As filed with the Securities and Exchange Commission on June 8, 1999
Registration File Nos. 333-68087/811-9115
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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PRE-EFFECTIVE AMENDMENT NO. 1
FORM S-6
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FOR REGISTRATION UNDER THE SECURITIES ACT
OF 1933 OF SECURITIES OF UNIT INVESTMENT TRUSTS
REGISTERED ON FORM N-8B-2
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LEGACY BUILDER VARIABLE LIFE SEPARATE ACCOUNT
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(Exact Name of Trust)
PFL LIFE INSURANCE COMPANY
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(Name of Depositor)
4333 Edgewood Road, NE
Cedar Rapids, Iowa 52499
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(Complete Address of Depositor's Principal Executive Offices)
Frank A. Camp, Esq.
Vice President and Division General Counsel
PFL Life Insurance Company
4333 Edgewood Road, NE
Cedar Rapids, Iowa 52499
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(Name and Complete Address of Agent for Service)
Copies to:
Stephen E. Roth, Esq.
Sutherland Asbill & Brennan LLP
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004-2415
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Approximate Date of Proposed Public Offering: As soon as practicable after the
effective date of the Registration Statement.
Title of Securities being registered: Units of interest in the separate account
under modified single premium deferred variable life policies.
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The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
Company
LOGO
P R O S P E C T U S
, 1999
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LEGACY BUILDER II(SM)
issued through
Legacy Builder Variable Life Separate Account
by
PFL Life Insurance Company
4333 Edgewood Road NE
Cedar Rapids, Iowa 52499-0001
1-800-525-6205
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MODIFIED SINGLE PREMIUM VARIABLE LIFE INSURANCE POLICY
JOINT SURVIVORSHIP MODIFIED SINGLE PREMIUM VARIABLE LIFE INSURANCE POLICY
CONSIDER CAREFULLY THE RISK FACTORS
BEGINNING ON PAGE 9 OF THIS PROSPECTUS.
An investment in this Policy is not a
bank deposit. The Policy is not insured
or guaranteed by the Federal Deposit
Insurance Corporation or any other
government agency.
Prospectuses for the portfolios of:
[ ] AIM Variable Insurance Funds, Inc.
THE SECURITIES AND EXCHANGE [ ] Dreyfus Stock Index Fund
COMMISSION HAS NOT APPROVED [ ] Dreyfus Variable Investment Fund
OR DISAPPROVED THESE SECURITIES [ ] MFS Variable Insurance Trust
OR PASSED UPON THE ADEQUACY [ ] Oppenheimer Variable Account Funds and
OF THIS PROSPECTUS. ANY [ ] WRL Series Fund, Inc.
REPRESENTATION TO THE CONTRARY must accompany this prospectus. Certain
IS A CRIMINAL OFFENSE. portfolios may not be available in all
states. Please read these documents
before investing and save them for future
reference.
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TABLE OF CONTENTS
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Glossary ........................................................ 1
Policy Summary .................................................. 4
Risk Summary .................................................... 9
Portfolio Annual Expense Table .................................. 13
PFL and the Fixed Account ....................................... 14
PFL Life Insurance Company .................................. 14
The Fixed Account Options ................................... 14
The Separate Account and the Portfolios ......................... 15
The Separate Account ........................................ 15
The Portfolios .............................................. 15
Addition, Deletion, or Substitution of Investments .......... 19
Your Right to Vote Portfolio Shares ......................... 20
The Policy ...................................................... 20
Purchasing a Policy ......................................... 20
Underwriting Standards ...................................... 21
When Insurance Coverage Takes Effect ........................ 21
Ownership Rights ............................................ 22
Policy Split Option ......................................... 24
Canceling a Policy .......................................... 25
Premiums ........................................................ 26
Initial Premium ............................................. 26
Additional Premiums ......................................... 27
Allocating Premiums ......................................... 27
Policy Values ................................................... 28
Cash Value .................................................. 28
Net Surrender Value ......................................... 28
Subaccount Value ............................................ 29
Subaccount Unit Value ....................................... 29
Fixed Account Value ......................................... 30
Transfers ....................................................... 30
General ..................................................... 30
Standard Fixed Account Transfers ............................ 32
Conversion Rights ........................................... 32
Standard Dollar Cost Averaging .............................. 32
Fixed DCA Account ........................................... 33
Asset Rebalancing Program ................................... 34
Third Party Asset Allocation Services ....................... 35
Charges and Deductions .......................................... 35
Premium Deductions .......................................... 36
Monthly Deduction ........................................... 36
Monthly Policy Charge ....................................... 37
Daily Charge ................................................ 37
Surrender Charge ............................................ 39
Transfer Charge ............................................. 39
Portfolio Expenses .......................................... 39
Guaranteed Minimum Death Benefit Rider Charge ............... 40
Death Benefit ................................................... 40
Death Benefit Proceeds ...................................... 40
Death Benefit ............................................... 40
Effects of Partial Withdrawals on the Death Benefit ......... 41
This Policy is not available in all states
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Guaranteed Minimum Death Benefit Rider ............................ 41
Changing the Specified Amount ..................................... 42
Payment Options ................................................... 42
Surrenders and Partial Withdrawals .................................... 42
Surrenders ........................................................ 42
Partial Withdrawals ............................................... 42
Loans ................................................................. 43
General ........................................................... 43
Interest Rate Charged ............................................. 44
Loan Reserve Interest Rate Credited ............................... 45
Preferred Loans ................................................... 45
Effect of Policy Loans ............................................ 45
Policy Lapse and Reinstatement ........................................ 46
Lapse ............................................................. 46
Reinstatement ..................................................... 46
Federal Income Tax Considerations ..................................... 47
Tax Status of the Policy .......................................... 47
Tax Treatment of Policy Benefits .................................. 48
Other Policy Information .............................................. 50
Our Right to Contest the Policy ................................... 50
Suicide Exclusion ................................................. 50
Misstatement of Age or Gender ..................................... 50
Modifying the Policy .............................................. 50
Benefits at Maturity .............................................. 51
Payments We Make .................................................. 51
Reports to Owners ................................................. 52
Records ........................................................... 52
Policy Termination ................................................ 52
IMSA .................................................................. 52
Performance Data ...................................................... 52
Rates of Return ................................................... 52
Hypothetical Illustrations Based on Adjusted Portfolio Performance 53
Other Performance Data in Advertising Sales Literature ............ 64
PFL's Published Ratings ........................................... 64
Additional Information ................................................ 65
Sale of the Policies .............................................. 65
Legal Matters ..................................................... 65
Legal Proceedings ................................................. 65
Variations in Policy Provisions ................................... 65
Year 2000 Readiness Disclosure .................................... 65
Experts ........................................................... 66
Financial Statements .............................................. 66
Additional Information about PFL .................................. 66
PFL's Executive Directors and Officers ............................ 67
Additional Information about the Separate Account ................. 68
Appendix A -- Illustrations ........................................... 69
Appendix B -- Wealth Indices of Investments in the U.S. Capital Market 75
Appendix C -- Surrender Charge Table .................................. 77
Index to Financial Statements ......................................... 79
PFL Life Insurance Company ........................................ 80
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GLOSSARY
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accounts The options to which you can allocate your money. The
accounts include the standard fixed account, the fixed DCA
account and the subaccounts in the separate account.
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age The age of the person insured on his or her last birthday
before the Policy date, plus the number of completed years
since the Policy date.
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beneficiary(ies) The person or persons you select to receive the death
benefit from this Policy. You name the primary beneficiary
and contingent beneficiaries.
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cash value The sum of your Policy's value in the subaccounts and the
fixed account options. If there is a Policy loan
outstanding, the cash value includes any amounts held in our
general account to secure the Policy loan.
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daily charge The amount we deduct each valuation date from assets in the
subaccounts as part of the calculation of the unit value for
each subaccount.
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death benefit The amount we will pay to the beneficiary on the insured's
proceeds (or surviving insured's) death. We will reduce the death
benefit proceeds by the amount of any outstanding loan
amount (including any interest you owe on the Policy
loan(s)), and plus any due and unpaid monthly deduction.
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fixed account A set of options to which you may allocate premiums and cash
options value. We fixed account guarantee that any amounts you
allocate to the fixed account options will earn options
interest at a declared rate. The fixed account options are
the standard fixed account and the fixed dollar cost
averaging account ("fixed DCA account").
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free look period The period during which you may return the Policy and
receive a refund as described in this prospectus. The length
of the free look period varies by state. The free look
period is listed in the Policy.
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funds Investment companies which are registered with the U.S.
Securities and funds Exchange Commission. The Policy allows
you to invest in the portfolios of the funds through our
subaccounts.
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in force While coverage under the Policy is active and the insured's
life remains insured.
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initial premium The amount you must pay before insurance coverage begins
under this Policy. initial premium The initial premium is
shown on the schedule page of your Policy.
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insured(s) The person or persons whose lives are insured by this
(joint insureds) Policy.
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Joint Policy A Policy that pays the death benefit to the beneficiary on
the death of the Joint Policy last-to-die of the two named
insureds.
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lapse When life insurance coverage ends because you do not have
enough cash value in the Policy to pay the monthly
deduction, the surrender charge and any outstanding loan
amount (including any interest you owe on the Policy
loan(s)), and you have not made a sufficient payment by the
end of a grace period. The Policy will not lapse if you have
purchased the Guaranteed Minimum Death Benefit rider and the
rider is in effect.
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loan amount The total amount of all outstanding Policy loans, including
both principal and interest due.
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loan reserve A part of the general account to which amounts are
transferred as collateral for Policy loans.
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maturity date The Policy anniversary nearest the insured's (or younger
joint insured's) 100th birthday, if the insured (or either
joint insured) is living and the Policy is still in force.
It is the date when life insurance coverage under this
Policy ends. You may continue coverage, at your option,
under the Policy's extended maturity date benefit provision.
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monthly The same date each month as the Policy date. If there is no
anniversary or valuation date in the calendar month that coincides with the
Monthiversary Policy date, the Monthiversary is the next valuation date.
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monthly Policy The charge deducted from the cash value (less the loan
charge amount) on each Monthiversary.
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net surrender The amount we will pay you if you surrender the Policy while
value it is in force. The net surrender value on the date you
surrender is equal to: the cash value, minus any surrender
charge, and minus any outstanding loan amount (including any
interest you owe on Policy loan(s)).
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office Our administrative office and mailing address is P.O. Box
3183, Cedar Rapids, Iowa 52406-3183. Our street address is
4333 Edgewood Road NE, Cedar Rapids, Iowa 52499-0001. Our
phone number is 1-800-525-6205.
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Policy date The date when our underwriting process is complete, full
life insurance coverage goes into effect, we issue the
Policy, and we begin to deduct the monthly Policy charge.
The Policy date is shown on the schedule page of your
Policy. It is also the date when, depending on your state
of residence, we allocate your premium either to the
reallocation account or to the subaccounts and fixed
account options you selected on your application. We
measure Policy months, years, and anniversaries from the
Policy date.
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portfolio One of the separate investment portfolios of a
fund.
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premiums All payments you make under the Policy other than
loan repayments.
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reallocation The standard fixed account. account
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reallocation date The date shown on the schedule page of your Policy when we
reallocate any premium (plus interest) held in the
reallocation account to the subaccounts and fixed account
options you selected on your application. We place your
premium in the reallocation account only if your state
requires us to return the full premium in the event you
exercise your free look right. In all other states, the
reallocation date is the Policy date.
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separate The Legacy Builder Variable Life Separate Account. It is a
account separate invest- ment account that is divided into
subaccounts. We established the separate account to receive
and invest premiums under the Policy and other variable life
insurance policies we may issue.
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specified amount The death benefit we will pay under the Policy, as shown on
the Policy schedule page, provided the Policy is in force
and has not lapsed. The specified amount varies by the
insured's (or joint insureds') age, gender and rate class.
Any partial withdrawal proportionately decreases the
specified amount.
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subaccount A subdivision of the separate account that invests
exclusively in shares of one investment portfolio of a fund.
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surrender If, during the first nine Policy years, you fully surrender
charge the Policy, we will deduct a surrender charge from the cash
value.
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surviving insured The joint insured who remains alive after the other joint
insured has died.
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termination When the insured's (or either of the joint insured's) life
is no longer insured under the Policy.
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valuation date Each day the New York Stock Exchange is open for trading.
PFL is open whenever the New York Stock Exchange is open.
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valuation The period beginning at the close of business of the New
period York Stock Exchange on one valuation date and continuing to
the close of business of the New York Stock Exchange on the
next valuation date.
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we, us, our PFL Life Insurance Company.
(PFL)
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written notice The written notice you must sign and send us to request or
exercise your rights as owner under the Policy. To be
complete, it must: (1) be in a form we accept, (2) contain
the information and documentation that we determine we need
to take the action you request, and (3) be received at our
office.
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you, your The person(s) who owns the Policy, and who may exercise all
(owner(s) or rights under the Policy while the insured (or either or both
policyowner(s)) joint insureds) are living. If two owners are named, the
Policy will be owned jointly and the consent of each owner
will be required to exercise ownership rights.
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3
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POLICY SUMMARY PFL LEGACY BUILDER II(SM)
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The sections in this summary correspond to sections in this prospectus,
which discuss the topics in more detail.
THE POLICY IN GENERAL
The Legacy Builder II(SM) is a modified single premium variable life
insurance policy. You may purchase it either as a single life or a Joint
Policy. A Joint Policy insures two lives with a death benefit payable on the
death of the surviving insured. Joint insureds may be both male, both female or
male and female. The insured will be the surviving insured of the joint
insureds stated in the Policy.
The Policy is designed to be long-term in nature in order to provide
significant life insurance benefits for the insured(s) named in the Policy.
However, purchasing this Policy involves certain risks. (See Risk Summary, p.
9.) You should consider the Policy in conjunction with other insurance you own.
The Policy is not suitable as a short-term savings vehicle.
A few of the Policy features listed below are not available in all states,
may vary depending upon when your Policy was issued and may not be suitable for
your particular situation. Certain states place restrictions on some of the
Policy features. Please consult your agent and refer to your Policy for
details.
PREMIUMS
o If the insured (or joint insureds) qualifies for simplified underwriting,
conditional life insurance coverage begins as soon as you complete an
application and pay an initial premium of at least $20,000. Once we
determine that the insured (or joint insureds) meets our underwriting
requirements, full insurance coverage begins and we will issue your Policy
and begin to deduct monthly and daily insurance charges from your premium.
This date is the Policy date. On that date, we will allocate your premium
to either the reallocation account or to the subaccounts and fixed account
options, depending on the state in which you live.
o If the insured (or joint insureds) qualifies for simplified underwriting,
the maximum premium you can pay at the time of your application is:
-- $50,000 (for ages 35-49)
-- $100,000 (for ages 50-80)
Other limits apply for Joint Policies and Policies with full underwriting.
o Once we deliver your Policy, the FREE LOOK PERIOD begins. You may return
the Policy during this period and receive a refund. Depending on your state
of residence, we will place your premium in the reallocation account until
the reallocation date. See Reallocation Account, p. 28.
o We will accept additional premiums only in certain limited circumstances.
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DEDUCTIONS FROM PREMIUM BEFORE WE PLACE IT IN SUBACCOUNTS AND/OR FIXED ACCOUNT
OPTIONS
o From the initial premium: None
o From additional premiums: None
INVESTMENT OPTIONS
SUBACCOUNTS. You may direct the money in your Policy to any of the
subaccounts of the Legacy Builder Variable Life Separate Account. Each
subaccount invests exclusively in one investment portfolio of a fund. THE MONEY
YOU PLACE IN THE SUBACCOUNTS IS NOT GUARANTEED. THE VALUE OF EACH SUBACCOUNT
WILL INCREASE OR DECREASE, DEPENDING ON INVESTMENT PERFORMANCE OF THE
CORRESPONDING PORTFOLIO. YOU COULD LOSE SOME OR ALL OF YOUR MONEY.
The portfolios available to you are:
<TABLE>
<S> <C>
AIM VARIABLE INSURANCE FUNDS, INC. OPPENHEIMER VARIABLE ACCOUNT FUNDS
[ ] AIM V.I. Capital Appreciation Fund [ ] Oppenheimer Capital Appreciation Fund
[ ] AIM V.I. Government Securities Fund [ ] Oppenheimer Global Securities Fund
[ ] AIM V.I. Growth and Income Fund [ ] Oppenheimer High Income Fund
[ ] AIM V.I. Value Fund [ ] Oppenheimer Main Street Growth & Income
Fund
DREYFUS STOCK INDEX FUND [ ] Oppenheimer Strategic Bond Fund
DREYFUS VARIABLE INVESTMENT FUND
[ ] Dreyfus -- Money Market Portfolio WRL SERIES FUND, INC.
[ ] Dreyfus -- Small Company Stock [ ] WRL VKAM Emerging Growth
Portfolio [ ] WRL Janus Global
[ ] WRL Janus Growth
MFS VARIABLE INSURANCE TRUST
[ ] MFS Emerging Growth Series
[ ] MFS Foreign & Colonial Emerging
Markets Equity Series
[ ] MFS Research Series
[ ] MFS Total Return Series
[ ] MFS Utilities Series
</TABLE>
FIXED ACCOUNT OPTIONS. You may also direct the money in your Policy to the
fixed account options -- the standard fixed account option and the fixed dollar
cost averaging ("fixed DCA") account option. Money you place in the standard
fixed account option will earn interest at current interest rates declared from
time to time. The interest rate will equal at least 3.0%.
At the time you purchase the Policy, you may place the entire initial
premium into the fixed DCA account. Money you place in the fixed DCA account
will earn interest at an annual rate of at least 3.0%. Money will be
transferred out of the fixed DCA account in six equal monthly installments and
placed in the standard fixed account and the subaccounts of your choice.
5
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CASH VALUE
o Cash value equals the sum of your Policy's value in the subaccounts and the
fixed account options. If there is a loan outstanding, the cash value
includes any amounts held in our general account to secure the Policy loan.
o Cash value varies from day to day, depending on the investment experience
of the subaccounts you choose, the interest credited to the fixed account
options, the charges deducted and any other Policy transactions (such as
transfers, withdrawals, and Policy loans).
o Cash value is the starting point for calculating important values under the
Policy, such as net surrender value and the death benefit.
o There is no guaranteed minimum cash value. The Policy may lapse if you do
not have sufficient cash value in the Policy to pay the monthly Policy
charge(s), the surrender charge and/or any outstanding loan amount
(including interest you owe on any Policy loan(s)). The Policy will not
lapse if you have purchased the Guaranteed Minimum Death Benefit rider and
the rider is in effect.
TRANSFERS
o You can transfer cash value among the subaccounts and the standard fixed
account. We charge a $10 transfer processing fee for each transfer after
the first 12 transfers in a Policy year.
o You may make transfers by telephone or by fax.
o Policy loans reduce the amount of cash value available for transfers.
o Dollar cost averaging and asset rebalancing programs are available.
o You may make one transfer per Policy year from the standard fixed account
and we must receive your request within 30 days after a Policy anniversary,
unless you select dollar cost averaging from the standard fixed account.
The amount of your transfer cannot be more than:
-> 25% of the value in the standard fixed account; or
-> the amount transferred from the standard fixed account in the prior
Policy year.
CHARGES AND DEDUCTIONS
o Monthly Policy charge: Deducted from your cash value (reduced by the loan
amount) on the Policy date and on each Monthiversary. The monthly Policy
charge pays for Policy administrative expenses and the cost of providing
death benefits under the Policy. The monthly Policy charge will vary with
the gender of the insured(s), the number of insureds, and the number of
Policy years you have owned the Policy.
o Daily charge: Deducted from the unit value of each subaccount, at an annual
rate equal to 0.50%, on each valuation date.
o Cost of insurance charge: We reserve the right to charge a maximum monthly
cost of insurance charge. See Cost of Insurance Charge p. 38. We do not
currently assess a cost of insurance charge. If, in the future, we assess a
cost of insurance charge, then we will waive the surrender charge.
o Surrender charge: Deducted when a full surrender occurs during the first
nine Policy years. We deduct a declining surrender charge of up to 9.75% of
your initial premium if you surrender your Policy or if your Policy lapses
during the first nine Policy years.
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o Transfer fee: We deduct $10 for each transfer in excess of 12 per Policy
year.
o Portfolio expenses: The portfolios deduct management fees and expenses from
the amounts you have invested in the portfolios. These charges range from
.26% to 1.53% annually, depending on the portfolio. See Portfolio Annual
Expense Table p. 13. See also the fund prospectuses.
o Rider charges: If you select the Guaranteed Minimum Death Benefit rider at
application, we will deduct a charge from your cash value (less any
outstanding Policy loan) each month equal to:
o .02% MULTIPLIED BY the total subaccount values; PLUS
o .02% MULTIPLIED BY the fixed account value.
LOANS
o You may take a loan against the Policy for amounts up to 90% of the cash
value, less any surrender charge and any outstanding loan amount.
o The minimum loan amount is generally $500.
o You may request a loan by calling us or by writing or faxing us written
instructions.
o We currently charge 6.0% interest annually, payable in arrears, on any
outstanding loan amount; a lower rate applies to any preferred loans.
o We currently permit preferred loans to be taken anytime. You may borrow an
amount equal to the cash value less total premiums paid, less any
outstanding loan amount. We currently charge a 3.0% preferred loan rate.
THIS RATE IS NOT GUARANTEED.
o To secure the loan, we transfer a portion of your cash value to a loan
reserve account, which is part of our general account. You will earn at
least 3.0% interest on amounts in the loan reserve account.
o Federal income taxes and a penalty tax may apply to loans you make against
the Policy.
o If you take a loan, we will terminate any Guaranteed Minimum Death Benefit
rider.
o There are risks involved in taking a Policy loan. See Risk Summary, p. 9.
DEATH BENEFIT
o So long as the Policy does not lapse, the death benefit is the greater of:
-> the current specified amount; or
-> a specified percentage, multiplied by the Policy's cash value on the
date of the insured's (or surviving insured's) death.
o We will reduce the death benefit proceeds by the amount of any outstanding
Policy loans (including any interest you owe on Policy loan(s)), and any
due and unpaid charges.
o We determine your Policy's specified amount based on:
-> the initial premium you pay; and
-> the insured's (or joint insureds') age, gender and rate class.
o You may not increase or decrease the specified amount.
o The death benefit should be income tax free to the beneficiary.
7
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o The death benefit is available in a lump sum or a variety of payout
options.
o If you purchase the GUARANTEED MINIMUM DEATH BENEFIT RIDER and the rider is
in effect, and if the net surrender value on any Monthiversary is not
sufficient to cover the monthly Policy charge, then insurance coverage will
be provided under this rider and no grace period will begin, provided no
Policy loans have been taken under the Policy. If a death benefit is
payable under the provisions of this rider, then PFL guarantees to provide
a death benefit as follows:
(1) During the first 15 Policy years, or before the Policy anniversary
following the insured's (or younger joint insured's) 75th birthday, if
sooner, the minimum death benefit payable will be the greater of:
o the current specified amount; or
o a specified percentage, multiplied by the Policy's cash value on
the date of the insured's (or surviving insured's) death.
(2) After the first 15 Policy years, or on or after the Policy anniversary
following the insured's (or younger joint insured's) 75th birthday, if
sooner, the minimum death benefit payable will be the initial premium,
reduced by any partial withdrawals.
(3) The minimum death benefit will never be less than $1,000.
If you take a Policy loan, the Guaranteed Minimum Death Benefit rider will
terminate and your Policy could lapse.
o A partial withdrawal will reduce the specified amount by the amount of the
withdrawal multiplied by the ratio of the initial specified amount to the
initial premium.
PARTIAL WITHDRAWALS AND SURRENDERS
o You can take one withdrawal of cash value every 12 months after the first
Policy year.
o We do not assess any charges for partial withdrawals.
o The amount of the withdrawal is limited to your Policy's earnings which we
compute as:
the cash value, MINUS any outstanding Policy loans, MINUS any interest
you owe on Policy loans, and MINUS total premiums paid.
o A partial withdrawal reduces the current specified amount (the minimum
death benefit) by:
Amount of withdrawal X initial specified amount
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initial premium
o A partial withdrawal does not void a Guaranteed Minimum Death Benefit
rider, but it reduces the death benefit we would pay, as described above.
o You cannot take a partial withdrawal if you elected the Guaranteed Minimum
Death Benefit rider and the withdrawal would reduce the specified amount
below $1,000.
o Federal income taxes and a penalty tax may apply to partial withdrawals and
surrenders.
o You may fully surrender the Policy at any time before the insured's (or
surviving insured's) death or the maturity date. You will receive the net
surrender value (cash value, minus any surrender charge, minus any Policy
loans outstanding, and minus any interest you owe on Policy loans). The
surrender charge will apply during the first nine Policy years.
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RISK SUMMARY
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INVESTMENT If you direct us to invest your cash value in one or more
RISK subaccounts, you will be subject to the risk that investment
performance will be unfavorable and that the cash value of
your Policy will decrease. If you select the fixed account
options, you are credited with a declared rate of interest,
but you assume a risk that the rate may decrease, although
it will never be lower than a guaranteed minimum annual
effective rate of 3.0%. Because charges continue to be
deducted from cash value, if withdrawals, loans and monthly
deductions have reduced your net surrender value to too low
an amount, and/or if investment experience of your selected
subaccounts is not suf- ficiently favorable, and/or interest
rates credited to the fixed account are too low, then the
net surrender value of your Policy may fall to zero. In that
case, if the Guaranteed Minimum Death Benefit rider is not
in effect, the Policy will lapse without value and insurance
coverage will no longer be in effect after 61 days, unless
you make an additional payment sufficient to prevent a
lapse. On the other hand, if investment experience is
sufficiently favorable and you have kept the Policy in force
for a substantial period of time, you may be able to draw
upon cash value, through partial withdrawals and Policy
loans.
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RISK OF LAPSE Certain circumstances will cause your Policy to enter a
60-day grace period, during which you must make a sufficient
payment to keep your Policy in force. If the net surrender
value of your Policy (that is, the cash value, minus the
surrender charge and minus outstanding loan amounts) is too
low to pay a monthly Policy charge, loan charges and any
rider fees when due, and if the Guaranteed Minimum Death
Benefit rider is not in effect, then the Policy will be in
default and a grace period will begin. There is the risk
that if withdrawals, loans and monthly deductions reduce
your net surrender value to too low an amount and/or if the
investment experience of your selected subaccounts is not
sufficiently favorable and/or if interest rates credited to
the fixed account are too low, then the net surrender value
of your Policy may fall to zero and the Policy could lapse.
In that case, you will have a 61-day grace period to make a
sufficient payment. If we do not receive a sufficient
payment before the grace period ends, your Policy will end
without value, insurance coverage will no longer be in
effect, and you will receive no benefits. Adverse tax
consequences may result. You may not reinstate your Policy
after it has lapsed unless you completed the Policy
application and had your Policy delivered to you in a state
which permits reinstatement. If so, then you may reinstate
this Policy within five years after it has lapsed if the
insured (or joint insureds) meets the insurability
requirements and you pay the amount we require.
