1999 1998
----- -----
<S> <C> <C>
Office.................. 39% 30%
Retail.................. 28 35
Industrial.............. 18 21
Apartment............... 11 12
Other................... 4 2
</TABLE>
At December 31, 1999, the Company had no investments (excluding U. S.
Government guaranteed or insured issues) which individually represented more
than ten percent of capital and surplus and the asset valuation reserve,
collectively.
19
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
3. Investments (continued)
The Company utilizes a variety of off-balance sheet financial instruments as
part of its efforts to hedge and manage fluctuations in the market value of
its investment portfolio attributable to changes in general interest rate
levels and to manage duration mismatch of assets and liabilities. These
instruments include interest rate swaps and caps. All involve elements of
credit and market risks in excess of the amounts recognized in the
accompanying financial statements at a given point in time. The contract or
notional amounts of those instruments reflect the extent of involvement in the
various types of financial instruments.
The Company's exposure to credit risk is the risk of loss from a counterparty
failing to perform according to the terms of the contract. That exposure
includes settlement risk (i.e., the risk that the counterparty defaults after
the Company has delivered funds or securities under terms of the contract)
that would result in an accounting loss and replacement cost risk (i.e., the
cost to replace the contract at current market rates should the counterparty
default prior to settlement date). Credit loss exposure resulting from
nonperformance by a counterparty for commitments to extend credit is
represented by the contractual amounts of the instruments.
At December 31, 1999 and 1998, the Company's outstanding financial instruments
with on and off-balance sheet risks, shown in notional amounts, are summarized
as follows:
<TABLE>
<CAPTION>
Notional Amount
1999 1998
-------- --------
<S> <C> <C>
Derivative securities:
Interest rate swaps:
Receive fixed--pay floating............................... $115,000 $100,000
Receive floating--pay fixed............................... 64,017 --
Receive floating (uncapped)--pay floating (capped)........ 41,617 53,011
Receive floating (LIBOR--pay floating (S&P)............... 60,000 60,000
Interest rate cap agreements................................ 500,000 500,000
</TABLE>
4. Reinsurance
The Company reinsures portions of risk on certain insurance policies which
exceed its established limits, thereby providing a greater diversification of
risk and minimizing exposure on larger risks. The Company remains contingently
liable with respect to any insurance ceded, and this would become an actual
liability in the event that the assuming insurance company became unable to
meet its obligation under the reinsurance treaty.
20
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
4. Reinsurance (continued)
Reinsurance assumption and cession treaties are transacted primarily with
affiliates. Premiums earned reflect the following reinsurance assumed and
ceded amounts:
<TABLE>
<CAPTION>
Year ended December 31
----------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Direct premiums.......................... $1,942,716 $1,533,822 $1,312,446
Reinsurance assumed...................... 2,723 2,366 2,038
Reinsurance ceded........................ (144,310) (173,564) (246,372)
---------- ---------- ----------
Net premiums earned...................... $1,801,129 $1,362,624 $1,068,112
========== ========== ==========
</TABLE>
The Company received reinsurance recoveries in the amount of $139,138,
$173,297 and $183,638 during 1999, 1998 and 1997, respectively. At December
31, 1999 and 1998, estimated amounts recoverable from reinsurers that have
been deducted from policy and contract claim reserves totaled $35,511 and
$47,956, respectively. The aggregate reserves for policies and contracts were
reduced for reserve credits for reinsurance ceded at December 31, 1999 and
1998 of $1,870,190 and $2,163,905, respectively.
At December 31, 1999, amounts recoverable from unauthorized reinsurers of
$39,996 (1998--$55,379) and reserve credits for reinsurance ceded of $48,297
(1998--$49,835) were associated with a single reinsurer and its affiliates.
The Company holds collateral under these reinsurance agreements in the form of
trust agreements totaling $85,431 at December 31, 1999, that can be drawn on
for amounts that remain unpaid for more than 120 days.
5. Income Taxes
For federal income tax purposes, the Company joins in a consolidated tax
return filing with certain affiliated companies. Under the terms of a tax-
sharing agreement between the Company and its affiliates, the Company computes
federal income tax expense as if it were filing a separate income tax return,
except that tax credits and net operating loss carryforwards are determined on
the basis of the consolidated group. Additionally, the alternative minimum tax
is computed for the consolidated group and the resulting tax, if any, is
allocated back to the separate companies on the basis of the separate
companies' alternative minimum taxable income.
21
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
5. Income Taxes (continued)
Federal income tax expense differs from the amount computed by applying the
statutory federal income tax rate to gain from operations before federal
income tax expense and net realized capital gains (losses) on investments for
the following reasons:
<TABLE>
<CAPTION>
Year ended December 31
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Computed tax at federal statutory rate (35%)..... $27,832 $39,177 $42,775
IMR amortization................................. (2,656) (3,030) (1,276)
Tax reserve adjustment........................... 1,390 607 2,004
Excess tax depreciation.......................... (219) (223) (392)
Deferred acquisition costs-- tax basis........... 5,979 11,827 4,308
Prior year under (over) accrual ................. (3,492) 1,750 (1,016)
Dividend received deduction...................... (1,666) (1,053) (941)
Charitable contributions......................... -- -- (848)
Other items--net................................. (1,852) 780 (1,233)
------- ------- -------
Federal income tax expense....................... $25,316 $49,835 $43,381
======= ======= =======
</TABLE>
Federal income tax expense differs from the amount computed by applying the
statutory federal income tax rate to realized gains (losses) due to the
differences in book and tax asset bases at the time certain investments are
sold.
Prior to 1984, as provided for under the Life Insurance Company Tax Act of
1959, a portion of statutory income was not subject to current taxation but
was accumulated for income tax purposes in a memorandum account referred to as
the policyholders' surplus account. No federal income taxes have been provided
for in the financial statements on income deferred in the policyholders'
surplus account ($20,387 at December 31, 1999). To the extent dividends are
paid from the amount accumulated in the policyholders' surplus account, net
earnings would be reduced by the amount of tax required to be paid. Should the
entire amount in the policyholders' surplus account become taxable, the tax
thereon computed at current rates would amount to approximately $7,135.
In 1999, the Company reached a final settlement with the Internal Revenue
Service for 1990 and 1991, resulting in a tax refund of $904 and interest
received of $548. These amounts were credited directly to unassigned surplus.
The Company also corrected an error in 1999 which related to the 1997 tax-
sharing agreement between the Company and various affiliates. This resulted in
a credit to unassigned surplus of $1,359.
The Company's federal income tax returns have been examined and closing
agreements have been executed with the Internal Revenue Service through 1992.
An examination is underway for years 1993 through 1997.
22
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
6. Policy and Contract Attributes
A portion of the Company's policy reserves and other policyholders' funds
(including separate account liabilities) relate to liabilities established on
a variety of the Company's annuity and deposit fund products. There may be
certain restrictions placed upon the amount of funds that can be withdrawn
without penalty. The amount of reserves on these products, by withdrawal
characteristics, are summarized as follows:
<TABLE>
<CAPTION>
December 31
1999 1998
------------------- ------------------
Percent Percent
of of
Amount Total Amount Total
----------- ------- ---------- -------
<S> <C> <C> <C> <C>
Subject to discretionary withdrawal with
market value adjustment................ $ 114,544 1% $ 82,048 1%
Subject to discretionary withdrawal at
book value less surrender charge....... 828,490 8 515,778 5
Subject to discretionary withdrawal at
market value........................... 4,313,445 41 3,211,896 34
Subject to discretionary withdrawal at
book value (minimal or no charges or
adjustments)........................... 5,021,762 48 5,519,265 58
Not subject to discretionary withdrawal
provision.............................. 248,444 2 228,030 2
----------- --- ---------- ---
10,526,685 100% 9,557,017 100%
Less reinsurance ceded.................. 1,863,810 2,124,769
----------- ----------
Total policy reserves on annuities and
deposit fund liabilities............... $ 8,662,875 $7,432,248
=========== ==========
</TABLE>
A reconciliation of the amounts transferred to and from the separate accounts
is presented below:
<TABLE>
<CAPTION>
Year ended December 31
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Transfers as reported in the summary of
operations of the separate accounts statement:..
Transfers to separate accounts................. $486,282 $345,319 $281,095
Transfers from separate accounts............... (175,822) (42,671) (9,819)
-------- -------- --------
Net transfers to separate accounts............... 310,460 302,648 271,276
Reconciling adjustments--change in miscellaneous
income.......................................... (1,153) 191 26,204
-------- -------- --------
Transfers as reported in the summary of
operations of the life, accident and health
annual statement................................ $309,307 $302,839 $297,480
======== ======== ========
</TABLE>
23
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
6. Policy and Contract Attributes (continued)
Reserves on the Company's traditional life products are computed using mean
reserving methodologies. These methodologies result in the establishment of
assets for the amount of the net valuation premiums that are anticipated to be
received between the policy's paid-through date to the policy's next
anniversary date. At December 31, 1999 and 1998, these assets (which are
reported as premiums deferred and uncollected) and the amounts of the related
gross premiums and loadings, are as follows:
<TABLE>
<CAPTION>
Gross Loading Net
------- ------- -------
<S> <C> <C> <C>
December 31, 1999
Life and annuity:
Ordinary direct first year business................ $ 2,823 $2,085 $ 738
Ordinary direct renewal business................... 20,950 6,289 14,661
Group life direct business......................... 638 243 395
Reinsurance ceded.................................. (1,269) (16) (1,253)
------- ------ -------
23,142 8,601 14,541
Accident and health:
Direct............................................. 138 -- 138
Reinsurance ceded.................................. (23) -- (23)
------- ------ -------
Total accident and health............................ 115 -- 115
------- ------ -------
$23,257 $8,601 $14,656
======= ====== =======
December 31, 1998
Life and annuity:
Ordinary direct first year business................ $ 3,346 $2,500 $ 846
Ordinary direct renewal business................... 21,435 6,365 15,070
Group life direct business......................... 1,171 536 635
Reinsurance ceded.................................. (1,367) (44) (1,323)
------- ------ -------
24,585 9,357 15,228
Accident and health:
Direct............................................. 108 -- 108
Reinsurance ceded.................................. (18) -- (18)
------- ------ -------
Total accident and health............................ 90 -- 90
------- ------ -------
$24,675 $9,357 $15,318
======= ====== =======
</TABLE>
At December 31, 1999 and 1998, the Company had insurance in force aggregating
$41,720 and $44,233, respectively, in which the gross premiums are less than
the net premiums required by the standard valuation standards established by
the Insurance Division, Department of Commerce, of the State of Iowa. The
Company established policy reserves of $871 and $998 to cover these
deficiencies at December 31, 1999 and 1998, respectively.
24
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
7. Dividend Restrictions
The Company is subject to limitations, imposed by the State of Iowa, on the
payment of dividends to its parent company. Generally, dividends during any
twelve-month period may not be paid, without prior regulatory approval, in
excess of the greater of (a) 10 percent of statutory capital and surplus as of
the preceding December 31, or (b) statutory gain from operations before net
realized capital gains (losses) on investments for the preceding year. Subject
to the availability of unassigned surplus at the time of such dividend, the
maximum payment which may be made in 2000, without the prior approval of
insurance regulatory authorities, is $54,203.
The Company paid dividends to its parent of $40,000, $120,000 and $62,000 in
1999, 1998 and 1997, respectively.
8. Retirement and Compensation Plans
The Company's employees participate in a qualified benefit pension plan
sponsored by AEGON. The Company has no legal obligation for the plan. The
Company recognizes pension expense equal to its allocation from AEGON. The
pension expense is allocated among the participating companies based on the
SFAS No. 87 expense as a percent of salaries. The benefits are based on years
of service and the employee's compensation during the highest five consecutive
years of employment. Pension expense aggregated $408, $380 and $422 for the
years ended December 31, 1999, 1998 and 1997, respectively. The plan is
subject to the reporting and disclosure requirements of the Employee
Retirement and Income Security Act of 1974.
The Company's employees also participate in a contributory defined
contribution plan sponsored by AEGON which is qualified under Section 401(k)
of the Internal Revenue Service Code. Employees of the Company who customarily
work at least 1,000 hours during each calendar year and meet the other
eligibility requirements, are participants of the plan. Participants may elect
to contribute up to fifteen percent of their salary to the plan. The Company
will match an amount up to three percent of the participant's salary.
Participants may direct all of their contributions and plan balances to be
invested in a variety of investment options. The plan is subject to the
reporting and disclosure requirements of the Employee Retirement and Income
Security Act of 1974. Expense related to this plan was $267, $233 and $226 for
the years ended December 31, 1999, 1998 and 1997, respectively.
25
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
8. Retirement and Compensation Plans (continued)
AEGON sponsors supplemental retirement plans to provide the Company's senior
management with benefits in excess of normal pension benefits. The plans are
noncontributory, and benefits are based on years of service and the employee's
compensation level. The plans are unfunded and nonqualified under the Internal
Revenue Service Code. In addition, AEGON has established incentive deferred
compensation plans for certain key employees of the Company. AEGON also
sponsors an employee stock option plan for individuals employed at least three
years and a stock purchase plan for its producers, with the participating
affiliated companies establishing their own eligibility criteria, producer
contribution limits and company matching formula. These plans have been
accrued or funded as deemed appropriate by management of AEGON and the
Company.
In addition to pension benefits, the Company participates in plans sponsored
by AEGON that provide postretirement medical, dental and life insurance
benefits to employees meeting certain eligibility requirements. Portions of
the medical and dental plans are contributory. The expenses of the
postretirement plans are charged to affiliates in accordance with an
intercompany cost sharing arrangement. The Company expensed $28, $62 and $62
for the years ended December 31, 1999, 1998 and 1997, respectively.
9. Related Party Transactions
The Company shares certain offices, employees and general expenses with
affiliated companies.
The Company receives data processing, investment advisory and management,
marketing and administration services from certain affiliates. During 1999,
1998 and 1997, the Company paid $19,983, $18,706 and $18,705, respectively,
for these services, which approximates their costs to the affiliates.
Payables to affiliates bear interest at the thirty-day commercial paper rate
of 5.7% at December 31, 1999. During 1999, 1998 and 1997, the Company paid net
interest of $1,994, $1,491 and $1,188, respectively, to affiliates.
During 1997, the Company received a capital contribution of $153 in cash from
its parent.
At December 31, 1999 and 1998, the Company has short-term notes payable to an
affiliate of $144,500 and $9,421, respectively. Interest on these notes
accrues at rates ranging from 4.85% to 5.90% at December 31, 1999 and 5.13% to
5.52% at December 31, 1998.
26
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
9. Related Party Transactions (continued)
During 1998, the Company issued life insurance policies to certain affiliated
companies, covering the lives of certain employees of those affiliates.
Premiums of $174,000 related to these policies were recognized during the
year, and aggregate reserves for policies and contracts are $190,299 and
$181,720 at December 31, 1999 and 1998, respectively.
10. Commitments and Contingencies
The Company has issued Trust (synthetic) GIC contracts to plan sponsors
totaling $374,124 at December 31, 1999, pursuant to terms under which the plan
sponsor retains ownership of the assets related to these contracts. The
Company guarantees benefit responsiveness in the event that plan benefit
requests and other contractual commitments exceed plan cash flows. The plan
sponsor agrees to reimburse the Company for such benefit payments with
interest, either at a fixed or floating rate, from future plan and asset cash
flows. In return for this guarantee, the Company receives a premium which
varies based on such elements as benefit responsive exposure and contract
size. The Company underwrites the plans for the possibility of having to make
benefit payments and also must agree to the investment guidelines to ensure
appropriate credit quality and cash flow matching. The assets relating to such
contracts are not recognized in the Company's statutory-basis financial
statements.
The Company is a party to legal proceedings incidental to its business.
Although such litigation sometimes includes substantial demands for
compensatory and punitive damages, in addition to contract liability, it is
management's opinion, after consultation with counsel and a review of
available facts, that damages arising from such demands will not be material
to the Company's financial position.
The Company is subject to insurance guaranty laws in the states in which it
writes business. These laws provide for assessments against insurance
companies for the benefit of policyholders and claimants in the event of
insolvency of other insurance companies. Assessments are charged to operations
when received by the Company except where right of offset against other taxes
paid is allowed by law; amounts available for future offsets are recorded as
an asset on the Company's balance sheet. Potential future obligations for
unknown insolvencies are not determinable by the Company. The future
obligation has been based on the most recent information available from the
National Organization of Life and Health Insurance Guaranty Associations. The
Company has established a reserve of $19,662 and $17,901 and an offsetting
premium tax benefit of $7,429 and $7,631 at December 31, 1999 and 1998,
respectively, for its estimated share of future guaranty fund assessments
related to several major insurer insolvencies. The guaranty fund expense
(benefit) was $1,994, $1,985 and $(975) for the years ended December 31, 1999,
1998 and 1997, respectively.