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<PAGE>
TAX RISKS It is reasonable to conclude that the Policy will be deemed
(INCOME TAX a life insurance Policy under federal tax law, so that the
AND MEC) death benefit paid to the beneficiary will not be subject to
federal income tax. However, the Policy has certain
innovative features that are not addressed in existing legal
interpretations and there is, therefore, some risk that the
Policy might not be deemed a life insurance policy under
federal tax law. If the Policy is not so treated, annual
increases in the Policy's cash value will be subject to
federal income tax each year. Even if the Policy is treated
as a life insurance policy under the federal tax laws, the
Policy will, in most situations, be treated as a modified
endowment contract ("MEC") under those laws. If a Policy is
treated as a MEC, partial withdrawals, surrenders and loans
will be taxable as ordinary income to the extent of its
earnings in the Policy. In addition, a 10% penalty tax may
be imposed on partial withdrawals, surrenders and loans
taken before you reach age 591/2. If a Policy is treated as
a life insurance policy and is not treated as a MEC, partial
surrenders and withdrawals will not be subject to tax to the
extent of your investment in the Policy, and amounts in
excess of your investment in the Policy, while subject to
tax as ordinary income, will not be subject to a 10% penalty
tax. You should consult a qualified tax advisor for
assistance in all tax matters involving your Policy.
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LIMITS ON The Policy permits you to take only one partial withdrawal
PARTIAL in any 12-month period, after the first Policy year has been
WITHDRAWALS completed. The amount you may withdraw is limited to
earnings. We calculate earnings as cash value, reduced by
any outstanding loan amount (including any interest due on
Policy loans) and any premiums paid.
A partial withdrawal will reduce the specified amount (and
the minimum death benefit under the Guaranteed Minimum Death
Benefit rider) by:
Amount of withdrawal X initial specified amount
------------------------
initial premium
This reduction may be significant. However, in no event will
any withdrawal reduce the minimum death benefit under the
Guaranteed Minimum Death Benefit rider below $1,000.
Federal income taxes and a tax penalty may apply to partial
withdrawals and surrenders.
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LOAN RISKS A Policy loan, whether or not repaid, will affect cash value
over time because we subtract the amount of the loan from
the subaccounts and fixed account options and place that
amount in the loan reserve as collateral. We then credit a
fixed interest rate of 3.0% to the loan collateral. As a
result, the loan collateral does not participate in the
investment results of the subaccounts nor does it receive
the current interest rates credited to the fixed account
options.
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<PAGE>
The longer the loan is outstanding, the greater the effect
is likely to be. Depending on the investment results of the
subaccounts and the interest rates credited to the fixed
account, the effect could be favorable or unfavorable.
We also charge interest on Policy loans at a rate of 6.0%
payable in arrears. Interest is added to the amount of the
loan to be repaid.
A Policy loan affects the death benefit because a loan
reduces the death benefit proceeds by the amount of the
outstanding loan, plus any interest you owe on Policy loans.
A Policy loan will terminate the Guaranteed Minimum Death
Benefit rider.
A Policy loan could make it more likely that a Policy would
lapse. There is a risk if the loan reduces your net
surrender value to too low an amount and investment
experience is unfavorable, that the Policy will lapse,
resulting in adverse tax consequences. You will have a
61-day grace period to submit a sufficient payment to avoid
the Policy's termination without value and the end of
insurance coverage. As mentioned in "Risk of Lapse" on p. 9,
you may only reinstate your Policy if your Policy was
delivered to you in a state which permits reinstatement.
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EFFECTS OF THE The surrender charge under this Policy will reduce your cash
SURRENDER value if you surrender your Policy in the first nine Policy
CHARGE years. You should purchase this Policy only if you have the
financial ability to keep it in force at the initial
specified amount for a substantial period of time.
Even if you do not ask to surrender your Policy, the
surrender charge plays a role in determining whether your
Policy will lapse. Net surrender value (that is, cash value
minus the surrender charge and outstanding loans) is the
measure we use each month to determine whether your Policy
will remain in force or will lapse.
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COMPARISON Like fixed benefit life insurance, the Policy offers a death
WITH OTHER benefit and provides a cash value, loan privileges and a
INSURANCE value on surrender. However, the Policy differs from a fixed
POLICIES benefit policy because it allows you to place your premium
in investment subaccounts. The amount and duration of life
insurance protection and of the Policy's cash value will
vary with the investment performance of the amounts you
place in the subaccounts. In addition, the cash value and
net surrender value will always vary with the investment
experience of your selected subaccounts.
As you consider purchasing this Policy, keep in mind that it
may not be to your advantage to replace existing insurance
with the Policy.
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<PAGE>
ILLUSTRATIONS The hypothetical illustrations in this prospectus are used
in connection with the purchase of a Policy and are based on
hypothetical rates of return. These rates are not
guaranteed, and are provided only to illustrate how the
specified amount, Policy charges and hypothetical rates of
return affect death benefit levels, cash value and net
surrender value of the Policy. We may also illustrate Policy
values based on the adjusted historical performance of the
portfolios since the portfolios' inception, reduced by
Policy and subaccount charges. The hypothetical and adjusted
historic portfolio rates illustrated should not be
considered to represent past or future performance. There is
the risk that actual rates of return may be higher or lower
than those illustrated, so that the values under your Policy
will be different from those in the illustrations.
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<PAGE>
PORTFOLIO ANNUAL EXPENSE TABLE
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This table shows the fees and expenses charged by each portfolio. More detail
concerning each portfolio's fees and expenses is contained in the fund
prospectuses.
ANNUAL PORTFOLIO OPERATING EXPENSES
(As a percentage of average portfolio assets after fee waivers and expense
reimbursements)
<TABLE>
<CAPTION>
TOTAL
MANAGEMENT OTHER EXPENSES ANNUAL
PORTFOLIO FEES (AFTER REIMBURSEMENT) EXPENSES
<S> <C> <C> <C>
AIM V.I. Capital Appreciation Fund 0.62% 0.05% 0.67%
AIM V.I. Government Securities Fund 0.50% 0.26% 0.76%
AIM V.I. Growth and Income Fund 0.61% 0.04% 0.65%
AIM V.I. Value Fund 0.61% 0.05% 0.66%
Dreyfus Stock Index Fund 0.25% 0.01% 0.26%
Dreyfus -- Money Market Portfolio 0.50% 0.06% 0.56%
Dreyfus -- Small Company Stock
Portfolio 0.75% 0.23% 0.98%
MFS Emerging Growth Series(1)((2) 0.75% 0.10% 0.85%
MFS Foreign & Colonial Emerging
Markets Equity Series(1)(2) 1.25% 0.28% 1.53%
MFS Research Series(1)(2) 0.75% 0.11% 0.86%
MFS Total Return Series(1)(2) 0.75% 0.16% 0.91%
MFS Utilities Series(1)(2) 0.75% 0.26% 1.01%
Oppenheimer Capital Appreciation Fund 0.72% 0.03% 0.75%
Oppenheimer Global Securities Fund 0.68% 0.06% 0.74%
Oppenheimer High Income Fund 0.74% 0.04% 0.78%
Oppenheimer Main Street Growth
& Income Fund 0.74% 0.05% 0.79%
Oppenheimer Strategic Bond Fund 0.74% 0.06% 0.80%
WRL VKAM Emerging Growth(3) 0.80% 0.09% 0.89%
WRL Janus Global(3)(4) 0.80% 0.15% 0.95%
WRL Janus Growth(3)(5) 0.78% 0.05% 0.83%
</TABLE>
(1) Each series has an expense offset arrangement which reduces the series'
custodian fee based upon the amount of cash maintained by the series with
its custodian and dividend disbursing agent. Each series may enter into
other such arrangements and directed brokerage arrangements, which would
also have the effect of reducing the series' expenses. Expenses do not take
into account these expense reductions, and are therefore higher than the
actual expenses of the series.
(2) MFS has agreed to bear expenses for these series, subject to reimbursement
by these series, such that each such series' "Other Expenses" shall not
exceed 0.25% of the average daily net assets of the series during the
current fiscal year. The payments made by MFS on behalf of each series
under this arrangement are subject to reimbursement by the series to MFS,
which will be accomplished by the payment of an expense reimbursement fee
by the series to MFS computed and paid monthly at a percentage of the
series' average daily net assets for its then current fiscal year with a
limitation that immediately after such payment the series' "Other Expenses"
will not exceed the percentage set forth above for that series. The
obligation of MFS to bear a series' "Other Expenses" pursuant to this
arrangement and the series' obligation to pay the reimbursement fee to MFS,
terminates on the earlier of the date on which payments made by the series
equal the prior payment of such reimbursable expenses by MFS, or December
31, 2004. MFS may, in its descretion, terminate this arrangement at an
earlier date, provided that the arrangement will continue for each series
until at least May 1, 2000, unless terminated with the consent of the board
of trustees which oversees the series.
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<PAGE>
(3) Effective January 1, 1997, the Board of the WRL Series Fund, Inc.
authorized the fund to charge each portfolio of the fund, including WRL
VKAM Emerging Growth, WRL Janus Growth, and WRL Janus Global, an annual
Rule 12b-1 fee of up to 0.15% of each portfolio's average daily net assets.
However, the fund will not deduct the fee from any portfolio before April
30, 2000. You will receive advance written notice if a Rule 12b-1 fee is
deducted. See the WRL Series Fund, Inc.'s prospectus for more details.
(4) WRL Investment Management, Inc. ("WRL Management") currently waives 0.025%
of its advisory fee for the portfolio's average daily net assets above
$2 billion (net fee -- 0.775%). This waiver is voluntary and may be
terminated at any time upon 90 days' notice to the fund.
(5) WRL Management currently waives 0.025% of its advisory fee for the first $3
billion of the portfolio's average daily net assets (net fee -- 0.775%);
and 0.05% for the portfolio's assets above $3 billion (net fee -- 0.75%).
This waiver is voluntary and may be terminated at any time upon 90 days'
notice to the fund.
The purpose of the preceding table is to assist you in understanding the
various costs and expenses that you will bear directly and indirectly. The
table reflects charges and expenses of the portfolios of the funds for the
fiscal year ended December 31, 1998. Expenses of the funds may be higher or
lower in the future. For more information on the charges described in this
table, see the fund prospectuses which accompany this prospectus.
PFL AND THE FIXED ACCOUNT
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PFL LIFE INSURANCE COMPANY
PFL Life Insurance Company is the insurance company issuing the Policy.
PFL was incorporated under Iowa law on April 19, 1961. PFL established the
separate account to support the investment options under this Policy and under
other variable life insurance policies PFL may issue. PFL's general account
supports the fixed account options under the Policy. PFL intends to sell this
Policy in all states in which it is licensed.
THE FIXED ACCOUNT OPTIONS
The fixed account is part of PFL's general account. We use general account
assets to support our insurance and annuity obligations other than those funded
by separate accounts. Subject to applicable law, PFL has sole discretion over
the investment of the fixed account's assets. PFL bears the full investment
risk for all amounts contributed to the fixed account. PFL guarantees that the
amounts allocated to the fixed account options will be credited interest daily
at a net effective interest rate of at least 3.0%. We will determine any
interest rate credited in excess of the guaranteed rate at our sole discretion.
We have no specific formula for determining interest rates. If you allocate
your initial premium to the fixed account options, then we will credit interest
from the date we receive the premium.
THE STANDARD FIXED ACCOUNT. Money you place into the standard fixed
account option will earn interest compounded daily at a current interest rate
in effect at the time of your allocation. The interest rate is guaranteed never
to be less than 3.0% per year. We may declare current interest rates from time
to time. We may declare more than one interest rate for different money based
upon the date of allocation or transfer to the standard fixed account.
We allocate amounts from the standard fixed account for partial
withdrawals, transfers to the subaccounts, or monthly deduction charges on a
last-in, first-out basis ("LIFO") for the purpose of crediting interest.
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<PAGE>
THE FIXED DCA ACCOUNT. At the time you purchase the Policy, you may place
your entire initial premium into the fixed DCA account. Money you place into
the fixed DCA account will earn interest at an annual rate of at least 3.0%. We
may declare current interest rates from time to time. Money will be transferred
out of the fixed DCA account in six equal monthly installments and placed in
the standard fixed account and the subaccounts of your choice. See Fixed DCA
Account, p. 33.
THE FIXED ACCOUNT OPTIONS HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND
EXCHANGE COMMISSION AND THE STAFF OF THE SECURITIES AND EXCHANGE COMMISSION HAS
NOT REVIEWED THE DISCLOSURE IN THIS PROSPECTUS RELATING TO THE FIXED ACCOUNT
OPTIONS.
THE SEPARATE ACCOUNT AND THE PORTFOLIOS
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THE SEPARATE ACCOUNT
The separate account is divided into subaccounts, each of which invests in
shares of a specific portfolio of a fund. The subaccounts buy and sell
portfolio shares at net asset value without any sales charge. Any dividends and
distributions from a portfolio are reinvested at net asset value in shares of
that portfolio.
Income, gains, and losses credited to, or charged against, a subaccount of
the separate account reflect the subaccount's own investment experience and not
the investment experience of our other assets. The separate account's assets
may not be used to pay any of our liabilities other than those arising from the
Policies. If the separate account's assets exceed the required reserves and
other liabilities, we may transfer the excess to our general account.
The separate account may include other subaccounts that are not available
under the Policies and are not discussed in this prospectus. We may substitute
another subaccount, portfolio or insurance company separate account under the
Policies if, in our judgment, investment in a subaccount or portfolio would no
longer be possible or becomes inappropriate to the purposes of the Policies, or
if investment in another subaccount or insurance company separate account is in
the best interest of owners. No substitution shall take place without notice to
owners and prior approval of the Securities and Exchange Commission ("SEC") and
insurance company regulators, to the extent required by the Investment Company
Act of 1940, as amended (the "1940 Act") and applicable law.
THE PORTFOLIOS
The separate account invests in shares of the portfolios. Each portfolio
is an investment division of a fund, which is an open-end investment company
registered with the SEC. Such registration does not involve supervision of the
management or investment practices or policies of the portfolios by the SEC.
Each portfolio's assets are held separate from the assets of the other
portfolios, and each portfolio has investment objectives and policies that are
different from those of the
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<PAGE>
other portfolios. Thus, each portfolio operates as a separate investment fund,
and the income or losses of one portfolio have no effect on the investment
performance of any other portfolio. Pending any prior approval by a state
insurance regulatory authority, certain subaccounts and corresponding
portfolios may not be available to residents of some states.
Each portfolio's investment objective(s) and policies are summarized
below. THERE IS NO ASSURANCE THAT ANY OF THE PORTFOLIOS WILL ACHIEVE ITS STATED
OBJECTIVE(S). Certain portfolios may have investment objectives and policies
similar to other portfolios that are managed by the same investment adviser or
manager. The investment results of the portfolios, however, may be higher or
lower than those of such other portfolios. We do not guarantee or make any
representation that the investment results of a portfolio will be comparable to
any other portfolio, even those with the same investment adviser or manager.
You can find more detailed information about the portfolios, including a
description of risks, in the fund prospectuses. You should read the fund
prospectuses carefully.
<TABLE>
<CAPTION>
INVESTMENT MANAGER/
PORTFOLIO SUB-ADVISER INVESTMENT OBJECTIVE
- -------------- ---------------------- ---------------------------------------
<S> <C> <C> <C> <C>
AIM V.I. -> A I M Advisors, Inc. -> Seeks capital appreciation through
CAPITAL investments in common stocks, with
APPRECIATION emphasis on medium-sized and
FUND smaller emerging growth companies.
AIM V.I. -> A I M Advisors, Inc. -> Seeks to achieve a high level of
GOVERNMENT current income consistent with
SECURITIES reasonable concern for safety of
FUND principal by investing in debt
securities issued, guaranteed or
otherwise backed by the United States
Government.
AIM V.I. -> A I M Advisors, Inc. -> Seeks growth of capital, with current
GROWTH AND income as a secondary objective.
INCOME FUND
AIM V.I. -> A I M Advisors, Inc. -> Seeks to achieve long-term growth of
VALUE FUND capital by investing primarily in
equity securities judged by AIM to be
undervalued relative to the current or
projected earnings of the companies
issuing the securities, or relative to
current market values of assets owned
by the companies issuing the
securities or relative to the equity
markets generally. Income is a
secondary objective.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
INVESTMENT MANAGER/
PORTFOLIO SUB-ADVISER INVESTMENT OBJECTIVE
- ----------------- ------------------------- ------------------------------------------------------
<S> <C> <C> <C> <C>
DREYFUS STOCK -> The Dreyfus Corpora- -> Seeks to provide investment results
INDEX FUND tion and Mellon Equity that correspond to the price and yield
Associates performance of publicly traded
common stocks in the aggregate, as
represented by the Standard & Poor's
500 Composite Stock Price Index.
DREYFUS -- -> The Dreyfus -> Seeks to provide as high a level of
MONEY MARKET Corporation current income as is consistent with
PORTFOLIO the preservation of capital and the
maintenance of liquidity.
DREYFUS -- -> The Dreyfus -> Seeks to provide investment results
SMALL Corporation that are greater than the total return
COMPANY performance of publicly-traded
STOCK PORTFOLIO common stocks in the aggregate, as
represented by the Russell 2500(RM)
Index.
MFS -> Massachusetts Financial -> Seeks to provide long-term growth of
EMERGING Services Company capital.
GROWTH SERIES
MFS FOREIGN -> Massachusetts Financial -> Seeks capital appreciation.
& COLONIAL Services Company
EMERGING
MARKETS
EQUITY SERIES
MFS RESEARCH -> Massachusetts Financial -> Seeks to provide long-term growth of
SERIES Services Company capital and future income.
MFS TOTAL -> Massachusetts Financial -> Seeks to provide above-average
RETURN SERIES Services Company income (compared to a portfolio
invested entirely in equity securities)
consistent with the prudent employ-
ment of capital, and secondarily to
provide a reasonable opportunity for
growth of capital and income.
MFS UTILITIES -> Massachusetts Financial -> Seeks capital growth and current
SERIES Services Company income (income above that available
from a portfolio invested entirely in
equity securities).
OPPENHEIMER -> OppenheimerFunds, Inc. -> Seeks to achieve capital appreciation
CAPITAL by investing in securities of well-
APPRECIATION known established companies.
FUND
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
INVESTMENT MANAGER/
PORTFOLIO SUB-ADVISER INVESTMENT OBJECTIVE
- ---------------- ------------------------ ----------------------------------------
<S> <C> <C> <C> <C>
OPPENHEIMER -> OppenheimerFunds, Inc. -> Portfolio seeks long-term capital
GLOBAL appreciation by investing a substantial
SECURITIES portion of its assets in securities of
FUND foreign issuers, "growth-type"
companies, cyclical industries and
special situations which are
considered to have appreciation
possibilities, but which may be
considered to be speculative.
OPPENHEIMER -> OppenheimerFunds, Inc. -> Seeks a high level of current income
HIGH INCOME from investment in high yield
FUND fixed-income securities. The
portfolio's investments include
unrated securities or high risk
securities in the lower rating
categories, commonly known as
"junk bonds," which are subject to a
greater risk of loss of principal and
nonpayment of interest than higher-
rated securities.
OPPENHEIMER -> OppenheimerFunds, Inc. -> Seeks a high total return (which
MAIN STREET includes growth in the value of its
GROWTH & shares as well as current income)
INCOME FUND from equity and debt securities.
OPPENHEIMER -> OppenheimerFunds, Inc. -> Seeks a high level of current income
STRATEGIC BOND principally derived from interest on
FUND debt securities and seeks to enhance
such income by writing covered call
options on debt securities.
WRL VKAM -> Van Kampen Asset -> Seeks capital appreciation by
EMERGING Management Inc. investing primarily in common stocks
GROWTH of small and medium-sized
companies.
WRL JANUS -> Janus Capital -> Seeks long-term growth of capital in a
GLOBAL Corporation manner consistent with the preserva-
tion of capital.
WRL JANUS -> Janus Capital -> Seeks growth of capital.
GROWTH Corporation
</TABLE>
In addition to the separate account, shares of the portfolios are also
sold to other separate accounts that insurance companies, including PFL or its
affiliates, establish to support variable annuity contracts and variable life
insurance policies. It is possible that, in the future, it may
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<PAGE>
become disadvantageous for variable life insurance separate accounts and
variable annuity separate accounts to invest in the portfolios simultaneously.
Neither we nor the portfolios currently foresee any such disadvantages, either
to variable life insurance policyowners or to variable annuity contract owners.
However, each fund's Board of Directors will monitor events in order to
identify any material conflicts between the interests of such variable life
insurance policyowners and variable annuity contract owners, and will determine
what action, if any, it should take. Such action could include the sale of
portfolio shares by one or more of the separate accounts, which could have
adverse consequences. Material conflicts could result from, for example, (1)
changes in state insurance laws, (2) changes in federal income tax laws, or (3)
differences in voting instructions between those given by variable life
insurance policyowners and those given by variable annuity contract owners.
If a fund's Board of Directors were to conclude that separate funds should
be established for variable life insurance and variable annuity separate
accounts, PFL will bear the attendant expenses, but variable life insurance
policyowners and variable annuity contract owners would no longer have the
economies of scale resulting from a larger combined fund.
ADDITION, DELETION, OR SUBSTITUTION OF INVESTMENTS
We reserve the right to transfer separate account assets to another
separate account that we determine to be associated with the class of contracts
to which the Policy belongs. We also reserve the right, subject to compliance
with applicable law, to add to, delete from, or substitute the investments that
are held by any subaccount or that any subaccount may purchase. We will only
add, delete or substitute shares of another portfolio of a fund (or of another
open-end, registered investment company), if the shares of a portfolio are no
longer available for investment, or if in our judgement further investment in
any portfolio would become inappropriate in view of the purposes of the
separate account. We will not add, delete or substitute any shares attributable
to your interest in a subaccount without notice to and prior approval of the
SEC, to the extent required by the 1940 Act or other applicable law. We may
also decide to purchase for the separate account securities from other
portfolios.
We also reserve the right to establish additional subaccounts of the
separate account, each of which would invest in a new portfolio of a fund, or
in shares of another investment company, with specified investment objectives.
We may establish new subaccounts when, in our sole discretion, marketing, tax
or investment conditions warrant. We will make any new subaccounts available to
existing owners on a basis we determine. We may also eliminate one or more
subaccounts for the same reasons as stated above.
In the event of any such substitution or change, we may make such changes
in this and other policies as may be necessary or appropriate to reflect such
substitution or change. If we deem it to be in the best interests of persons
having voting rights under the Policies, and when permitted by law, the
separate account may be (1) operated as a management company under the 1940
Act, (2) deregistered under the 1940 Act in the event such registration is no
longer required, (3) managed under the direction of a committee, or (4)
combined with one or more other separate accounts, or subaccounts.
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PLEASE READ THE ATTACHED FUND PROSPECTUSES TO OBTAIN MORE COMPLETE INFORMATION
REGARDING THE PORTFOLIOS.
YOUR RIGHT TO VOTE PORTFOLIO SHARES
Even though we are the legal owner of the portfolio shares held in the
subaccounts, and have the right to vote on all matters submitted to
shareholders of the portfolios, we will vote our shares only as policyowners
instruct, so long as such action is required by law.
Before a vote of a portfolio's shareholders occurs, you will receive
voting materials from us. We will ask you to instruct us on how to vote and to
return your proxy to us in a timely manner. You will have the right to instruct
us on the number of portfolio shares that corresponds to the amount of cash
value you have in that portfolio (as of a date set by the portfolio).
If we do not receive voting instructions on time from some policyowners,
we will vote those shares in the same proportion as the timely voting
instructions we receive. Should federal securities laws, regulations and
interpretations change, we may elect to vote portfolio shares in our own right.
If required by state insurance officials, or if permitted under federal
regulation, we may disregard certain policyowner voting instructions. If we
ever disregard voting instructions, we will send you a summary in the next
annual report to policyowners advising you of the action and the reasons we
took such action.
THE POLICY
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PURCHASING A POLICY
To purchase a Policy, a prospective owner must submit a completed
application and an initial premium to us. You may also send the application and
initial premium to us through any licensed life insurance agent who is also a
registered representative of a broker-dealer having a selling agreement with
AFSG Securities Corporation, the principal underwriter for the Policy.
Please submit your applications to: PFL Life Insurance Company
P.O. Box 3183
Cedar Rapids, Iowa 52406-3183
You may also fax your application to us at 319-297-8320 and send us your
initial premium by wire transfer. See Initial Premium p. 26 for details.
We determine the specified amount for a Policy based on the initial
premium paid and other characteristics of the proposed insured (or joint
insureds), such as age, gender and rate class. We base the minimum initial
premium for your Policy on the guideline single premium established under
federal tax laws given the age, gender and rate class of the insured (or joint
insured). We currently require a minimum initial premium of $20,000.
We use different underwriting standards (simplified, expanded) in relation
to the Policy. We can provide you with details as to these underwriting
standards when you apply for a Policy. We
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<PAGE>
must receive evidence of insurability that satisfies our underwriting standards
before we will issue a Policy. Generally, for simplified underwriting for a
single life Policy we will issue a Policy for an insured between the ages of 35
to 80; for a Joint Policy, the minimum age for both insureds is 45 and the
difference between the joint insureds' ages cannot be greater than 20 years.
The joint insureds must be spouses or expanded underwriting will be required.
For expanded underwriting, we will issue a Policy for an insured (or joint
insureds) between the ages of 18 to 34 and 81 to 90. We reserve the right to
reject an application for any reason permitted by law.
UNDERWRITING STANDARDS
This Policy uses mortality tables that distinguish between men and women.
As a result, the Policy pays different benefits to men and women of the same
age. Montana prohibits our use of actuarial tables that distinguish between men
and women to determine premiums and policy benefits for policies issued on the
lives of its residents. Therefore, we will base the premiums and benefits in
Policies that we issue in Montana, to insure residents of that state, on
actuarial tables that do not differentiate on the basis of gender.
Your cost of insurance charge will depend on the insured's (or each joint
insured's) rate class. We currently place insureds (or each joint insured) into
one of the following rate classes:
o select, non-tobacco use; and
o standard, tobacco use.
We generally charge higher rates for insureds who use tobacco.
WHEN INSURANCE COVERAGE TAKES EFFECT
Full insurance coverage under the Policy will take effect only if the
insured (or joint insureds) is alive and in the same condition of health as
described in the application when the Policy is delivered to the owner, and if
the initial premium is paid.
CONDITIONAL INSURANCE COVERAGE. If the insured (or joint insureds)
qualifies for simplified underwriting, conditional insurance coverage begins as
soon as you complete an application and pay an initial premium of at least
$20,000. If the insured (or joint insureds) does not qualify for simplified
underwriting, conditional insurance coverage begins on the date all medical
tests and exams are completed. Conditional insurance coverage is void if the
check or draft sent to pay the initial premium is not honored when we first
present it for payment.
THE AMOUNT OF o the specified amount applied for; or
CONDITIONAL INSURANCE o $300,000
COVERAGE IS THE LESSER OF: reduced by all amounts payable under all
other life insurance or accidental death
benefits that the insured (or joint
insureds) has in force or pending with us.
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CONDITIONAL LIFE INSURANCE o the date we determine the insured (or joint
COVERAGE TERMINATES insureds) has satisfied our underwriting
AUTOMATICALLY, AND requirements (the Policy date);
WITHOUT NOTICE, ON THE o 10 days following our offer of insurance, on
EARLIEST OF: any person proposed, under a different plan
or at an increased premium or different rate
class;
o at the end of the fraction of a year which
the payment bears to the premium required to
provide one month of insurance in the amount
as described above;
o 60 days from the beginning of conditional
insurance coverage; or
o the date we notify you that the application
is declined and the initial premium is
returned.
Conditional insurance coverage is void if the application contains any
material misrepresentation or is fraudulently completed. Benefits will also be
denied if any proposed insured commits suicide.
FULL INSURANCE COVERAGE AND ALLOCATION OF INITIAL PREMIUM. Once we
determine that the insured (or joint insureds) meets our underwriting
requirements, full insurance coverage begins, we issue the Policy, and we begin
to deduct monthly and daily insurance charges from your initial premium. This
date is the Policy date. On the Policy date, we will allocate your premium to
the subaccounts and fixed account options you elected on your application,
provided you live in a state that does not require a refund of full premium
during the free look period. If your state requires us to return the full
premium in the event you exercise your free look right, we will place your
premium in the reallocation account until the reallocation date. See
Reallocation Account, p. 28.
On any day we credit premiums or transfer cash value to a subaccount, we
will convert the dollar amount of the premium (or transfer) into subaccount
units at the unit value for that subaccount, determined at the end of the day.
We will credit amounts to the subaccounts only on a valuation date, that is, on
a date the New York Stock Exchange ("NYSE") is open for trading. See Policy
Values, p. 28.
OWNERSHIP RIGHTS
The Policy belongs to the owner named in the application. The owner may
exercise all of the rights and options described in the Policy. If two owners
are named, the Policy will be owned jointly, and each owner's consent will be
required to exercise ownership rights. The owner is the insured unless the
application specifies a different person as the insured. If the owner dies
before the insured (or surviving insured) and no contingent owner is named,
then ownership of the Policy will pass to the owner's estate. The owner may
exercise certain rights described below.
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CHANGING THE o Change the owner by providing written notice to us at any
OWNER time while the insured (or surviving insured) is alive and
the Policy is in force.
o Change is effective as of the date that the written notice
is signed.
o Changing the owner does not automatically change the
beneficiary.
o Changing the owner may have tax consequences. You should
consult a tax advisor before changing the owner.
o We are not liable for payments we made before we received
the written notice.
CHOOSING THE o The owner designates the beneficiary (the person to
BENEFICIARY receive the death benefit when the insured or surviving
insured dies) in the application.
o If you designate more than one beneficiary, then each
beneficiary shares equally in any death benefit proceeds
unless the beneficiary designation states otherwise.
o If the beneficiary dies before the insured or surviving
insured, then any contingent beneficiary becomes the
beneficiary.
o If both the beneficiary and contingent beneficiary die
before the insured or surviving insured, then the death
benefit will be paid to the owner or the owner's estate
upon the insured's or surviving insured's death.
CHANGING THE o Change the beneficiary by providing us with a written
BENEFICIARY notice.
o Change is effective as of the date the owner signs the
written notice.
o We are not liable for any payments we made before we
received the written notice.
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ASSIGNING THE o The owner may assign Policy rights while the insured (or
POLICY either or both joint insureds) is alive.
o The owner retains any ownership rights that are not
assigned.
o Assignee may not change the owner or the beneficiary, and
may not elect or change an optional method of payment.
Any amount payable to the assignee will be paid in a lump
sum.
o Claim under any assignment are subject to proof of
interest and the extent of the assignment.
o We are not:
-> bound by any assignment unless we receive a written
notice of the assignment;
-> responsible for the validity of any assignment;
-> liable for any payment we made before we received
written notice of the assignment; or
-> any assignment which results in adverse tax
consequences to the owner, insured(s) or
beneficiary(ies).
o Assigning the Policy may have tax consequences. You should
consult a tax advisor before assigning the Policy.
POLICY SPLIT OPTION
For a Joint Policy, as long as you provide us with sufficient evidence
that the joint insureds meet our insurability standards, you may request that
the Policy, not including any riders, be split (the "Split Option") into two
new individual fixed account life insurance policies, one on the life of each
joint insured, if one of the three events listed below occurs. You may request
this Split Option by giving us written notice within 90 days after:
o the enactment or effective date (whichever is later) of a change in
the federal estate tax laws that would reduce or eliminate the
unlimited marital deduction;
o the date of entry of a final decree of divorce of the joint insureds;
or
o written confirmation of a dissolution of a business partnership of
which the joint insureds were partners.
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CONDITIONS FOR EXERCISING o If more than one person owns the Policy, each
SPLIT OPTION: owner must agree to the split.
o The initial specified amount for each new
policy cannot be more than 50% of the
Policy's specified amount, excluding the face
amount of any riders.
o The new policies will be subject to our
minimum and maximum specified amounts and
issue ages for the plan of insurance you
select.
o You must obtain our approval before you can
exercise the Split Option if one of the joint
insureds is older than the new policy's
maximum issue age when you request the Split
Option.
Cash value and indebtedness under the Policy will be allocated equally to
each of the new policies. If one joint insured does not meet our insurability
requirements, we will pay you half of the Policy's net surrender value and
issue only one new policy covering the joint insured that meets our
insurability requirements; or you may cancel the Split Option and keep the
Policy in force on both joint insureds.
We will base the premiums for the new policies on each joint insured's
attained age and premium rate class which we determine based on the current
evidence of insurability submitted for each joint insured. Premiums will be
payable as of the Policy date for each new policy. The Policy date for each new
policy will be the monthly anniversary after we receive your written request to
exercise the Split Option. The owner and beneficiary for the new policies will
be those named in the Policy, unless you specify otherwise. Any new premium you
pay to the new policies will be subject to the normal charges, if any, of the
new policies at the time you pay the premium.
Exercising the Split Option may result in a taxable event. Moreover, the
new life insurance policies received if you exercise the Split Option may not
be treated as life insurance policies for federal income tax purposes, or, if
so treated, may be treated as MECs, even if the original Policy was not. (See
Federal Income Tax Considerations, p. 47.) You should consult a tax advisor
before exercising the Split Option.
CANCELING A POLICY
You may cancel a Policy during the "free-look period" by returning it to
our office, to one of our branch offices or to the agent who sold you the
Policy. The free-look period expires 10 days after you receive the Policy. In
some states you may have more than 10 days. If you decide to cancel the Policy
during the free-look period, we will treat the Policy as if it had never been
issued. We will pay the refund, without interest, within seven days after we
receive the returned Policy. The amount of the refund will be:
o any monthly deductions or other charges we deducted from amounts
allocated to the subaccounts and the fixed account options; PLUS
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o your cash value in the subaccounts and the fixed account options on
the date we (or our agent) receive the returned Policy.
If any state law prohibits the calculation above, we will refund, without
interest, the total of all premiums paid for the Policy. See Allocating
Premiums, p. 27.
PREMIUMS
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INITIAL PREMIUM
The initial premium for a given specified amount depends on a number of
factors including the age, gender, and rate class of the proposed insured(s).
For a given initial premium, we will specify the exact specified amount that
you must purchase. For a Joint Policy, we will provide the specified amount at
the time of application based upon the specific ages, gender, and rate classes
of the proposed joint insureds.
We will accept initial premium payments by wire transfer and Policy
applications by fax under the following conditions.
o If you wish to make payments by wire transfer, you should instruct
your bank to wire federal funds to us. Please contact us at
1-800-525-6205 for complete wire instructions.
o If you send your initial premium by wire transfer, you must, at the
same time, send us your completed application by telephone facsimile
transmission ("faxed application") to 319-297-8320, and send us the
original signed application.
o If we accept your initial premium payment by wire transfer accompanied
by your faxed application, we will allocate your premium on the
Policy date (or reallocation date if you reside in a state that
requires full refund of premium during the free look period) according
to your instructions once we have received your original signed
application. See Reallocation Account, p. 28.
o If you send your initial premium by wire transfer but do not send us
your faxed application simultaneously, or if the application is
incomplete, we will keep the initial premium for up to five business
days. If we cannot obtain the faxed application or necessary
information within five business days, we will return your initial
premium to you, unless you allow us to keep it until we receive your
faxed application or necessary information.
o When we receive your original signed application and if the allocation
instructions are different from those in the faxed application, then
we will reallocate your cash value in accordance with the instructions
on your original signed application on the first valuation date after
we receive the original signed application.
We currently require a minimum initial premium of $20,000. The maximum
premium you can pay at the time of your application is $50,000 (for ages 35-49)
and $100,000 (for ages 50-80). Other limits apply for Joint Policies and
Policies with full underwriting. We reserve the right to modify these
requirements and premium amounts at any time.
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TAX-FREE EXCHANGES ("1035 EXCHANGES"). We will accept as part of your
initial premium money from one contract that qualified for a tax-free exchange
under Section 1035 of the Internal Revenue Code. If you contemplate such an
exchange, you should consult a competent tax advisor to learn the potential tax
effects of such a transaction.
Subject to our underwriting requirements, we will permit you to make one
additional cash payment within three business days of our receipt of the
proceeds from the 1035 Exchange before we determine your Policy's specified
amount.
ADDITIONAL PREMIUMS
You will have limited flexibility to add additional premiums to the Policy
since we require that the initial premium equal the maximum amount that can be
applied to the Policy at issue. In general, you may not pay any additional
premiums on the Policy for several years in order for the Policy to continue to
qualify as a life insurance Policy as defined in federal tax laws and
regulations. At the time the Policy allows for the payment of additional
premiums, we reserve the right to limit or refund any premium if:
o the amount is below our current minimum additional premium
requirement;
o the premium would increase the death benefit by more than the amount
of the premium; or
o accepting the premium would disqualify the Policy as a life insurance
Policy as defined in federal tax laws and regulations.
You may pay premiums by any method we deem acceptable. We will treat any
payment you make as a loan repayment unless you clearly mark it as a premium
payment.
ALLOCATING PREMIUMS
When you apply for a Policy, you must instruct us to allocate your premium
to one or more subaccounts of the separate account and to the fixed account
options according to the following rules:
o allocation percentages must be in whole numbers;
o if you select the fixed DCA account, you must put your entire initial
premium into the fixed DCA account at the time of your application;
and
o if you select standard dollar cost averaging, you must put at least
$5,000 into the Dreyfus -- Money Market subaccount.
Generally, we will not allow you to pay additional premiums except in
certain limited circumstances. If we do allow you to pay additional premiums,
you may change the allocation instructions for such additional premium payments
without charge by writing us or calling us at 1-800-525-6205. Upon instructions
from you, the registered representative/agent of record for your Policy may
also change your allocation instructions for you. In the future, we may decide
that the minimum amount you can allocate to a particular subaccount is 1.0% of
each premium payment (currently not required).
Whenever you direct money into a subaccount, we will credit your Policy
with the number of units for that subaccount that can be bought for the dollar
payment. We price
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each subaccount unit using the unit value determined at the end of the day
after the closing of the NYSE (usually at 4:00 p.m. Eastern time). We will
credit amounts to the subaccounts only on a valuation date, that is, on a date
the NYSE is open for trading. See Policy Values, p. 28. below. Your cash value
will vary with the investment experience of the subaccounts in which you
invest. YOU BEAR THE INVESTMENT RISK FOR AMOUNTS YOU ALLOCATE TO THE
SUBACCOUNTS.
You should review periodically how your cash value is allocated among the
subaccounts and the fixed account options because market conditions and your
overall financial objectives may change.
REALLOCATION ACCOUNT. If your state requires us to return your initial
premium in the event you exercise your free-look right, we will allocate the
initial premium on the Policy date to the reallocation account. While held in
the reallocation account, your premium will earn interest at the current rates
for the standard fixed account. The premium will remain in the reallocation
account for the number of days in your state's free look period plus five days.
This is the reallocation date. Please contact your agent for details concerning
the free look period for your state.
On the first valuation date on or after the reallocation date, we will
reallocate all cash value from the reallocation account to the subaccounts and
fixed account options you selected on the application. If you requested either
fixed DCA or standard dollar cost averaging, we will reallocate the cash value
to either the fixed DCA account or the Dreyfus -- Money Market subaccount
respectively, on the reallocation date.
For states which do not require full refund of the initial premium, the
reallocation date is the same as the Policy date and we will allocate your
initial premium on the Policy date to the subaccounts and the fixed account
options in accordance with the instructions you gave us on your application.
POLICY VALUES
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CASH VALUE o serves as the starting point for calculating values under a
Policy.
o equals the sum of all values in each subaccount and the
fixed account options.
o is determined on the Policy date and on each valuation date.
o has no guaranteed minimum amount and may be more or less
than premiums paid.
NET SURRENDER VALUE
The net surrender value is the amount we pay when you surrender your
Policy. We determine the net surrender value at the end of the valuation period
when we receive your written surrender request.
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NET SURRENDER o the cash value as of such date; MINUS
VALUE ON ANY o any surrender charge as of such date; MINUS
VALUATION DATE o any outstanding Policy loan(s); MINUS
EQUALS: o any interest you owe on any Policy loan(s).
SUBACCOUNT VALUE
Each subaccount's value is the cash value in that subaccount. At the end
of any valuation period, the subaccount's value is equal to the number of units
that the Policy has in the subaccount, multiplied by the unit value of that
subaccount.
THE NUMBER OF o the initial units purchased at unit value on the Policy
UNITS IN ANY date; PLUS
SUBACCOUNT ON o units purchased with additional premium(s); PLUS
ANY VALUATION o units purchased via transfers from another subaccount or
DATE EQUALS: the fixed account; MINUS
o units redeemed to pay for monthly deductions; MINUS
o units redeemed to pay for partial withdrawals; MINUS
o units redeemed as part of a transfer to another
subaccount or the fixed account.
Every time you allocate, transfer or withdraw money to or from a
subaccount, we convert that dollar amount into units. We determine the number
of units we credit to, or subtract from, your Policy by dividing the dollar
amount of the allocation, transfer or partial withdrawal by the unit value for
that subaccount at the end of the valuation period.
SUBACCOUNT UNIT VALUE
The value (or price) of each subaccount unit will reflect the investment
performance of the portfolio in which the subaccount invests. Unit values will
vary among subaccounts. The unit value of each subaccount was originally
established at $10 per unit. The unit value may increase or decrease from one
valuation period to the next.
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THE UNIT VALUE o the total value of the portfolio shares held in the
OF ANY subaccount, determined by multiplying the number of
SUBACCOUNT AT portfolio shares owned by the subaccount by the
THE END OF A portfolio's net asset value per share determined at
VALUATION the end of the valuation period; MINUS
PERIOD o a charge equal to the daily net assets of the
IS CALCULATED AS: subaccount multiplied by the daily equivalent of the
daily charge; MINUS
o the accrued amount of reserve for any taxes or other
economic burden resulting from applying tax laws that
we determine to be properly attributable to the
subaccount; AND THE RESULT DIVIDED BY
o the number of outstanding units in the subaccount.
The portfolio in which any subaccount invests will determine its net asset
value per share once daily, as of the close of the regular business session of
the NYSE (usually 4:00 p.m. Eastern time), which coincides with the end of each
valuation period.
FIXED ACCOUNT VALUE
On the Policy date, the fixed account value is equal to the premiums
allocated to the fixed account, minus the portion of the first monthly
deduction taken from the fixed account.
THE FIXED ACCOUNT o the premium(s) allocated to the fixed account; PLUS
VALUE AT THE END OF o any amounts transferred from a subaccount to the
ANY VALUATION fixed account; PLUS
PERIOD IS EQUAL TO: o total interest credited to the fixed account; MINUS
o amounts charged to pay for monthly deductions;
MINUS
o amounts withdrawn from the fixed account to pay for
partial withdrawals; MINUS
o amounts transferred from the fixed account to a
subaccount.
TRANSFERS
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GENERAL
You or your agent/registered representative of record may make transfers
among the subaccounts or from the subaccounts to the fixed account. We
determine the amount you have available for transfers at the end of the
valuation period when we receive your transfer request. WE MAY MODIFY OR REVOKE
THE TRANSFER PRIVILEGE AT ANY TIME. The following features apply to transfers
under the Policy:
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/checkmark/ You may make an unlimited number of transfers in a Policy
year.
/checkmark/ You may make one transfer from the fixed account per Policy
year.
/checkmark/ You may request transfers in writing (in a form we accept), by
fax or by telephone.
/checkmark/ There is no minimum amount that must be transferred.
/checkmark/ There is no minimum amount that must remain in a subaccount
after a transfer.
/checkmark/ We deduct a $10 charge from the amount transferred for the
13th and each additional transfer in a Policy year.
/checkmark/ We consider all transfers made in any one day to be a single
transfer.
/checkmark/ Transfers resulting from loans, conversion rights, standard
and fixed dollar cost averaging, asset rebalancing, and
transfers from the fixed account are NOT treated as transfers
for the purpose of the transfer charge.
The Policy's transfer privilege is not intended to afford policyowners a
way to speculate on short-term movements in the market. Excessive use of the
transfer privilege can disrupt the management of the portfolios and increase
transaction costs. Accordingly, we have established a policy of limiting
excessive transfer activity. We will limit transfer activity to two substantive
transfers (at least 30 days apart) from each portfolio, except from the Dreyfus
- -- Money Market Portfolio during any 12-month period. We interpret
"substantive" to mean either a dollar amount large enough to have a negative
impact on a portfolio's operations or a series of movements between portfolios.
We will not limit non-substantive transfers.
Your Policy as applied for and issued, will automatically receive
telephone transfer privileges unless you provide other instructions. The
telephone transfer privileges allow you to give authority to the registered
representative or agent of record for your Policy to make telephone transfers
and to change the allocation of future payments among the subaccounts and the
fixed account on your behalf according to your instructions. To make a
telephone transfer, you may call 1-800-525-6205 or fax your instructions to
319-297-8320.
Please note the following regarding telephone or fax transfers:
-> We are not liable for any loss, damage, cost or expense from complying
with telephone instructions we reasonably believe to be authentic. You
bear the risk of any such loss.
-> We will employ reasonable procedures to confirm that telephone
instructions are genuine.
-> If we do not employ reasonable confirmation procedures, we may be
liable for losses due to unauthorized or fraudulent instructions.
-> Such procedures may include requiring forms of personal identification
prior to acting upon telephone instructions, providing written
confirmation of transactions to owners, and/or tape recording
telephone instructions received from owners.
-> We may also require written confirmation of your request.
-> If you do not want the ability to make telephone transfers, you should
notify us in writing.
-> Telephone or fax requests must be received before 4:00 p.m. Eastern
time to assure same-day pricing of the transaction.
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-> We will not be responsible for any transmittal problems when you fax
us your request unless you report it to us within five business days
and send us proof of your fax transmittal.
-> We may discontinue this option at any time.
We will process any transfer request we receive before the NYSE closes
(usually 4:00 p.m. Easterm time) using the subaccount unit value determined at
the end of that session of the NYSE. If we receive the transfer request after
the NYSE closes, we will process the request using the subaccount unit value
determined at the close of the next regular business session of the NYSE.
STANDARD FIXED ACCOUNT TRANSFERS
You may make one transfer per Policy year from the standard fixed account
unless you select standard dollar cost averaging from the standard fixed
account. We reserve the right to require that you make the transfer request in
writing. We must receive the transfer request no later than 30 days after a
Policy anniversary. We will make the transfer on the date we receive the
written request. The maximum amount you may transfer is the greater of:
-> 25% of the amount in the standard fixed account; or
-> the amount you transferred from the standard fixed account in the
immediately prior Policy year (excluding transfers from the fixed DCA
account).
CONVERSION RIGHTS
If within two years of your Policy date, you transfer all of your
subaccount values to the standard fixed account, then we will not charge you a
transfer fee, even if applicable. You must make your request in writing.
STANDARD DOLLAR COST AVERAGING
Standard dollar cost averaging is an investment strategy designed to
reduce the investment risks associated with market fluctuations. The strategy
spreads the allocation of your premium into the subaccounts over a period of
time. This potentially allows you to reduce the risk of investing most of your
premium into the subaccounts at a time when prices are high. The success of
this strategy is not assured and depends on market trends. You should consider
carefully your financial ability to continue the program over a long enough
period of time to purchase units when their value is low as well as when they
are high. We make no guarantee that dollar cost averaging will result in a
profit or protect you against a loss.
Under standard dollar cost averaging, we automatically transfer a set
dollar amount from the Dreyfus -- Money Market subaccount to one or more
subaccounts that you choose. At the beginning of dollar cost averaging, you
must choose the time period (12, 24 or 36 months) over which the entire amount
will be transferred in equal monthly installments. We will make the transfers
monthly as of the end of the valuation date starting on the first
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Monthiversary after the Policy date or reallocation date. We will make the
first transfer in the month after we receive your request, provided that we
receive the form by the 25th day of the month.
TO START STANDARD -> you must submit a completed form to us requesting
DOLLAR COST standard dollar cost averaging;
AVERAGING: -> you must have at least $5,000 in the Dreyfus
- Money Market subaccount;
-> the monthly amount transferred will be determined
by dividing the total amount to be transferred by
the number of months in the period chosen (12, 24
or 36 months); and
-> interest accrued on the cash value in the Dreyfus
- Money Market subaccount during the term of
dollar cost averaging will be tranferred in the
last month of the standard dollar cost averaging
term.
You may request standard dollar cost averaging to begin at any time. There is
no charge for standard dollar cost averaging, except that you cannot begin
standard dollar cost averaging if you have an active fixed DCA account.
Transfers under standard dollar cost averaging do NOT count as transfers for
purposes of the transfer charge.
STANDARD DOLLAR COST -> we receive your request to cancel your
AVERAGING WILL participation;
TERMINATE IF: -> the value in the Dreyfus - Money Market
subaccount is depleted;
-> you elect to participate in the asset rebalancing
program; OR
-> you elect to participate in any asset allocation
services provided by a third party.
We may modify, suspend, or discontinue standard dollar cost averaging at
any time.
FIXED DCA ACCOUNT
To be eligible for fixed dollar cost averaging, you must elect the fixed
DCA account on your application and put your entire initial premium into the
fixed DCA account. Money you place in the fixed DCA account will earn interest
at rates we declare from time to time. Money will be transferred out of the
fixed DCA account in six equal monthly installments with the first transfer
starting on the first Monthiversary after the Policy date or reallocation date.
Interest accrued on the initial premium will be transferred in the last month
of the fixed DCA account term. Money in the fixed DCA account may be
transferred entirely to other subaccounts or the standard fixed account after
one month.
There is no charge for participating in the fixed DCA account. Transfers
from the fixed DCA account do NOT count as transfers for purposes of the
transfer charge.
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We reserve the right to stop offering the fixed DCA account at any time
for any reason. We may offer a higher 30-day interest rate guaranteed for one
month. If you exercise your free look right and you reside in a state which
requires us to return your premium, then we will return your initial full
premium, but without any interest. But if you reside in a state which requires
us to return cash value, then we will treat your initial premium as if it had
been allocated to the standard fixed account.
FIXED DOLLAR COST o we receive written notice from you instructing
AVERAGING WILL END IF: us to cancel the program;
o you elect to participate in the asset
rebalancing program; or
o you elect to participate in any asset allocation
services provided by a third party.
ASSET REBALANCING PROGRAM
We also offer an asset rebalancing program under which you may transfer
amounts periodically to maintain a particular percentage allocation among the
subaccounts. Cash value allocated to each subaccount will grow or decline in
value at different rates. The asset rebalancing program automatically
reallocates the cash value in the subaccounts at the end of each period to
match your Policy's currently effective premium allocation schedule. Cash value
in the standard fixed account, the standard dollar cost averaging program and
the fixed DCA account are not available for this program. This program does not
guarantee gains. A subaccount may still have losses.
You may elect asset rebalancing to occur on each quarterly, semi-annual or
annual anniversary of the Policy date. You may modify your allocations
quarterly. Once we receive the asset rebalancing request form, we will effect
the initial rebalancing of cash value on the next such anniversary, in
accordance with the Policy's current premium allocation schedule. We will
credit the amounts transferred at the unit value next determined on the dates
the transfers are made. If a day on which rebalancing would ordinarily occur
falls on a day on which the NYSE is closed, rebalancing will occur on the next
day the NYSE is open.
To start asset rebalancing, you must submit a completed asset rebalancing
request form to us before the maturity date. There is no charge for the asset
rebalancing program. Reallocations under the asset rebalancing program do NOT
count as transfers for purposes of the transfer charge.
ASSET REBALANCING -> you elect to participate in the fixed DCA
WILL CEASE IF: account;
-> you elect to participate in the standard dollar
cost averaging program;
-> we receive your request to discontinue
participation;
-> you make ANY transfer to or from any subaccount
other than under a scheduled rebalancing; or
-> you elect to participate in any asset
allocation services provided by a third party.
You may start and stop participating in the asset rebalancing program at
any time; but we may restrict your right to re-enter the program to once each
Policy year. If you wish to
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resume the asset rebalancing program, you must complete a new request form. We
may modify, suspend, or discontinue the asset rebalancing program at any time.
THIRD PARTY ASSET ALLOCATION SERVICES
We may provide administrative or other support services to independent
third parties you authorize to conduct transfers on your behalf, or who provide
recommendations as to how your subaccount values should be allocated. This
includes, but is not limited to, transferring subaccount values among
subaccounts in accordance with various investment allocation strategies that
these third parties employ. These independent third parties may or may not be
appointed PFL agents for the sale of Policies. PFL DOES NOT ENGAGE ANY THIRD
PARTIES TO OFFER INVESTMENT ALLOCATION SERVICES OF ANY TYPE, SO THAT PERSONS OR
FIRMS OFFERING SUCH SERVICES DO SO INDEPENDENT FROM ANY AGENCY RELATIONSHIP
THEY MAY HAVE WITH PFL FOR THE SALE OF POLICIES. PFL THEREFORE TAKES NO
RESPONSIBILITY FOR THE INVESTMENT ALLOCATIONS AND TRANSFERS TRANSACTED ON YOUR
BEHALF BY SUCH THIRD PARTIES OR ANY INVESTMENT ALLOCATION RECOMMENDATIONS MADE
BY SUCH PARTIES. PFL does not currently charge you any additional fees for
providing these support services. PFL reserves the right to discontinue
providing administrative and support services to owners utilizing independent
third parties who provide investment allocation and transfer recommendations.
CHARGES AND DEDUCTIONS
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This section describes the charges and deductions that we make under the
Policy to compensate for: (1) the services and benefits we provide; (2) the
costs and expenses we incur; and (3) the risks we assume.