27
<PAGE>
PFL Life Insurance Company
Summary of Investments--Other than
Investments in Related Parties
(Dollars in thousands)
December 31, 1999
SCHEDULE I
<TABLE>
<CAPTION>
Amount at Which
Market Shown in the
Type of Investment Cost(1) Value Balance Sheet
------------------ ---------- --------- ---------------
<S> <C> <C> <C>
Fixed maturities
Bonds:
United States Government and government
agencies and authorities............... $ 195,119 $ 189,752 $ 195,119
States, municipalities and political
subdivisions........................... 545,562 535,945 545,562
Foreign governments..................... 134,584 138,767 134,584
Public utilities........................ 219,791 214,162 219,791
All other corporate bonds............... 3,797,100 3,678,699 3,797,100
Redeemable preferred stock................ 17,074 15,437 17,074
---------- --------- ----------
Total fixed maturities.................... 4,909,230 4,772,762 4,909,230
Equity securities
Common stocks:
Banks, trust and insurance.............. 2,676 2,809 2,809
Industrial, miscellaneous and all
other.................................. 59,137 68,849 68,849
---------- --------- ----------
Total equity securities................... 61,813 71,658 71,658
Mortgage loans on real estate............. 1,339,202 1,339,202
Real estate............................... 41,536 41,536
Real estate acquired in satisfaction of
debt..................................... 16,336 16,336
Policy loans.............................. 59,871 59,871
Other long-term investments............... 123,722 123,722
Cash and short-term investments........... 53,695 53,695
---------- ----------
Total investments......................... $6,605,405 $6,615,250
========== ==========
</TABLE>
(1) Original cost of equity securities and, as to fixed maturities, original
cost reduced by repayments and adjusted for amortization of premiums or
accrual of discounts.
28
<PAGE>
PFL Life Insurance Company
Supplementary Insurance Information
(Dollars in thousands)
SCHEDULE III
<TABLE>
<CAPTION>
Future
Policy Policy
Benefits and
and Unearned Contract
Expenses Premiums Liabilities
---------- -------- -----------
<S> <C> <C> <C>
Year ended December 31, 1999
Individual life................................. $1,550,188 $ -- $ 8,607
Individual health............................... 133,214 10,311 10,452
Group life and health........................... 105,035 8,604 27,088
Annuity......................................... 4,036,751 -- --
---------- ------- -------
$5,825,188 $18,915 $46,147
========== ======= =======
Year ended December 31, 1998
Individual life................................. $1,355,283 $ -- $ 8,976
Individual health............................... 94,294 9,631 12,123
Group life and health........................... 93,405 10,298 36,908
Annuity......................................... 3,925,293 -- --
---------- ------- -------
$5,468,275 $19,929 $58,007
========== ======= =======
Year ended December 31, 1997
Individual life................................. $ 882,003 $ -- $ 8,550
Individual health............................... 62,033 9,207 12,821
Group life and health........................... 88,211 11,892 44,977
Annuity......................................... 4,204,125 -- --
---------- ------- -------
$5,236,372 $21,099 $66,348
========== ======= =======
</TABLE>
29
<PAGE>
PFL Life Insurance Company
Supplementary Insurance Information
(Dollars in thousands)
SCHEDULE III
<TABLE>
<CAPTION>
Benefits,
Claims
Net Losses and Other
Premium Investment Settlement Operating Premiums
Revenue Income* Expenses Expenses* Written
---------- ---------- ---------- --------- --------
<S> <C> <C> <C> <C> <C>
Year ended December 31,
1999
Individual life........... $ 226,456 $104,029 $ 274,730 $141,030 $ --
Individual health......... 77,985 10,036 58,649 35,329 77,716
Group life and health..... 83,639 10,422 61,143 38,075 81,918
Annuity................... 1,413,049 313,062 1,303,537 278,995 --
---------- -------- ---------- --------
$1,801,129 $437,549 $1,698,059 $493,429
========== ======== ========== ========
Year ended December 31,
1998
Individual life........... $ 514,194 $ 85,258 $ 545,720 $ 87,455 $ --
Individual health......... 68,963 8,004 48,144 30,442 68,745
Group life and health..... 111,547 11,426 82,690 54,352 108,769
Annuity................... 667,920 342,296 592,085 298,222 --
---------- -------- ---------- --------
$1,362,624 $446,984 $1,268,639 $470,471
========== ======== ========== ========
Year ended December 31,
1997
Individual life........... $ 200,175 $ 75,914 $ 211,921 $ 36,185 $ --
Individual health......... 63,548 5,934 37,706 29,216 63,383
Group life and health..... 146,694 11,888 103,581 91,568 143,580
Annuity................... 657,695 352,688 571,434 364,216 --
---------- -------- ---------- --------
$1,068,112 $446,424 $ 924,642 $521,185
========== ======== ========== ========
</TABLE>
- -------------------------
* Allocations of net investment income and other operating expenses are based
on a number of assumptions and estimates, and the results would change if
different methods were applied.
30
<PAGE>
PFL Life Insurance Company
Reinsurance
(Dollars in thousands)
SCHEDULE IV
<TABLE>
<CAPTION>
Assumed Percentage
Ceded to From of Amount
Gross Other Other Net Assumed
Amount Companies Companies Amount to Net
---------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Year ended December 31,
1999
Life insurance in
force.................. $6,538,901 $(500,192) $415,910 $6,454,619 6.4%
========== ========= ======== ========== ===
Premiums:
Individual life....... $ 227,363 $ 3,967 $ 2,723 $ 226,119 1.2%
Individual health..... 83,489 5,504 -- 77,985 --
Group life and
health............... 205,752 122,113 -- 83,639 --
Annuity............... 1,426,112 12,726 -- 1,413,386 --
---------- --------- -------- ---------- ---
$1,942,716 $ 144,310 $ 2,723 $1,801,129 0.2%
========== ========= ======== ========== ===
Year ended December 31,
1998
Life insurance in
force.................. $6,384,095 $ 438,590 $ 39,116 $5,984,621 .6%
========== ========= ======== ========== ===
Premiums:
Individual life....... $ 515,164 $ 3,692 $ 2,366 $ 513,838 .5%
Individual health..... 76,438 7,475 -- 68,963 --
Group life and
health............... 255,848 144,301 -- 111,547 --
Annuity............... 686,372 18,096 -- 668,276 --
---------- --------- -------- ---------- ---
$1,533,822 $ 173,564 $ 2,366 $1,362,624 .2%
========== ========= ======== ========== ===
Year ended December 31,
1997
Life insurance in
force.................. $5,025,027 $ 420,519 $ 35,486 $4,639,994 .8%
========== ========= ======== ========== ===
Premiums:
Individual life....... $ 201,691 $ 3,554 $ 2,038 $ 200,175 1.0%
Individual health..... 73,593 10,045 -- 63,548 --
Group life and
health............... 339,269 192,575 -- 146,694 --
Annuity............... 697,893 40,198 -- 657,695 --
---------- --------- -------- ---------- ---
$1,312,446 $ 246,372 $ 2,038 $1,068,112 .2%
========== ========= ======== ========== ===
</TABLE>
31
<PAGE>
Financial Statements
PFL Endeavor VA Separate Account -
The Endeavor Platinum Variable Annuity
Year ended December 31, 1999
with Report of Independent Auditors
<PAGE>
PFL Endeavor VA Separate Account -
The Endeavor Platinum Variable Annuity
Financial Statements
Year ended December 31, 1999
Contents
<TABLE>
<S> <C>
Report of Independent Auditors............................................ 1
Financial Statements
Balance Sheets............................................................ 2
Statements of Operations.................................................. 6
Statements of Changes in Contract Owners' Equity.......................... 10
Notes to Financial Statements............................................. 14
</TABLE>
<PAGE>
Report of Independent Auditors
The Board of Directors and Contract Owners
of The Endeavor Platinum Variable Annuity,
PFL Life Insurance Company
We have audited the accompanying balance sheets of certain subaccounts of PFL
Endeavor VA Separate Account (comprised of the Endeavor Money Market, Endeavor
Asset Allocation, T. Rowe Price International Stock, Endeavor Value Equity,
Dreyfus Small Cap Value, Dreyfus U.S. Government Securities, T. Rowe Price
Equity Income, T. Rowe Price Growth Stock, Endeavor Opportunity Value, Endeavor
Enhanced Index, Endeavor Select 50, Endeavor High Yield, and Endeavor Janus
Growth subaccounts), which are available for investment by contract owners of
The Endeavor Platinum Variable Annuity, as of December 31, 1999, and the related
statements of operations for the year then ended and changes in contract owners'
equity for the periods indicated thereon. These financial statements are the
responsibility of the Separate Account's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of mutual fund shares owned as of December 31,
1999, by correspondence with the mutual fund's transfer agent. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of each of the respective
subaccounts of PFL Endeavor VA Separate Account which are available for
investment by contract owners of The Endeavor Platinum Variable Annuity at
December 31, 1999, and the results of their operations for the year then ended
and changes in their contract owners' equity for the periods indicated thereon
in conformity with accounting principles generally accepted in the United
States.
/s/ Ernst & Young LLP
Des Moines, Iowa
January 28, 2000
1
<PAGE>
PFL Endeavor VA Separate Account -
The Endeavor Platinum Variable Annuity
Balance Sheets
December 31, 1999
<TABLE>
<CAPTION>
Endeavor
Money
Market
Subaccount
------------
<S> <C>
Assets
Cash $ 211
Investments in mutual funds, at current market value:
Endeavor Series Trust:
Endeavor Money Market Portfolio 39,051,968
Endeavor Asset Allocation Portfolio -
T. Rowe Price International Stock Portfolio -
Endeavor Value Equity Portfolio -
Dreyfus Small Cap Value Portfolio -
Dreyfus U. S. Government Securities Portfolio -
T. Rowe Price Equity Income Portfolio -
T. Rowe Price Growth Stock Portfolio -
Endeavor Opportunity Value Portfolio -
Endeavor Enhanced Index Portfolio -
Endeavor Select 50 Portfolio -
Endeavor High Yield Portfolio -
Endeavor Janus Growth Portfolio -
------------
Total investments in mutual funds 39,051,968
------------
Total assets $ 39,052,179
============
Liabilities and contract owners' equity
Liabilities:
Contract terminations payable $ -
------------
Total liabilities -
Contract owners' equity:
Deferred annuity contracts terminable by owners 39,052,179
------------
Total liabilities and contract owners' equity $ 39,052,179
============
</TABLE>
See accompanying notes.
2
<PAGE>
<TABLE>
<CAPTION>
T. Rowe Price Dreyfus U. S.
Endeavor Asset International Endeavor Dreyfus Small Government
Allocation Stock Value Equity Cap Value Securities
Subaccount Subaccount Subaccount Subaccount Subaccount
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 9 $ - $ 5 $ 3 $ -
- - - - -
38,043,638 - - - -
- 28,708,944 - - -
- - 29,860,769 - -
- - - 26,180,237 -
- - - - 16,899,935
- - - - -
- - - - -
- - - - -
- - - - -
- - - - -
- - - - -
- - - - -
- -----------------------------------------------------------------------------------------------------
38,043,638 28,708,944 29,860,769 26,180,237 16,899,935
- -----------------------------------------------------------------------------------------------------
$38,043,647 $28,708,944 $29,860,774 $26,180,240 $16,899,935
=====================================================================================================
$ - $ 4 $ - $ - $ 82
- -----------------------------------------------------------------------------------------------------
- 4 - - 82
38,043,647 28,708,940 29,860,774 26,180,240 16,899,853
- -----------------------------------------------------------------------------------------------------
$38,043,647 $28,708,944 $29,860,774 $26,180,240 $16,899,935
=====================================================================================================
</TABLE>
3
<PAGE>
PFL Endeavor VA Separate Account -
The Endeavor Platinum Variable Annuity
Balance Sheets (continued)
<TABLE>
<CAPTION>
T. Rowe Price
Equity
Income
Subaccount
----------------
<S> <C>
Assets
Cash $ -
Investments in mutual funds, at current market value:
Endeavor Series Trust:
Endeavor Money Market Portfolio -
Endeavor Asset Allocation Portfolio -
T. Rowe Price International Stock Portfolio -
Endeavor Value Equity Portfolio -
Dreyfus Small Cap Value Portfolio -
Dreyfus U. S. Government Securities Portfolio -
T. Rowe Price Equity Income Portfolio 39,495,474
T. Rowe Price Growth Stock Portfolio -
Endeavor Opportunity Value Portfolio -
Endeavor Enhanced Index Portfolio -
Endeavor Select 50 Portfolio -
Endeavor High Yield Portfolio -
Endeavor Janus Growth Portfolio -
----------------
Total investments in mutual funds 39,495,474
----------------
Total assets $39,495,474
================
Liabilities and contract owners' equity
Liabilities:
Contract terminations payable $ 2
----------------
Total liabilities 2
Contract owners' equity:
Deferred annuity contracts terminable by owners 39,495,472
----------------
Total liabilities and contract owners' equity $39,495,474
================
</TABLE>
See accompanying notes.
4
<PAGE>
<TABLE>
<CAPTION>
Endeavor Endeavor Endeavor
T. Rowe Price Opportunity Enhanced Endeavor Endeavor Janus
Growth Stock Value Index Select 50 High Yield Growth
Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ - $ 1 $ 24 $ - $ 5 $ -
-
- - - - - -
- - - - - -
- - - - - -
- - - - - -
- - - - - -
- - - - - -
- - - - -
46,346,805 - - - - -
- 6,997,241 - - - -
- - 39,862,279 - - -
- - - 13,414,972 - -
- - - - 4,722,846 -
- - - - - 153,902,286
- ----------------------------------------------------------------------------------------------------------------------
46,346,805 6,997,241 39,862,279 13,414,972 4,722,846 153,902,286
- ----------------------------------------------------------------------------------------------------------------------
$46,346,805 $6,997,242 $39,862,303 $13,414,972 $4,722,851 $153,902,286
======================================================================================================================
$ 11 $ - $ - $ 303 $ - $ 6
- ----------------------------------------------------------------------------------------------------------------------
11 - - 303 - 6
46,346,794 6,997,242 39,862,303 13,414,669 4,722,851 153,902,280
- ----------------------------------------------------------------------------------------------------------------------
$46,346,805 $6,997,242 $39,862,303 $13,414,972 $4,722,851 $153,902,286
======================================================================================================================
</TABLE>
5
<PAGE>
PFL Endeavor VA Separate Account -
The Endeavor Platinum Variable Annuity
Statements of Operations
Year ended December 31, 1999
<TABLE>
<CAPTION>
Endeavor
Money
Market
Subaccount
------------
<S> <C>
Net investment income (loss)
Income:
Dividends $ 1,615,031
Expenses:
Administrative, mortality and expense risk charges 564,510
------------
Net investment income (loss) 1,050,521
Net realized and unrealized capital gain (loss) from investments
Net realized capital gain (loss) from sales of investments:
Proceeds from sales 232,058,111
Cost of investments sold 232,058,111
------------
Net realized capital gain (loss) from sales of investments -
Net change in unrealized appreciation/depreciation of investments:
Beginning of the period -
End of the period -
------------
Net change in unrealized appreciation/depreciation of investments -
------------
Net realized and unrealized capital gain (loss) from investments -
------------
Increase (decrease) from operations $ 1,050,521
============
</TABLE>
(1) For the period January 1, 1999 through April 30, 1999, activity reflected in
this subaccount is related to investments in the Growth Portfolio of the WRL
Series Fund, Inc. As of the close of business on April 30, 1999, the
investments in the Growth Portfolio of the WRL Series Fund, Inc. were
replaced by investments in the Endeavor Janus Growth Portfolio of the
Endeavor Series Trust. The investment results of the Endeavor Janus Growth
Portfolio of the Endeavor Series Trust are reflected in this subaccount for
the period May 1, 1999 through December 31, 1999.
See accompanying notes.
6
<PAGE>
<TABLE>
<CAPTION>
Endeavor T. Rowe Price Dreyfus Dreyfus U.S.