SERVICES AND o the death benefit, cash and loan benefits;
BENEFITS WE o investment options, including premium allocations;
PROVIDE: o administration of elective options;
o the distribution of reports to owners.
COSTS AND o costs associated with processing and underwriting
EXPENSES WE INCUR: applications;
o expenses of issuing and administering the Policy
(including any Policy riders);
o overhead and other expenses for providing services
and benefits, sales and marketing expenses; and
o other costs of doing business, such as collecting
premiums, maintaining records, processing claims,
effecting transactions, and paying federal, state
and local premium and other taxes and fees.
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RISKS WE ASSUME: o that the charges we deduct may be insufficient to meet
our actual claims because insureds die sooner than we
estimate; and
o that the costs of providing the services and benefits
under the Policies may exceed the charges we are
allowed to deduct.
PREMIUM DEDUCTIONS
We deduct no charges from premiums before allocating the premiums to the
separate account and the fixed account options according to your instructions.
MONTHLY DEDUCTION
We take a monthly deduction from the cash value on the Policy date and on
each Monthiversary. We subtract any outstanding loan amount from the cash value
before calculating the charge. We deduct this charge from your Policy's value
in each subaccount and the fixed account in accordance with the current premium
allocation instructions. If the value of any account is insufficient to pay
that account's portion of the monthly deduction, we will take the monthly
deduction on a pro rata basis from all accounts (I.E., in the same proportion
that the value in each subaccount and the fixed account bears to the total cash
value on the Monthiversary). Because portions of the monthly deduction can vary
monthly, the monthly deduction will also vary.
THE MONTHLY DEDUCTION o the monthly Policy charge based on your Policy's
IS EQUAL TO: separate account assets; PLUS
o the monthly Policy charge based on your Policy's
fixed account assets; PLUS
o the monthly cost of insurance charge for the
Policy, if any; PLUS
o the monthly charge for any benefits provided by
riders attached to the Policy (currently, only
the Guaranteed Minimum Death Benefit rider).
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MONTHLY POLICY CHARGE o Based on your Policy's separate account assets,
this charge is equal to:
o the separate account monthly deduction charge
(see table below) divided by 12; MULTIPLIED
BY
o the sum of the Policy's subaccount values on
the Monthiversary.
o Based on your Policy's fixed account assets, this
charge is equal to:
o the fixed account monthly deduction charge
(see table below) divided by 12; MULTIPLIED
BY
o the fixed account value on the Monthiversary,
minus any outstanding Policy loan(s).
o This charge compensates us for administrative
expenses such as recordkeeping, processing death
benefit claims and Policy changes, and overhead
costs.
o This charge varies for each Policy based on the
Policy year, gender, and whether the Policy is
issued on a single life or a joint and last
survivor basis.
DAILY CHARGE o On each valuation date, we deduct a daily charge
at the annual rate of 0.50% from your Policy's
assets in the subaccounts as part of the
calculation of the unit value for each
subaccount.
o This charge compensates us for certain mortality
and expense risks we assume.
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The monthly Policy charge and the daily charge for single life and Joint
Policies are as follows:
<TABLE>
<CAPTION>
SINGLE LIFE POLICY MALE/UNISEX FEMALE
POLICY YEARS POLICY YEARS POLICY YEARS POLICY YEARS
1-10 11+ 1-10 11+
<S> <C> <C> <C> <C> <C>
SEPARATE ACCOUNT DAILY CHARGE
CHARGES (from unit value) .50% .50% .50% .50%
(annual rate)
MONTHLY
POLICY CHARGE
(as a % of separate
account assets) 2.00% 1.00% 1.85% .85%
TOTAL 2.50% 1.50% 2.35% 1.35%
FIXED ACCOUNT MONTHLY
CHARGES POLICY CHARGE
(annual rate) (as a % of fixed
account assets) 2.00% 1.00% 1.85% .85%
TOTAL 2.00% 1.00% 1.85% .85%
</TABLE>
<TABLE>
<CAPTION>
JOINT POLICY POLICY YEARS 1-10 POLICY YEARS 11+
<S> <C> <C> <C>
SEPARATE ACCOUNT CHARGES DAILY CHARGE (from unit value) .50% .50%
(annual rate)
MONTHLY POLICY CHARGE (as 1.50% .50%
a % of separate account assets)
TOTAL 2.00% 1.00%
FIXED ACCOUNT CHARGES MONTHLY POLICY CHARGE (as 1.50% .50%
(annual rate) a % of fixed account assets)
TOTAL 1.50% .50%
</TABLE>
COST OF INSURANCE CHARGE. We reserve the right to assess a monthly cost of
insurance charge. The charge would depend on a number of variables (age,
gender, rate class) that would cause it to vary from Policy to Policy and from
Monthiversary to Monthiversary. If applicable, we would calculate the cost of
insurance charge each month for the specified amount at issue. We do not
currently assess this charge, and we do not intend to assess this charge.
However, if we begin to assess this charge in the future, we will waive the
surrender charge upon any surrender of the Policy. See Surrender Charge, p. 39.
The guaranteed maximum monthly cost of insurance rates are based on the
gender, age, plan of insurance, and risk class of the insured(s). Any change in
the current rates will not exceed those shown in your Policy's Table of
Guaranteed Maximum Life Insurance Rates.
We currently place insureds into standard (tobacco use) and select
(non-tobacco use) rate classes. The guaranteed rates are based on the 1980
Commissioners' Standard Ordinary
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Mortality Tables, Male or Female, Tobacco or Non-Tobacco Mortality Rates ("1980
CSO Tables"). Cost of insurance rates for an insured in a non-tobacco use class
are less than or equal to rates for an insured of the same age and gender in a
tobacco use class.
The Policies are based on mortality tables that distinguish between men
and women. As a result, the Policy may pay different benefits to men and women
of the same age and rate class. We also offer Policies based on unisex
mortality tables if required by state law.
SURRENDER CHARGE
If you surrender your Policy during the first nine years, we deduct a
surrender charge from your cash value and pay the remaining cash value (less
any outstanding loan amounts) to you. The payment you receive is called the net
surrender value. The surrender charge is 9.75% of the initial premium if you
surrender your Policy before the end of the first Policy year and then declines
gradually to 0% after the ninth Policy year. The rate at which the surrender
charge declines depends on the insured's (or joint insureds') age, gender and
whether you have purchased a single life or a Joint Policy. See Appendix C,
Surrender Charge Table, for a schedule of the surrender charges by age, year,
gender and Policy type.
If we begin to assess a cost of insurance charge on Policies as noted
above, we will waive all future surrender charges.
TRANSFER CHARGE o We currently allow you to make 12 transfers each year
free from charge.
o We charge $10 for each additional transfer.
o For purposes of assessing the transfer charge, all
transfers made in one day, regardless of the number of
subaccounts affected by the transfer, is considered a
single transfer.
o We deduct the transfer charge from the amount being
transferred.
o Transfers due to loans, exercise of conversion rights,
dollar cost averaging, asset rebalancing and transfers
from the fixed account do NOT count as transfers for
purposes of assessing this charge.
o We will not increase this charge.
PORTFOLIO EXPENSES
The portfolios deduct management fees and expenses from the amounts you
have invested in the portfolios. These charges range from 0.26% to 1.53%. See
the Portfolio Annual Expense Table in this prospectus, and the fund
prospectuses.
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GUARANTEED MINIMUM If you select the Guaranteed Minimum Death Benefit
DEATH BENEFIT RIDER rider at application, then we will deduct from your
CHARGE Policy's cash value a monthly charge on the Policy date
and each Monthiversary thereafter. The monthly charge
will be equal to:
o 0.02% MULTIPLIED BY the sum of your Policy's
subaccount values, if any, on the valuation date of
each Monthiversary; PLUS
o 0.02% MULTIPLIED BY your Policy's fixed account
value on the valuation date of each monthly
deduction.
DEATH BENEFIT
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DEATH BENEFIT PROCEEDS
As long as the Policy is in force, we will pay the death benefit proceeds
on a Policy once we receive satisfactory proof of the insured's (or surviving
insured's) death. We may require return of the Policy. We will pay the death
benefit proceeds to the primary beneficiary(ies), if living, or to a contingent
beneficiary. If each beneficiary dies before the insured (or surviving insured)
and there is no contingent beneficiary, we will pay the death benefit proceeds
to the owner or the owner's estate. We will pay the death benefit proceeds in a
lump sum or under a payment option. See Payment Options, p. 42.
DEATH BENEFIT o the death benefit (described below); MINUS
PROCEEDS EQUAL: o any past due monthly deductions if the insured (or
surviving insured) dies during the grace period
(see Policy Lapse and Reinstatement, p. 46); MINUS
o any outstanding Policy loan on the date of death;
MINUS
o any interest you owe on Policy loan(s).
If all or part of the death benefit proceeds are paid in one sum, we will
pay interest on this sum as required by applicable state law from the date we
receive due proof of the insured's (or surviving insured's) death to the date
we make payment.
We may further adjust the amount of the death benefit proceeds if we
contest the Policy or if you misstate the insured's (or joint insured's) age or
gender. See Our Right to Contest the Policy; and Misstatement of Age or Gender.
DEATH BENEFIT
The Policy provides a death benefit. The death benefit is determined at
the end of the valuation period in which the insured (or surviving insured)
dies.
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THE DEATH BENEFIT o the current specified amount; or
IS THE GREATER OF: o a specified percentage, called the "limitation
percentage," MULTIPLIED BY
-> the cash value on the insured's (or surviving
insured's) date of death.
The limitation percentage is the minimum percentage of cash value we must
pay as the death benefit under federal tax requirements. It is based on the age
of the insured (or younger joint insured) at the beginning of each Policy year.
The following table indicates the limitation percentages for different ages:
AGE
(YOUNGER INSURED,
IF JOINT POLICY) LIMITATION PERCENTAGE
40 and under 250%
41 to 45 250% minus 7% for each age over age 40
46 to 50 215% minus 6% for each age over age 45
51 to 55 185% minus 7% for each age over age 50
56 to 60 150% minus 4% for each age over age 55
61 to 65 130% minus 2% for each age over age 60
66 to 70 120% minus 1% for each age over age 65
71 to 75 115% minus 2% for each age over age 70
76 to 90 105%
91 to 94 105% minus 1% for each age over age 90
95 and above 100%
EFFECTS OF PARTIAL WITHDRAWALS ON THE DEATH BENEFIT
A partial withdrawal will reduce the specified amount by an amount equal
to the amount of the partial withdrawal multiplied by the ratio of the initial
specified amount to the initial premium. For an example, see Partial
Withdrawals, p. 42.
GUARANTEED MINIMUM DEATH BENEFIT RIDER
If you purchase the Guaranteed Minimum Death Benefit rider at the time you
apply for the Policy and the rider is in effect upon the insured's (or
surviving insured's) date of death, we guarantee to provide a death benefit as
follows:
-> If the net surrender value on any Monthiversary is not sufficient to
cover the monthly Policy charge on such day, then coverage will be
provided as indicated below, and no grace period will begin, provided
no Policy loans have been taken under the Policy;
-> If a death benefit is payable under the provisions of this rider, then
PFL guarantees to provide a death benefit as follows:
o During the first 15 Policy years, or before the Policy
anniversary following the insured's (or younger joint insured's)
75th birthday, if sooner, the minimum death benefit we will pay
is the amount described under Death Benefit, p. 40;
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<PAGE>
o After the first 15 Policy years, or on or after the Policy
anniversary following the insured's (or younger joint insured's)
75th birthday, if sooner, the minimum death benefit we will pay
is the initial premium, reduced by any partial withdrawals.
o However, in no event will the minimum death benefit ever be less
than $1,000.
THE GUARANTEED o the date the Policy terminates;
MINIMUM DEATH BENEFIT o the date any Policy loan is taken; or
RIDER WILL TERMINATE ON o the Monthiversary on which this rider is
THE EARLIEST OF: terminated by written request from the owner.
This rider may only be purchased at the time you purchase the Policy.
There is also a charge for this rider. See Guaranteed Minimum Death Benefit
Rider Charge, p. 40.
CHANGING THE SPECIFIED AMOUNT
You may not increase or decrease the specified amount on your Policy.
However, a partial withdrawal will reduce the specified amount and the amount
payable under the Guaranteed Minimum Death Benefit rider. If you need a higher
specified amount, you must apply for a second policy.
PAYMENT OPTIONS
There are several ways of receiving proceeds under the death benefit and
surrender provisions of the Policy, other than in a lump sum. Information
concerning these settlement options is available on request. None of these
options vary with the investment performance of a separate account.
SURRENDERS AND PARTIAL WITHDRAWALS
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SURRENDERS
You may make a written request to surrender your Policy for its net
surrender value as calculated at the end of the valuation date on which we
receive your request. The insured (or surviving insured) must be alive and the
Policy must be in force when you make your written request. A surrender is
effective as of the date when we receive your written request. You will incur a
surrender charge if you surrender the Policy during the first nine Policy
years. See Surrender Charge, p. 39. Once you surrender your Policy, all
coverage and other benefits under it cease and cannot be reinstated. We will
normally pay you the net surrender value in a lump sum within seven days unless
you request other arrangements. A surrender may have tax consequences. See
Federal Income Tax Considerations, p. 47.
PARTIAL WITHDRAWALS
After the first Policy year, you may request a partial withdrawal of a
portion of your cash value subject to certain conditions.
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PARTIAL -> You must make your partial withdrawal request to us in
WITHDRAWAL writing.
CONDITIONS: -> We will only allow one partial withdrawal during a
12-month period.
-> The most you can request is the Policy's earnings. We
calculate earnings as the cash value MINUS total
outstanding loans, MINUS any interest you owe on the
Policy loans, and MINUS total premiums paid.
-> You may not take a partial withdrawal if it will reduce
the specified amount below $1,000.
-> You can specify the subaccount(s) and the standard fixed
account from which to make the withdrawal. Otherwise we
will deduct the amount from the Policy's value in the
subaccounts and the standard fixed account in accordance
with the current allocation instructions.
-> We generally will pay a partial withdrawal request within
seven days following the valuation date we receive the
request.
-> There is no charge for taking a partial withdrawal.
-> A partial withdrawal may have tax consequences. See
Federal Income Tax Considerations, p. 47.
A partial withdrawal will reduce the cash value by the amount of the
partial withdrawal and will reduce the specified amount by an amount equal to
the amount of the partial withdrawal multiplied by the ratio of the initial
specified amount to the initial premium. A partial withdrawal will also reduce
the Guaranteed Minimum Death Benefit by an amount equal to the amount of the
partial withdrawal multiplied by the ratio of the initial specified amount to
the initial premium.
An example of a partial withdrawal's effect on the specified amount is
shown below.
EXAMPLE: A Policy with a specified amount of $200,000 on a male standard
(age 35) has a guideline single premium of $48,920. The ratio of the initial
specified amount to the initial premium is 4.09 (I.E., 200,000 divided by
48,920). If a $19,000 partial withdrawal is taken after the first Policy year,
the specified amount will be reduced by $77,710 (I.E., 4.09 multiplied by
$19,000).
LOANS
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GENERAL
After the Policy date (as long as the Policy is in force) you may borrow
money from us using the Policy as the only security for the loan. Taking a loan
will terminate the Guaranteed Minimum Death Benefit rider, if any. See
Guaranteed Minimum Death Benefit
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Rider, p. 41. A loan that is taken from, or secured by, a Policy may have tax
consequences. See Federal Income Tax Considerations, p. 47.
POLICY LOANS ARE o you must borrow at least $500; and
SUBJECT TO CERTAIN o the maximum amount you may borrow is 90% of the cash
CONDITIONS: value, less any surrender charge and any outstanding
loan amount.
When you take a loan, we will withdraw an amount equal to the requested
loan from each of the subaccounts and the fixed account based on your current
premium allocation instructions (unless you specify otherwise). We will
transfer that amount to the loan reserve. The loan reserve is the portion of
the fixed account used as collateral for a Policy loan.
We normally pay the amount of the loan within seven days after we receive
a proper loan request. We may postpone payment of loans under certain
conditions. See Payments We Make, p. 51.
You may request a loan by telephone by calling us at 1-800-525-6205. If
the loan amount you request exceeds $50,000 or if the address of record has
been changed within the past 10 days, we may reject your request. If you do not
want the ability to request a loan by telephone, you should notify us in
writing. You will be required to provide certain information for identification
purposes when you request a loan by telephone. We may ask you to provide us
with written confirmation of your request. We will not be liable for processing
a loan request if we believe the request is genuine.
You may also fax your loan request to us at 319-297-8320. We will not be
responsible for any transmittal problems when you fax your request unless you
report it to us within five business days and send us proof of your fax
transmittal.
You can repay a loan at any time while the Policy is in force. WE WILL
CONSIDER ANY PAYMENTS YOU MAKE ON THE POLICY AS LOAN REPAYMENTS UNLESS THE
PAYMENTS ARE CLEARLY SPECIFIED AS PREMIUM PAYMENTS.
At each Policy anniversary, we will compare the amount of the outstanding
loan to the amount in the loan reserve. We will also make this comparison any
time you repay all or part of the loan, or make a request to borrow an
additional amount. At each such time, if the amount of the outstanding loan
exceeds the amount in the loan reserve, we will withdraw the difference from
the subaccounts and the standard fixed account and transfer it to the loan
reserve, in the same manner as when a loan is made. If the amount in the loan
reserve exceeds the amount of the outstanding loan, we will withdraw the
difference from the loan reserve and transfer it to the subaccounts and the
standard fixed account in the same manner as current premiums are allocated. No
charge will be imposed for these transfers, and these transfers are NOT treated
as transfers in calculating the transfer charge. We reserve the right to
require the transfer to the fixed account if the loans were originally
transferred from the fixed account.
INTEREST RATE CHARGED
The annual interest rate you may pay on a Policy loan is 6.0% and is
payable in arrears on each Policy anniversary. Loan interest that is unpaid
when due will be added to the amount of the loan on each Policy anniversary and
will bear interest at the same rate.
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LOAN RESERVE INTEREST RATE CREDITED
We will credit the amount in the loan reserve with interest at an
effective annual rate of 3.0%. We may credit a higher rate, but we are not
obligated to do so.
PREFERRED LOANS
At any time after the Policy date, you may borrow against the Policy up to
an amount that is equal to the cash value MINUS total premiums paid, LESS any
outstanding loan amounts (including any interest owed in the Policy loan(s)).
Such a loan is called a preferred loan. We will charge interest on a preferred
loan at an annual rate of 3.0%, payable in arrears. Any existing loan, other
than a preferred loan, is not eligible for a preferred loan rate. Amounts in
the loan reserve securing preferred loans accrue interest at the same 3.0%
annual rate as other loans. Consult a tax advisor before taking a preferred
loan because such a loan may have adverse tax consequences. We reserve the
right to modify or discontinue the preferred loan feature.
EFFECT OF POLICY LOANS
A Policy loan affects the Policy because we reduce the death benefit
proceeds and net surrender value under the Policy by the amount of any
outstanding loan plus interest you owe on the loans. Repaying the loan causes
the death benefit proceeds and net surrender value to increase by the amount of
the repayment. As long as a loan is outstanding, we hold an amount equal to the
loan in the loan reserve. This amount is not affected by the separate account's
investment performance and may not be credited with the interest rates accruing
on the fixed account options. Amounts transferred from the separate account to
the loan reserve will affect the value in the separate account because we
credit such amounts with an interest rate declared by us rather than a rate of
return reflecting the investment results of the separate account. Taking a
Policy loan will cause a Guaranteed Minimum Death Benefit rider to terminate.
There are risks involved in taking a Policy loan, a few of which include
the potential for a Policy to lapse if projected earnings, taking into account
outstanding loans, are not achieved. A Policy loan may also have possible
adverse tax consequences that could occur if a Policy lapses with loans
outstanding (see Federal Income Tax Considerations, p. 47). You should consult
a tax advisor before taking out a Policy loan.
We will notify you (and any assignee of record) if the sum of your loans
plus any interest you owe on the loans is more than the net surrender value. If
you do not submit a sufficient payment within 61 days from the date of the
notice, your Policy may lapse.
We will accept 1035 Exchanges where the policy from another company has an
outstanding policy loan of no more than 40% of the policy's cash value
transferred to our Policy. We intend to treat these as preferred loan amounts.
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POLICY LAPSE AND REINSTATEMENT
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LAPSE
Your Policy may lapse (terminate without value) if the net surrender value
on any Monthiversary is less than the monthly deductions due on that day. A
lapse might also occur if poor investment results cause a decrease in the net
surrender value.
The monthly deductions may exceed the net surrender value if:
o we begin to impose monthly cost of insurance charges; or
o the sum of all outstanding Policy loans plus accrued loan interest
exceeds the net surrender value.
If the net surrender value is not enough to pay the monthly deductions, we
will mail a notice to your last known address and to any assignee of record.
The notice will specify the minimum payment you must pay and the final date by
which we must receive the payment to prevent a lapse. We generally require that
you make the payment within 61 days after the date of the notice. This 61-day
period is called the GRACE PERIOD. If we do not receive the specified minimum
payment by the end of the grace period, all coverage under the Policy will
terminate without value.
Generally, you may not reinstate this Policy after it has lapsed. See
Reinstatement below.
If you purchase the Guaranteed Minimum Death Benefit rider, then no grace
period will begin (and the Policy will not lapse) if there have been no Policy
loans. See Guaranteed Minimum Death Benefit Rider, p. 41.
REINSTATEMENT
You may not reinstate your Policy if it lapses unless you completed the
Policy application and had your Policy delivered to you in a state which
permits reinstatement. If so, then we will reinstate a lapsed Policy within
five years from the date of lapse (and prior to the maturity date). To
reinstate the Policy you must:
o submit a written application for reinstatement;
o provide evidence of insurability satisfactory to us;
o make a payment that is large enough to cover:
-> any monthly deductions due at the time of termination and upon
reinstatement; plus
-> one monthly deduction in advance; plus
-> repayment of outstanding loans plus unpaid interest.
We will not reinstate any indebtedness. The cash value of the loan reserve on
the reinstatement date will be zero. Your net surrender value on the
reinstatement date will equal
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the premiums you pay at reinstatement. The reinstatement date for your Policy
will be the monthly anniversary on or following the day we approve your
application for reinstatement. We may decline a request for reinstatement.
FEDERAL INCOME TAX CONSIDERATIONS
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The following summary provides a general description of the federal income
tax considerations associated with a Policy and does not purport to be complete
or to cover all situations. THIS DISCUSSION IS NOT INTENDED AS TAX ADVICE.
Please consult counsel or other qualified tax advisors for more complete
information. We base this discussion on our understanding of the present
federal income tax laws as they are currently interpreted by the Internal
Revenue Service (the "IRS"). Federal income tax laws and the current
interpretations by the IRS may change.
TAX STATUS OF THE POLICY
A Policy must satisfy certain requirements set forth in the Internal
Revenue Code (the "Code") in order to qualify as a life insurance policy for
federal income tax purposes and to receive the tax treatment normally accorded
life insurance policies under federal tax law. Guidance as to how these
requirements are to be applied is limited. Nevertheless, it is reasonable to
conclude that the Policy should satisfy the applicable Code requirements.
Because of certain innovative features of the Policies and the absence of
pertinent interpretations of the Code requirements, there is, however, some
uncertainty about the application of such requirements to the Policy. If it is
subsequently determined that a Policy does not satisfy the applicable
requirements, we may take appropriate steps to bring the Policy into compliance
with such requirements and we reserve the right to restrict Policy transactions
in order to do so.
In certain circumstances, owners of variable life insurance policies have
been considered for federal income tax purposes to be the owners of the assets
of the separate account supporting their policies due to their ability to
exercise investment control over those assets. Where this is the case, the
policyowners have been currently taxed on income and gains attributable to the
separate account assets. There is little guidance in this area, and some
features of the Policies, such as flexibility to allocate premiums and cash
values, have not been explicitly addressed in published rulings. While we
believe that the Policy does not give you investment control over separate
account assets, we reserve the right to modify the Policy as necessary to
prevent you from being treated as the owner of the separate account assets
supporting the Policy.
In addition, the Code requires that the investments of the separate
account be "adequately diversified" in order to treat the Policy as a life
insurance policy for federal income tax purposes. We intend that the separate
account, through the portfolios, will satisfy these diversification
requirements.
The following discussion assumes that the Policy will qualify as a life
insurance Policy for federal income tax purposes.
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TAX TREATMENT OF POLICY BENEFITS
IN GENERAL. We believe that the death benefit under a Policy should be
excludable from the beneficiary's gross income. Federal, state and local
transfer, and other tax consequences of ownership or receipt of Policy proceeds
depend on your circumstances and the beneficiary's circumstances. A tax advisor
should be consulted on these consequences.
Generally, you will not be deemed to be in constructive receipt of the
cash value until there is a distribution. When distributions from a Policy
occur, or when loans are taken out from or secured by (E.G., by assignment), a
Policy, the tax consequences depend on whether the Policy is classified as a
"Modified Endowment Contract."
MODIFIED ENDOWMENT CONTRACTS. Under the Code, certain life insurance
policies are classified as "Modified Endowment Contracts" ("MECs") and receive
less favorable tax treatment than other life insurance policies. IN MOST
SITUATIONS, THE POLICIES WILL BE CLASSIFIED AS MECS. There are, however,
certain limited situations where a Policy may not be classified as a MEC. If
you do not want your Policy to be classified as a MEC, you should consult a tax
advisor to determine the circumstances, if any, under which your Policy would
not be classified as a MEC.
Upon issue of your Policy, we will notify you as to whether or not your
Policy is classified as a MEC based on the initial premium we receive. If your
Policy is not a MEC at issue, you will also be notified of the maximum amount
of additional premiums you can pay annually without causing your Policy to be
classified as a MEC. If a payment would cause your Policy to become a MEC, you
and your agent will be notified. At that time, you will need to notify us if
you want to continue your Policy as a MEC.
Distributions from Modified Endowment Contracts. Policies classified as
MECs are subject to the following tax rules:
o All distributions other than death benefits from a MEC, including
distributions upon surrender and partial withdrawals, will be treated
first as distributions of gain taxable as ordinary income. They will
be treated as tax-free recovery of the owner's investment in the
Policy only after all gain has been distributed. Your investment in
the Policy is generally your total premium payments. When a
distribution is taken from the Policy, your investment in the Policy
is reduced by the amount of the distribution that is tax-free.
o Loans taken from or secured by (E.G., by assignment) such a Policy are
treated as distributions and taxed accordingly.
o A 10% additional federal income tax is imposed on the amount included
in income except where the distribution or loan is made when you have
attained age 591/2 or are disabled, or where the distribution is part
of a series of substantially equal periodic payments for your life (or
life expectancy) or the joint lives (or joint life expectancies) of
you and the beneficiary.
DISTRIBUTIONS FROM POLICIES THAT ARE NOT MODIFIED ENDOWMENT CONTRACTS.
Distributions from a Policy that is not a MEC are generally treated first as a
recovery of your investment
48
<PAGE>
in the Policy, and as taxable income after the recovery of all investment in
the Policy. However, certain distributions which must be made in order to
enable the Policy to continue to qualify as a life insurance policy for federal
income tax purposes if Policy benefits are reduced during the first 15 Policy
years may be treated in whole or in part as ordinary income subject to tax.
Loans from or secured by a Policy that is not a MEC are generally not
treated as distributions. Instead, such loans are treated as indebtedness.
However, the tax consequences associated with preferred loans are less clear
and a tax advisor should be consulted about such loans.
Finally, neither distributions from nor loans from or secured by a Policy
that is not a MEC are subject to the 10% additional tax.
MULTIPLE POLICIES. All MECs that we issue (or that our affiliates issue)
to the same owner during any calendar year are treated as one MEC for purposes
of determining the amount includable in the owner's income when a taxable
distribution occurs.
DEDUCTIBILITY OF POLICY LOAN INTEREST. In general, interest you pay on a
loan from a Policy will not be deductible. Before taking out a Policy loan, you
should consult a tax advisor as to the tax consequences.
INVESTMENT IN THE POLICY. Your investment in the Policy is generally the
sum of the premium payments you made. When a distribution from the Policy
occurs, your investment in the Policy is reduced by the amount of the
distribution that is tax-free.
BUSINESS USES OF THE POLICY. The Policy may be used in various
arrangements, including nonqualified deferred compensation or salary
continuance plans, split dollar insurance plans, executive bonus plans, retiree
medical benefit plans and others. The tax consequences of such plans and
business uses of the Policy may vary depending on the particular facts and
circumstances of each individual arrangement and business uses of the Policy.
Therefore, if you are contemplating using the Policy in any arrangement the
value of which depends in part on its tax consequences, you should be sure to
consult a tax advisor as to tax attributes of the arrangement. In recent years,
moreover, Congress has adopted new rules relating to life insurance owned by
businesses. Any business contemplating the purchase of a new Policy or a change
in an existing Policy should consult a tax advisor.
TAX TREATMENT OF POLICY SPLIT. If you purchase a Joint Policy, the Policy
Split Option permits you to split the Policy into two new individual life
insurance policies upon the occurrence of a divorce of the joint insureds,
certain changes in federal estate tax law, or a dissolution of a business
partnership of which the joint insureds were partners. (See Policy Split
Option, p. 24.) A Policy split could have adverse tax consequences. For
example, it is not clear whether a Policy split will be treated as a nontaxable
exchange under Sections 1031 through 1043 of the Code. If a Policy split is not
treated as a nontaxable exchange, a split could result in the recognition of
taxable income in an amount up to any gain in the Policy at the time of the
split. It is also not clear whether the individual policies that result from a
Policy split would in all circumstances be treated as life insurance policies
49
<PAGE>
for federal income tax purposes and, if so treated, whether the individual
policies would be classified as MECs. Before you exercise your rights under the
Policy Split Option, you should consult a competent tax advisor regarding the
possible consequences of a Policy split.
POSSIBLE TAX LAW CHANGES. Although the likelihood of legislative changes
is uncertain, there is always a possibility that the tax treatment of the
Policies could change by legislation or otherwise. You should consult a tax
advisor with respect to legislative developments and their effect on the
Policy.
OTHER POLICY INFORMATION
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OUR RIGHT TO CONTEST THE POLICY
In issuing this Policy, we rely on all statements made by or for the
insured (or joint insureds) in the application or in a supplemental
application. Therefore, if you make any material misrepresentation of a fact in
the application (or any supplemental application), then we may contest the
Policy's validity or may resist a claim under the Policy.
In the absence of fraud, we cannot bring any legal action to contest the
validity of the Policy after the Policy has been in force during the insured's
lifetime (or while both joint insureds are still alive) for two years from the
Policy date, or if reinstated (if permitted by state law), for two years from
the date of reinstatement. If you purchased a Joint Policy, at the end of the
second Policy year, we will send you a notice asking you whether either joint
insured has died. We can still contest the Policy's validity even if you do not
notify us that a joint insured has died and even if the Policy is still in
force.
SUICIDE EXCLUSION
If the insured (or either joint insured) commits suicide, while sane or
insane, within two years of the Policy date, then the Policy will terminate and
our total liability, including the Guaranteed Minimum Death Benefit rider, is
limited to an amount equal to the total premiums paid, less any loans and less
any partial withdrawals. We will pay this amount to the beneficiary in one sum.
If the Policy lapsed, we will measure the suicide period from the reinstatement
date (if permitted by state law).
MISSTATEMENT OF AGE OR GENDER
If the age or gender of the insured (or either joint insured) was stated
incorrectly in the application or any supplemental application, then the death
benefit will be adjusted based on what the initial premium would have purchased
based on the insured(s) correct age and gender.
MODIFYING THE POLICY
Only our President or Secretary may modify this Policy or waive any of our
rights or requirements under this Policy. Any modification or waiver must be in
writing. No agent may bind us by making any promise not contained in this
Policy.
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<PAGE>
If we modify the Policy, we will provide you with notice and we will make
appropriate endorsements to the Policy.
BENEFITS AT MATURITY
If the insured (or either joint insured) is living and the Policy is in
force, the Policy will mature on the Policy anniversary nearest the insured's
(or a joint insured's) 100th birthday. This is the maturity date. On the
maturity date we will pay you the net surrender value of your Policy.
We will extend the maturity date if your Policy is still in force on the
maturity date. Any riders in force on the scheduled maturity date will
terminate on that date and will not be extended. Interest on any outstanding
Policy loans will continue to accrue during the period for which the maturity
date is extended. You must submit a written request for the extension between
90 and 180 days prior to the maturity date. We will automatically extend the
maturity date until the next Policy anniversary. You must submit a written
request, between 90 and 180 days before each subsequent Policy anniversary,
stating that you wish to extend the maturity date for another Policy year.
If you extend the maturity date on each valuation date, we will adjust the
specified amount to equal the cash value, and the limitation percentage will be
100%. We will not permit you to make additional premium payments unless it is
required to prevent the Policy from lapsing. We will waive all future monthly
deductions.
The tax consequences of extending the maturity date beyond the 100th
birthday of the insured (or a joint insured) are uncertain. You should consult
a tax advisor as to those consequences.
PAYMENTS WE MAKE
We usually pay the amounts of any surrender, partial withdrawal, death
benefit proceeds, or settlement options within seven business days after we
receive all applicable written notices and/or due proofs of death. However, we
can postpone such payments if:
o the NYSE is closed, other than customary weekend and holiday closing,
or trading on the NYSE is restricted as determined by the SEC; OR
o the SEC permits, by an order, the postponement for the protection of
policyowners; OR
o the SEC determines that an emergency exists that would make the
disposal of securities held in the separate account or the
determination of their value not reasonably practicable.
If you have submitted a recent check or draft, we have the right to defer
payment of surrenders, partial withdrawals, death benefit proceeds, or payments
under a settlement option until such check or draft has been honored. We also
reserve the right to defer payment of transfers, partial withdrawals, or
surrenders from the fixed account for up to six months.
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<PAGE>
REPORTS TO OWNERS
At least once each year, or more often as required by law, we will mail to
policyowners at their last known address a report showing the following
information as of the end of the report period:
<TABLE>
<S> <C> <C> <C>
/checkmark/ the current cash value /checkmark/ any activity since the last report
/checkmark/ the current net surrender value /checkmark/ investment experience of each subaccount
/checkmark/ the current death benefit /checkmark/ any other information required by law
/checkmark/ any outstanding loans
</TABLE>
You may request additional copies of reports, but we may charge a fee for
such additional copies. In addition, we will send written confirmations of any
premium payments and other financial transactions you request. We also will
send copies of the annual and semi-annual report to shareholders for each
portfolio in which you are indirectly invested.
RECORDS
We will maintain all records relating to the separate account and the
fixed account.
POLICY TERMINATION
Your Policy will terminate on the earliest of:
o the maturity date; o the end of the grace period; or
o the date the insured (or surviving o the date the Policy is
insured) dies; surrendered.
IMSA
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- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
We are a charter member of the Insurance Marketplace Standards Association
("IMSA"). IMSA is an independent, voluntary organization of life insurance
companies. It promotes high ethical standards in the sales, advertising and
servicing of individual life insurance and annuity products. Companies must
undergo a rigorous self and independent assessment of their practices to become
a member of IMSA. The IMSA logo in our sales literature shows our ongoing
commitment to these standards.
PERFORMANCE DATA
- --------------------------------------------------------------------------------
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- --------------------------------------------------------------------------------
RATES OF RETURN
This section shows the historical investment experience of the portfolios
based on the portfolios' historical investment experience. This information
does not represent or project future investment performance.
We base the rates of return that we show below on each portfolio's actual
investment performance. We deduct investment management fees and direct fund
expenses. The rates are average annual compounded rates of return for the
periods ended on December 31, 1998.
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<PAGE>
These rates of return do not reflect the daily charge, monthly deductions
from cash value, or surrender charge. These rates are not an estimate,
projection or guarantee of future performance.
We also show below comparable figures for the unmanaged Standard & Poor's
Index of 500 Common Stocks ("S&P 500"), a widely used measure of stock market
performance. The S&P 500 does not reflect any deduction for the expenses of
operating and managing an investment portfolio.
AVERAGE ANNUAL COMPOUNDED RATES OF RETURN
FOR THE PERIODS ENDED ON DECEMBER 31, 1998
<TABLE>
<CAPTION>
INCEPTION
FUND PORTFOLIO INCEPTION 10 YEARS 5 YEARS 1 YEAR DATE
- -------------- --------- -------- ------- ------ ---------
<S> <C> <C> <C> <C> <C>
AIM V.I. Capital Appreciation Fund ............ 18.77% N/A 17.23% 19.30% 5/5/93
AIM V.I. Government Securities Fund ........... 5.76% N/A 5.80% 7.73% 5/5/93
AIM V.I. Growth and Income Fund ............... 22.49% N/A 24.41% 27.68% 5/2/94
AIM V.I. Value Fund ........................... 21.90% N/A 21.70% 32.41% 5/5/93
Dreyfus Stock Index Fund ...................... 17.12% N/A 23.58% 28.21% 9/29/89
Dreyfus -- Money Market Portfolio ............. 4.96% N/A 5.09% 5.12% 8/31/90
Dreyfus -- Small Company
Stock Portfolio .............................. 8.55% N/A N/A (5.97)% 5/1/96
MFS Emerging Growth Series .................... 26.55% N/A N/A 34.16% 7/24/95
MFS Foreign & Colonial Emerging
Markets Equity Series ........................ (34.51)% N/A N/A (33.37)% 10/16/97
MFS Research Series ........................... 22.52% N/A N/A 23.39% 7/26/95
MFS Total Return Series ....................... 18.73% N/A N/A 12.33% 1/3/95
MFS Utilities Series .......................... 25.40% N/A N/A 18.06% 1/3/95
Oppenheimer Capital Appreciation Fund ......... * 16.85% 22.10% 24.00% 4/3/85
Oppenheimer Global Securities Fund ............ 12.49% N/A 9.66% 14.10% 11/12/90
Oppenheimer High Income Fund .................. * 12.71% 8.62% 0.30% 12/31/87
Oppenheimer Main Street Growth &
Income Fund .................................. 27.00% N/A N/A 4.70% 7/5/95
Oppenheimer Strategic Bond Fund ............... 6.79% N/A 6.83% 2.90% 5/5/93
WRL VKAM Emerging Growth ...................... 23.09% N/A 21.95% 37.33% 3/1/93
WRL Janus Global .............................. 21.94% N/A 19.46% 30.01% 12/3/92
WRL Janus Growth .............................. 20.91% 22.61% 25.20% 64.47% 10/2/86
S&P 500 ....................................... * * * *
</TABLE>
* Information not available.
Additional information regarding the investment performance of the
portfolios appears in the attached fund prospectuses.
HYPOTHETICAL ILLUSTRATIONS BASED ON ADJUSTED PORTFOLIO PERFORMANCE
This section contains hypothetical illustrations of Policy values based on
the adjusted historical experience of the portfolios. We started selling the
Policies in 1999. The separate account was established on November 20, 1998 and
will commence operations in August 1999. The portfolios commenced operations
before the separate account. The rates of return
53
<PAGE>
below show the adjusted actual investment experience of each portfolio for the
periods shown, including periods before the separate account commenced
operations. The illustrations of cash values and net surrender values below
depict these Policy values as if you had purchased the Policy without the
Guaranteed Minimum Death Benefit rider on the last valuation date prior to
January 1 of the year after the portfolio began operations. We assumed the rate
of return for each portfolio in each calendar year to be uniformly earned
throughout the year; however, the portfolio's actual performance did and will
vary throughout the year.
In order to demonstrate how the actual investment experience of the
portfolios could have affected the cash value and net surrender value of the
Policy, we provide hypothetical illustrations using the actual investment
experience of each portfolio. THESE HYPOTHETICAL ILLUSTRATIONS ARE DESIGNED TO
SHOW THE PERFORMANCE THAT COULD HAVE RESULTED IF THE HYPOTHETICAL OWNER COULD
HAVE HELD THE POLICY DURING THE PERIOD ILLUSTRATED. These illustrations do not
represent what may happen in the future.
The amounts we show for cash values and net surrender values take into
account all charges and deductions from the Policy, the separate account, and
the portfolios. For each portfolio, we base one illustration on the guaranteed
cost of insurance rates and one on the current cost of insurance rates for a
single life Policy for a hypothetical male insured age 35. The insured's age,
gender and rate class, amount and timing of premium payments, withdrawals, and
loans would affect individual Policy benefits.
For each portfolio, the illustrations below show the death benefit without
the Guaranteed Minimum Death Benefit rider based on an initial premium of
$30,000 and a specified amount of $147,487 for a male age 35, select,
non-tobacco use, rate class.
The following example shows how the hypothetical net return of the AIM
V.I. Capital Appreciation Fund would have affected benefits for a Policy dated
on the last valuation date prior to January 1, 1994. This example assumes that
the premium and cash values were invested in the portfolio for the entire
period and that the values were determined on each Policy anniversary
thereafter.
AIM V.I. CAPITAL APPRECIATION FUND
MALE ISSUE AGE 35, $30,000 SINGLE PREMIUM
($147,487 SPECIFIED AMOUNT, SELECT, NON-TOBACCO USE, RISK)
BOTH CURRENT AND GUARANTEED COST OF INSURANCE RATES
<TABLE>
<CAPTION>
Cash Value Net Surrender Value
------------------------ -----------------------
Current Guaranteed Current Guaranteed
Last valuation date prior to January 1: --------- ------------ --------- -----------
<S> <C> <C> <C> <C>
1995 $29,991 $29,792 $27,066 $26,867
1996* 39,688 39,190 36,838 36,340
1997* 45,511 44,726 42,736 41,951
1998* 50,381 49,300 47,681 46,600
1999* 58,617 57,139 56,217 54,739
</TABLE>
* For each year shown, benefits and values reflect only single premium paid.
54
<PAGE>
The following example shows how the hypothetical net return of the AIM
V.I. Government Securities Fund would have affected benefits for a Policy dated
on the last valuation date prior to January 1, 1994. This example assumes that
the premium and cash values were invested in the portfolio for the entire
period and that the values were determined on each Policy anniversary
thereafter.
AIM V.I. GOVERNMENT SECURITIES FUND
MALE ISSUE AGE 35, $30,000 SINGLE PREMIUM
($147,487 SPECIFIED AMOUNT, SELECT, NON-TOBACCO USE, RISK)
BOTH CURRENT AND GUARANTEED COST OF INSURANCE RATES
<TABLE>
<CAPTION>
Cash Value Net Surrender Value
------------------------ -----------------------
Current Guaranteed Current Guaranteed
Last valuation date prior to January 1: --------- ------------ --------- -----------
<S> <C> <C> <C> <C>
1995 $28,168 $27,974 $25,243 $25,049
1996* 31,745 31,304 28,895 28,454
1997* 31,670 31,012 28,895 28,237
1998* 33,408 32,476 30,708 29,776
1999* 35,100 33,870 32,700 31,470
</TABLE>
* For each year shown, benefits and values reflect only single premium paid.
The following example shows how the hypothetical net return of the AIM
V.I. Growth and Income Fund would have affected benefits for a Policy dated on
the last valuation date prior to January 1, 1995. This example assumes that the
premium and cash values were invested in the portfolio for the entire period
and that the values were determined on each Policy anniversary thereafter.
AIM V.I. GROWTH AND INCOME FUND
MALE ISSUE AGE 35, $30,000 SINGLE PREMIUM
($147,487 SPECIFIED AMOUNT, SELECT, NON-TOBACCO USE, RISK)
BOTH CURRENT AND GUARANTEED COST OF INSURANCE RATES
<TABLE>
<CAPTION>
Cash Value Net Surrender Value
------------------------ -----------------------
Current Guaranteed Current Guaranteed
Last valuation date prior to January 1: --------- ------------ --------- -----------
<S> <C> <C> <C> <C>
1996 $39,165 $39,943 $36,240 $36,018
1997* 45,817 45,353 42,967 42,503
1998* 56,177 55,402 53,402 52,627
1999* 69,953 68,778 67,253 66,078
</TABLE>
* For each year shown, benefits and values reflect only single premium paid.
55
<PAGE>
The following example shows how the hypothetical net return of the AIM
V.I. Value Fund would have affected benefits for a Policy dated on the last
valuation date prior to January 1, 1994. This example assumes that the premium
and cash values were invested in the portfolio for the entire period and that
the values were determined on each Policy anniversary thereafter.
AIM V.I. VALUE FUND
MALE ISSUE AGE 35, $30,000 SINGLE PREMIUM
($147,487 SPECIFIED AMOUNT, SELECT, NON-TOBACCO USE, RISK)
BOTH CURRENT AND GUARANTEED COST OF INSURANCE RATES
<TABLE>
<CAPTION>
Cash Value Net Surrender Value
------------------------ -----------------------
Current Guaranteed Current Guaranteed
Last valuation date prior to January 1: --------- ------------ --------- -----------
<S> <C> <C> <C> <C>
1995 $30,441 $30,241 $27,516 $27,316
1996* 40,450 39,951 37,600 37,101
1997* 45,374 44,602 42,599 41,827
1998* 54,735 53,585 52,035 50,885
1999* 70,685 68,969 68,285 66,569
</TABLE>
* For each year shown, benefits and values reflect only single premium paid.
The following example shows how the hypothetical net return of the Dreyfus
Stock Index Fund would have affected benefits for a Policy dated on the last
valuation date prior to January 1, 1990. This example assumes that the premium
and cash values were invested in the portfolio for the entire period and that
the values were determined on each Policy anniversary thereafter.
DREYFUS STOCK INDEX FUND
MALE ISSUE AGE 35, $30,000 SINGLE PREMIUM
($147,487 SPECIFIED AMOUNT, SELECT, NON-TOBACCO USE, RISK)
BOTH CURRENT AND GUARANTEED COST OF INSURANCE RATES
<TABLE>
<CAPTION>
Cash Value Net Surrender Value
------------------------- ------------------------
Current Guaranteed Current Guaranteed
Last valuation date prior to January 1: ---------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
1991 $ 28,238 $28,045 $ 25,313 $25,120
1992* 35,761 35,281 32,911 32,431
1993* 37,355 36,639 34,580 33,864
1994* 39,829 38,839 37,129 36,139
1995* 39,188 37,983 36,788 35,583
1996* 52,278 50,390 50,178 48,290
1997* 62,480 59,970 60,680 58,170
1998* 81,023 77,486 79,823 76,286
1999* 101,312 96,533 100,712 95,933
</TABLE>
* For each year shown, benefits and values reflect only single premium paid.
56
<PAGE>
The following example shows how the hypothetical net return of the Dreyfus
- -- Money Market Portfolio would have affected benefits for a Policy dated on
the last valuation date prior to January 1, 1991. This example assumes that the
premium and cash values were invested in the portfolio for the entire period
and that the values were determined on each Policy anniversary thereafter.
DREYFUS -- MONEY MARKET PORTFOLIO
MALE ISSUE AGE 35, $30,000 SINGLE PREMIUM
($147,487 SPECIFIED AMOUNT, SELECT, NON-TOBACCO USE, RISK)
BOTH CURRENT AND GUARANTEED COST OF INSURANCE RATES
<TABLE>
<CAPTION>
Cash Value Net Surrender Value
------------------------ -----------------------
Current Guaranteed Current Guaranteed
Last valuation date prior to January 1: --------- ------------ --------- -----------
<S> <C> <C> <C> <C>
1992 $31,011 $30,810 $28,086 $27,885
1993* 31,500 31,088 28,650 28,238
1994* 31,731 31,096 28,956 28,321
1995* 32,299 31,419 29,599 28,719
1996* 33,283 32,124 30,883 29,724
1997* 34,115 32,660 32,015 30,560
1998* 34,997 33,218 33,197 31,418
1999* 35,878 33,748 34,678 32,548
</TABLE>
* For each year shown, benefits and values reflect only single premium paid.
The following example shows how the hypothetical net return of the Dreyfus
- -- Small Company Stock Portfolio would have affected benefits for a Policy
dated on the last valuation date prior to January 1, 1997. This example assumes
that the premium and cash values were invested in the portfolio for the entire
period and that the values were determined on each Policy anniversary
thereafter.
DREYFUS -- SMALL COMPANY STOCK PORTFOLIO
MALE ISSUE AGE 35, $30,000 SINGLE PREMIUM
($147,487 SPECIFIED AMOUNT, SELECT, NON-TOBACCO USE, RISK)
BOTH CURRENT AND GUARANTEED COST OF INSURANCE RATES
<TABLE>
<CAPTION>
Cash Value Net Surrender Value
------------------------ -----------------------
Current Guaranteed Current Guaranteed
Last valuation date prior to January 1: --------- ------------ --------- -----------
<S> <C> <C> <C> <C>
1998 $35,628 $35,414 $32,703 $32,489
1999* 32,673 32,285 29,823 29,435
</TABLE>
* For each year shown, benefits and values reflect only single premium paid.
57
<PAGE>
The following example shows how the hypothetical net return of the MFS
Emerging Growth Series would have affected benefits for a Policy dated on the
last valuation date prior to January 1, 1996. This example assumes that the
premium and cash values were invested in the portfolio for the entire period
and that the values were determined on each Policy anniversary thereafter.
MFS EMERGING GROWTH SERIES
MALE ISSUE AGE 35, $30,000 SINGLE PREMIUM
($147,487 SPECIFIED AMOUNT, SELECT, NON-TOBACCO USE, RISK)
BOTH CURRENT AND GUARANTEED COST OF INSURANCE RATES
<TABLE>
<CAPTION>
Cash Value Net Surrender Value
------------------------ -----------------------
Current Guaranteed Current Guaranteed
Last valuation date prior to January 1: --------- ------------ --------- -----------
<S> <C> <C> <C> <C>
1997 $34,237 $34,027 $31,312 $31,102
1998* 40,703 40,238 37,853 37,388
1999* 53,257 52,426 50,482 49,651
</TABLE>
* For each year shown, benefits and values reflect only single premium paid.
The following example shows how the hypothetical net return of the MFS
Foreign & Colonial Emerging Markets Equity Series would have affected benefits
for a Policy dated on the last valuation date prior to January 1, 1998. This
example assumes that the premium and cash values were invested in the portfolio
for the entire period and that the values were determined on each Policy
anniversary thereafter.
MFS FOREIGN & COLONIAL EMERGING MARKETS EQUITY SERIES
MALE ISSUE AGE 35, $30,000 SINGLE PREMIUM
($147,487 SPECIFIED AMOUNT, SELECT, NON-TOBACCO USE, RISK)
BOTH CURRENT AND GUARANTEED COST OF INSURANCE RATES
<TABLE>
<CAPTION>
Cash Value Net Surrender Value
------------------------ -----------------------
Current Guaranteed Current Guaranteed
Last valuation date prior to January 1: --------- ------------ --------- -----------
<S> <C> <C> <C> <C>
1999 $19,496 $19,330 $16,571 $16,405
</TABLE>
The following example shows how the hypothetical net return of the MFS
Research Series would have affected benefits for a Policy dated on the last
valuation date prior to January 1, 1996. This example assumes that the premium
and cash values were invested in the portfolio for the entire period and that
the values were determined on each Policy anniversary thereafter.
MFS RESEARCH SERIES
MALE ISSUE AGE 35, $30,000 SINGLE PREMIUM
($147,487 SPECIFIED AMOUNT, SELECT, NON-TOBACCO USE, RISK)
BOTH CURRENT AND GUARANTEED COST OF INSURANCE RATES
<TABLE>
<CAPTION>
Cash Value Net Surrender Value
------------------------ -----------------------
Current Guaranteed Current Guaranteed
Last valuation date prior to January 1: --------- ------------ --------- -----------
<S> <C> <C> <C> <C>
1997 $35,792 $35,578 $32,867 $32,653
1998* 41,980 41,518 39,130 38,668
1999* 50,518 49,749 47,743 46,974
</TABLE>
* For each year shown, benefits and values reflect only single premium paid.
58
<PAGE>
The following example shows how the hypothetical net return of the MFS
Total Return Series would have affected benefits for a Policy dated on the last
valuation date prior to January 1, 1995. This example assumes that the premium
and cash values were invested in the portfolio for the entire period and that
the values were determined on each Policy anniversary thereafter.
MFS TOTAL RETURN SERIES
MALE ISSUE AGE 35, $30,000 SINGLE PREMIUM
($147,487 SPECIFIED AMOUNT, SELECT, NON-TOBACCO USE, RISK)
BOTH CURRENT AND GUARANTEED COST OF INSURANCE RATES
<TABLE>
<CAPTION>
Cash Value Net Surrender Value
------------------------ -----------------------
Current Guaranteed Current Guaranteed
Last valuation date prior to January 1: --------- ------------ --------- -----------
<S> <C> <C> <C> <C>
1996 $33,881 $33,672 $30,956 $30,747
1997* 37,792 37,349 34,942 34,499
1998* 44,708 43,962 41,933 41,187
1999* 48,980 47,949 46,280 45,249
</TABLE>
* For each year shown, benefits and values reflect only single premium paid.
The following example shows how the hypothetical net return of the MFS
Utilities Series would have affected benefits for a Policy dated on the last
valuation date prior to January 1, 1995. This example assumes that the premium
and cash values were invested in the portfolio for the entire period and that
the values were determined on each Policy anniversary thereafter.
MFS UTILITIES SERIES
MALE ISSUE AGE 35, $30,000 SINGLE PREMIUM
($147,487 SPECIFIED AMOUNT, SELECT, NON-TOBACCO USE, RISK)
BOTH CURRENT AND GUARANTEED COST OF INSURANCE RATES
<TABLE>
<CAPTION>
Cash Value Net Surrender Value
------------------------ -----------------------
Current Guaranteed Current Guaranteed
Last valuation date prior to January 1: --------- ------------ --------- -----------
<S> <C> <C> <C> <C>
1996 $35,828 $35,613 $32,903 $32,688
1997* 41,411 40,953 38,561 38,103
1998* 53,189 52,382 50,414 49,607
1999* 61,243 60,116 58,543 57,416
</TABLE>
* For each year shown, benefits and values reflect only single premium paid.