Asset International Endeavor Small Cap Government
Allocation Stock Value Equity Value Securities
Subaccount Subaccount Subaccount Subaccount Subaccount
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$7,011,965 $ 538,259 $ 1,806,350 $ 2,069,171 $ 1,039,615
503,507 382,260 557,858 360,889 290,887
- ---------------------------------------------------------------------------------------------------
6,508,458 155,999 1,248,492 1,708,282 748,728
4,323,886 171,885,873 9,549,607 23,461,860 6,617,091
3,537,954 163,968,979 7,163,402 24,172,731 6,619,666
- ---------------------------------------------------------------------------------------------------
785,932 7,916,894 2,386,205 (710,871) (2,575)
2,887,285 2,132,478 4,719,210 (1,865,079) 538,279
2,753,785 2,023,930 (367,354) 2,369,190 (646,757)
- ---------------------------------------------------------------------------------------------------
(133,500) (108,548) (5,086,564) 4,234,269 (1,185,036)
- ---------------------------------------------------------------------------------------------------
652,432 7,808,346 (2,700,359) 3,523,398 (1,187,611)
- ---------------------------------------------------------------------------------------------------
$7,160,890 $ 7,964,345 $(1,451,867) $ 5,231,680 $ (438,883)
===================================================================================================
</TABLE>
7
<PAGE>
PFL Endeavor VA Separate Account -
The Endeavor Platinum Variable Annuity
Statements of Operations (continued)
<TABLE>
<CAPTION>
T. Rowe Price
Equity
Income
Subaccount
-------------------
<S> <C>
Net investment income (loss)
Income:
Dividends $ 2,449,370
Expenses:
Administrative, mortality and expense risk charges 653,774
-------------------
Net investment income (loss) 1,795,596
Net realized and unrealized capital gain (loss) from investments
Net realized capital gain (loss) from sales of investments:
Proceeds from sales 11,517,332
Cost of investments sold 8,695,003
-------------------
Net realized capital gain (loss) from sales of investments 2,822,329
Net change in unrealized appreciation/depreciation of investments:
Beginning of the period 4,218,057
End of the period 184,247
-------------------
Net change in unrealized appreciation/depreciation of investments (4,033,810)
-------------------
Net realized and unrealized capital gain (loss) from investments (1,211,481)
-------------------
Increase (decrease) from operations $ 584,115
===================
</TABLE>
(1) For the period January 1, 1999 through April 30, 1999, activity reflected
in this subaccount is related to investments in the Growth Portfolio of the
WRL Series Fund, Inc. As of the close of business on April 30, 1999, the
investments in the Growth Portfolio of the WRL Series Fund, Inc. were
replaced by investments in the Endeavor Janus Growth Portfolio of the
Endeavor Series Trust. The investment results of the Endeavor Janus Growth
Portfolio of the Endeavor Series Trust are reflected in this subaccount for
the period May 1, 1999 through December 31, 1999.
See accompanying notes.
8
<PAGE>
<TABLE>
<CAPTION>
Endeavor Endeavor Endeavor
T. Rowe Price Opportunity Enhanced Endeavor Endeavor Janus
Growth Stock Value Index Select 50 High Yield Growth
Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount(1)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 3,107,184 $ 141,820 $1,122,453 $ - $ 65,267 $ -
632,486 120,549 456,421 144,114 60,944 1,591,917
- ---------------------------------------------------------------------------------------------------------------
2,474,698 21,271 666,032 (144,114) 4,323 (1,591,917)
11,420,739 2,825,221 7,292,461 4,206,529 2,923,359 15,812,816
7,372,596 2,622,732 5,949,290 3,648,408 2,857,567 8,231,448
- ---------------------------------------------------------------------------------------------------------------
4,048,143 202,489 1,343,171 558,121 65,792 7,581,368
8,125,061 152,193 2,062,467 188,366 14,411 21,954,561
9,092,065 168,397 4,295,747 3,476,387 46,242 64,090,620
- ---------------------------------------------------------------------------------------------------------------
967,004 16,204 2,233,280 3,288,021 31,831 42,136,059
- ---------------------------------------------------------------------------------------------------------------
5,015,147 218,693 3,576,451 3,846,142 97,623 49,717,427
- ---------------------------------------------------------------------------------------------------------------
$ 7,489,845 $ 239,964 $4,242,483 $3,702,028 $ 101,946 $48,125,510
===============================================================================================================
</TABLE>
9
<PAGE>
PFL Endeavor VA Separate Account -
The Endeavor Platinum Variable Annuity
Statements of Changes in Contract Owners' Equity
Years ended December 31, 1999 and 1998, except as noted
<TABLE>
<CAPTION>
Endeavor Money Market Endeavor Asset Allocation
Subaccount Subaccount
------------------------------------ ------------------------------------
1999 1998 1999 1998
------------------------------------ ------------------------------------
<S> <C> <C> <C> <C>
Operations:
Net investment income (loss) $ 1,050,521 $ 725,891 $ 6,508,458 $ 1,778,019
Net realized capital gain (loss) - - 785,932 775,484
Net change in unrealized
appreciation/depreciation of investments - - (133,500) 548,069
------------------------------------ ------------------------------------
Increase (decrease) from operations 1,050,521 725,891 7,160,890 3,101,572
Contract transactions:
Net contract purchase payments 26,696,752 13,984,572 4,993,810 6,322,863
Transfer payments from (to) other
subaccounts or general account (2,448,674) 6,105,400 2,412,396 1,665,332
Contract terminations, withdrawals and
other deductions (15,297,772) (6,179,871) (3,064,544) (1,609,068)
------------------------------------ ------------------------------------
Increase (decrease) from contract
transactions 8,950,306 13,910,101 4,341,662 6,379,127
------------------------------------ ------------------------------------
Net increase (decrease) in contract
owners' equity 10,000,827 14,635,992 11,502,552 9,480,699
Contract owners' equity:
Beginning of the period 29,051,352 14,415,360 26,541,095 17,060,396
------------------------------------ ------------------------------------
End of the period $ 39,052,179 $29,051,352 $38,043,647 $26,541,095
==================================== ====================================
</TABLE>
(1) Commencement of operations, February 2, 1998.
(2) Commencement of operations, June 2, 1998.
(3) For the period January 1, 1999 through April 30, 1999 and the year ended
December 31, 1998, activity reflected in this subaccount is related to
investments in the Growth Portfolio of the WRL Series Fund, Inc. As of the
close of business on April 30, 1999, the investments in the Growth Portfolio
of the WRL Series Fund, Inc. were replaced by investments in the Endeavor
Janus Growth Portfolio of the Endeavor Series Trust. The investment results
and contract transactions of the Endeavor Janus Growth Portfolio of the
Endeavor Series Trust are reflected in this subaccount for the period May 1,
1999 through December 31, 1999.
See accompanying notes.
10
<PAGE>
<TABLE>
<CAPTION>
T. Rowe Price International Endeavor Value Equity Dreyfus Small Cap Dreyfus U. S. Government
Stock Subaccount Subaccount Value Subaccount Securities Subaccount
- ---------------------------- ---------------------------- -------------------------- ----------------------------
1999 1998 1999 1998 1999 1998 1999 1998
- ---------------------------- ---------------------------- -------------------------- ----------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 155,999 $ (39,627) $ 1,248,492 $ 409,754 $ 1,708,282 $ 2,289,317 $ 748,728 $ 179,579
7,916,894 788,056 2,386,205 1,704,194 (710,871) 219,441 (2,575) 324,015
(108,548) 1,382,830 (5,086,564) (367,527) 4,234,269 (3,465,199) (1,185,036) 140,111
- ---------------------------- ---------------------------- -------------------------- ----------------------------
7,964,345 2,131,259 (1,451,867) 1,746,421 5,231,680 (956,441) (438,883) 643,705
2,384,182 4,524,725 3,729,862 9,463,567 4,608,715 7,328,731 7,032,574 9,791,715
(244,808) (458,818) (4,636,073) (2,760,522) (3,095,007) (1,085) (3,713,213) (464,028)
(2,192,901) (1,638,303) (4,550,940) (2,673,230) (2,615,504) (1,146,873) (2,131,606) (994,154)
- ---------------------------- ---------------------------- -------------------------- ----------------------------
(53,527) 2,427,604 (5,457,151) 4,029,815 (1,101,796) 6,180,773 1,187,755 8,333,533
- ---------------------------- ---------------------------- -------------------------- ----------------------------
7,910,818 4,558,863 (6,909,018) 5,776,236 4,129,884 5,224,332 748,872 8,977,238
20,798,122 16,239,259 36,769,792 30,993,556 22,050,356 16,826,024 16,150,981 7,173,743
- ---------------------------- ---------------------------- -------------------------- ----------------------------
$28,708,940 $20,798,122 $29,860,774 $36,769,792 $26,180,240 $22,050,356 $16,899,853 $16,150,981
============================ ============================ ========================== ============================
</TABLE>
11
<PAGE>
PFL Endeavor VA Separate Account -
The Endeavor Platinum Variable Annuity
Statements of Changes in Contract Owners' Equity (continued)
<TABLE>
<CAPTION>
T. Rowe Price Equity T. Rowe Price Growth Endeavor Opportunity
Income Subaccount Stock Subaccount Value Subaccount
---------------------------- -------------------------- ------------------------
1999 1998 1999 1998 1999 1998
---------------------------- -------------------------- ------------------------
<S> <C> <C> <C> <C> <C> <C>
Operations:
Net investment income (loss) $ 1,795,596 $ 1,127,202 $ 2,474,698 $ 768,588 $ 21,271 $ (30,943)
Net realized capital gain (loss) 2,822,329 1,353,856 4,048,143 1,673,070 202,489 144,512
Net change in unrealized
appreciation/depreciation of
investments (4,033,810) (434,106) 967,004 3,982,068 16,204 (20,417)
---------------------------- -------------------------- ------------------------
Increase (decrease) from 584,115 2,046,952 7,489,845 6,423,726 239,964 93,152
operations
Contract transactions:
Net contract purchase payments 6,620,464 12,359,064 6,852,927 8,617,223 1,429,404 3,797,167
Transfer payments from (to)
other subaccounts or general
account (2,784,136) 134,392 1,114,317 (30,420) (1,184,383) 420,857
Contract terminations, withdrawals
and other deductions (4,101,494) (2,558,676) (4,112,780) (1,689,566) (1,289,836) (419,195)
---------------------------- -------------------------- ------------------------
Increase (decrease) from contract
transactions (265,166) 9,934,780 3,854,464 6,897,237 (1,044,815) 3,798,829
---------------------------- -------------------------- ------------------------
Net increase (decrease) in
contract owners' equity 318,949 11,981,732 11,344,309 13,320,963 (804,851) 3,891,981
Contract owners' equity:
Beginning of the period 39,176,523 27,194,791 35,002,485 21,681,522 7,802,093 3,910,112
---------------------------- -------------------------- ------------------------
End of the period $39,495,472 $39,176,523 $46,346,794 $35,002,485 $ 6,997,242 $7,802,093
============================ ========================== ========================
</TABLE>
(1) Commencement of operations, February 2, 1998.
(2) Commencement of operations, June 2, 1998.
(3) For the period January 1, 1999 through April 30, 1999 and the year ended
December 31, 1998, activity reflected in this subaccount is related to
investments in the Growth Portfolio of the WRL Series Fund, Inc. As of the
close of business on April 30, 1999, the investments in the Growth
Portfolio of the WRL Series Fund, Inc. were replaced by investments in the
Endeavor Janus Growth Portfolio of the Endeavor Series Trust. The
investment results and contract transactions of the Endeavor Janus Growth
Portfolio of the Endeavor Series Trust are reflected in this subaccount for
the period May 1, 1999 through December 31, 1999.
See accompanying notes.
12
<PAGE>
<TABLE>
<CAPTION>
Endeavor Enhanced Endeavor Select 50 Endeavor Endeavor Janus
Index Subaccount Subaccount High Yield Subaccount Growth Subaccount
- ------------------------- --------------------------- ----------------------- --------------------------
1999 1998 1999 1998 (1) 1999 1998 (2) 1999 (3) 1998
- ------------------------- --------------------------- ----------------------- --------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 666,032 $ (120,798) $ (144,114) $ (106,853) $ 4,323 $ (9,982) $ (1,591,917) $ (271,864)
1,343,171 524,508 558,121 46,853 65,792 (5,548) 7,581,368 1,981,584
2,233,280 2,009,224 3,288,021 188,366 31,831 14,411 42,136,059 22,059,600
- ------------------------- --------------------------- ----------------------- --------------------------
4,242,483 2,412,934 3,702,028 128,366 101,946 (1,119) 48,125,510 23,769,320
13,316,734 8,795,952 2,066,101 5,538,695 3,036,173 1,264,085 25,265,904 12,438,957
7,307,526 2,408,070 (60,688) 3,150,217 (304,400) 1,238,821 20,382,582 918,706
(1,820,195) (357,307) (882,861) (227,189) (494,544) (118,111) (8,317,198) (3,583,648)
- ------------------------- --------------------------- ----------------------- --------------------------
18,804,065 10,846,715 1,122,552 8,461,723 2,237,229 2,384,795 37,331,288 9,774,015
- ------------------------- --------------------------- ----------------------- --------------------------
23,046,548 13,259,649 4,824,580 8,590,089 2,339,175 2,383,676 85,456,798 33,543,335
16,815,755 3,556,106 8,590,089 - 2,383,676 - 68,445,482 34,902,147
- ------------------------- --------------------------- ----------------------- --------------------------
$39,862,303 $16,815,755 $13,414,669 $8,590,089 $4,722,851 $2,383,676 $153,902,280 $68,445,482
========================= =========================== ======================= ==========================
</TABLE>
13
<PAGE>
PFL Endeavor VA Separate Account -
The Endeavor Platinum Variable Annuity
Notes to Financial Statements
December 31, 1999
1. Organization and Summary of Significant Accounting Policies
Organization
The PFL Endeavor VA Separate Account (the "Mutual Fund Account") is a segregated
investment account of PFL Life Insurance Company ("PFL Life"), an indirect
wholly-owned subsidiary of AEGON N.V., a holding company organized under the
laws of The Netherlands.
The Mutual Fund Account is registered with the Securities and Exchange
Commission as a Unit Investment Trust pursuant to provisions of the Investment
Company Act of 1940. The Mutual Fund Account consists of sixteen investment
subaccounts, thirteen of which are invested in specified portfolios of the
Endeavor Series Trust (the "Series Fund"). Activity in these thirteen investment
subaccounts is available to contract owners of The Endeavor Platinum Variable
Annuity, The Endeavor Variable Annuity, and the Endeavor ML Variable Annuity,
also issued by PFL Life. The amounts reported herein represent the activity
related to contract owners of The Endeavor Platinum Variable Annuity only. The
remaining three investment subaccounts (not included herein), are available to
the contract owners of The Endeavor ML Variable Annuity.
Prior to April 30, 1999, the Growth Portfolio of the WRL Series Fund, Inc. was
available to contract owners of The Endeavor Platinum Variable Annuity as an
investment option. As of the close of business on April 30, 1999, all shares of
the Growth Portfolio of the WRL Series Fund, Inc. were exchanged for shares of
the Endeavor Janus Growth Portfolio of the Endeavor Series Trust. This exchange
had no impact at the date of transfer on investments in mutual funds or total
contract owners' equity. The Endeavor Select 50 Subaccount and the Endeavor High
Yield Subaccount commenced operations on February 2, 1998 and June 2, 1998,
respectively.
Investments
Net purchase payments received by the Mutual Fund Account for The Endeavor
Platinum Variable Annuity are invested in the portfolios of the Series Fund as
selected by the contract owner. Investments are stated at the closing net asset
values per share on December 31, 1999.
14
<PAGE>
PFL Endeavor VA Separate Account -
The Endeavor Platinum Variable Annuity
Notes to Financial Statements (continued)
1. Organization and Summary of Significant Accounting Policies (continued)
Realized capital gain and losses from sales of shares in the Series Fund are
determined on the first-in, first-out basis. Investment transactions are
accounted for on the trade date (date the order to buy or sell is executed) and
dividend income is recorded on the ex-dividend date. Unrealized gains or losses
from investments in the Series Fund are credited or charged to contract owners'
equity.
Dividend Income
Dividends received from the Series Fund investments are reinvested to purchase
additional mutual fund shares.