59
<PAGE>
The following example shows how the hypothetical net return of the
Oppenheimer Capital Appreciation Fund would have affected benefits for a Policy
dated on the last valuation date prior to January 1, 1986. This example assumes
that the premium and cash values were invested in the portfolio for the entire
period and that the values were determined on each Policy anniversary
thereafter.
OPPENHEIMER CAPITAL APPRECIATION FUND
MALE ISSUE AGE 35, $30,000 SINGLE PREMIUM
($147,487 SPECIFIED AMOUNT, SELECT, NON-TOBACCO USE, RISK)
BOTH CURRENT AND GUARANTEED COST OF INSURANCE RATES
<TABLE>
<CAPTION>
Cash Value Net Surrender Value
------------------------- ------------------------
Current Guaranteed Current Guaranteed
Last valuation date prior to January 1: ---------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
1987 $ 33,952 $ 33,742 $ 31,027 $ 30,817
1988* 38,830 38,378 35,980 35,528
1989* 44,237 43,507 41,462 40,732
1990* 53,320 52,218 50,620 49,518
1991* 47,733 46,548 45,333 44,148
1992* 58,441 56,744 56,341 54,644
1993* 65,280 63,152 63,480 61,352
1994* 68,279 65,816 67,079 64,616
1995* 67,241 64,576 66,641 63,976
1996* 89,622 85,748 89,622 85,748
1997* 110,531 105,350 110,531 105,350
1998* 137,948 130,969 137,948 130,969
1999* 168,506 159,343 168,506 159,343
</TABLE>
* For each year shown, benefits and values reflect only single premium paid.
The following example shows how the hypothetical net return of the
Oppenheimer Global Securities Fund would have affected benefits for a Policy
dated on the last valuation date prior to January 1, 1991. This example assumes
that the premium and cash values were invested in the portfolio for the entire
period and that the values were determined on each Policy anniversary
thereafter.
OPPENHEIMER GLOBAL SECURITIES FUND
MALE ISSUE AGE 35, $30,000 SINGLE PREMIUM
($147,487 SPECIFIED AMOUNT, SELECT, NON-TOBACCO USE, RISK)
BOTH CURRENT AND GUARANTEED COST OF INSURANCE RATES
<TABLE>
<CAPTION>
Cash Value Net Surrender Value
------------------------ -----------------------
Current Guaranteed Current Guaranteed
Last valuation date prior to January 1: --------- ------------ --------- -----------
<S> <C> <C> <C> <C>
1992 $30,249 $30,050 $27,324 $27,125
1993* 27,405 27,026 24,555 24,176
1994* 45,524 44,608 42,749 41,833
1995* 41,859 40,818 39,159 38,118
1996* 41,740 40,473 39,340 38,073
1997* 47,953 46,240 45,853 44,140
1998* 57,255 54,944 55,455 53,144
1999* 63,719 60,895 62,519 59,695
</TABLE>
* For each year shown, benefits and values reflect only single premium paid.
60
<PAGE>
The following example shows how the hypothetical net return of the
Oppenheimer High Income Fund would have affected benefits for a Policy dated on
the last valuation date prior to January 1, 1988. This example assumes that the
premium and cash values were invested in the portfolio for the entire period
and that the values were determined on each Policy anniversary thereafter.
OPPENHEIMER HIGH INCOME FUND
MALE ISSUE AGE 35, $30,000 SINGLE PREMIUM
($147,487 SPECIFIED AMOUNT, SELECT, NON-TOBACCO USE, RISK)
BOTH CURRENT AND GUARANTEED COST OF INSURANCE RATES
<TABLE>
<CAPTION>
Cash Value Net Surrender Value
------------------------ -----------------------
Current Guaranteed Current Guaranteed
Last valuation date prior to January 1: --------- ------------ --------- -----------
<S> <C> <C> <C> <C>
1989 $32,966 $32,760 $30,041 $29,835
1990* 33,709 33,293 30,859 30,443
1991* 34,406 33,764 31,631 30,989
1992* 44,934 43,843 42,234 41,143
1993* 51,676 50,188 49,276 47,788
1994* 63,674 61,603 61,574 59,503
1995* 60,128 57,962 58,328 56,162
1996* 70,588 67,791 69,388 66,591
1997* 79,339 75,915 78,739 75,315
1998* 86,835 82,776 86,835 82,776
1999* 85,807 81,485 85,807 81,485
</TABLE>
* For each year shown, benefits and values reflect only single premium paid.
The following example shows how the hypothetical net return of the
Oppenheimer Main Street Growth & Income Fund would have affected benefits for a
Policy dated on the last valuation date prior to January 1, 1996. This example
assumes that the premium and cash values were invested in the portfolio for the
entire period and that the values were determined on each Policy anniversary
thereafter.
OPPENHEIMER MAIN STREET GROWTH & INCOME FUND
MALE ISSUE AGE 35, $30,000 SINGLE PREMIUM
($147,487 SPECIFIED AMOUNT, SELECT, NON-TOBACCO USE, RISK)
BOTH CURRENT AND GUARANTEED COST OF INSURANCE RATES
<TABLE>
<CAPTION>
Cash Value Net Surrender Value
------------------------ -----------------------
Current Guaranteed Current Guaranteed
Last valuation date prior to January 1: --------- ------------ --------- -----------
<S> <C> <C> <C> <C>
1997 $38,771 $38,550 $35,846 $35,624
1998* 50,095 49,596 47,245 46,746
1999* 51,155 50,460 48,380 47,685
</TABLE>
* For each year shown, benefits and values reflect only single premium paid.
61
<PAGE>
The following example shows how the hypothetical net return of the
Oppenheimer Strategic Bond Fund would have affected benefits for a Policy dated
on the last valuation date prior to January 1, 1994. This example assumes that
the premium and cash values were invested in the portfolio for the entire
period and that the values were determined on each Policy anniversary
thereafter.
OPPENHEIMER STRATEGIC BOND FUND
MALE ISSUE AGE 35, $30,000 SINGLE PREMIUM
($147,487 SPECIFIED AMOUNT, SELECT, NON-TOBACCO USE, RISK)
BOTH CURRENT AND GUARANTEED COST OF INSURANCE RATES
<TABLE>
<CAPTION>
Cash Value Net Surrender Value
------------------------ -----------------------
Current Guaranteed Current Guaranteed
Last valuation date prior to January 1: --------- ------------ --------- -----------
<S> <C> <C> <C> <C>
1995 $28,153 $27,960 $25,228 $25,035
1996* 31,665 31,225 28,815 28,375
1997* 34,610 33,902 31,835 31,127
1998* 36,696 35,713 33,996 33,013
1999* 36,828 35,602 34,428 33,202
</TABLE>
* For each year shown, benefits and values reflect only single premium paid.
The following example shows how the hypothetical net return of the WRL
VKAM Emerging Growth portfolio would have affected benefits for a Policy dated
on the last valuation date prior to January 1, 1994. This example assumes that
the premium and cash values were invested in the portfolio for the entire
period and that the values were determined on each Policy anniversary
thereafter.
WRL VKAM EMERGING GROWTH PORTFOLIO
MALE ISSUE AGE 35, $30,000 SINGLE PREMIUM
($147,487 SPECIFIED AMOUNT, SELECT, NON-TOBACCO USE, RISK)
BOTH CURRENT AND GUARANTEED COST OF INSURANCE RATES
<TABLE>
<CAPTION>
Cash Value Net Surrender Value
------------------------ -----------------------
Current Guaranteed Current Guaranteed
Last valuation date prior to January 1: --------- ------------ --------- -----------
<S> <C> <C> <C> <C>
1995 $27,106 $26,916 $24,181 $23,991
1996* 38,806 38,284 35,956 35,434
1997* 44,994 44,171 42,219 41,396
1998* 53,294 52,099 50,594 49,399
1999* 71,377 69,542 68,977 67,142
</TABLE>
* For each year shown, benefits and values reflect only single premium paid.
62
<PAGE>
The following example shows how the hypothetical net return of the WRL
Janus Global portfolio would have affected benefits for a Policy dated on the
last valuation date prior to January 1, 1993. This example assumes that the
premium and cash values were invested in the portfolio for the entire period
and that the values were determined on each Policy anniversary thereafter.
WRL JANUS GLOBAL
MALE ISSUE AGE 35, $30,000 SINGLE PREMIUM
($147,487 SPECIFIED AMOUNT, SELECT, NON-TOBACCO USE, RISK)
BOTH CURRENT AND GUARANTEED COST OF INSURANCE RATES
<TABLE>
<CAPTION>
Cash Value Net Surrender Value
------------------------ -----------------------
Current Guaranteed Current Guaranteed
Last valuation date prior to January 1: --------- ------------ --------- -----------
<S> <C> <C> <C> <C>
1994 $39,512 $39,289 $36,587 $36,364
1995* 38,632 38,224 35,782 35,374
1996* 46,364 45,654 43,589 42,879
1997* 57,761 56,657 55,061 53,957
1998* 66,898 65,406 64,498 63,006
1999* 84,824 82,648 82,724 80,548
</TABLE>
* For each year shown, benefits and values reflect only single premium paid.
The following example shows how the hypothetical net return of the WRL
Janus Growth portfolio would have affected benefits for a Policy dated on the
last valuation date prior to January 1, 1987. This example assumes that the
premium and cash values were invested in the portfolio for the entire period
and that the values were determined on each Policy anniversary thereafter.
WRL JANUS GROWTH
MALE ISSUE AGE 35, $30,000 SINGLE PREMIUM
($147,487 SPECIFIED AMOUNT, SELECT, NON-TOBACCO USE, RISK)
BOTH CURRENT AND GUARANTEED COST OF INSURANCE RATES
<TABLE>
<CAPTION>
Cash Value Net Surrender Value
------------------------- ------------------------
Current Guaranteed Current Guaranteed
Last valuation date prior to January 1: ---------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
1988 $ 32,449 $ 32,244 $ 29,524 $ 29,319
1989* 37,540 37,086 34,690 34,236
1990* 53,833 52,943 51,058 50,168
1991* 52,386 51,333 49,686 48,633
1992* 81,639 79,728 79,239 77,328
1993* 81,493 79,313 79,393 77,213
1994* 82,634 80,140 80,834 78,340
1995* 73,893 71,405 72,693 70,205
1996* 106,021 102,074 105,421 101,474
1997* 121,971 116,991 121,971 116,991
1998* 141,225 134,943 141,225 134,943
</TABLE>
* For each year shown, benefits and values reflect only single premium paid.
63
<PAGE>
OTHER PERFORMANCE DATA IN ADVERTISING SALES LITERATURE
We may compare each subaccount's performance to the performance of:
o other variable life issuers in general;
o variable life insurance policies which invest in mutual funds with
similar investment objectives and policies, as reported by Lipper
Analytical Services, Inc. ("Lipper") and Morningstar, Inc.
("Morningstar"); and other services, companies, individuals, or
industry or financial publications (E.G. FORBES, MONEY, THE WALL
STREET JOURNAL, BUSINESS WEEK, BARRON'S, KIPLINGER'S PERSONAL FINANCE,
and FORTUNE);
-> Lipper and Morningstar rank variable annuity contracts and
variable life policies. Their performance analysis ranks such
policies and contracts on the basis of total return, and assumes
reinvestment of distributions; but it does not show sales
charges, redemption fees or certain expense deductions at the
separate account level.
o the Standard & Poor's Index of 500 Common Stocks, or other widely
recognized indices;
-> unmanaged indices may assume the reinvestment of dividends, but
usually do not reflect deductions for the expenses of operating
or managing an investment portfolio; or
o other types of investments, such as:
-> certificates of deposit;
-> savings accounts and U.S. Treasuries;
-> certain interest rate and inflation indices (E.G. the Consumer
Price Index); or
-> indices measuring the performance of a defined group of
securities recognized by investors as representing a particular
segment of the securities markets (E.G. Donoghue Money Market
Institutional Average, Lehman Brothers Corporate Bond Index, or
Lehman Brothers Government Bond Index).
PFL'S PUBLISHED RATINGS
We may publish in advertisements, sales literature, or reports we send to
you the ratings and other information that an independent ratings organization
assigns to us. These organizations include: A.M. Best Company, Moody's
Investors Service, Inc., Standard & Poor's Insurance Rating Services, and Duff
& Phelps Credit Rating Co. These ratings are opinions regarding an operating
insurance company's financial capacity to meet the obligations of its insurance
policies in accordance with their terms. These ratings do not apply to the
separate account, the subaccounts, the funds or their portfolios, or to their
performance.
64
<PAGE>
ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SALE OF THE POLICIES
The Policy will be sold by individuals who are licensed as our life
insurance agents and who are also registered representatives of broker-dealers
having written sales agreements for the Policy with AFSG Securities Corporation
("AFSG"), the principal underwriter of the Policy. AFSG is located at 4333
Edgewood Road NE, Cedar Rapids, Iowa 52499. AFSG is registered with the SEC
under the Securities Exchange Act of 1934 as a broker-dealer, and is a member
of the National Association of Securities Dealers, Inc. The maximum sales
commission payable to PFL agents or other registered representatives will be
approximately 7.65% of the initial premium. In addition, certain production,
persistency and managerial bonuses may be paid.
LEGAL MATTERS
Sutherland Asbill & Brennan LLP of Washington, D.C. has provided advice on
certain legal matters relating to the Policy under the federal securities laws.
All matters of Iowa law pertaining to the Policy have been passed upon by Frank
A. Camp, Vice President and Division General Counsel of PFL.
LEGAL PROCEEDINGS
Like other life insurance companies, we are involved in lawsuits. We are
not aware of any class action lawsuits naming us as a defendant or involving
the separate account. In some 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, we
believe that at the present time there are no pending or threatened lawsuits
that are reasonably likely to have a material adverse impact on us, or AFSG, or
the separate account.
VARIATIONS IN POLICY PROVISIONS
Certain provisions of the Policy may vary from the descriptions in this
prospectus in order to comply with different state laws. These variations may
include restrictions on Policy reinstatement, use of the fixed account and
different interest rates charged and credited on Policy loans. Please refer to
your Policy, since any variations will be included in your Policy or in riders
or endorsements attached to your Policy.
YEAR 2000 READINESS DISCLOSURE
In May 1996, PFL adopted and presently has in place a Year 2000 Project
Plan (the "Plan") to review and analyze existing hardware and software systems,
as well as voice and data communications systems, to determine if they are Year
2000 compliant. As of March 1, 1999, substantially all of PFL's
mission-critical systems are Year 2000 compliant. The Plan remains on track as
we continue with the validation of our mission-critical and non-mission-critical
systems, including revalidation testing in 1999. In addition, we have
undertaken
65
<PAGE>
aggressive initiatives to test all systems that interface with any third
parties and other business partners. All of these steps are aimed at allowing
current operations to remain unaffected by the Year 2000 date change.
As of the date of this prospectus, PFL has identified and made available
what it believes are the appropriate resources of hardware, people, and
dollars, including the engagement of outside third parties, to ensure that the
Plan will be completed.
The actions taken by management under the Plan are intended to reduce
significantly PFL's risk of a material business interruption based on the Year
2000 issues. It should be noted that the Year 2000 computer problem, and its
resolution, is complex and multifaceted, and any company's success cannot be
conclusively known until the Year 2000 is reached. In spite of its efforts or
results, PFL's ability to function unaffected to and through the Year 2000 may
be adversely affected by actions, or failure to act, of third parties beyond
our knowledge or control.
This statement is a Year 2000 Readiness Disclosure pursuant to Section
3(9) of the YEAR 2000 INFORMATION AND READINESS DISCLOSURE ACT, 15 U.S.C.
Section 1 (1998).
EXPERTS
There are no financial statements of the Legacy Builder Variable Life
Separate Account since the separate account has not commenced operations as of
the date of this prospectus.
The statutory-basis financial statements and schedules of PFL at December
31, 1998 and 1997 and for each of the three years in the period ended December
31, 1998, appearing in this prospectus and registration statement have been
audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon appearing elsewhere herein. The financial statements and
schedules referred to above are included in reliance upon such report given
upon the authority of such firm as an expert in accounting and auditing.
Actuarial matters included in this prospectus and registration statement
have been examined by Richard Greer as stated in the opinion filed as an
exhibit to the registration statement.
FINANCIAL STATEMENTS
Our financial statements appear on the following pages. You should
consider our financial statements only as bearing upon our ability to meet our
obligations under the Policies. You should not consider our financial
statements as bearing upon the investment performance of the assets held in the
separate account.
Our financial statements as of December 31, 1998 and 1997 and for each of
the three years in the period ended December 31, 1998 have been prepared on the
basis of statutory accounting principles rather than generally accepted
accounting principles.
ADDITIONAL INFORMATION ABOUT PFL
PFL is a stock life insurance company that is wholly owned by AEGON USA,
Inc., which, in turn, is wholly owned by AEGON N.V., a Netherlands corporation
that is a
66
<PAGE>
publicly traded international insurance group. PFL's office is located at 4333
Edgewood Road NE, Cedar Rapids, Iowa 52499 and the mailing address is P.O. Box
3183, Cedar Rapids, Iowa 52406-3183.
PFL was incorporated in 1961 under Iowa law and is subject to regulation
by the Iowa Commissioner of Insurance as well as by the insurance departments
of all other states and jurisdictions in which it does business. PFL is
licensed to sell insurance in 38 states and Guam. PFL submits annual statements
on its operations and finances to insurance officials in all states and
jurisdictions in which it does business. The Policy described in this
prospectus has been filed with, and where required, approved by, insurance
officials in those jurisdictions in which it is sold.
PFL'S EXECUTIVE OFFICERS AND DIRECTORS
We are governed by a board of directors. The following table gives the
name, address and principal occupation during the past five years of each of
our directors.
BOARD OF DIRECTORS
<TABLE>
<CAPTION>
NAME AND ADDRESS PRINCIPAL OCCUPATION
AND POSITION WITH PFL DURING PAST 5 YEARS
<S> <C>
William L. Busler* Director, Chairman of the Board, and President
Director, Chairman of the
Board, and President
Larry N. Norman* Director, Executive Vice President
Director, Executive Vice President
Patrick S. Baird* Executive Vice President (1995-present), Chief
Director, Senior Vice Operating Officer (1996-present), Chief Financial
President, and Chief Officer (1992-1995), Vice President and Chief Tax
Operating Officer Officer (1984-1995) of AEGON USA.
Douglas C. Kolsrud* Director, Senior Vice President, Chief Investment
Director, Senior Vice Officer and Corporate Actuary
President, Chief Investment
Officer and Corporate Actuary
Craig D. Vermie* Director, Vice President, Secretary and General
Director, Vice President, Counsel
Secretary and General Counsel
</TABLE>
* Located at 4333 Edgewood Road, NE, Cedar Rapids, Iowa 52449.
67
<PAGE>
The following table gives the name, address and principal occupation during the
past five years of the principal officers of PFL (other than officers listed
above as directors).
PRINCIPAL OFFICERS
<TABLE>
<CAPTION>
NAME AND ADDRESS PRINCIPAL OCCUPATION
AND POSITION WITH PFL DURING PAST 5 YEARS
<S> <C>
Robert J. Kontz* Vice President and Corporate Controller
Vice President and Corporate
Controller
Brenda K. Clancy* Vice President, Treasurer and Chief Financial Officer
Vice President, Treasurer and
Chief Financial Officer
</TABLE>
* Located at 4333 Edgewood Road, NE, Cedar Rapids, Iowa 52449.
PFL holds the assets of the separate account physically segregated and
apart from the general account. PFL maintains records of all purchases and
sales of portfolio shares by each of the subaccounts. A blanket bond issued to
AEGON U.S. Holding Corporation ("AEGON U.S.") in the amount of $10 million,
covering all of the employees of AEGON U.S. and its affiliates, including PFL.
A Stockbrokers Blanket Bond, issued to AEGON U.S.A. Securities, Inc. providing
fidelity coverage, covers the activities of registered representatives of AFSG
to a limit of $10 million.
ADDITIONAL INFORMATION ABOUT THE SEPARATE ACCOUNT
PFL established the separate account as a separate investment account
under Iowa law in 1998. We own the assets in the separate account and are
obligated to pay all benefits under the Policies. The separate account may be
used to support other variable life insurance policies of PFL, as well as for
other purposes permitted by law. The separate account is registered with the
SEC as a unit investment trust under the 1940 Act and qualifies as a "separate
account" within the meaning of the federal securities laws.
68
<PAGE>
APPENDIX A
ILLUSTRATIONS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The following illustrations show how certain values under a sample Policy
would change with different rates of fictional investment performance over an
extended period of time. In particular, the illustrations show how the death
benefit, cash value, and net surrender value under a Policy issued to an
insured of a given age, would change over time if the single premium was paid
and the return on the assets in the subaccounts was a uniform gross annual rate
(before any expenses) of 0%, 6% or 12%. The tables illustrate Policy values
that would result based on assumptions that you pay the initial premium
indicated and you do not take any partial withdrawals or Policy loans. The
values under the Policy will be different from those shown even if the returns
averaged 0%, 6% or 12%, but fluctuated over and under those averages throughout
the years shown.
We based the illustration on page 71 on a Policy for an insured who is a
35 year old male in the select, non-tobacco use, rate class, initial premium of
$30,000 and a $147,487 initial specified amount and the Policy's death benefit
without the Guaranteed Minimum Death Benefit rider. The illustration on that
page also assumes cost of insurance charges based on our CURRENT cost of
insurance rates. The illustration on page 72 is based on the same factors as
those on page 71, except that cost of insurance rates are based on the
GUARANTEED cost of insurance rates (based on the 1980 Commissioners Standard
Ordinary Mortality Table).
We based the illustration on page 73 on a Policy for joint insureds who
are a 55 year old male and a 55 year old female in the select, non-tobacco use,
rate class, initial premium of $30,000, a $109,579 initial specified amount and
the Policy's death benefit without the Guaranteed Minimum Death Benefit rider.
The illustration on that page also assumes cost of insurance charges based on
our CURRENT cost of insurance rates. The illustration on page 74 is based on
the same factors as those on page 73, except that cost of insurance rates are
based on the GUARANTEED cost of insurance rates (based on the 1980
Commissioners Standard Ordinary Mortality Table).
The amounts we show for the death benefits, cash values and net surrender
values take into account (1) the daily charge for assuming mortality and
expense risks assessed against each subaccount. This charge is equivalent to an
annual charge of 0.50% of the average net assets of the subaccounts; (2)
estimated daily expenses equivalent to an effective average annual expense
level of 0.81% of the portfolios' average daily net assets; and (3) all
applicable cash value charges using the current monthly Policy charge. The
0.81% average portfolio expense level assumes an equal allocation of amounts
among the 20 subaccounts. It is based on an average 0.70% investment advisory
fee and estimated 1999 average normal operating expenses of 0.11% for each of
the portfolios. We used annual actual audited expenses incurred during 1998 for
the following portfolios to calculate the average annual expense level: AIM
V.I. Capital Appreciation Fund (0.67%), AIM V.I. Government Securities Fund
(0.76%), AIM V.I. Growth and Income Fund (0.65%), AIM V.I. Value Fund (0.66%),
69
<PAGE>
Dreyfus Stock Index Fund (0.26%), Dreyfus -- Money Market Portfolio (0.56%),
Dreyfus -- Small Company Stock Portfolio (0.98%), MFS Emerging Growth Series
(0.85%), MFS Foreign & Colonial Emerging Markets Equity Series (1.53%), MFS
Research Series (0.86%), MFS Total Return Series (0.91%), MFS Utilities Series
(1.01%), Oppenheimer Capital Appreciation Fund (0.75%), Oppenheimer Global
Securities Fund (0.74%), Oppenheimer High Income Fund (0.78%), Oppenheimer Main
Street Growth & Income Fund (0.79%), Oppenheimer Strategic Bond Fund (0.80%),
WRL VKAM Emerging Growth (0.89%), WRL Janus Global (0.95%) and WRL Janus Growth
(0.83%).
Taking into account the assumed charges of 1.31%, the gross annual
investment return rates of 0%, 6% and 12% are equivalent to net annual
investment return rates of -1.31%, 4.69%, and 10.69%.
The hypothetical returns shown in the tables are without any tax charges
that may be attributable to the separate account, because we are not currently
making such charges. In order to produce after tax returns of 0%, 6% or 12% if
such charges are made in the future, the separate account would have to earn a
sufficient amount in excess of 0%, 6% or 12% to cover any tax charges.
The "Premium Accumulated at 5%" column of each table shows the amount
which would accumulate if you invested an amount equal to the premium to earn
interest at 5% per year, compounded annually.
We will furnish, upon request, a comparable illustration reflecting the
proposed insured's age, gender, risk classification and desired plan features.
70
<PAGE>
PFL LIFE INSURANCE COMPANY
MODIFIED SINGLE PREMIUM VARIABLE LIFE INSURANCE POLICY
HYPOTHETICAL ILLUSTRATIONS
MALE ISSUE AGE 35
<TABLE>
<S> <C>
Initial Specified Amount $147,487 Select, Non-Tobacco Use, Class
Initial Premium $30,000 Death Benefit Option Without Rider
Using Current Cost of Insurance Rates
</TABLE>
<TABLE>
<CAPTION>
DEATH BENEFIT
ASSUMING HYPOTHETICAL GROSS AND NET
END OF PREMIUMS ANNUAL INVESTMENT RETURN OF
POLICY ACCUMULATED 0% (GROSS) 6% (GROSS) 12% (GROSS)
YEAR AT 5% -1.31% (NET) 4.69% (NET) 10.69% (NET)
<S> <C> <C> <C> <C>
1 31,500 147,487 147,487 147,487
2 33,075 147,487 147,487 147,487
3 34,729 147,487 147,487 147,487
4 36,465 147,487 147,487 147,487
5 38,288 147,487 147,487 147,487
6 40,203 147,487 147,487 147,487
7 42,213 147,487 147,487 147,487
8 44,324 147,487 147,487 147,487
9 46,540 147,487 147,487 147,487
10 48,867 147,487 147,487 150,531
15 62,368 147,487 147,487 204,703
20 79,599 147,487 147,487 265,956
25 101,591 147,487 147,487 358,784
30 129,658 147,487 147,487 516,305
35 165,480 147,487 147,487 775,930
40 211,200 147,487 147,487 1,131,270
45 269,550 147,487 147,487 1,754,648
50 344,022 147,487 170,942 2,773,372
55 439,069 147,487 204,480 4,383,553
60 560,376 147,487 235,280 6,664,637
65 715,197 147,487 278,654 10,429,735
</TABLE>
<TABLE>
<CAPTION>
END OF CASH VALUE NET SURRENDER VALUE
POLICY ASSUMING HYPOTHETICAL GROSS AND NET ASSUMING HYPOTHETICAL GROSS AND NET
YEAR ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
0% (GROSS) 6% (GROSS) 12% (GROSS) 0% (GROSS) 6% (GROSS) 12% (GROSS)
-1.31% (NET) 4.69% (NET) 10.69% (NET) -1.31% (NET) 4.69% (NET) 10.69% (NET)
<S> <C> <C> <C> <C> <C> <C>
1 29,020 30,785 32,549 26,095 27,860 29,624
2 28,073 31,590 35,314 25,223 28,740 32,464
3 27,156 32,416 38,315 24,381 29,641 35,540
4 26,629 33,264 41,570 23,569 30,564 38,870
5 25,411 34,134 45,102 23,011 31,734 42,702
6 24,581 35,026 48,934 22,481 32,926 46,834
7 23,778 35,942 53,092 21,978 34,142 51,292
8 23,002 36,882 57,603 21,802 35,682 56,403
9 22,251 37,847 62,497 21,651 37,247 61,897
10 21,524 38,837 67,807 21,524 38,837 67,807
15 19,167 46,456 107,175 19,167 46,456 107,175
20 17,069 55,571 169,399 17,069 55,571 169,399
25 15,200 66,473 267,749 15,200 66,473 267,749
30 13,536 79,515 423,200 13,536 79,515 423,200
35 12,054 95,116 668,905 12,054 95,116 668,905
40 10,734 113,777 1,057,262 10,734 113,777 1,057,262
45 9,559 136,099 1,671,093 9,559 136,099 1,671,093
50 8,513 162,802 2,641,306 8,513 162,802 2,641,306
55 7,581 194,742 4,174,812 7,581 194,742 4,174,812
60 6,751 232,950 6,598,650 6,751 232,950 6,598,650
65 6,012 278,654 10,429,735 6,012 278,654 10,429,735
</TABLE>
The hypothetical investment rates of return shown above and elsewhere in this
prospectus are illustrative only and should not be deemed a representation of
past or future rates of return. Actual investment rates of return may be more
or less than those shown and will depend on a number of factors, including the
investment allocations by an owner and the different investment rates of return
for the funds. The death benefit, cash value and net surrender value for a
Policy would be different from those shown if the actual investment rates of
return averaged 0%, 6% and 12% over a period of years, but fluctuated above or
below that average for individual Policy years. No representation can be made
by PFL or the funds that these hypothetical investment rates of return can be
achieved for any one year or sustained over any period of time. This
illustration must be preceded or accompanied by current fund prospectuses.
71
<PAGE>
PFL LIFE INSURANCE COMPANY
MODIFIED SINGLE PREMIUM VARIABLE LIFE INSURANCE POLICY
HYPOTHETICAL ILLUSTRATIONS
MALE ISSUE AGE 35
<TABLE>
<S> <C>
Initial Specified Amount $147,487 Select, Non-Tobacco Use, Class
Initial Premium $30,000 Death Benefit Option Without Rider
Using Guaranteed Cost of Insurance Rates
</TABLE>
<TABLE>
<CAPTION>
DEATH BENEFIT
ASSUMING HYPOTHETICAL GROSS AND NET
END OF PREMIUMS ANNUAL INVESTMENT RETURN OF
POLICY ACCUMULATED 0% (GROSS) 6% (GROSS) 12% (GROSS)
YEAR AT 5% -1.31% (NET) 4.69% (NET) 10.69% (NET)
<S> <C> <C> <C> <C>
1 31,500 147,487 147,487 147,487
2 33,075 147,487 147,487 147,487
3 34,729 147,487 147,487 147,487
4 36,465 147,487 147,487 147,487
5 38,288 147,487 147,487 147,487
6 40,203 147,487 147,487 147,487
7 42,213 147,487 147,487 147,487
8 44,324 147,487 147,487 147,487
9 46,540 147,487 147,487 147,487
10 48,867 147,487 147,487 147,487
15 62,368 147,487 147,487 189,817
20 79,599 147,487 147,487 241,324
25 101,591 147,487 147,487 318,869
30 129,658 * 147,487 449,275
35 165,480 * 147,487 658,883
40 211,200 * 147,487 937,661
45 269,550 * * 1,426,936
50 344,022 * * 2,188,847
55 439,069 * * 3,304,326
60 560,376 * * 4,836,580
65 715,197 * * 7,549,656
</TABLE>
<TABLE>
<CAPTION>
END OF CASH VALUE NET SURRENDER VALUE
POLICY ASSUMING HYPOTHETICAL GROSS AND NET ASSUMING HYPOTHETICAL GROSS AND NET
YEAR ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
0% (GROSS) 6% (GROSS) 12% (GROSS) 0% (GROSS) 6% (GROSS) 12% (GROSS)
-1.31% (NET) 4.69% (NET) 10.69% (NET) -1.31% (NET) 4.69% (NET) 10.69% (NET)
<S> <C> <C> <C> <C> <C> <C>
1 28,820 30,579 32,339 25,895 27,654 29,414
2 27,666 31,164 34,869 24,816 28,314 32,019
3 26,533 31,751 37,606 23,758 28,976 34,831
4 25,420 32,339 40,567 22,720 29,639 37,867
5 24,324 32,927 43,770 21,924 30,527 41,370
6 23,241 33,513 47,235 21,141 31,413 45,135
7 22,168 34,095 50,985 20,368 32,295 49,185
8 21,105 34,671 55,045 19,905 33,471 53,845
9 20,047 35,240 59,442 19,447 34,640 58,842
10 18,992 35,800 64,206 18,992 35,800 64,206
15 14,403 40,409 99,381 14,403 40,409 99,381
20 8,830 44,798 153,709 8,830 44,798 153,709
25 1,089 48,082 237,962 1,089 48,082 237,962
30 * 48,682 368,258 * 48,682 368,258
35 * 43,215 568,002 * 43,215 568,002
40 * 23,855 876,319 * 23,855 876,319
45 * * 1,358,987 * * 1,358,987
50 * * 2,084,616 * * 2,084,616
55 * * 3,146,977 * * 3,146,977
60 * * 4,788,693 * * 4,788,693
65 * * 7,549,656 * * 7,549,656
</TABLE>
* The net surrender value shown would in fact be equal to the cash value since,
under the terms of the Policy, the surrender charge will be waived if a cost
of insurance charge were to be deducted.
The hypothetical investment rates of return shown above and elsewhere in this
prospectus are illustrative only and should not be deemed a representation of
past or future rates of return. Actual investment rates of return may be more
or less than those shown and will depend on a number of factors, including the
investment allocations by an owner and the different investment rates of return
for the funds. The death benefit, cash value and net surrender value for a
Policy would be different from those shown if the actual investment rates of
return averaged 0%, 6% and 12% over a period of years, but fluctuated above or
below that average for individual Policy years. No representation can be made
by PFL or the funds that these hypothetical investment rates of return can be
achieved for any one year or sustained over any period of time. This
illustration must be preceded or accompanied by current fund prospectuses.
72
<PAGE>
PFL LIFE INSURANCE COMPANY
JOINT SURVIVORSHIP MODIFIED SINGLE PREMIUM VARIABLE LIFE INSURANCE POLICY
HYPOTHETICAL ILLUSTRATIONS
MALE AND FEMALE ISSUE AGES 55
<TABLE>
<S> <C>
Initial Specified Amount $109,579 Select, Non-Tobacco Use, Class
Initial Premium $30,000 Death Benefit Option Without Rider
Using Current Cost of Insurance Rates
</TABLE>
<TABLE>
<CAPTION>
END OF PREMIUMS DEATH BENEFIT
POLICY ACCUMULATED ASSUMING HYPOTHETICAL GROSS AND NET
YEAR AT 5% ANNUAL INVESTMENT RETURN OF
0% (GROSS) 6% (GROSS) 12% (GROSS)
-1.31% (NET) 4.69% (NET) 10.69% (NET)
<S> <C> <C> <C> <C>
1 31,500
2 33,075 109,579 109,579 109,579
3 34,729 109,579 109,579 109,579
4 36,465 109,579 109,579 109,579
5 38,288 109,579 109,579 109,579
6 40,203 109,579 109,579 109,579
7 42,213 109,579 109,579 109,579
8 44,324 109,579 109,579 109,579
9 46,540 109,579 109,579 109,579
10 48,867 109,579 109,579 109,579
15 62,368 109,579 109,579 134,017
20 79,599 109,579 109,579 200,341
25 101,591 109,579 109,579 318,609
30 129,658 109,579 109,579 516,345
35 165,480 109,579 118,990 836,801
40 211,200 109,579 140,381 1,304,477
45 269,550 109,579 170,472 2,093,135
</TABLE>
<TABLE>
<CAPTION>
END OF CASH VALUE NET SURRENDER VALUE
POLICY ASSUMING HYPOTHETICAL GROSS AND NET ASSUMING HYPOTHETICAL GROSS AND NET
YEAR ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
0% (GROSS) 6% (GROSS) 12% (GROSS) 0% (GROSS) 6% (GROSS) 12% (GROSS)
-1.31% (NET) 4.69% (NET) 10.69% (NET) -1.31% (NET) 4.69% (NET) 10.69% (NET)
<S> <C> <C> <C> <C> <C> <C>
1 29,166 30,939 32,712 26,241 28,014 29,787
2 28,355 31,908 35,670 25,505 29,058 32,820
3 27,567 32,906 38,895 24,792 30,131 36,120
4 26,800 33,937 42,411 24,100 31,237 39,711
5 26,055 34,999 46,246 23,655 32,599 43,846
6 25,331 36,095 50,427 23,231 33,995 48,327
7 24,627 37,225 54,986 22,827 35,425 53,186
8 23,942 38,390 59,957 22,742 37,190 58,757
9 23,276 39,592 65,378 22,676 38,992 64,778
10 22,629 40,831 71,289 22,629 40,831 71,289
15 20,662 50,079 115,532 20,662 50,079 115,532
20 18,866 61,422 187,234 18,866 61,422 187,234
25 17,226 75,333 303,437 17,226 75,333 303,437
30 15,729 92,396 491,757 15,729 92,396 491,757
35 14,361 113,324 796,953 14,361 113,324 796,953
40 13,113 138,991 1,291,561 13,113 138,991 1,291,561
45 11,973 170,472 2,093,135 11,973 170,472 2,093,135
</TABLE>
The hypothetical investment rates of return shown above and elsewhere in this
prospectus are illustrative only and should not be deemed a representation of
past or future rates of return. Actual investment rates of return may be more
or less than those shown and will depend on a number of factors, including the
investment allocations by an owner and the different investment rates of return
for the funds. The death benefit, cash value and net surrender value for a
Policy would be different from those shown if the actual investment rates of
return averaged 0%, 6% and 12% over a period of years, but fluctuated above or
below that average for individual Policy years. No representation can be made
by PFL or the funds that these hypothetical investment rates of return can be
achieved for any one year or sustained over any period of time. This
illustration must be preceded or accompanied by current fund prospectuses.
73
<PAGE>
PFL LIFE INSURANCE COMPANY
JOINT SURVIVORSHIP MODIFIED SINGLE PREMIUM VARIABLE LIFE INSURANCE POLICY
HYPOTHETICAL ILLUSTRATIONS
MALE AND FEMALE ISSUE AGES 55
<TABLE>
<S> <C>
Initial Specified Amount $109,579 Select, Non-Tobacco Use, Class
Initial Premium $30,000 Death Benefit Option Without Rider
Using Guaranteed Cost of Insurance Rates
</TABLE>
<TABLE>
<CAPTION>
END OF PREMIUMS DEATH BENEFIT
POLICY ACCUMULATED ASSUMING HYPOTHETICAL GROSS AND NET
YEAR AT 5% ANNUAL INVESTMENT RETURN OF
0% (GROSS) 6% (GROSS) 12% (GROSS)
-1.31% (NET) 4.69% (NET) 10.69% (NET)
<S> <C> <C> <C> <C>
1 31,500
2 33,075 109,579 109,579 109,579
3 34,729 109,579 109,579 109,579
4 36,465 109,579 109,579 109,579
5 38,288 109,579 109,579 109,579
6 40,203 109,579 109,579 109,579
7 42,213 109,579 109,579 109,579
8 44,324 109,579 109,579 109,579
9 46,540 109,579 109,579 109,579
10 48,867 109,579 109,579 109,579
15 62,368 109,579 109,579 131,642
20 79,599 109,579 109,579 195,280
25 101,591 * 109,579 307,727
30 129,658 * 109,579 489,125
35 165,480 * * 764,201
40 211,200 * * 1,151,541
45 269,550 * * 1,845,401
</TABLE>
<TABLE>
<CAPTION>
END
OF CASH VALUE NET SURRENDER VALUE
POLICY ASSUMING HYPOTHETICAL GROSS AND NET ASSUMING HYPOTHETICAL GROSS AND NET
YEAR ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
0% (GROSS) 6% (GROSS) 12% (GROSS) 0% (GROSS) 6% (GROSS) 12% (GROSS)
-1.31% (NET) 4.69% (NET) 10.69% (NET) -1.31% (NET) 4.69% (NET) 10.69% (NET)
<S> <C> <C> <C> <C> <C> <C>
1 29,162 30,935 32,708 26,237 28,010 29,783
2 28,337 31,890 35,651 25,487 29,040 32,801
3 27,524 32,863 38,850 24,749 30,088 36,075
4 26,718 33,852 42,326 24,018 31,152 39,626
5 25,916 34,857 46,104 23,516 32,457 43,704
6 25,114 35,874 50,209 23,014 33,774 48,109
7 24,307 36,900 54,670 22,507 35,100 52,870
8 23,487 37,930 59,518 22,287 36,730 58,318
9 22,645 38,957 64,788 22,045 38,357 64,188
10 21,771 39,974 70,520 21,771 39,974 70,520
15 17,412 46,987 113,484 17,412 46,987 113,484
20 8,964 52,796 182,505 8,964 52,796 182,505
25 * 53,662 293,073 * 53,662 293,073
30 * 39,863 465,834 * 39,863 465,834
35 * * 727,810 * * 727,810
40 * * 1,140,140 * * 1,140,140
45 * * 1,845,401 * * 1,845,401
</TABLE>
* The net surrender value shown would in fact be equal to the cash value since,
under the terms of the Policy, the surrender charge will be waived if a cost
of insurance charge were to be deducted.
The hypothetical investment rates of return shown above and elsewhere in this
prospectus are illustrative only and should not be deemed a representation of
past or future rates of return. Actual investment rates of return may be more
or less than those shown and will depend on a number of factors, including the
investment allocations by an owner and the different investment rates of return
for the funds. The death benefit, cash value and net surrender value for a
Policy would be different from those shown if the actual investment rates of
return averaged 0%, 6% and 12% over a period of years, but fluctuated above or
below that average for individual Policy years. No representation can be made
by PFL or the funds that these hypothetical investment rates of return can be
achieved for any one year or sustained over any period of time. This
illustration must be preceded or accompanied by current fund prospectuses.
74
<PAGE>
APPENDIX B
WEALTH INDICES OF INVESTMENTS IN THE U.S. CAPITAL MARKET
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The information below graphically depicts the growth of $1.00 invested in
large company stocks, small company stocks, long-term government bonds,
Treasury bills, and hypothetical asset returning the inflation rate over the
period from the end of 1925 to the end of 1998. All results assume reinvestment
of dividends on stocks or coupons on bonds and no taxes. Transaction costs are
not included, except in the small stock index starting in 1982.
Each of the cumulative index values is initialized at $1.00 at year-end
1925. The graph illustrates that large company stocks and small company stocks
have the best performance over the entire 73-year period: investments of $1.00
in these assets would have grown to $2,350.89 and $5,116.65, respectively, by
year-end 1998. This higher growth was earned by investments involving
substantial risk. In contrast, long-term government bonds (with an approximate
20-year maturity), which exposed the holder to much less risk, grew to only
$44.18.
The lowest-risk strategy over the past 73 years (for those with short-term
time horizons) was to buy U.S. Treasury bills. Since U.S. Treasury bills tended
to track inflation, the resulting real (inflation-adjusted) returns were near
zero for the entire 1926 - 1998 period.
75
<PAGE>
[GRAPH OMITTED]
COMPOUND ANNUAL RATES OF RETURN BY DECADE
<TABLE>
<CAPTION>
1920s* 1930s 1940s 1950s 1960s 1970s 1980s 1990s** 1989-98
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Large Company ............ 19.2% -0.1% 9.2% 19.4% 7.8% 5.9% 17.5% 17.9% 19.2%
Small Company ............ -4.5 1.4 20.7 16.9 15.5 11.5 15.8 13.6 13.2
Long-Term Corp. .......... 5.2 6.9 2.7 1.0 1.7 6.2 13.0 10.3 10.9
Long-Term Govt. .......... 5.0 4.9 3.2 -0.1 1.4 5.5 12.6 11.0 11.7
Inter-Term Govt. ......... 4.2 4.6 1.8 1.3 3.5 7.0 11.9 8.3 8.7
Treasury Bills ........... 3.7 0.6 0.4 1.9 3.9 6.3 8.9 5.0 5.3
Inflation ................ -1.1 -2.0 5.4 2.2 2.5 7.4 5.1 3.0 3.1
</TABLE>
- ----------------
* Based on the period 1926-1929.
** Based on the period 1990-1998.
Used with permission. (C)1999 Ibbotson Associates, Inc. All rights reserved.
[Certain portions of this work were derived from copyrighted works of Roger G.
Ibbotson and Rex Sinquefield.]
76
<PAGE>
APPENDIX C
SURRENDER CHARGE TABLE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
MALE (SINGLE LIFE)
<TABLE>
<CAPTION>
YEAR
------------------------------------------------------------------------------------------------
AGE 1 2 3 4 5 6 7 8 9 10+
- ----- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
0-74 9.75% 9.50% 9.25% 9.00% 8.00% 7.00% 6.00% 4.00% 2.00% 0.00%
75 9.75% 9.50% 9.25% 9.00% 8.00% 7.00% 5.84% 4.00% 2.00% 0.00%
76 9.75% 9.50% 9.25% 9.00% 8.00% 6.69% 5.49% 4.00% 2.00% 0.00%
77 9.75% 9.50% 9.25% 9.00% 7.89% 6.30% 5.18% 4.00% 2.00% 0.00%
78 9.75% 9.50% 9.25% 9.00% 7.44% 5.95% 4.89% 4.00% 2.00% 0.00%
79 9.75% 9.50% 9.25% 9.00% 7.03% 5.61% 4.62% 3.87% 2.00% 0.00%
80 9.75% 9.50% 9.25% 8.65% 6.64% 5.31% 4.36% 3.66% 2.00% 0.00%
81 9.75% 9.50% 9.25% 8.18% 6.28% 5.02% 4.12% 3.46% 2.00% 0.00%
82 9.75% 9.50% 9.25% 7.74% 6.94% 4.75% 3.90% 3.26% 2.00% 0.00%
83 9.75% 9.50% 9.25% 7.33% 5.62% 4.49% 3.68% 3.07% 2.00% 0.00%
84 9.75% 9.50% 9.25% 6.94% 5.32% 4.24% 3.47% 2.88% 2.00% 0.00%
85 9.75% 9.50% 9.15% 6.58% 5.03% 4.00% 3.25% 2.67% 2.00% 0.00%
86 9.75% 9.50% 8.68% 6.22% 4.75% 3.75% 3.02% 2.46% 1.99% 0.00%
87 9.75% 9.50% 8.21% 5.87% 4.46% 3.49% 2.78% 2.22% 1.76% 0.00%
88 9.75% 9.50% 7.75% 5.52% 4.15% 3.21% 2.51% 1.96% 1.51% 0.00%
89 9.75% 9.50% 7.28% 5.14% 3.82% 2.90% 2.22% 1.68% 1.25% 0.00%
90 9.75% 9.50% 6.78% 4.72% 3.45% 2.56% 1.90% 1.39% 0.99% 0.00%
</TABLE>
FEMALE (SINGLE LIFE)
<TABLE>
<CAPTION>
YEAR
------------------------------------------------------------------------------------------------
AGE 1 2 3 4 5 6 7 8 9 10+
- ----- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
0-78 9.75% 9.50% 9.25% 9.00% 8.00% 7.00% 6.00% 4.00% 2.00% 0.00%
79 9.75% 9.50% 9.25% 9.00% 8.00% 7.00% 5.75% 4.00% 2.00% 0.00%
80 9.75% 9.50% 9.25% 9.00% 8.00% 6.56% 5.32% 4.00% 2.00% 0.00%
81 9.75% 9.50% 9.25% 9.00% 7.70% 6.08% 4.93% 4.00% 2.00% 0.00%
82 9.75% 9.50% 9.25% 9.00% 7.14% 5.63% 4.56% 3.77% 2.00% 0.00%
83 9.75% 9.50% 9.25% 8.75% 6.62% 5.22% 4.22% 3.47% 2.00% 0.00%
84 9.75% 9.50% 9.25% 8.13% 6.15% 4.83% 3.89% 3.18% 2.00% 0.00%
85 9.75% 9.50% 9.25% 7.55% 5.69% 4.46% 3.57% 2.90% 2.00% 0.00%
86 9.75% 9.50% 9.25% 7.00% 5.26% 4.10% 3.26% 2.62% 2.00% 0.00%
87 9.75% 9.50% 9.19% 6.48% 4.84% 3.75% 2.95% 2.33% 1.84% 0.00%
88 9.75% 9.50% 8.51% 5.97% 4.43% 3.39% 2.63% 2.03% 1.55% 0.00%
89 9.75% 9.50% 7.84% 5.46% 4.01% 3.02% 2.29% 1.72% 1.27% 0.00%
90 9.75% 9.50% 7.18% 4.95% 3.58% 2.64% 1.94% 1.41% 1.01% 0.00%
</TABLE>
77
<PAGE>
JOINT AND LAST SURVIVOR PLAN: AGE IS BASED ON THE OLDER OF THE INSUREDS
<TABLE>
<CAPTION>
YEAR
------------------------------------------------------------------------------------------------
AGE 1 2 3 4 5 6 7 8 9 10+
- ----- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
0-74 9.75% 9.50% 9.25% 9.00% 8.00% 7.00% 6.00% 4.00% 2.00% 0.00%
75 9.75% 9.50% 9.25% 9.00% 7.25% 5.00% 3.50% 2.50% 1.75% 0.00%
76 9.75% 9.50% 9.25% 9.00% 7.25% 5.00% 3.50% 2.50% 1.75% 0.00%
77 9.75% 9.50% 9.25% 9.00% 7.25% 5.00% 3.50% 2.50% 1.75% 0.00%
78 9.75% 9.50% 9.25% 9.00% 7.25% 5.00% 3.50% 2.50% 1.75% 0.00%
79 9.75% 9.50% 9.25% 9.00% 7.25% 5.00% 3.50% 2.50% 1.75% 0.00%
80 9.75% 9.50% 9.25% 6.75% 4.25% 2.75% 1.75% 1.00% 0.75% 0.00%
81 9.75% 9.50% 9.25% 6.75% 4.25% 2.75% 1.75% 1.00% 0.75% 0.00%
82 9.75% 9.50% 9.25% 6.75% 4.25% 2.75% 1.75% 1.00% 0.75% 0.00%
83 9.75% 9.50% 9.25% 6.75% 4.25% 2.75% 1.75% 1.00% 0.75% 0.00%
84 9.75% 9.50% 9.25% 6.75% 4.25% 2.75% 1.75% 1.00% 0.75% 0.00%
85 9.75% 9.50% 6.50% 3.50% 1.75% 1.00% 0.50% 0.00% 0.00% 0.00%
86 9.75% 9.50% 6.50% 3.50% 1.75% 1.00% 0.50% 0.00% 0.00% 0.00%
87 9.75% 9.50% 6.50% 3.50% 1.75% 1.00% 0.50% 0.00% 0.00% 0.00%
88 9.75% 9.50% 6.50% 3.50% 1.75% 1.00% 0.50% 0.00% 0.00% 0.00%
89 9.75% 9.50% 6.50% 3.50% 1.75% 1.00% 0.50% 0.00% 0.00% 0.00%
90 9.75% 9.50% 6.50% 3.50% 1.75% 1.00% 0.50% 0.00% 0.00% 0.00%
</TABLE>
Surrender charge percentages not interpolated for off-anniversary surrenders.
78
<PAGE>
Index to Financial Statements
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LEGACY BUILDER VARIABLE LIFE SEPARATE ACCOUNT
There are no financial statements for the separate account as of the date of
this prospectus.
PFL LIFE INSURANCE COMPANY
Statutory-Basis Balance Sheet as of March 31, 1999 (unaudited).
Statutory-Basis Statement of Operations for the three months ended March 31,
1999 (unaudited).
Statutory-Basis Statement of Changes in Capital and Surplus for the three
months ended March 31, 1999 (unaudited).
Statutory-Basis Statement of Cash Flow for the three months ended March 31,
1999 (unaudited).
Notes to Statutory-Basis Financial Statements for the three months ended March
31, 1999 (unaudited).
Report of Independent Auditors dated February 19, 1999.
Statutory-Basis Balance Sheets at December 31, 1998 and 1997.
Statutory-Basis Statements of Operations for the years ended December 31, 1998,
1997 and 1996.
Statutory-Basis Statements of Changes in Capital and Surplus for the years
ended December 31, 1998, 1997, and 1996.
Statutory-Basis Statements of Cash Flows for the years ended December 31, 1998,
1997, and 1996.
Notes to Statutory-Basis Financial Statements.
Statutory-Basis Financial Statement Schedules.