2. Investments
A summary of the mutual fund investments at December 31, 1999 follows:
<TABLE>
<CAPTION>
Net Asset
Number of Value Per Market
Shares Held Share Value Cost
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Endeavor Series Trust:
Endeavor Money Market Portfolio 39,051,967.630 $ 1.00 $ 39,051,968 $39,051,968
Endeavor Asset Allocation Portfolio 1,662,020.018 22.89 38,043,638 35,289,853
T. Rowe Price International Stock
Portfolio 1,374,949.402 20.88 28,708,944 26,685,014
Endeavor Value Equity Portfolio 1,493,785.337 19.99 29,860,769 30,228,123
Dreyfus Small Cap Value Portfolio 1,585,719.990 16.51 26,180,237 23,811,047
Dreyfus U. S. Government Securities
Portfolio 1,465,735.929 11.53 16,899,935 17,546,692
T. Rowe Price Equity Income Portfolio 2,025,408.913 19.50 39,495,474 39,311,227
T. Rowe Price Growth Stock Portfolio 1,612,623.698 28.74 46,346,805 37,254,740
Endeavor Opportunity Value Portfolio 557,105.188 12.56 6,997,241 6,828,844
Endeavor Enhanced Index Portfolio 2,195,059.441 18.16 39,862,279 35,566,532
Endeavor Select 50 Portfolio 851,203.820 15.76 13,414,972 9,938,585
Endeavor High Yield Portfolio 468,071.909 10.09 4,722,846 4,676,604
Endeavor Janus Growth Portfolio 1,613,738.976 95.37 153,902,286 89,811,666
</TABLE>
15
<PAGE>
PFL Endeavor VA Separate Account -
The Endeavor Platinum Variable Annuity
Notes to Financial Statements (continued)
2. Investments (continued)
The aggregate cost of purchases and proceeds from sales of investments were as
follows:
<TABLE>
<CAPTION>
Period ended December 31
1999 1998
---------------------------------- -------------------------------
Purchases Sales Purchases Sales
---------------------------------- -------------------------------
<S> <C> <C> <C> <C>
Endeavor Series Trust:
Endeavor Money Market Portfolio $242,058,526 $232,058,111 $42,092,297 $27,455,766
Endeavor Asset Allocation Portfolio 15,173,987 4,323,886 11,690,785 3,534,051
T. Rowe Price International Stock Portfolio 171,988,337 171,885,873 6,565,083 4,177,468
Endeavor Value Equity Portfolio 5,340,927 9,549,607 10,061,100 5,622,527
Dreyfus Small Cap Value Portfolio 24,068,337 23,461,860 13,898,791 5,429,288
Dreyfus U. S. Government Securities
Portfolio 8,553,649 6,617,091 11,850,173 3,337,050
T. Rowe Price Equity Income Portfolio 13,047,748 11,517,332 16,092,948 5,031,745
T. Rowe Price Growth Stock Portfolio 17,749,904 11,420,739 12,491,263 4,826,332
Endeavor Opportunity Value Portfolio 1,801,678 2,825,221 4,948,985 1,181,189
Endeavor Enhanced Index Portfolio 26,762,535 7,292,461 14,850,925 4,125,122
Endeavor Select 50 Portfolio 5,185,057 4,206,529 9,782,573 1,427,490
Endeavor High Yield Portfolio 5,164,904 2,923,359 2,684,430 309,615
Endeavor Janus Growth Portfolio 51,552,177 15,812,816 17,316,520 7,815,859
</TABLE>
16
<PAGE>
PFL Endeavor VA Separate Account -
The Endeavor Platinum Variable Annuity
Notes to Financial Statements (continued)
3. Contract Owners' Equity
A summary of deferred annuity contracts terminable by owners at December 31,
1999 follows:
<TABLE>
<CAPTION>
Return of Premium Death Benefit
------------------------------------------------------
Total
Accumulation Accumulation Contract
Subaccount Units Owned Unit Value Value
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Endeavor Money Market 7,359,736.147 $ 1.201368 $ 8,841,752
Endeavor Asset Allocation 1,347,870.453 2.358574 3,179,052
T. Rowe Price International Stock 1,699,977.857 1.736396 2,951,835
Endeavor Value Equity 924,905.846 2.023956 1,871,969
Dreyfus Small Cap Value 1,150,008.250 2.115582 2,432,937
Dreyfus U. S. Government Securities 2,509,680.360 1.246338 3,127,910
T. Rowe Price Equity Income 1,724,375.455 2.089513 3,603,105
T. Rowe Price Growth Stock 1,048,447.131 3.097854 3,247,936
Endeavor Opportunity Value 729,063.601 1.235199 900,539
Endeavor Enhanced Index 3,446,692.138 1.833086 6,318,083
Endeavor Select 50 878,307.676 1.531878 1,345,460
Endeavor High Yield 1,167,355.038 1.001525 1,169,135
Endeavor Janus Growth 383,039.881 47.053720 18,023,451
</TABLE>
<TABLE>
<CAPTION>
5% Annually Compounding Death Benefit and Double
Enhanced Death Benefit
---------------------------------------------------------
Total
Accumulation Accumulation Contract
Subaccount Units Owned Unit Value Value
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Endeavor Money Market 25,237,355.183 $ 1.197052 $ 30,210,427
Endeavor Asset Allocation 14,835,442.284 2.350088 34,864,595
T. Rowe Price International Stock 14,886,967.987 1.730178 25,757,105
Endeavor Value Equity 13,878,688.966 2.016675 27,988,805
Dreyfus Small Cap Value 11,265,409.515 2.107984 23,747,303
Dreyfus U. S. Government Securities 11,107,749.467 1.239850 13,771,943
T. Rowe Price Equity Income 17,239,278.320 2.082011 35,892,367
T. Rowe Price Growth Stock 13,962,698.692 3.086714 43,098,858
Endeavor Opportunity Value 4,953,615.990 1.230758 6,096,703
Endeavor Enhanced Index 18,365,179.331 1.826512 33,544,220
Endeavor Select 50 7,900,925.826 1.527569 12,069,209
Endeavor High Yield 3,556,578.835 .999195 3,553,716
Endeavor Janus Growth 2,898,149.189 46.884691 135,878,829
</TABLE>
17
<PAGE>
PFL Endeavor VA Separate Account -
The Endeavor Platinum Variable Annuity
Notes to Financial Statements (continued)
3. Contract Owners' Equity (continued)
A summary of changes in contract owners' account units follows:
<TABLE>
<CAPTION>
Endeavor Endeavor T. Rowe Price
Money Asset International Endeavor
Market Allocation Stock Value Equity
Subaccount Subaccount Subaccount Subaccount
--------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Units outstanding at January 1, 1998 12,826,290 10,512,990 13,879,519 15,509,654
Units purchased 13,098,851 4,089,099 3,625,148 4,697,062
Units redeemed and transferred (920,637) (561,270) (1,854,334) (2,819,684)
--------------------------------------------------------------------------
Units outstanding at December 31, 1999
25,004,504 14,040,819 15,650,333 17,387,032
Units purchased 23,201,764 2,832,289 1,826,276 1,856,179
Units redeemed and transferred (15,609,177) (689,795) (889,663) (4,439,616)
--------------------------------------------------------------------------
Units outstanding at December 31, 1999
32,597,091 16,183,313 16,586,946 14,803,595
==========================================================================
</TABLE>
<TABLE>
<CAPTION>
T. Rowe
Dreyfus Dreyfus U. S. T. Rowe Price Price
Small Cap Government Equity Growth
Value Securities Income Stock
Subaccount Subaccount Subaccount Subaccount
-------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Units outstanding at January 1, 1998 9,777,620 5,951,216 14,231,254 10,688,552
Units purchased 4,490,339 8,009,922 6,613,382 4,000,942
Units redeemed and transferred (954,930) (1,281,263) (1,694,359) (1,059,577)
-------------------------------------------------------------------------
Units outstanding at December 31, 1998
13,313,029 12,679,875 19,150,277 13,629,917
Units purchased 2,572,530 5,943,657 3,251,078 2,759,861
Units redeemed and transferred (3,470,141) (5,006,102) (3,437,701) (1,378,632)
-------------------------------------------------------------------------
Units outstanding at December 31, 1999
12,415,418 13,617,430 18,963,654 15,011,146
-------------------------------------------------------------------------
</TABLE>
18
<PAGE>
PFL Endeavor VA Separate Account -
The Endeavor Platinum Variable Annuity
Notes to Financial Statements (continued)
3. Contract Owners' Equity (continued)
<TABLE>
<CAPTION>
Endeavor Endeavor
Opportunity Enhanced Endeavor
Value Index Select 50
Subaccount Subaccount Portfolio
-----------------------------------------------
<S> <C> <C> <C>
Units outstanding at January 1, 1998 3,388,725 2,925,194 -
Units purchased 3,252,873 6,535,647 5,311,601
Units redeemed and transferred (108,232) 1,237,509 2,866,660
-----------------------------------------------
Units outstanding at December 31, 1998 6,533,366 10,698,350 8,178,261
Units purchased 1,186,092 8,335,555 1,818,683
Units redeemed and transferred (2,036,778) 2,777,966 (1,217,710)
-----------------------------------------------
Units outstanding at December 31, 1999 5,682,680 21,811,871 8,779,234
===============================================
</TABLE>
<TABLE>
<CAPTION>
Endeavor
Endeavor Janus
High Yield Growth
Portfolio Subaccount
---------------------------------
<S> <C> <C>
Units outstanding at January 1, 1998 - 1,885,503
Units purchased 1,467,292 561,874
Units redeemed and transferred 1,015,633 (162,462)
---------------------------------
Units outstanding at December 31, 1998 2,482,925 2,284,915
Units purchased 3,108,822 752,655
Units redeemed and transferred (867,813) 243,619
---------------------------------
Units outstanding at December 31, 1999 4,723,934 3,281,189
=================================
</TABLE>
4. Administrative, Mortality and Expense Risk Charges
Administrative charges include an annual charge of the lesser of 2% of the
policy value or $35 per contract which will commence on the first policy
anniversary of each contract owners' account. For policies issued on or after
May 1, 1995, the fee is waived if the sum of the premium payments less the sum
of all partial withdrawals is at least $50,000 on the policy anniversary. PFL
Life also deducts a daily charge equal to an annual rate of .15% of the contract
owners' account for administrative expenses. In addition, during the first ten
policy years PFL Life deducts a daily distribution financing charge equal to an
annual rate of .25% of the value of the contract owners' account.
19
<PAGE>
PFL Endeavor VA Separate Account -
The Endeavor Platinum Variable Annuity
Notes to Financial Statements (continued)
4. Administrative, Mortality and Expense Risk Charges (continued)
PFL Life deducts a daily charge for assuming certain mortality and expense
risks. For the 5% Annually Compounding Death Benefit and the Double Enhanced
Death Benefit, this charge is equal to an effective annual rate of 1.25% of the
value of the contract owners' individual account. For the Return of Premium
Death Benefit, the corresponding charge is equal to an effective annual rate of
1.10% of the value of the contract owners' individual account.
5. Taxes
Operations of the Mutual Fund Account form a part of PFL Life which is taxed as
a life insurance company under Subchapter L of the Internal Revenue Code of
1986, as amended (the "Code"). The operations of the Mutual Fund Account are
accounted for separately from other operations of PFL Life for purposes of
federal income taxation. The Mutual Fund Account is not separately taxable as a
regulated investment company under Subchapter M of the Code and is not otherwise
taxable as an entity separate from PFL Life. Under existing federal income tax
laws, the income of the Mutual Fund Account, to the extent applied to increase
reserves under the variable annuity contracts, is not taxable to PFL Life.
20
<PAGE>
PFL Endeavor Target Account
Annual Report
December 31, 1999
<PAGE>
Policyholder Letter
Dear Valued Policyholder:
We are pleased to present you with the market activity information on PFL
Endeavor Target Account for the period ending December 31, 1999. We hope that
you will find the underlying investment information interesting and
informative.
This correspondence is also an opportunity to remind you that we welcome your
comments and ideas as to how we can serve you even better. If you have any
questions or comments, please call the Variable Annuity Department at 800-525-
6205.
You can be assured of our continuing commitment to providing quality products
and excellent service to our policyholders.
Sincerely yours,
/s/ Vincent J. McGuinness, Jr.
Vincent J. McGuinness, Jr.
President and Chief Executive Officer
PFL Endeavor Target Account
-1-
<PAGE>
Portfolio Manager Letter
Despite a rising interest rate environment, 1999 was generally positive for US
stocks. The stock market rose strongly in the first six months of the year and
then suffered through a correction lasting from mid-July through mid-October as
investors digested a couple of Federal Reserve interest rate hikes and their
potential impact of slowing corporate earnings growth. But the stock market
staged an impressive rally through the end of the year led by technology shares
as the nation's economy remained strong and investors' fears of Y2K subsided.
The trading during the latter part of this period was characterized by heavy
investor demand for early stage growth companies, particularly technology and
communications-related shares, at the expense of value stocks.
The DowSM July Target 5 Subaccount was rebalanced at mid year. Eastman Kodak
and Sears replaced AT&T and International Paper. Otherwise, Caterpillar,
General Motors and Philip Morris remained in the portfolio for the entire year.
The Subaccount has been hurt by substantial weakness in Philip Morris (down
54%) and Sears (down 31% in H2). In addition, Eastman Kodak (down 1% in H2),
Caterpillar (up 5%), and GM (up 20%) have all lagged the Dow Jones Industrial
Average in 1999.
The DowSM July Target 10 Subaccount has been hurt in 1999 as investors put
their faith in a glitzy high-tech future and moved away from the "smokestack
companies" that dominate the Dogs of the Dow strategy. The portfolio was
rebalanced at mid year and DuPont and Sears replaced AT&T and International
Paper. The rest of the stocks in the portfolio remained the same. Substantial
weakness occurred in Philip Morris (down 54%), Sears (down 31% in H2), and
Eastman Kodak (down 6%). Of the remaining seven components of the subaccount,
Caterpillar (up 5%), Chevron (up 7%), DuPont (down 3% in H2), Exxon Mobil (up
13%), GM (up 20%) and J.P. Morgan (up 24%) have all lagged the DJIA return.
Only Minnesota Mining (up 41%), has managed to beat the DJIA return for 1999.
Chevron was removed from the Dow Jones Industrial Average on November 1, 1999
and Exxon Corp. completed the purchase of Mobil Corp. on November 30, 1999.
The DowSM January Target 5 Subaccount has been hurt by substantial weakness in
two of its five components. Philip Morris has been hit hard (down 54%) due to
concerns about the tobacco industry's mounting legal battles. Goodyear Tire
(down 42%) has been punished due to disappointment over its fourth straight
quarter of declining earnings. In addition, Goodyear was removed from the Dow
Jones Industrial Average (DJIA) on November 1, 1999. Caterpillar, although up
for the year (up 5%), has lagged the index after announcing significantly lower
year over year third quarter profits and repeatedly warning analysts about 1999
full year earnings. DuPont (up 27%) has matched the DJIA return for the year
and only Minnesota Mining & Mfg. has outperformed the index, up 41%.
The DowSM January Target 10 Subaccount has been hurt in 1999 as investors put
their faith in a glitzy high-tech future and moved away from the "smokestack
companies" that dominate the Dogs of the Dow strategy. Substantial weakness
occurred in three of its ten components. Philip Morris has been hit hard (down
54%) due to concerns about the tobacco industry's mounting legal battles.
Goodyear Tire (down 42%) has been punished due to disappointment over its
fourth straight quarter of declining earnings. In addition, Goodyear was
removed from the Dow Jones Industrial Average (DJIA) effective November 1,
1999. Eastman Kodak (down 6%) has had a tough fight with rival Fuji Photo in
the traditional film marketplace and has not convinced investors that its
vision of digital imaging will be realized. Of the remaining seven components
of the subaccount, five have underperformed the DJIA, one has matched the index
return, and only one has managed to beat the index. Caterpillar (up 5%),
Chevron (up 7%), Exxon Mobil (up 13%), GM (up 20%) and J.P. Morgan (up 24%)
have all lagged the market return. (Exxon Corp. purchased Mobil Corp. in
November for $85.2 billion.) Only DuPont (up 27%) and Minnesota Mining (up
41%), have managed to match or beat the DJIA return for 1999.
-2-
<PAGE>
Portfolio Manager Letter
The outlook for US stocks remains bullish as we enter 2000 due in large part to
the booming US economy. While negative factors such as the likelihood of
further Federal Reserve interest rate hikes, lofty valuation levels and the
perceived narrowness of the market may result in a correction sometime during
the next year, the expected continuing strength in US corporate earnings should
ultimately result in higher stock prices.
The Target Subaccounts identifies strong, established companies that are
currently out of favor on Wall Street and likely to rebound. We believe these
companies are well positioned to benefit from either a broadening of the
current market rally, or a rotation out of the speculative, high-tech names
that have been leading the market. Therefore, we expect the subaccount to
perform well going forward and reward the patient value-oriented investor.
PFPC Inc. Advisors, L.P.
-3-
<PAGE>
Schedule of Investments
PFL Endeavor Target Account
Dow Target 5--July Series Subaccount
December 31, 1999
<TABLE>
<CAPTION>
Market
Shares Value
------- -----------
<S> <C> <C>
COMMON STOCK--100.1%
Automotives--26.7%
General Motors Corporation.............................. 62,875 $ 4,570,227
-----------
Consumer Products--14.0%
Philip Morris Companies, Inc. .......................... 103,272 2,394,619
-----------
Machinery--19.1%
Caterpillar, Inc. ...................................... 69,167 3,255,172
-----------
Miscellaneous Manufacturing Industries--23.7%
Eastman Kodak Company................................... 61,242 4,057,283
-----------
Retail--16.6%
Sears Roebuck & Company................................. 93,029 2,831,570
-----------
Total Common Stock
(Cost $20,270,762)............................................. 17,108,871
-----------
TOTAL INVESTMENTS
(Cost $20,270,762*)...................................... 100.1% 17,108,871
OTHER ASSETS AND LIABILITIES (Net)........................ -0.1% (3,242)
------- -----------
NET ASSETS................................................ 100.0% $17,105,629
======= ===========
</TABLE>
*Aggregate cost for federal tax purposes.
See accompanying notes
-4-
<PAGE>
Schedule of Investments
PFL Endeavor Target Account
Dow Target 10--July Series Subaccount
December 31, 1999
<TABLE>
<CAPTION>
Market
Shares Value
------ -----------
<S> <C> <C>
COMMON STOCK--100.2%
Automotives--12.2%
General Motors Corporation............................... 27,585 $ 2,005,084
-----------
Consumer Products--6.4%
Philip Morris Companies, Inc............................. 45,312 1,050,672
-----------
Diversified Chemical--10.7%
duPont (E.I.) de Nemours & Company....................... 26,650 1,755,569
-----------
Diversified Manufacturing--12.4%
Minnesota Mining & Manufacturing Company................. 20,944 2,049,894
-----------
Financial Services--10.0%
J.P. Morgan & Company, Inc............................... 12,950 1,639,794
-----------
Machinery--8.7%
Caterpillar, Inc......................................... 30,351 1,428,394
-----------
Miscellaneous Manufacturing Industries--10.8%
Eastman Kodak Company.................................... 26,860 1,779,475
-----------
Oil & Gas Extraction--11.5%
Exxon Mobil Corporation.................................. 23,611 1,902,161
-----------
Petroleum Refining--10.0%
Chevron Corporation...................................... 19,118 1,656,097
-----------
Retail--7.5%
Sears Roebuck & Company.................................. 40,780 1,241,241
-----------
Total Common Stock
(Cost $17,345,759)............................................. 16,508,381
-----------
TOTAL INVESTMENTS
(Cost $17,345,759*)....................................... 100.2% 16,508,381
OTHER ASSETS AND LIABILITIES (Net)......................... -0.2% (31,457)
------ -----------
NET ASSETS................................................. 100.0% $16,476,924
====== ===========
</TABLE>
*Aggregate cost for federal tax purposes.
See accompanying notes
-5-
<PAGE>
Schedule of Investments
PFL Endeavor Target Account
Dow Target 5--January Series Subaccount
December 31, 1999
<TABLE>
<CAPTION>
Market
Shares Value
------ ----------
<S> <C> <C>
COMMON STOCK--98.7%
Consumer Products--9.2%
Philip Morris Companies, Inc. ............................ 32,667 $ 757,466
----------
Diversified Chemicals--26.5%
duPont (E.I.) de Nemours & Company........................ 33,054 2,177,432
----------
Diversified Manufacturing--29.3%
Minnesota Mining & Manufacturing Company.................. 24,653 2,412,912
----------
Machinery--21.8%
Caterpillar, Inc. ........................................ 38,147 1,795,293
----------
Tires & Rubber--11.9%
Goodyear Tire & Rubber Company............................ 34,823 981,573
----------
Total Common Stock
(Cost $9,438,803)............................................... 8,124,677
----------
TOTAL INVESTMENTS
(Cost $9,438,803*)......................................... 98.7% 8,124,677
OTHER ASSETS AND LIABILITIES (Net).......................... 1.3% 107,955
------ ----------
NET ASSETS.................................................. 100.0% $8,232,632
====== ==========
</TABLE>
*Aggregate cost for federal tax purposes.
See accompanying notes
-6-
<PAGE>
Schedule of Investments
PFL Endeavor Target Account
Dow Target 10--January Series Subaccount
December 31, 1998
<TABLE>
<CAPTION>
Market
Shares Value
------ -----------
<S> <C> <C>
COMMON STOCK--94.1%
Automotives--7.6%
Delphi Automotive Systems Corporation.................... 4,045 $ 63,709
General Motors Corporation............................... 10,198 741,267
-----------
Total Automotive................................................ 804,976
-----------
Consumer Products--4.2%
Philip Morris Companies, Inc. ........................... 19,056 441,861
-----------
Diversified Chemicals--12.0%
duPont (E.I.) de Nemours & Company....................... 19,232 1,266,908
-----------
Diversified Manufacturing--13.3%
Minnesota Mining & Manufacturing Company................. 14,344 1,403,919
-----------
Financial Services--11.7%
J.P. Morgan & Company, Inc. ............................. 9,711 1,229,655
-----------
Machinery--9.9%
Caterpillar, Inc. ....................................... 22,214 1,045,446
-----------
Miscellaneous Manufacturing Industries--8.9%
Eastman Kodak Company.................................... 14,167 938,564
-----------
Oil & Gas Extraction--11.0%
Exxon Mobil Corporation.................................. 14,421 1,161,792
-----------
Petroleum Refining--10.1%
Chevron Corporation...................................... 12,306 1,066,007
-----------
Tires & Rubber--5.4%
Goodyear Tire & Rubber Company........................... 20,218 569,895
-----------
Total Common Stock
(Cost $10,627,046)............................................. 9,929,023
-----------
TOTAL INVESTMENTS
(Cost $10,627,046*)....................................... 94.1% 9,929,023
OTHER ASSETS AND LIABILITIES (Net)......................... 5.9% 620,101
------ -----------
NET ASSETS................................................. 100.0% $10,549,124
====== ===========
</TABLE>
*Aggregate cost for federal tax purposes.
See accompanying notes
-7-
<PAGE>
Statements of Assets and Liabilities
PFL Endeavor Target Account
December 31, 1999
<TABLE>
<CAPTION>
Dow Target 5 Dow Target 10 Dow Target 5 Dow Target 10
July Series July Series January Series January Series
Subaccount Subaccount Subaccount Subaccount
------------ ------------- -------------- --------------
<S> <C> <C> <C> <C>
Assets
Investment in
securities, at market
value $17,108,871 $16,508,381 $8,124,677 $ 9,929,023
Cash 74,325 187,531 222,282 874,172
Receivable from
investment securities
sold -- -- 50,036 --
Dividends and/or
interest receivable 98,367 56,181 16,527 25,480
----------- ----------- ---------- -----------
Total assets $17,281,563 $16,752,093 $8,413,522 $10,828,675
=========== =========== ========== ===========
Liabilities and
contract owners'
equity
Liabilities:
Payable for investment
securities purchased $ 155,135 $ 254,064 $ 164,853 $ 265,835
Management fee payable 10,705 10,267 5,071 6,273
Accrued Expenses
payable 10,094 10,838 8,390 7,443
Fund redemption payable -- -- 2,576 --
----------- ----------- ---------- -----------
Total liabilities 175,934 275,169 180,890 279,551
Deferred annuity
contracts terminable
by owners 17,105,629 16,476,924 8,232,632 10,549,124
----------- ----------- ---------- -----------
Total liabilities and
contract owners'
equity $17,281,563 $16,752,093 $8,413,522 $10,828,675
=========== =========== ========== ===========
</TABLE>
Contract owners'
equity:
See accompanying notes
-8-
<PAGE>
Statements of Operations
PFL Endeavor Target Account
For the year ended December 31, 1999, except as noted
<TABLE>
<CAPTION>
Dow Target 5 Dow Target 10 Dow Target 5 Dow Target 10
July Series July Series January Series January Series
Subaccount Subaccount Subaccount(1) Subaccount(1)
------------ ------------- -------------- --------------
<S> <C> <C> <C> <C>
Net investment income
(loss)
Investment income:
Dividends $ 514,982 $ 390,790 $ 175,211 $ 185,730
Interest -- -- -- --
----------- ----------- ----------- ---------
Total investment income 514,982 390,790 175,211 185,730
----------- ----------- ----------- ---------
Expenses:
Investment management fee 136,816 106,745 48,864 51,517
Administration fees 9,547 9,664 10,001 10,001
Custodian fees 7,798 6,985 4,944 5,543
Transfer agent fees 95 61 24 34
Legal fees 11,417 10,120 5,018 4,018
Audit fees 5,400 5,399 2,051 2,051
Trustee fees and expenses 4,399 7,080 1,227 1,309
Printing 15,518 10,947 7,588 8,714
Other 4,124 4,124 3,551 3,560
Policy Fees 7,136 2,943 446 125
Mortality and expense risk
charge 279,294 219,700 99,443 106,663
----------- ----------- ----------- ---------
Total gross expenses 481,544 383,768 183,157 193,535
Less:
Waiver/reimbursement from
investment manager -- -- (3,180) (3,430)
Credits allowed by
custodian (4,698) (1,621) (3,852) (4,944)
----------- ----------- ----------- ---------
Total net expenses 476,846 382,147 176,125 185,161
----------- ----------- ----------- ---------
Net investment income
(loss) 38,136 8,643 (914) 569
----------- ----------- ----------- ---------
Net realized and unrealized
capital (loss) from
investments
Proceeds from sale of
investments 16,651,910 5,495,778 7,350,304 1,317,414
Cost of investments sold 15,557,731 4,983,508 7,224,187 1,309,601
----------- ----------- ----------- ---------
Net realized capital gain
on investments 1,094,179 512,270 126,117 7,813
Net change in unrealized
appreciation/depreciation
of investments:
Beginning of the period 1,220,253 389,358 -- --
End of the period (3,161,891) (837,378) (1,314,126) (698,023)
----------- ----------- ----------- ---------
Net change in unrealized
appreciation/depreciation
of investments (4,382,144) (1,226,736) (1,314,126) (698,023)
----------- ----------- ----------- ---------
Net realized and
unrealized capital
(loss) from investments (3,287,965) (714,466) (1,188,009) (690,210)
Decrease from operations $(3,249,829) $ (705,823) $(1,188,923) $(689,641)
=========== =========== =========== =========
</TABLE>
(1) Commencement of operations, January 4, 1999.
See accompanying notes
-9-
<PAGE>
Statements of Changes in Contract Owners' Equity
PFL Endeavor Target Account
For the year ended December 31, 1999 and for the period July 1, 1998
(commencement of operations) through December 31, 1998, except as noted
<TABLE>
<CAPTION>
Dow Target 5 Dow Target 10 Dow Target 5 Dow Target 10
July Series July Series January Series January Series
Subaccount Subaccount Subaccount Subaccount
1999 1998 1999 1998 1999(1) 1999(1)
----------- ----------- ----------- ----------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Operations
Net investment income
(loss) $ 38,136 $ 4,821 $ 8,643 $ 5,440 $ (914) $ 569
Net realized capital
gain 1,094,179 -- 512,270 -- 126,117 7,813
Net change in
unrealized
appreciation/
depreciation of
investments (4,382,144) 1,220,253 (1,226,736) 389,358 (1,314,126) (698,023)
----------- ----------- ----------- ----------- ----------- -----------
Increase (decrease)
from operations (3,249,829) 1,225,074 (705,823) 394,798 (1,188,923) (689,641)
----------- ----------- ----------- ----------- ----------- -----------
Contract transactions
Net contract purchase
payments 6,265,956 9,410,629 5,640,536 6,950,064 6,605,239 7,479,940
Transfer payments from
other subaccounts or
general account 803,957 3,801,466 2,238,202 2,952,437 2,961,916 3,874,139
Contract terminations,
withdrawals, and
other deductions (971,056) (180,568) (923,723) (69,567) (145,600) (115,314)
----------- ----------- ----------- ----------- ----------- -----------
Increase from contract
transactions 6,098,857 13,031,527 6,955,015 9,832,934 9,421,555 11,238,765
----------- ----------- ----------- ----------- ----------- -----------
Net increase in
contract owners'
equity 2,849,028 14,256,601 6,249,192 10,227,732 8,232,632 10,549,124
Beginning of the
period 14,256,601 -- 10,227,732 -- -- --
----------- ----------- ----------- ----------- ----------- -----------
End of the period $17,105,629 $14,256,601 $16,476,924 $10,227,732 $ 8,232,632 $10,549,124
=========== =========== =========== =========== =========== ===========
</TABLE>
Contract owner's equity
(1) Commencement of operations, January 4, 1999
See accompanying notes
-10-
<PAGE>
Notes to Financial Statements
PFL Endeavor Target Account
December 31, 1999
1.Organization and Summary of Significant Accounting Policies
Organization:
The PFL Endeavor Target Account (the Target Account) is a segregated investment
subaccount of PFL Life Insurance Company (PFL Life), an indirect wholly-owned
subsidiary of AEGON N.V., a holding company organized under the laws of The
Netherlands.
The Target Account is registered with the Securities and Exchange Commission
(SEC) as an open-end management investment company pursuant to provisions of
the Investment Company Act of 1940. The SEC, however, does not supervise the
management or the investment practices or policies of the Target Account. The
Target Account is currently divided into four investment subaccounts, DOW
Target 5--July Series (Target 5--July), DOW Target 10--July Series (Target 10--
July), DOW Target 5--January Series (Target 5--January) and DOW Target 10--
January Series (Target 10--January). These four investment subaccounts are
collectively referred to as the subaccounts. Investment activity in these
investment subaccounts is available for investment to contract owners of The
Endeavor Variable Annuity, The Endeavor Platinum Variable Annuity, and The
Endeavor ML Variable Annuity (the Variable Annuities), issued by PFL Life. Net
purchase payments received by the Target Account for the Variable Annuities are
invested in the subaccounts as selected by the contract owner. The Target 5--
July and Target 10--July commenced operations on July 1, 1998. The Target 5--
January and Target 10--January commenced operations on January 4, 1999.
Portfolio Valuation:
The Target Account's investments are valued at market value as determined using
the last reported sale price at the close of the New York Stock Exchange on
December 31, 1999.
Securities Transactions and Investment Income:
Securities transactions are recorded as of the trade date. Realized gains and
losses from securities transactions are recorded on the identified cost basis.
Dividend income is recorded on the ex-dividend date. Unrealized gains or losses
from investments are credited or charged to contract owners' equity.
Concentration of Risk:
An investment in the Target Account may be subject to additional risk due to
the relative lack of diversity in its portfolio.
Income Taxes:
Operations of the Target Account form a part of PFL Life, which is taxed as a
life insurance company under Subchapter L of the Internal Revenue Code of 1986,
as amended (the "Code"). The operations of the Target Account are accounted for
separately from other operations of PFL Life for purposes of federal income
taxation. The Target Account is not separately taxable as a regulated
investment company under Subchapter M of the Code and is not otherwise taxable
as an entity separate from PFL Life. Under existing federal income tax laws,
the income of the Target Account, to the extent applied to increase reserves
under the variable annuity contracts, is not taxable to PFL Life.
2.Fees and Expenses
The Target Account is managed by Endeavor Management Company, (the Investment
Manager), an affiliate of PFL Life pursuant to a management agreement. The
Investment Manager is responsible for providing
-11-
<PAGE>
Notes to Financial Statements
PFL Endeavor Target Account
December 31, 1999
2.Fees and Expenses (continued)
investment management and administrative services to the Target Account. First
Trust Advisers L.P. (the Adviser) is the Account's investment Adviser. As
compensation for these services, the Target Account pays the Investment Manager
a monthly fee based on a percentage of the average daily net assets at the
annual rate of 0.75% for each Subaccount. In addition, the Investment Manager
pays the Adviser a fee equal to 0.35% of the average daily net assets.
The Subaccounts pay all expenses not assumed by the Investment Manager. PFPC
Inc. (PFPC), formerly First Data Investor Services Group, Inc., a majority-
owned subsidiary of PNC Bank Corp, serves as Administrator to the Subaccounts
and is paid a flat fee of $10,000 per annum for each Subaccount. PFPC also
serves as the Fund's transfer agent.
From time to time the Investment Manager may waive a portion or all of the fees
otherwise payable to it and/or reimburse the Target Account for expenses. The
Investment Manager has voluntarily undertaken to waive its fees and has agreed
to bear certain expenses to ensure that total expenses do not exceed 1.30% of
the Subaccount's average daily net assets. For the period ended December 31,
1999, the Investment Manager waived and reimbursed expenses of $3,180 for the
Target 5--January and $3,430 for the Target 10--January. Boston Safe Deposit
and Trust Company (BSDT), an indirect wholly-owned subsidiary of Mellon Bank
Corporation, serves as the Subaccounts' custodian. BSDT has agreed to
compensate the Target Account and decrease custody fees for cash balances left
uninvested by the Subaccounts. For the period ended December 31, 1999, the
Target Account's expenses were reduced as follows: DOW Target 5--July Series
$4,698, DOW Target 10--July Series $1,621, DOW Target 5--January Series $3,852,
DOW Target 10--January Series $4,944.
No director, officer or employee of the Investment Manager, Endeavor Management
Co., the Advisers or PFPC received any compensation from the Fund for serving
as an officer or Trustee of the Fund. The Target Account pays each Trustee who
is not a director, officer or employee of the Investment Manager, Endeavor
Management Co., the Advisers, PFPC or any of their affiliates $1,000 per annum
plus $100 per regularly scheduled meeting attended and reimburses them for
travel and out-of-pocket expenses.
Administrative charges include an annual charge of the lesser of 2% of the
policy value or $35 per contract which will commence on the first policy
anniversary of each contract owner's account. For policies issued on or after
May 1, 1995, the fee is waived if the sum of the premium payments less the sum
of all partial withdrawals is at least $50,000 on the policy anniversary.
Charges for administrative fees to the variable annuity contracts are an
expense of the Target Account.
PFL Life deducts a daily charge for assuming certain mortality and expense
risks. For the 5% Annually Compounding Death Benefit and the Annual Step-Up
Death Benefit, this charge is equal to an effective annual rate of 1.25% of the
value of the contract owners' individual account. For the Return of Premium
Death Benefit, the corresponding charge is equal to an effective annual rate of
1.10% of the value of the contract owners' individual account. PFL Life also
deducts a daily administrative charge equal to an annual rate of .15% of the
contract owners' account for administrative expenses. For certain policies of
Endeavor Variable Annuity and of Endeavor ML Variable annuity sold on or after
May 1, 1997, during the first seven policy years, PFL Life deducts a daily
Distribution Finance Charge equal to an effective annual rate of .15% of the
contract owners' account. For certain policies of Endeavor Platinum Variable
Annuity sold on or after May 1, 1997, during the first ten policy years, PFL
Life deducts a daily Distribution Finance Charge equal to an effective annual
rate of .25% of the contract owners' account.
-12-
<PAGE>
Notes to Financial Statements
PFL Endeavor Target Account
December 31, 1999
3.Securities Transactions
The aggregate cost of purchases and proceeds from sales of investments were as
follows:
<TABLE>
<CAPTION>
Period Ended December 31,
-----------------------------------------
1999 1998
----------------------- -----------------
Purchases Sales Purchases Sales
----------- ----------- ----------- -----
<S> <C> <C> <C> <C>
Dow Target 5--July Series Subaccount $22,486,933 $16,651,910 $13,341,560 $--
Dow Target 10--July Series
Subaccount 12,059,101 5,495,778 10,270,166 --
Dow Target 5--January Series
Subaccount 16,662,993 7,350,304 -- --
Dow Target 10--January Series
Subaccount 11,936,647 1,317,414 -- --
</TABLE>
Net unrealized appreciation (depreciation) of investments at December 31, 1999
was composed of the following:
<TABLE>
<CAPTION>
Gross Gross Net
Unrealized Unrealized Unrealized
Appreciation (Depreciation) (Depreciation)
------------ -------------- --------------
<S> <C> <C> <C>
Dow Target 5--July Series
Subaccount $459,735 $(3,621,626) $(3,161,891)
Dow Target 10--July Series
Subaccount 985,324 (1,822,702) (837,378)
Dow Target 5--January Series
Subaccount 126,429 (1,440,555) (1,314,126)
Dow Target 10--January Series
Subaccount 316,006 (1,014,029) (698,023)
</TABLE>
4.Contract Owners' Equity
A summary of deferred annuity contracts terminable by owners at December 31,
1999 follows:
<TABLE>
<CAPTION>
5% Annually Compounding Death Benefit
Return of Premium Death Benefit or Annual Step-Up Death Benefit
------------------------------------------ -----------------------------------------
Accumulation Accumulation Total Accumulation Accumulation Total
Units Owned Unit Value Contract Value Units Owned Unit Value Contract Value
--------------------------- -------------- ------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Dow Target 5 July Series Subaccount:
PFL Endeavor Variable
Annuity 3,560,121.053 $0.964682 $3,434,385 6,044,673.955 $0.9625370 $ 5,818,222
PFL ML Endeavor
Variable Annuity 316,390.762 0.964682 305,216 1,693,185.989 0.9625370 1,629,754
Platinum Endeavor
Variable Annuity 2,408,403.037 0.963257 2,319,911 3,743,680.459 0.9611240 3,598,141
---------- -----------
$6,059,512 $11,046,117
========== ===========
Dow Target 10 July Series Subaccount:
PFL Endeavor Variable
Annuity 2,604,042.102 $1.012659 $2,637,007 3,802,468.359 $1.0104070 $ 3,842,041
PFL ML Endeavor
Variable Annuity 687,276.775 1.012659 695,977 3,364,745.488 1.0104070 3,399,762
Platinum Endeavor
Variable Annuity 674,029.923 1.011156 681,549 5,174,488.123 1.0089090 5,220,588
---------- -----------
$4,014,533 $12,462,391
========== ===========
Dow Target 5 January Series
Subaccount:
PFL Endeavor Variable
Annuity 2,262,326.395 $0.911385 $2,061,850 2,552,038.211 $0.9100510 $ 2,322,485
PFL ML Endeavor
Variable Annuity 46,507.851 0.911385 42,387 1,633,364.991 0.9100510 1,486,445
Platinum Endeavor
Variable Annuity 712,871.386 0.910498 649,068 1,837,280.736 0.9091680 1,670,397
---------- -----------
$2,753,305 $ 5,479,327
========== ===========
Dow Target 10 January Series
Subaccount:
PFL Endeavor Variable
Annuity 1,479,044.370 $0.984382 $1,455,945 2,676,674.440 $0.9829410 $ 2,631,013
PFL ML Endeavor
Variable Annuity 343,714.780 0.984382 338,347 2,389,259.511 0.9829410 2,348,501
Platinum Endeavor
Variable Annuity 352,436.88 0.983416 346,592 3,491,645.413 0.9819800 3,428,726
---------- -----------
$2,140,884 $ 8,408,240
========== ===========
</TABLE>
-13-
<PAGE>
Notes to Financial Statements
PFL Endeavor Target Account
December 31, 1999
4.Contract Owners' Equity (continued)
A summary of changes in contract owners' account units follows:
<TABLE>
<CAPTION>
Dow Target 5 Dow Target 10 Dow Target 5 Dow Target 10
July Series July Series January Series January Series
Subaccount Subaccount Subaccount Subaccount
------------ ------------- -------------- --------------
<S> <C> <C> <C> <C>
Units outstanding--July
1, 1998 -- -- -- --
Units purchased 9,327,979 7,452,618 -- --
Units redeemed and
transferred 3,385,907 2,438,951 -- --
---------- ---------- --------- ----------
Units outstanding Decem-
ber 31, 1998 12,713,886 9,891,569 -- --
Units purchased 5,700,605 5,395,473 6,590,696 7,280,357
Units redeemed and
transferred (648,036) 1,020,008 2,453,693 3,452,418
---------- ---------- --------- ----------
Units outstanding Decem-
ber 31, 1999 17,766,455 16,307,050 9,044,389 10,732,775
========== ========== ========= ==========
</TABLE>
-14-
<PAGE>
Report of Ernst & Young, LLP, Independent Auditors
The Board of Directors and Contract Owners
of the PFL Endeavor Target Account
We have audited the accompanying statements of assets and liabilities,
including the schedule of investments, of PFL Endeavor Target Account
(comprised of the Dow Target 5 July Series, Dow Target 10 July Series, Dow
Target 5 January Series, Dow Target 10 January Series subaccounts), as of
December 31, 1999, and the related statements of operations for the period
indicated thereon and changes in contract owners' equity for the periods
indicated thereon. These financial statements are the responsibility of the
Account's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1999, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and schedules of investments referred
to above present fairly, in all material respects, the financial position of
each of the respective subaccounts constituting the PFL Endeavor Target Account
at December 31, 1999, and the results of their operations for the period
indicated thereon and changes in their contract owners' equity for the periods
indicated thereon in conformity with accounting principles generally accepted
in the United States.
/s/ Ernst & Young LLP
Des Moines, Iowa
February 4, 2000
-15-
<PAGE>
PART C
------
OTHER INFORMATION
Item 28. Financial Statements and Exhibits
<TABLE>
<CAPTION>
(a) Financial Statements:
All required financial statements are included in Part B of this
Registration Statement.
(b) Exhibits:
<S> <C>
(1) Resolution of the Board of Directors of PFL Life Insurance
Company authorizing the establishment of the Target
Account. (Note 7)
(2) Rules and Regulations of the Target Account. (Note 10)
(3)(a) Custodian Agreement between the Target Account and Boston
Safe Deposit and Trust Company (Note 10)
(3)(b) Not Applicable.
(4)(a) Management Agreement between the Target Account and
Endeavor Investment Advisers. (Note 10)
(4)(b)(1) Investment Advisory Agreement between Endeavor Investment
Advisers and First Trust Advisers L.P. (DJIA Target
5)(Note 10)
(4)(b)(2) Investment Advisory Agreement between Endeavor Investment
Advisers and First Trust Advisers L.P. (DJIA Target
10)(Note 10)
(5)(a) Principal Underwriting Agreement by and between PFL Life
Insurance Company on its own behalf and on behalf of the
Target Account, and AEGON 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 8)
(5)(a)(2) Termination of Principal Underwriting Agreement by and
between AEGON USA Securities Inc., formerly known as
MidAmerica Managers Corporation, and PFL Life Insurance
Company on its own behalf and on the behalf of PFL
Endeavor Variable Annuity Account. (Note. 10)
(5)(b) Form of Broker-Dealer Supervision and Sales Agreement by
and between AFSG Securities Corporation and the
Broker-Dealer. (Note 8)
(6)(a) Form of Policy for the Endeavor Platinum Variable Annuity.
(Note 3)
(6)(b) Amended pages to Form of Policy for Endeavor Platinum
Variable Annuity. (Note 4)
(6)(c) Form of Policy Endorsement (Death Benefits). (Note 5)
(6)(d) Form of Policy for the Endeavor Platinum Variable Annuity.
(Note 6)
(6)(e) Form of Policy Endorsement (Nursing Care). (Note 6)
</TABLE>
<PAGE>
(6)(f) Form of Policy Endorsement (Nike Securities). (Note 8)
(6)(g) Form of Policy for the PFL Endeavor Platinum Variable
Annuity. (Note. 8)
(6)(h) Form of Policy Endorsement (GMIB). (Note 10)
(7)(a) Form of Application for PFL Endeavor Platinum Variable
Annuity. (Note 6)
(7)(b) Form of Application for PFL Endeavor Platinum Variable
Annuity. (Note. 8)
(7)(c) Form of Application for PFL Endeavor Platinum Variable
Annuity. (Note 10)
(8)(a) Articles of Incorporation of PFL Life Insurance Company.
(Note 8)
(8)(b) Bylaws of PFL Life Insurance Company. (Note 8)
(9) Not Applicable.
(10) Not Applicable.
(11)(a) Distribution Plan (Note 10).
(11)(b) Administrative Services Agreement with First Data
Investors Services Group (Note 10).
(11)(b)(1) Amended Schedule A and Schedule B to the Administrative
Services Agreement (Note 12).
(11)(c) Brokerage Enhancement Plan. (Note 10)
(11)(d) Sublicense Agreement between Dow Jones, First Trust
Advisers L.P. and the Target Account. (Note 11)
(11)(e) Distribution Agreement (Note 10)
(12) Opinion and Consent of Counsel (Note 8).
(13)(a) Opinion and Consent of Actuary (Note 10).
(13)(b) Consent of Independent Auditors (Note 12).
(14) Not Applicable.
(15) Not Applicable.
(16) Performance Data Calculations (Note 11)
(17) Financial Data Schedules. (Note 11)
- --------------------
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
incorporated herein by reference.
Note 3. Filed with Pre-Effective Amendment No. 1 to Form N-4 Registration
Statement (File No. 33-56908) on December 6, 1993, and filed
herewith.
<PAGE>
Note 4. Filed with Post-Effective Amendment No. 1 to Form N-4
Registration Statement (File No. 33-56908) on February 28, 1994,
and filed herewith.
Note 5. Filed with Post-Effective Amendment No. 5 to Form N-4
Registration Statement (File No. 33-56908) on April 27, 1995 and
incorporated herein by reference.
Note 6. Filed with Post-Effective Amendment No. 7 to Form N-4
Registration Statement (File No. 33-56908) on April 29, 1997 and
incorporated herein by reference.
Note 7. Filed with the initial filing of Form N-3 Registration Statement
(File No. 333-36297) on September 24, 1997.
Note 8. Filed with Pre-Effective Amendment No. 2 to Form N-3 Registration
Statement (File No. 333-36297) on February 27, 1998.
Note 9. Filed with Pre-Effective Amendment No. 3 to this Form N-3
Registration Statement (File No. 333-36297) on April 27, 1998.
Note 10. Filed with Post-Effective Amendment No. 1 to this Form N-3
Registration Statement (File No. 333-36297) on
September 28, 1998.
Note 11. Filed with Post-Effective Amendment No. 2 to this Form N-3
Registration Statement (File No. 333-36297) on April 28,
1999.
Note 12. Filed herewith.
<PAGE>
<TABLE>
<CAPTION>
Item 29. Directors and Officers of the Insurance Company
- -------------------------------------------------------------------------------------------------------------------------
Name and Principal Business Positions and Offices with Positions and Offices with
Address Insurance Company Registrant
- ------- ----------------- ----------
<S> <C> <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 Chief
4333 Edgewood Road N.E. Operating Officer
Cedar Rapids, Iowa
52499-0001
- -------------------------------------------------------------------------------------------------------------------------
Craig D. Vermie Director, Vice President, Secretary and
4333 Edgewood Road N.E. General Counsel
Cedar Rapids, Iowa
52499-0001
- -------------------------------------------------------------------------------------------------------------------------
Douglas C. Kolsrud Director, Senior Vice President, Chief Investment Officer and Corporate
4333 Edgewood Road N.E. Actuary
Cedar Rapids, Iowa
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 Corporate Controller
4333 Edgewood Road N.E.
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>
<PAGE>
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 51.16% of Vereniging Holding company
AEGON Netherlands
Membership Association
Groninger Financieringen B.V. Netherlands 100% AEGON N.V. Holding company
AEGON Netherland N.V. Netherlands 100% AEGON N.V. Holding company
AEGON Nevak Holding B.V. Netherlands 100% AEGON N.V. Holding company
AEGON International N.V. Netherlands 100% AEGON N.V. Holding company
Voting Trust Trustees: Delaware Voting Trust
K.J. Storm
Donald J. Shepard H.B.
Van Wijk Dennis Hersch
AEGON U.S. Holding Corporation Delaware 100% Voting Trust Holding company
Short Hills Management Company New Jersey 100% AEGON U.S. Holding company
Holding Corporation
CORPA Reinsurance Company New York 100% AEGON U.S. Holding company
Holding Corporation
AEGON Management Company Indiana 100% AEGON U.S. Holding company
Holding Corporation
RCC North America Inc. Delaware 100% AEGON U.S. Holding company
Holding Corporation
AEGON USA, Inc. Iowa 100% AEGON U.S. Holding company
Holding Corporation
Transamerica Holding Company Delaware 100% AEGON USA, Inc. Holding Company
AEGON Funding Corp. Delaware 100% Transamerica Issue debt securities-net
Holding Company proceeds used to make
loans to affiliates
First AUSA Life Insurance Maryland 100% AEGON USA, Inc. Insurance holding company
Company
AUSA Life Insurance New York 82.33% First AUSA Life Insurance
Company, Inc. Insurance Company
17.67% Veterans Life
Insurance Company
Life Investors Insurance Iowa 100% First AUSA Life Ins. Co. Insurance
Company of America
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Life Investors Alliance, LLC Delaware 100% LIICA Purchase, own, and hold the
equity interest of other
entities
Great American Insurance Iowa 100% LIICA Marketing
Agency, Inc.
Bankers United Life Iowa 100% Life Investors Ins. Insurance
Assurance Company Company of America
PFL Life Insurance Company Iowa 100% First AUSA Life Ins. Co. Insurance
AEGON Financial Services Minnesota 100% PFL Life Insurance Co. Marketing
Group, Inc.
AEGON Assignment Corporation Kentucky 100% AEGON Financial Administrator of structured
of Kentucky Services Group, Inc. settlements
AEGON Assignment Corporation Illinois 100% AEGON Financial Administrator of structured
Services Group, Inc. settlements
Southwest Equity Life Ins. Co. Arizona 100% of Common Voting Stock Insurance
First AUSA Life Ins. Co.
Iowa Fidelity Life Insurance Co. Arizona 100% of Common Voting Stock Insurance
First AUSA Life Ins. Co.
Western Reserve Life Assurance Ohio 100% First AUSA Life Ins. Co. Insurance
Co. of Ohio
WRL Series Fund, Inc. Maryland Various Mutual fund
WRL Investment Services, Inc. Florida 100% Western Reserve Life Provides administration for
Assurance Co. of Ohio affiliated mutual fund
WRL Investment Florida 100% Western Reserve Life Registered investment advisor
Management, Inc. Assurance Co. of Ohio
ISI Insurance Agency, Inc. California 100% Western Reserve Life Insurance agency
And Subsidiaries Assurance Co. of Ohio
ISI Insurance Agency Alabama 100% ISI Insurance Agency, Inc. Insurance Agency
of Alabama, Inc.
ISI Insurance Agency Ohio 100% ISI Insurance Agency, Inc. Insurance agency
of Ohio, Inc.
ISI Insurance Agency Massachusetts 100% ISI Insurance Agency Inc. Insurance Agency
of Massachusetts, Inc.
ISI Insurance Agency Texas 100% ISI Insurance Agency, Inc. Insurance agency
of Texas, Inc.
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
ISI Insurance Agency Hawaii 100% ISI Insurance Insurance agency
of Hawaii, Inc. Agency, Inc.
ISI Insurance Agency New Mexico 100% ISI Insurance Insurance agency
New Mexico, Inc. Agency, Inc.
AEGON Equity Group, Inc. Florida 100% Western Reserve Life Insurance Agency
Assurance Co. of Ohio
Monumental General Casualty Co. Maryland 100% First AUSA Life Ins. Co. Insurance
United Financial Services, Inc. Maryland 100% First AUSA Life Ins. Co. General agency
Bankers Financial Life Ins. Co. Arizona 100% First AUSA Life Ins. Co. Insurance
The Whitestone Corporation Maryland 100% First AUSA Life Ins. Co. Insurance agency
Cadet Holding Corp. Iowa 100% First AUSA Life Holding company
Insurance Company
Monumental General Life Puerto Rico 51% First AUSA Life Insurance
Insurance Company of Insurance Company
Puerto Rico 49% Baldrich & Associates
of Puerto Rico
AUSA Holding Company Maryland 100% AEGON USA, Inc. Holding company
Monumental General Insurance Maryland 100% AUSA Holding Co. Holding company
Group, Inc.
Trip Mate Insurance Agency, Inc. Kansas 100% Monumental General Sale/admin. of travel
Insurance Group, Inc. insurance
Monumental General Maryland 100% Monumental General Provides management srvcs.
Administrators, Inc. Insurance Group, Inc. to unaffiliated third party
administrator
Executive Management and Maryland 100% Monumental General Provides actuarial consulting
Consultant Services, Inc. Administrators, Inc. services
Monumental General Mass Maryland 100% Monumental General Marketing arm for sale of
Marketing, Inc. Insurance Group, Inc. mass marketed insurance
coverages
AUSA Financial Markets, Inc. Iowa 100% AUSA Holding Co. Marketing
Transamerica Capital, Inc. California 100% AUSA Holding Co. Broker/Dealer
Endeavor Management Company California 100% AUSA Holding Co. Investment Management
Universal Benefits Corporation Iowa 100% AUSA Holding Co. Third party administrator
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Investors Warranty of Iowa 100% AUSA Holding Co. Provider of automobile
America, Inc. extended maintenance
contracts
Massachusetts Fidelity Trust Co. Iowa 100% AUSA Holding Co. Trust company
Money Services, Inc. Delaware 100% AUSA Holding Co. Provides financial counseling
for employees and agents of
affiliated companies
ADB Corporation Delaware 100% Money Services, Inc. Special purpose limited
Liability company
ORBA Insurance Services, Inc. California 10.56% Money Services, Inc. Insurance agency
Zahorik Company, Inc. California 100% AUSA Holding Co. Broker-Dealer
ZCI, Inc. Alabama 100% Zahorik Company, Inc. Insurance agency
Zahorik Texas, Inc. Texas 100% Zahorik Company, Inc. Insurance agency
Long, Miller & Associates, L.L.C. California 33-1/3% AUSA Holding Co. Insurance agency
AEGON Asset Management Delaware 100% AUSA Holding Co. Registered investment advisor
Services, Inc.
InterSecurities, Inc. Delaware 100% AUSA Holding Co. Broker-Dealer
Associated Mariner Financial Michigan 100% InterSecurities, Inc. Holding co./management
Group, Inc. services
Associated Mariner Ins. Agency Massachusetts 100% Associated Mariner Insurance agency
of Massachusetts, Inc. Agency, Inc.
Associated Mariner Agency Ohio 100% Associated Mariner Insurance agency
Ohio, Inc. Agency, Inc.
Associated Mariner Agency Texas 100% Associated Mariner Insurance agency
Texas, Inc. Agency, Inc.
Idex Investor Services, Inc. Florida 100% AUSA Holding Co. Shareholder services
Idex Management, Inc. Delaware 100% AUSA Holding Co. Investment advisor
IDEX Mutual Funds Massachusetts Various Mutual fund
Diversified Investment Delaware 100% AUSA Holding Co. Registered investment advisor
Advisors, Inc.
Diversified Investors Securities Delaware 100% Diversified Investment Broker-Dealer
Corp. Advisors, Inc.
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
George Beram & Company, Inc. Massachusetts 100% Diversified Investment Employee benefit and
Advisors, Inc. actuarial consulting
AEGON USA Securities, Inc. Iowa 100% AUSA Holding Co. Broker-Dealer (De-registered)
Creditor Resources, Inc. Michigan 100% AUSA Holding Co. Credit insurance
CRC Creditor Resources Canada 100% Creditor Resources, Inc. Insurance agency
Canadian Dealer Network Inc.
Weiner Agency, Inc. Maryland 100% Creditor Resources, Inc. Insurance agency
AEGON USA Investment Iowa 100% AUSA Holding Co. Investment advisor
Management, Inc.
AEGON USA Realty Iowa 100% AUSA Holding Co. Provides real estate
Advisors, Inc. administrative and real
estate investment services
AEGON USA Real Estate Delaware 100% AEGON USA Realty Real estate and mortgage
Services, Inc. Advisors, Inc. holding company
QSC Holding, Inc. Delaware 100% AEGON USA Realty Real estate and financial
Advisors, Inc. software production and sales
LRA, Inc. Iowa 100% AEGON USA Realty Real estate counseling
Advisors, Inc.
Landauer Associates, Inc. Delaware 100% AEGON USA Realty Real estate counseling
Advisors, Inc.
Landauer Realty Associates, Inc. Texas 100% Landauer Associates, Inc. Real estate counseling
Realty Information Systems, Inc. Iowa 100% AEGON USA Realty Information Systems for
Advisors, Inc. real estate investment
management
USP Real Estate Investment Trust Iowa 12.89% First AUSA Life Ins. Co. Real estate investment trust
13.11% PFL Life Ins. Co.
4.86% Bankers United Life
Assurance Co.
RCC Properties Limited Iowa AEGON USA Realty Advisors, Limited Partnership
Partnership Inc. is General Partner and 5%
owner.
Commonwealth General Delaware 100% AEGON USA, Inc. Holding company
Corporation ("CGC")
AFSG Securities Corporation Pennsylvania 100% CGC Broker-Dealer
Benefit Plans, Inc. Delaware 100% CGC TPA for Peoples Security Life
Insurance Company
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Durco Agency, Inc. Virginia 100% Benefit Plans, Inc. General agent
Capital 200 Block Corporation Delaware 100% CGC Real estate holdings
Capital Real Estate Delaware 100% CGC Furniture and equipment
Development Corporation lessor
Commonwealth General. Kentucky 100% CGC Administrator of structured
Assignment Corporation settlements
Diversified Financial Products Inc. Delaware 100% CGC Provider of investment,
marketing and admin. services
to ins. cos.
Monumental Agency Group, Inc. Kentucky 100% CGC Provider of srvcs. to ins. cos.
PB Investment Advisors, Inc. Delaware 100% CGC Registered investment advisor
(de-registered)
Southlife, Inc. Tennessee 100% CGC Investment subsidiary
Commonwealth General LLC Turks & 100% CGC Special-purpose subsidiary
Caicos Islands
Ampac Insurance Agency, Inc. Pennsylvania 100% CGC Provider of management
(EIN 23-1720755) support services
Compass Rose Development Pennsylvania 100% Ampac Insurance Special-purpose subsidiary
Corporation Agency, Inc.
Financial Planning Services, Inc. Dist. Columbia 100% Ampac Insurance Special-purpose subsidiary
Agency, Inc.
Frazer Association Illinois 100% Ampac Insurance TPA license-holder
Consultants, Inc. Agency, Inc.
National Home Life Corporation Pennsylvania 100% Ampac Insurance Special-purpose subsidiary
Agency, Inc.
Valley Forge Associates, Inc. Pennsylvania 100% Ampac Insurance Furniture & equipment lessor
Agency, Inc.
Veterans Benefits Plans, Inc. Pennsylvania 100% Ampac Insurance Administrator of group
Agency, Inc. insurance programs
Veterans Insurance Services, Inc. Delaware 100% Ampac Insurance Special-purpose subsidiary
Agency, Inc.
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Academy Insurance Group, Inc. Delaware 100% CGC Holding company
Academy Life Insurance Co. Missouri 100% Academy Insurance Insurance company
Group, Inc.
Pension Life Insurance New Jersey 100% Academy Life Insurance company
Company of America Insurance Company
FED Financial, Inc. Delaware 100% Academy Insurance Special-purpose subsidiary
Group, Inc.
Ammest Development Corp. Inc. Kansas 100% Academy Insurance Special-purpose subsidiary
Group, Inc.
Ammest Insurance Agency, Inc. California 100% Academy Insurance General agent
Group, Inc.
Ammest Massachusetts Massachusetts 100% Academy Insurance Special-purpose subsidiary
Insurance Agency, Inc. Group, Inc.
Ammest Realty, Inc. Pennsylvania 100% Academy Insurance Special-purpose subsidiary
Group, Inc.
Ampac, Inc. Texas 100% Academy Insurance Managing general agent
Group, Inc.
Ampac Insurance Agency, Inc. Pennsylvania 100% Academy Insurance Special-purpose subsidiary
(EIN 23-2364438) Group, Inc.
Force Financial Group, Inc. Delaware 100% Academy Insurance Special-purpose subsidiary
Group, Inc.
Force Financial Services, Inc. Massachusetts 100% Force Fin. Group, Inc. Special-purpose subsidiary
Military Associates, Inc. Pennsylvania 100% Academy Insurance Special-purpose subsidiary
Group, Inc.
NCOAA Management Company Texas 100% Academy Insurance Special-purpose subsidiary
Group, Inc.
NCOA Motor Club, Inc. Georgia 100% Academy Insurance Automobile club
Group, Inc.
Unicom Administrative Pennsylvania 100% Academy Insurance Provider of admin. services
Services, Inc. Group, Inc.
Unicom Administrative Germany 100% Unicom Administrative Provider of admin. services
Services, GmbH Services, Inc.
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Capital General Development Delaware 100% CGC Holding company
Corporation
Monumental Life Maryland 73.23% Capital General Insurance company
Insurance Company Development Company
26.77% First AUSA Life
Insurance Company
AEGON Special Markets Maryland 100% Monumental Life Marketing company
Group, Inc. Insurance Company
Peoples Benefit Life Missouri 3.7% CGC Insurance company
Insurance Company 20.0% Capital Liberty, L.P.
76.3% Monumental Life
Insurance Company
Veterans Life Insurance Co. Illinois 100% Peoples Benefit Insurance company
Life Insurance Company
Peoples Benefit Services, Inc. Pennsylvania 100% Veterans Life Ins. Co. Special-purpose subsidiary
Coverna Direct Insurance Maryland 100% Peoples Benefit Insurance agency
Insurance Services, Inc. Life Insurance Company
Ammest Realty Corporation Texas 100% Monumental Life Special purpose subsidiary
Insurance Company
JMH Operating Company, Inc. Mississippi 100% Monumental Life Real estate holdings
Insurance Company
Capital Liberty, L.P. Delaware 99.0% Monumental Life Holding Company
Insurance Company
1.0% CGC
Transamerica Corporation Delaware 100% AEGON NV Major interest in insurance
and finance
Transamerica Pacific Insurance Hawaii 100% Transamerica Corp. Life insurance
Company, Ltd.
TREIC Enterprises, Inc. Delaware 100% Transamerica Corp. Investments
ARC Reinsurance Corporation Hawaii 100% Transamerica Corp. Property & Casualty Ins.
Transamerica Management, Inc. Delaware 100% ARC Reinsurance Corp. Asset management
Inter-America Corporation California 100% Transamerica Corp. Insurance Broker
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Pyramid Insurance Company, Ltd. Hawaii 100% Transamerica Corp. Property & Casualty Ins.
Pacific Cable Ltd. Bmda. 100% Pyramid Ins. Co., Ltd. Sold 25% of TC Cable, Inc.
stock in 1998
Transamerica Business Tech Corp. Delaware 100% Transamerica Corp. Telecommunications and
data processing
Transamerica CBO I, Inc. Delaware 100% Transamerica Corp. Owns and manages a pool of
high-yield bonds
Transamerica Corporation (Oregon) Oregon 100% Transamerica Corp. Name holding only-Inactive
Transamerica Finance Corp. Delaware 100% Transamerica Corp. Commercial & Consumer
Lending & equip. leasing
TA Leasing Holding Co., Inc. Delaware 100% Transamerica Fin. Corp. Holding company
Trans Ocean Ltd. Delaware 100% TA Leasing Hldg Co. Inc. Holding company
Trans Ocean Container Corp. Delaware 100% Trans Ocean Ltd. Intermodal Leasing
("TOCC")
SpaceWise Inc. Delaware 100% TOCC Intermodal leasing
Trans Ocean Container
Finance Corp. Delaware 100% TOCC Intermodal leasing
Trans Ocean Leasing
Deutschland GmbH Germany 100% TOCC Intermodal leasing
Trans Ocean Leasing PTY Ltd. Austria 100% TOCC Intermodal leasing
Trans Ocean Management S.A. Switzerland 100% TOCC Intermodal leasing
Trans Ocean Regional
Corporate Holdings California 100% TOCC Holding company
Trans Ocean Tank Services Corp. Delaware 100% TOCC Intermodal leasing
Transamerica Leasing Inc. Delaware 100% TA Leasing Holding Co. Leases & Services intermodal
equipment
Transamerica Leasing Holdings Delaware 100% Transamerica Leasing Inc. Holding Company
Inc. ("TLHI")
Greybox Logistics Services Inc. Delaware 100% TLHI Intermodal Leasing
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Greybox L.L.C. Delaware 100% TLHI Intermodal freight container
interchange facilitation
service
Transamerica Trailer France 100% Greybox L.L.C. Leasing
Leasing S.N.C.
Greybox Services Limited U.K. 100% TLHI Intermodal Leasing
Intermodal Equipment, Inc. Delaware 100% TLHI Intermodal leasing
Transamerica Leasing N.V. Belg. 100% Intermodal Equipment Inc. Leasing
Transamerica Leasing SRL Italy 100% Intermodal Equipment Inc. Leasing
Transamerica Distribution Delaware 100% TLHI Provided door-to-door
Services, Inc. services for the domestic
transportation of temperature-
sensitive products
Transamerica Leasing Belg. 100% TLHI Leasing
Coordination Center
Transamerica Leasing do Braz. 100% TLHI Container Leasing
Brasil Ltda.
Transamerica Leasing GmbH Germany 100% TLHI Leasing
Transamerica Leasing Limited U.K. 100% TLHI Leasing
ICS Terminals (UK) Limited U.K. 100% Transamerica. Leasing
Leasing Limited
Transamerica Leasing Pty. Ltd. Australia 100% TLHI Leasing
Transamerica Leasing (Canada) Inc. Canada 100% TLHI Leasing
Transamerica Leasing (HK) Ltd. H.K. 100% TLHI Leasing
Transamerica Leasing S. Africa 100% TLHI Intermodal leasing
(Proprietary) Limited
Transamerica Tank Container Australia 100% TLHI The Australian (domestic)
Leasing Pty. Limited leasing of tank containers
Transamerica Trailer Holdings I Inc. Delaware 100% TLHI Holding company
Transamerica Trailer Holdings II, Inc. Delaware 100% TLHI Holding company
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Transamerica Trailer Holdings III, Inc. Delaware 100% TLHI Holding company
Transamerica Trailer Leasing AB Swed. 100% TLHI Leasing
Transamerica Trailer Leasing AG Swetzerland 100% TLHI Leasing
Transamerica Trailer Leasing A/S Denmark 100% TLHI Leasing
Transamerica Trailer Leasing GmbH Germany 100% TLHI Leasing
Transamerica Trailer Leasing Belgium 100% TLHI Leasing
(Belgium) N.V.
Transamerica Trailer Leasing Netherlands 100% TLHI Leasing
(Netherlands) B.V.
Transamerica Trailer Spain S.A. Spain 100% TLHI Leasing
Transamerica Transport Inc. New Jersey 100% TLHI Dormant
Transamerica Commercial Delaware 100% Transamerica Fin. Corp. Holding company for
Finance Corporation, I ("TCFCI") Commercial/consumer
finance subsidiaries
Transamerica Equipment Financial Delaware 100% TCFCI
Services Corporation
BWAC Credit Corporation Delaware 100% TCFCI
BWAC International Corporation Delaware 100% TCFCI
BWAC Twelve, Inc. Delaware 100% TCFCI Holding company for
premium finance subsidiaries
TIFCO Lending Corporation Illinois 100% BWAC Twelve, Inc. General financing & other
services in the US &
elsewhere
Transamerica Insurance Finance Maryland 100% BWAC Twelve, Inc. Provides insurance premium
Corporation ("TIFC") financing in the US with the
exception of CA and HI
Transamerica Insurance Finance Maryland 100% TIFC Provides Insurance premium
Company (Europe) financing in California
Transamerica Insurance Finance California 100% TIFC Disability ins. & holding co.
Corporation, California for various insurance
subsidiaries of Transamerica
Corporation
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Transamerica Insurance Finance ON 100% TIFC Provides ins. premium
Corporation, Canada financing in Canada
Transamerica Business Credit Delaware 100% TCFCI Provides asset based lending
Corporation ("TBCC") leasing & equip. financing
Transamerica Mezzanine Delaware 100% TBCC Holds investments in several
Financing, Inc. joint ventures/partnerships
Transamerica Business Advisory Grp. Delaware 100% TBCC
Bay Capital Corporation Delaware 100% TBCC Special purpose company for
the purchase of real estate tax
liens
Coast Funding Corporation Delaware 100% TBCC Special purpose company for
the purchase of real estate tax
liens
Transamerica Small Business Delaware 100% TBCC
Capital, Inc. ("TSBC")
Emergent Business Capital Delaware 100% TSBC
Holdings, Inc.
Gulf Capital Corporation Delaware 100% TBCC Special purpose company for
the purchase of real estate tax
liens
Direct Capital Equity Investment, Inc. Delaware 100% TBCC Small business loans
TA Air East, Corp Delaware 100% TBCC Special purpose corp. which
hold an ownership interest
or leases aircraft
TA Air I, Corp. Delaware 100% TBCC Special purpose corp. which
hold an ownership interest
or leases aircraft
TA Air II, Corp. Delaware 100% TBCC Special purpose corp. which
hold an ownership interest
or leases aircraft
TA Air III, Corp. Delaware 100% TBCC special purpose corp. which
hold an ownership interest
or leases aircraft
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
TA Air IV, Corp. Delaware 100% TBCC Special purpose corp. which
hold an ownership interest
or leases aircraft
TA Air V, Corp. Delaware 100% TBCC Special purpose corp. which
hold an ownership interest
or leases aircraft
TA Air VI, Corp. Delaware 100% TBCC Special purpose corp. which
hold an ownership interest
or leases aircraft
TA Air VII, Corp. Delaware 100% TBCC Special purpose corp. which
hold an ownership interest or
leases aircraft
TA Air VIII, Corp. Delaware 100% TBCC Special purpose corp. which
hold an ownership interest or
leases aircraft
TA Air IX, Corp. Delaware 100% TBCC Special purpose corp. which
hold an ownership interest
or leases aircraft
TA Air X, Corp. Delaware 100% TBCC Special purpose corp. which
hold an ownership interest
or leases aircraft
TA Air XI, Corp. Delaware 100% TBCC Special purpose corp. which
hold an ownership interest
or leases aircraft
TA Air XII, Corp. Delaware 100% TBCC Special purpose corp. which
hold an ownership interest
or leases aircraft
TA Air XIII, Corp. Delaware 100% TBCC Special purpose corp. which
hold an ownership interest
or leases aircraft
TA Air XIV, Corp. Delaware 100% TBCC Special purpose corp. which
hold an ownership interest
or leases aircraft
TA Air XV, Corp. Delaware 100% TBCC Special purpose corp. which
hold an ownership interest
or leases aircraft
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
TA Marine I Corp. Delaware 100% TBCC Special purpose corp. which
hold an ownership interest or
leases barges or ships
TA Marine II Corp. Delaware 100% TBCC Special purpose corp. which
hold an ownership interest or
leases barges or ships
TBC I, Inc. Delaware 100% TBCC Special purpose corp.
TBC II, Inc. Delaware 100% TBCC Special purpose corp.
TBC III, Inc. Delaware 100% TBCC Special purpose corp.
TBC IV, Inc. Delaware 100% TBCC Special purpose corp.
TBC V, Inc. Delaware 100% TBCC Special purpose corp.
TBC VI, Inc. Delaware 100% TBCC Special purpose corp.
TBC Tax I, Inc. Delaware 100% TBCC Special purpose co. for the
purchase of real estate tax lien
TBC Tax II, Inc. Delaware 100% TBCC Special purpose co. for the
purchase of real estate tax lien
TBC Tax III, Inc. Delaware 100% TBCC Special purpose co. for the
purchase of real estate tax lien
TBC Tax IV, Inc. Delaware 100% TBCC Special purpose co. for the
purchase of real estate tax lien
TBC Tax V, Inc. Delaware 100% TBCC Special purpose co. for the
purchase or real estate tax lien
TBC Tax VI, Inc. Delaware 100% TBCC Special purpose co. for the
purchase or real estate tax lien
TBC Tax VII, Inc. Delaware 100% TBCC Special purpose co. for the
purchase or real estate tax lien
TBC Tax VIII, Inc. Delaware 100% TBCC Special purpose co. for the
purchase of real estate tax lien
TBC Tax IX, Inc. Delaware 100% TBCC Special purpose co. for the
purchase of real estate tax lien
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
The Plain Company Delaware 100% TBCC Special purpose corp. which
hold an ownership interest or
leases aircraft.
Transamerica Distribution Delaware 100% TCFCI Holding corp. for inventory,
Finance Corporation ("TDFC") comm. Leasing, retail finance
comm. Recovery service and
accounts
Transamerica Accounts Holding Corp. Delaware 100% TDFC
Transamerica Commercial Delaware 100% TDFC Wholesale floor plan for
Finance Corporation ("TCFC") appliances, electronics,
computers, office equip. and
marine equipment.
Transamerica Acquisition Canada 100% TCFC Holding company
Corporation, Canada
Transamerica Distribution Finance Delaware 100% TCFC
Corporation - Overseas, Inc.
("TDFCO")
TDF Mauritius Limited Mauritius 100% TDFCO Mauritius holding company
of our Indian Joint Venture
Inventory Funding Trust Delaware 100% TCFC
Inventory Funding Company, LLC Delaware 100% Inventory Funding Trust
TCF Asset Management Corporation Colorado 100% TCFC A depository for foreclosed
real and personal property
Transamerica Joint Ventures, Inc. Delaware 100% TCFC To enter into general partner-
ships for the ownership of
comm. & finance business
Transamerica Inventory Delaware 100% TDFC Holding co. for inventory
Finance Corporation ("TIFC") finance subsidiaries
Transamerica GmbH, Inc. Delaware 100% TIFC Commercial lending in
Germany
Transamerica Fincieringsmaatschappij Netherlands 100% Trans. GmbH, Inc. Commercial lending in
B.V. Europe
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
BWAC Seventeen, Inc. Delaware 100% TIFC Holding co. for principal
Canadian operation, Trans-
America Comm. Finance
Corp, Canada
Transamerica Commercial ON 100% BWAC Seventeen, Inc. Shell corp.- Dormant
Finance Canada, Limited
Transamerica Commercial Canada 100% BWAC Seventeen, Inc. Commercial finance
Finance Corporation, Canada
BWAC Twenty-One, Inc. Delaware 100% TIFC Holding co. for United
Kingdom operation, Trans-
America Comm. Finance
Limited
Transamerica Commercial U.K. 100% BWAC Twenty-One Inc. Commercial lending in the
Finance Limited ("TCFL") United Kingdom.
Whirlpool Financial Corporation 100% TCFL Inactive commercial finance
Polska Spzoo Company in Poland
Transamerica Commercial U.K. 100% BWAC Twenty-One Inc. Holding Company
Holdings Limited
Transamerica Commercial Finance U.K. 100% Trans. Commercial
Limited Holdings Limited
Transamerica Commercial Finance France 100% BWAC Twenty-One Inc. Carries out factoring trans-
France S.A. actions in France & abroad
Transamerica GmbH Inc. Delaware 100% BWAC Twenty-One Inc. Holding co. for Transamerica
Financieringsmaatschappij
B.V.
Transamerica Retail Financial Delaware 100% TIFC Provides retail financing
Services Corporation ("TRFSC")
Transamerica Bank, NA Delaware 100% TRFSC Bank (Credit Cards)
Transamerica Consumer Finance Delaware 100% TRFSC Consumer finance holding
Holding Company ("TCFHC") company
Transamerica Mortgage Company Delaware 100% TCFHC Consumer mortgages
Transamerica Consumer Mortgage Delaware 100% TCFHC Securitization company
Receivables Company
Metropolitan Mortgage Company Florida 100% TCFHC Consumer mortgages
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Easy Yes Mortgage, Inc. Florida 100% Metropolitan Mtg. Co. No active business/Name
holding only
Easy Yes Mortgage, Inc. Georgia 100% Metropolitan Mtg. Co. No active business/Name
holding only
First Florida Appraisal Services, Inc. Georgia 100% Metropolitan Mtg. Co. Appraisal and inspection
services
First Georgia Appraisal Services, Inc. Georgia 100% First FL App. Srvc, Inc. Appraisal services
Freedom Tax Services, Inc. Florida 100% Metropolitan Mtg. Co. Property tax information
services
J.J. & W. Advertising, Inc. Florida 100% Metropolitan Mtg. Co. Advertising and marketing
services
J.J. & W. Realty Corporation Florida 100% Metropolitan Mtg. Co. To hold problem REO
properties
Liberty Mortgage Company of Florida 100% Metropolitan Mtg. Co. No active business/Name
Ft. Myers, Inc. holding only
Metropolis Mortgage Company Florida 100% Metropolitan Mtg. Co. No active business/Name
holding only
Perfect Mortgage Company Florida 100% Metropolitan Mtg. Co. No active business/Name
holding only
Transamerica Vendor Financial Srvc. Delaware 100% TDFC Provides commercial lease
Transamerica Distribution Finance 100% TCFCI
Corporation de Mexico ("TDFCM")
TDF de Mexico Mexico 100% TDFCM
Transamerica Corporate Services 100% TDFCM
De Mexico
Transamerica Home Loan California 100% TFC Consumer mortgages
Transamerica Lending Company Delaware 100% TFC Consumer lending
Transamerica Financial Products, Inc. California 100% Transamerica Corp. Service investments
Transamerica Insurance Corporation California 100% Transamerica Corp. Provides insurance premium
of California ("TICC") financing in California
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Arbor Life Insurance Company Arizona 100% TICC Life insurance, disability
insurance
Plaza Insurance Sales Inc. California 100% TICC Casualty insurance placement
Transamerica Advisors, Inc. California 100% TICC Retail sale of investment
advisory services
Transamerica Annuity Services Corp. New Mexico 100% TICC Performs services required for
structured settlements
Transamerica Financial Resources, Inc. Delaware 100% TICC Retail sale of securities
products
Financial Resources Insurance Texas 100% Transamerica Fin. Res. Retail sale of securities
Agency of Texas products
TBK Insurance Agency of Ohio, Inc. Ohio 100% Transamerica Fin. Res. Variable insurance contract
sales in state of Ohio
Transamerica Financial Resources Alabama 100% Transamerica Fin. Res. Insurance agent & broker
Agency of Alabama, Inc.
Transamerica Financial Resources Ins. Massachusetts 100% Transamerica Fin. Res. Insurance agent & broker
Agency of Massachusetts, Inc.
Transamerica International Insurance Delaware 100% TICC Holding & administering
Services, Inc. ("TIIS") foreign operations
Home Loans and Finance Ltd. U.K. 100% TIIS Inactive
Transamerica Occidental Life California 100% TICC Licensed in all forms of life
Insurance Company ("TOLIC") insurance, accident and
sickness insurance
NEF Investment Company California 100% TOLIC Real estate development
Transamerica Life Insurance and N. Carolina 100% TOLIC Writes life and pension ins.
Annuity Company ("TLIAC") originally incorporated in CA
April 14, 1966
Transamerica Assurance Company Missouri 100% TLIAC Life and disability insurance
Gemini Investments, Inc. Delaware 100% TLIAC Investment subsidiary
Transamerica Life Insurance Company Canada 100% TOLIC Sells individual life insurance
of Canada & investment products in all
provinces and territories of
Canada
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Transamerica Life Insurance Company New York 100% TOLIC Licensed in NY to market life
of New York insurance, annuities and
health insurance
Transamerica South Park Delaware 100% TOLIC Provide market analysis of
Resources, Inc. certain undeveloped land
holdings held by TOLIC
Transamerica Variable Insurance Maryland 100% TOLIC Mutual Fund
Fund, Inc.
USA Administration Services, Inc. Kansas 100% TOLIC Third party administrator
Transamerica Products. Inc. California 100% TICC Parent co. of various
subsidiary corp. which are
formed to be co-general
partners of proprietary limited
Transamerica Securities Sales Corp. Maryland 100% Transamerica Prod. Inc. Retail sale of the variable life
ins. and variable annuity
products of the Transamerica
life companies
Transamerica Service Company Delaware 100% Transamerica Prod. Inc. Passive loss tax service for
Lloyd's U.S. names
Transamerica Intellitech, Inc. Delaware 100% TICC Real estate information and
technology services
Transamerica International Delaware 100% TICC Investments
Holdings, Inc.
Transamerica Investment Services, Inc. Delaware 100% TICC Investment adviser
Transamerica Income Shares, Inc. Maryland 100% Trans. Invest. Srvc. Inc. Transamerica investment
services
Transamerica LP Holdings Corp. Delaware 100% TICC Limited partnership
Investment (initial limited
partner of Transamerica
Delaware, L.P.)
Transamerica Real Estate Tax Service N/A 100% TICC Real estate tax reporting and
(A Division of Transamerica Corp) processing services
Transamerica Realty Services, Inc. Delaware 100% TICC Responsible for real estate
investments for Transamerica
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Bankers Mortgage Company of CA California 100% Transamerica Realty Srv. Holds bank account and owns
certain residual investments in
certain French real estate
projects which are managed
special purpose company for
the purchase of real estate tax
liens.
Pyramid Investment Corporation Delaware 100% Transamerica Realty Srv. Owns office buildings in San
Francisco and other properties
The Gilwell Company California 100% Transamerica Realty Srv. Ground lessee of 517
Washington Street,
San Francisco
Transamerica Affordable Housing, Inc. California 100% Transamerica Realty Srv. Owns general partnership
interests in low-income
housing tax credit
partnerships
Transamerica Minerals Company California 100% Transamerica Realty Srv. Owner and lessor of oil and
gas properties
Transamerica Oakmont Corporation California 100% Transamerica Realty Srv. General partner in
Transamerica/Oakmont
Retirement Associates
Transamerica Senior Properties, Inc. Delaware 100% TICC Owns congregate care and
assisted living retirement
Properties
Transamerica Senior Living, Inc. Delaware 100% Trans. Sr. Prop. Inc. Manages congregate care and
assisted living retirement
properties.
</TABLE>
Item 31. Number of Contract Owners
As of December 31, 1999, there were 1,743 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.
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 expres
sed 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).
<PAGE>
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>
<S> <C>
Larry N. Norman Ann Spaes
Director and President Director and Vice President
Frank A Camp Darin Smith
Secretary Assistant Vice President and
Assistant Secretary
Lisa Wachendorf Linda Gilmer
Director, Vice President and Chief Treasurer/Controller
Compliance Officer
Thomas R. Moriarty Robert Warner
Vice President Assistant Compliance Officer
Priscilla Hechler Emily Bates
Assistant Vice President Assistant Treasurer
and Assistant Secretary
Thomas Pierpan Clifton Flenniken
Assistant Vice President Assistant Treasurer
and Assistant Secretary
</TABLE>
The principal business address of each person listed is ASFG Securities
Corporation, 4333 Edgewood Road NE, Cedar Rapids, IA 52499-0001.
<PAGE>
AFSG Securities Corporation, the broker/dealer, received $264,937.00 and
$225,259 from the Registrant for the year ending December 31, 1999 and for the
period 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.
<PAGE>
(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.
Section 403 (b) Representations
- -------------------------------
PFL represents that it is relying on a no-action letter dated November
28, 1988, to the American Council of Life Insurance (Ref. No. IP-6-88),
regarding Sections 22(e), 27(c)(1), and 27(d) of the Investment Company Act of
1940, in connection with redeemability restrictions on Section 403(b) Policies,
and that paragraphs numbered (1) through (4) of that letter will be complied
with.
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant hereby certifies that this Amendment to the Registration
Statement meets the requirements for effectiveness pursuant to paragraph (b) of
Rule 485 and has caused this Registration Statement to be signed on its behalf,
in the City of Corona Del Mar and State of California, on this 27th day of
April, 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.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Vincent J. McGuinness Manager April 27, 2000
- ------------------------------ --------------
Vincent J. McGuinness
/s/ Timothy A. Devine Manager April 27, 2000
- ------------------------------ --------------
Timothy A. Devine
/s/ Thomas J. Hawekotte Manager April 27, 2000
- ------------------------------ --------------
Thomas J. Hawekotte
/s/ Steven L. Klosterman Manager April 27, 2000
- ------------------------------ --------------
Steven L. Klosterman
/s/ Halbert D. Lindquist Manager April 27, 2000
- ------------------------------ ---------------
Halbert D. Lindquist
/s/ Peter F. Muratore Manager April 27, 2000
- ------------------------------ ---------------
Peter F. Muratore
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ Vincent J. McGuinness, Jr. Treasurer, and April 27, 2000
- ------------------------------ Chief Financial Officer -----------------------
Vincent J. McGuinness, Jr.
/s/ Keith H. Wood Manager April 27, 2000
- ------------------------------ -----------------------
Keith H. Wood
/s/ Larry N. Norman Manager April 27, 2000
- ------------------------------ -----------------------
Larry N. Norman
/s/ Robert Hickey Power of Attorney April 27, 2000
- ------------------------------ ------------------------
Robert Hickey
</TABLE>
<PAGE>
Registration No.
333-36297
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
(13)(b) Consent of Independent Auditors
* 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
PFL Endeavor Target Account Group, 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
PFL Endeavor Target Account Group, Inc.
<PAGE>
EXHIBIT (13)(b)
CONSENT OF AUDITORS
<PAGE>
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Independent Auditors"
in the Statement of Additional Information and to the use of our reports (1)
dated January 28, 2000 with respect to the financial statements of certain
subaccounts of PFL Endeavor VA Separate Account, which are available for
investment by contract owners of The Endeavor Platinum Variable Annuity, (2)
dated February 4, 2000 with respect to the financial statements of the
subaccounts of the PFL Endeavor Target Account, and (3) dated February 18, 2000
with respect to the statutory-basis financial statements and schedules of PFL
Life Insurance Company, included in Post-Effective Amendment No. 3 to the
Registration Statement (Form N-3 No. 333-36297) and related Prospectus of The
Endeavor Platinum Variable Annuity.
/s/ Ernst & Young, LLP
Des Moines, Iowa
April 24, 2000