79
<PAGE>
PFL LIFE INSURANCE COMPANY
BALANCE SHEET -- STATUTORY BASIS
AS OF MARCH 31, 1999
(IN THOUSANDS) (UNAUDITED)
ADMITTED ASSETS
Cash and invested assets:
Cash and short-term investments ................ $ 122,431
Bonds .......................................... 4,945,296
Preferred stock ................................ 14,469
Common stock, at market ........................ 80,234
Mortgage loans on real estate .................. 1,042,066
Home office properties, at cost less accumulated
depreciation .................................. 7,999
Real estate acquired in satisfaction of debt,
at cost less accumulated depreciation ......... 11,709
Investment real estate ......................... 32,474
Policy loans ................................... 59,981
Other invested assets .......................... 83,693
-----------
Total cash and invested assets .................. 6,400,352
Premiums deferred and uncollected ............... 14,978
Accrued investment income ....................... 69,996
Transfers from separate accounts ................ 74,658
Other assets .................................... 33,910
Separate account assets ......................... 3,548,936
-----------
Total admitted assets ........................... $10,142,830
===========
80
<PAGE>
PFL LIFE INSURANCE COMPANY
BALANCE SHEET -- STATUTORY BASIS--(CONTINUED)
AS OF MARCH 31, 1999
(IN THOUSANDS) (UNAUDITED)
LIABILITIES AND CAPITAL AND SURPLUS
Liabilities:
Aggregate reserves for policies and contracts:
Life ............................................ $ 1,376,707
Annuity ......................................... 3,887,425
Accident and health ............................. 220,476
Policy and contract claim reserves
Life ............................................. 9,737
Accident and health .............................. 44,768
Other policyholders' funds ....................... 167,381
Remittances and items not allocated .............. 70,066
Federal income taxes payable ..................... 13,081
Asset valuation reserve .......................... 93,919
Interest maintenance reserve ..................... 53,317
Short-term notes payable to affiliate ............ 97,421
Payable to affiliate ............................. 55,555
Payable for securities ........................... 61,993
Other liabilities ................................ 68,643
Separate account liabilities ..................... 3,543,038
-----------
Total liabilities ................................. 9,763,527
Capital and surplus:
Common stock, $10.00 par value, 500 shares
Authorized, 266 issued and outstanding .......... 2,660
Paid-in surplus .................................. 154,282
Unassigned surplus ............................... 222,361
-----------
Total capital and surplus ......................... 379,303
-----------
Total liabilities and capital and surplus ......... $10,142,830
===========
81
<PAGE>
PFL LIFE INSURANCE COMPANY
STATEMENT OF OPERATIONS -- STATUTORY BASIS
FOR THE THREE MONTHS ENDED MARCH 31, 1999
(IN THOUSANDS) (UNAUDITED)
<TABLE>
<S> <C>
Revenues:
Premiums and other considerations, net of reinsurance
Life ......................................................................... $ 27,295
Annuity ...................................................................... 180,537
Accident and health .......................................................... 41,981
Net investment income ......................................................... 108,567
Amortization of interest maintenance reserve .................................. 2,775
Commissions and expense allowances on reinsurance ceded ....................... 5,377
Other income .................................................................. 25,112
---------
391,644
Benefits and expenses:
Benefits paid or provided for:
Life and accident and health benefits ........................................ 12,311
Surrender benefits ........................................................... 189,929
Other benefits ............................................................... 64,071
Increase (decrease) in aggregate reserves for policies and contracts:
Life ........................................................................ 19,532
Annuity ..................................................................... (37,961)
Accident and health ......................................................... 14,741
Other ....................................................................... 4,460
---------
267,083
Insurance expenses:
Commissions ................................................................... 34,797
General insurance expenses .................................................... 11,082
Taxes, licenses and fees ...................................................... 2,884
Transfer to separate accounts ................................................. 52,375
Other ......................................................................... (798)
---------
100,340
---------
367,423
---------
Gain from operations before federal income tax expense and net
realized capital gains on investments ......................................... 24,221
Federal income tax expense ..................................................... 7,974
---------
Gain from operations before net realized
capital gains on investments .................................................. 16,247
Net realized capital gains on investments (net of related federal income tax
expense and amounts transferred to interest maintenance reserve) .............. 1,470
---------
Net income ..................................................................... $ 17,717
=========
</TABLE>
82
<PAGE>
PFL LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN CAPITAL AND SURPLUS -- STATUTORY BASIS
FOR THE THREE MONTHS ENDED MARCH 31, 1999
(IN THOUSANDS) (UNAUDITED)
<TABLE>
<CAPTION>
TOTAL
CAPITAL
COMMON PAID-IN UNASSIGNED AND
STOCK SURPLUS SURPLUS SURPLUS
-------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Balance at January 1, 1999 ................. $2,660 $154,282 $205,586 $362,528
Net income ................................ 0 0 17,717 17,717
Net unrealized gains ...................... 0 0 1,259 1,259
Change in non-admitted assets ............. 0 0 (30) (30)
Change in asset valuation reserve ......... 0 0 (2,331) (2,331)
Other adjustments ......................... 0 0 160 160
------ -------- -------- --------
Balance at March 31, 1999 .................. $2,660 $154,282 $222,361 $379,303
====== ======== ======== ========
</TABLE>
83
<PAGE>
PFL LIFE INSURANCE COMPANY
STATEMENT OF CASH FLOW -- STATUTORY BASIS
FOR THE THREE MONTHS ENDED MARCH 31, 1999
(IN THOUSANDS) (UNAUDITED)
OPERATING ACTIVITIES
Premiums and other considerations, net of reinsurance ......... $ 281,101
Net investment income ......................................... 109,690
Life and accident and health claims ........................... (35,645)
Surrender benefits to policyholders ........................... (189,929)
Other benefits to policyholders ............................... (44,508)
Commissions, other expenses and other taxes ................... (55,103)
Federal income taxes, excluding tax on capital gains .......... 684
Other, net .................................................... 101,846
Net transfers to separate accounts ............................ (56,167)
---------
Net cash provided by operating activities .................... 111,969
INVESTING ACTIVITIES
Proceeds from investments sold, matured or repaid: ............
Bonds and preferred stocks ................................... 831,473
Common stocks ................................................ 11,595
Mortgage loans on real estate ................................ 51,096
Other ........................................................ 13,993
---------
908,157
Cost of investments acquired:
Bonds and preferred stocks ................................... 948,790
Common stock ................................................. 35,131
Mortgage loans ............................................... 79,253
Other ........................................................ 5,810
---------
1,068,984
---------
Net cash used in investing activities ......................... (160,827)
---------
FINANCING ACTIVITIES
Borrowed money ................................................ 88,000
---------
Net cash provided by financing activities ..................... 88,000
Increase in cash and short-term investments ................... 39,142
Cash and short-term investments at beginning of year .......... 83,289
---------
Cash and short-term investments at end of year ................ $ 122,431
=========
84
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS -- STATUTORY BASIS
FOR THE THREE MONTHS ENDED MARCH 31, 1999
(IN THOUSANDS) (UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited statutory basis financial statements have been
prepared in accordance with statutory accounting principles for interim
financial information and the instructions to Article 10 of Regulation S-X.
Accordingly, they do not include all the information and notes required by
generally accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three month period ended March 31, 1999 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1999. For further information, refer to the accompanying statutory
basis financial statements and notes thereto for the year ended December 31,
1998.
85
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors
PFL Life Insurance Company
We have audited the accompanying statutory-basis balance sheets of PFL
Life Insurance Company as of December 31, 1998 and 1997, 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, 1998.
Our audits also included the accompanying statutory-basis financial statement
schedules required by Article 7 of Regulation S-X. These financial statements
and schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
As described in Note 1 to the financial statements, the Company presents
its financial statements in conformity with accounting practices prescribed or
permitted by the Insurance Division, Department of Commerce, of the State of
Iowa, which practices differ from generally accepted accounting principles. The
variances between such practices and generally accepted accounting principles
also are described in Note 1. The effects on the financial statements of these
variances are not reasonably determinable but are presumed to be material.
In our opinion, because of the effects of the matters described in the
preceding paragraph, the financial statements referred to above do not present
fairly, in conformity with generally accepted accounting principles, the
financial position of PFL Life Insurance Company at December 31, 1998 and 1997,
or the results of its operations or its cash flows for each of the three years
in the period ended December 31, 1998.
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, 1998 and 1997, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1998 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 19, 1999
86
<PAGE>
PFL LIFE INSURANCE COMPANY
BALANCE SHEETS -- STATUTORY BASIS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31
---------------------------
1998 1997
------------ ------------
<S> <C> <C>
ADMITTED ASSETS
Cash and invested assets:
Cash and short-term investments .................................... $ 83,289 $ 23,939
Bonds .............................................................. 4,822,442 4,913,144
Stocks:
Preferred ......................................................... 14,754 2,750
Common (cost: 1998 - $34,731; 1997 - $33,058) ..................... 49,448 42,345
Affiliated entities (cost: 1998 - $8,060; 1997 - $10,798) ......... 5,613 8,031
Mortgage loans on real estate ...................................... 1,012,433 935,207
Real estate, at cost less accumulated depreciation
($9,500 in 1998; $8,655 in 1997):
Home office properties ............................................ 8,056 8,283
Properties acquired in satisfaction of debt ....................... 11,778 11,814
Investment properties ............................................. 44,325 36,416
Policy loans ....................................................... 60,058 57,136
Other invested assets .............................................. 76,482 29,864
---------- ----------
Total cash and invested assets ...................................... 6,188,678 6,068,929
Premiums deferred and uncollected ................................... 15,318 16,101
Accrued investment income ........................................... 65,308 69,662
Receivable from affiliate ........................................... 643 --
Federal income taxes recoverable .................................... 639 --
Transfers from separate accounts .................................... 70,866 60,193
Other assets ........................................................ 29,511 37,624
Separate account assets ............................................. 3,348,611 2,517,365
---------- ----------
Total admitted assets ............................................... $9,719,574 $8,769,874
========== ==========
</TABLE>
SEE ACCOMPANYING NOTES.
87
<PAGE>
PFL LIFE INSURANCE COMPANY
BALANCE SHEETS -- STATUTORY BASIS
(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31
-----------------------------
1998 1997
------------- -------------
<S> <C> <C>
LIABILITIES AND CAPITAL AND SURPLUS
Liabilities:
Aggregate reserves for policies and contracts:
Life ........................................................ $1,357,175 $ 884,018
Annuity ..................................................... 3,925,293 4,204,125
Accident and health ......................................... 205,736 169,328
Policy and contract claim reserves:
Life ........................................................ 9,101 8,635
Accident and health ......................................... 48,906 57,713
Other policyholders' funds ................................... 162,266 143,831
Remittances and items not allocated .......................... 19,690 153,745
Asset valuation reserve ...................................... 91,588 69,825
Interest maintenance reserve ................................. 50,575 30,287
Federal income taxes payable ................................. -- 1,889
Short-term notes payable to affiliates ....................... 9,421 16,400
Other liabilities ............................................ 76,766 75,070
Payable for securities ....................................... 57,645 --
Payable to affiliates ........................................ -- 13,240
Separate account liabilities ................................. 3,342,884 2,512,406
---------- ----------
Total liabilities ............................................. 9,357,046 8,340,512
Commitments and contingencies
Capital and surplus:
Common stock, $10 par value, 500 shares authorized, 266 issued
and outstanding ............................................ 2,660 2,660
Paid-in surplus .............................................. 154,282 154,282
Unassigned surplus ........................................... 205,586 272,420
---------- ----------
Total capital and surplus ..................................... 362,528 429,362
---------- ----------
Total liabilities and capital and surplus ..................... $9,719,574 $8,769,874
========== ==========
</TABLE>
SEE ACCOMPANYING NOTES.
88
<PAGE>
PFL LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS -- STATUTORY BASIS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------------------------
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Revenues:
Premiums and other considerations, net of reinsurance:
Life ........................................................... $ 516,111 $ 202,435 $ 204,872
Annuity ........................................................ 667,920 657,695 725,966
Accident and health ............................................ 178,593 207,982 227,862
Net investment income ........................................... 446,984 446,424 428,337
Amortization of interest maintenance reserve .................... 8,656 3,645 2,434
Commissions and expense allowances on reinsurance
ceded ......................................................... 32,781 49,859 73,931
---------- ---------- ----------
1,851,045 1,568,040 1,663,402
Benefits and expenses:
Benefits paid or provided for:
Life and accident and health benefits .......................... 135,184 146,583 147,024
Surrender benefits ............................................. 732,796 658,071 512,810
Other benefits ................................................. 152,209 126,495 101,288
Increase (decrease) in aggregate reserves for policies
and contracts:
Life .......................................................... 473,158 149,575 140,126
Annuity ....................................................... (278,665) (203,139) 188,002
Accident and health ........................................... 36,407 30,059 26,790
Other ......................................................... 17,550 16,998 19,969
---------- ---------- ----------
1,268,639 924,642 1,136,009
Insurance expenses:
Commissions .................................................... 136,569 157,300 177,466
General insurance expenses ..................................... 48,018 57,571 57,282
Taxes, licenses and fees ....................................... 19,166 8,715 13,889
Net transfers to separate accounts ............................. 265,702 297,480 171,785
Other expenses ................................................. 1,016 119 526
---------- ---------- ----------
470,471 521,185 420,948
---------- ---------- ----------
1,739,110 1,445,827 1,556,957
---------- ---------- ----------
Gain from operations before federal income tax expense
and net realized capital gains (losses) on investments ......... 111,935 122,213 106,445
Federal income tax expense ....................................... 49,835 43,381 41,177
---------- ---------- ----------
Gain from operations before net realized capital gains
(losses) on investments ........................................ 62,100 78,832 65,268
Net realized capital gains (losses) on investments (net of
related federal income taxes and amounts transferred to
interest maintenance reserve) .................................. 3,398 7,159 (3,503)
---------- ---------- ----------
Net income ....................................................... $ 65,498 $ 85,991 $ 61,765
========== ========== ==========
</TABLE>
SEE ACCOMPANYING NOTES.
89
<PAGE>
PFL LIFE INSURANCE COMPANY
STATEMENTS OF CHANGES IN CAPITAL AND SURPLUS -- STATUTORY BASIS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
TOTAL
COMMON PAID-IN UNASSIGNED CAPITAL AND
STOCK SURPLUS SURPLUS SURPLUS
-------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Balance at January 1, 1996 ........................ $2,660 $154,129 $ 220,739 $ 377,528
Net income ....................................... -- -- 61,765 61,765
Change in net unrealized capital gains ........... -- -- 2,351 2,351
Change in non-admitted assets .................... -- -- (148) (148)
Change in asset valuation reserve ................ -- -- (10,930) (10,930)
Dividend to stockholder .......................... -- -- (20,000) (20,000)
Prior period adjustment .......................... -- -- 5,025 5,025
Surplus effect of sales of divisions ............. -- -- (384) (384)
Surplus effect of ceding commissions
associated with the sale of a division ......... -- -- 29 29
Amendment of reinsurance agreement ............... -- -- 421 421
Change in liability for reinsurance in
unauthorized companies ......................... -- -- 2,690 2,690
------ -------- ---------- ----------
Balance at December 31, 1996 ...................... 2,660 154,129 261,558 418,347
Capital contribution ............................. -- 153 -- 153
Net income ....................................... -- -- 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
====== ======== ========== ==========
</TABLE>
SEE ACCOMPANYING NOTES.
90
<PAGE>
PFL LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS -- STATUTORY BASIS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------------------------------
1998 1997 1996
--------------- --------------- ---------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Premiums and other considerations,
net of reinsurance .................................. $ 1,396,428 $ 1,119,936 $ 1,240,748
Net investment income ................................. 469,246 452,091 431,456
Life and accident and health claims ................... (138,249) (154,383) (147,556)
Surrender benefits and other fund withdrawals ......... (732,796) (658,071) (512,810)
Other benefits to policyholders ....................... (152,167) (126,462) (101,254)
Commissions, other expenses and other taxes ........... (197,135) (225,042) (248,321)
Net transfers to separate accounts .................... (276,375) (319,146) (210,312)
Federal income taxes .................................. (72,176) (47,909) (35,551)
Cash paid in conjunction with an amendment of
a reinsurance agreement ............................. -- (4,826) (5,812)
Cash received in connection with a reinsurance
agreement ........................................... -- 1,477 --
Other, net ............................................ (93,095) 89,693 (41,677)
------------ ------------ ------------
Net cash provided by operating activities ............. 203,681 127,358 368,911
INVESTING ACTIVITIES
Proceeds from investments sold, matured or
repaid:
Bonds and preferred stocks ........................... 3,347,174 3,284,095 2,112,831
Common stocks ........................................ 34,564 34,004 27,214
Mortgage loans on real estate ........................ 192,210 138,162 74,351
Real estate .......................................... 5,624 6,897 18,077
Cash received from ceding commissions
associated with the sale of a division ............. -- 8 45
Other ................................................ 7,210 57,683 22,568
------------ ------------ ------------
3,586,782 3,520,849 2,255,086
Cost of investments acquired:
Bonds and preferred stocks ........................... (3,251,822) (3,411,442) (2,270,105)
Common stocks ........................................ (36,379) (37,339) (29,799)
Mortgage loans on real estate ........................ (257,039) (159,577) (324,381)
Real estate .......................................... (11,458) (2,013) (222)
Policy loans ......................................... (2,922) (2,922) (1,539)
Cash paid in association with the
sale of a division .................................. -- (591) (662)
Other ................................................. (44,514) (15,674) (6,404)
------------ ------------ ------------
(3,604,134) (3,629,558) (2,633,112)
------------ ------------ ------------
Net cash used in investing activities ................. (17,352) (108,709) (378,026)
</TABLE>
SEE ACCOMPANYING NOTES.
91
<PAGE>
PFL LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS -- STATUTORY BASIS
(CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
FINANCING ACTIVITIES
Issuance (repayment) of short-term intercompany
notes payable ................................................ $ (6,979) $ 16,400 $ --
Capital contribution ........................................... -- 153 --
Dividends to stockholder ....................................... (120,000) (62,000) (20,000)
-------- --------- ---------
Net cash used in financing activities .......................... (126,979) (45,447) (20,000)
-------- --------- ---------
Increase (decrease) in cash and short-term investments ......... 59,350 (26,798) (29,115)
Cash and short-term investments at beginning of year ........... 23,939 50,737 79,852
-------- --------- ---------
Cash and short-term investments at end of year ................. $ 83,289 $ 23,939 $ 50,737
======== ========= =========
</TABLE>
SEE ACCOMPANYING NOTES.
92
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS -- STATUTORY BASIS
(DOLLARS IN THOUSANDS)
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.
In connection with the sale of certain affiliated business units, the
Company has assumed various blocks of business from these former affiliates
through mergers. In addition, the Company has canceled or entered into several
coinsurance and reinsurance agreements with affiliates and non-affiliates. The
following is a description of those transactions:
o During 1996, the Company sold its North Richland Hills, Texas health
administrative operations known as The Insurance Center. The
transaction resulted in the transfer of substantially all employees
and office facilities to United Insurance Companies, Inc. ("UICI").
All inforce business will continue to be shared by UICI and the
Company and its affiliates through the existing coinsurance
agreements. After a short transition period, all new business produced
by United Group Association, an independent insurance agency, will be
written by the insurance subsidiaries of UICI and will not be shared
with the Company and its affiliates through coinsurance arrangements.
As a result of the sale, during 1996 the Company transferred $123 in
assets, substantially all of which was cash, and $70 of liabilities.
The difference between the assets and liabilities of $(53) plus a tax
credit of $19 was charged directly to unassigned surplus. During 1997,
the Company transferred $591 in assets, substantially all of which was
cash and $343 of liabilities. The difference between the assets and
liabilities of $(248) net of a tax credit of $87 was charged directly
to unassigned surplus.
o On January 1, 1994, the Company entered into an agreement with a
non-affiliate reinsurer to annually increase reinsurance ceded
(primarily group health business) by 2-1/2% through 1997. As a result,
during 1996, the Company transferred $5,991 in assets, including
$5,812 of cash and short-term investments and liabilities of $6,146.
The difference between the assets and liabilities of $155, plus a tax
credit of $266 was credited directly to unassigned surplus. During
1997, the Company transferred $5,045 in assets, including $4,826 of
cash and short-term investments, and liabilities of$5,164. The
difference between the assets and liabilities of $119 plus a tax
credit of $270 was credited directly to unassigned surplus.
93
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS -- STATUTORY BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
o During 1993, the Company sold the Oakbrook Division (primarily group
health business). The initial transfer of risk occurred through an
indemnity reinsurance agreement. The policies will then be assumed by
the reinsurer by novation as state regulatory and policyholder
approvals are received. During 1996, the Company paid $539 in
association with this sale; the payment, net of a tax credit of $189,
was charged directly to unassigned surplus. In addition, the Company
received from the third party administrator a ceding commission of one
percent of the premiums collected between January 1, 1994 and December
31, 1996. As a result of the sale, in 1996, the Company received $45
for ceding commissions; the commissions net of the related tax effect
of $(16) were charged directly to unassigned surplus. Also, during
1996, the Company paid $539 in association with this sale; this
payment, net of a tax credit of $189, was charged directly to
unassigned surplus. In 1997, the Company received $8 for ceding
commissions; the commissions net of the related tax effect of $3 were
credited directly to unassigned surplus.
o During 1997, the Company entered into a reinsurance agreement with a
non-affiliate. As a result of the agreement, the Company received
$1,480 of assets, including $1,477 of cash and short-term securities,
and $861 of liabilities. The difference between the assets and
liabilities of $619, net of a tax effect of $217 was credited directly
to unassigned surplus.
NATURE OF BUSINESS
The Company sells individual non-participating whole life, endowment and
term contracts, as well as a broad line of single fixed and flexible premium
annuity products. In addition, the Company offers group life, universal life,
and individual and specialty health coverages. The Company is licensed in 49
states and the District of Columbia. Sales of the Company's products are
primarily through the Company's agents and financial institutions.
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
94
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS -- STATUTORY BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
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 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) adjustments to federal income taxes of prior years are charged or
credited directly to unassigned surplus, rather than reported as a component of
expense in the statement of operations; (m) gains or losses on dispositions of
business are charged or credited directly to unassigned surplus rather than
being reported in the statement of operations; and (n) a liability is
established for "unauthorized reinsurers" and changes in this liability are
charged or
95
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS -- STATUTORY BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
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"). 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 unclear whether 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.
CASH AND CASH EQUIVALENTS
For purposes of the statements of cash flows, the Company considers all
highly liquid investments with remaining maturity of one year or less when
purchased to be cash equivalents.
INVESTMENTS
Investments in bonds (except those to which the Securities Valuation
Office of the NAIC has ascribed a value), mortgage loans on real estate and
short-term investments are reported at cost adjusted for amortization of
premiums and accrual of discounts. Amortization is computed using methods which
result in a level yield over the expected life of the 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
96
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS -- STATUTORY BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Reserve ("AVR") is established by the Company to provide for potential losses
in the event of default by issuers of certain invested assets. These amounts
are determined using a formula prescribed by the NAIC and are reported as a
liability. The formula for the AVR provides for a corresponding adjustment for
realized gains and losses. Under a formula prescribed by the NAIC, the Company
defers, in the Interest Maintenance Reserve ("IMR"), the portion of realized
gains and losses on sales of fixed income investments, principally bonds and
mortgage loans, attributable to changes in the general level of interest rates
and amortizes those deferrals over the remaining period to maturity of the
security.
Interest income is recognized on an accrual basis. The Company does not
accrue income on bonds in default, mortgage loans on real estate in default
and/or foreclosure or which are delinquent more than twelve months, or on real
estate where rent is in arrears for more than three months. Further, income is
not accrued when collection is uncertain. At December 31, 1998, 1997 and 1996,
the Company excluded investment income due and accrued of $102, $177 and
$1,541, respectively, with respect to such practices.
The Company uses interest rate swaps and caps as part of its overall
interest rate risk management strategy for certain life insurance and annuity
products. The Company entered into several interest rate swap contracts to
modify the interest rate characteristics of the underlying liabilities. The net
interest effect of such swap transactions is reported as an adjustment of
interest income from the hedged items as incurred.
The Company has entered into 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 agreements
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
97
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS -- STATUTORY BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
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.
POLICY AND CONTRACT CLAIM RESERVES
Claim reserves represent the estimated accrued liability for claims
reported to the Company and claims incurred but not yet reported through the
statement date. These reserves are estimated using either individual case-basis
valuations or statistical analysis techniques. These estimates are subject to
the effects of trends in claim severity and frequency. The estimates are
continually reviewed and adjusted as necessary as experience develops or new
information becomes available.
SEPARATE ACCOUNTS
Assets held in trust for purchases of variable annuity contracts and the
Company's corresponding obligation to the contract owners are shown separately
in the balance sheets. The assets in the separate accounts are valued at
market. Income and gains and losses with respect to the assets in the separate
accounts accrue to the benefit of the policyholders and, accordingly, the
operations of the separate accounts are not included in the accompanying
financial statements. The separate accounts do not have any minimum guarantees
and the investment risks associated with market value changes are borne
entirely by the policyholders. The Company received variable contract premiums
of $345,319, $281,095 and $227,864 in 1998, 1997 and 1996, respectively. All
variable account contracts are subject to discretionary withdrawal by the
policyholder at the market value of the underlying assets less the current
surrender charge.
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
98
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS -- STATUTORY BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
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 1997 and 1996 financial
statements to conform to the 1998 presentation.
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.
99
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS -- STATUTORY BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
2. FAIR VALUES OF FINANCIAL INSTRUMENTS--(CONTINUED)
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 value.
INVESTMENT CONTRACTS: Fair values for the Company's liabilities under
investment-type insurance contracts are estimated using discounted cash
flow calculations, based on interest rates currently being offered for
similar contracts with maturities consistent with those remaining for the
contracts being valued.
INTEREST RATE CAP 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.
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.
100
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS -- STATUTORY BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
2. FAIR VALUES OF FINANCIAL INSTRUMENTS--(CONTINUED)
The following sets forth a comparison of the fair values and carrying
values of the Company's financial instruments subject to the provisions of SFAS
No. 107 and No. 119:
<TABLE>
<CAPTION>
DECEMBER 31
---------------------------------------------------
1998 1997
------------------------- -------------------------
CARRYING CARRYING
VALUE FAIR VALUE VALUE FAIR VALUE
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
ADMITTED ASSETS
Cash and short-term
investments ....................... $ 83,289 $ 83,289 $ 23,939 $ 23,939
Bonds ............................... 4,822,442 4,900,516 4,913,144 5,046,527
Preferred stocks .................... 14,754 14,738 2,750 8,029
Common stocks ....................... 49,448 49,448 42,345 42,345
Affiliated common stock ............. 5,613 5,613 8,031 8,031
Mortgage loans on real estate ....... 1,012,433 1,089,315 935,207 983,720
Policy loans ........................ 60,058 60,058 57,136 57,136
Interest rate cap ................... 4,445 725 5,618 1,513
Interest rate swaps ................. 1,916 6,667 -- 2,546
Separate account assets ............. 3,348,611 3,348,611 2,517,365 2,517,365
LIABILITIES
Investment contract liabilities ..... 4,084,683 4,017,509 4,345,181 4,283,461
Separate account liabilities ........ 3,271,005 3,213,251 2,452,205 2,452,205
</TABLE>
101
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS -- STATUTORY BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
3. INVESTMENTS
The carrying value and estimated fair value of investments in debt
securities were as follows:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
CARRYING UNREALIZED UNREALIZED FAIR
VALUE GAINS LOSSES VALUE
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
DECEMBER 31, 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>
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
CARRYING UNREALIZED UNREALIZED FAIR
VALUE GAINS LOSSES VALUE
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
DECEMBER 31, 1997
Bonds:
United States Government
and agencies ....................... $ 188,241 $ 2,562 $ 21 $ 190,782
State, municipal and other
government ......................... 61,532 2,584 1,774 62,342
Public utilities ..................... 121,582 5,384 2,952 124,014
Industrial and miscellaneous ......... 1,955,587 85,233 7,752 2,033,068
Mortgage and other asset-
backed securities .................. 2,586,202 55,382 5,263 2,636,321
---------- -------- ------- ----------
4,913,144 151,145 17,762 5,046,527
Preferred stocks ...................... 2,750 5,279 -- 8,029
---------- -------- ------- ----------
$4,915,894 $156,424 $17,762 $5,054,556
========== ======== ======= ==========
</TABLE>
102
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS -- STATUTORY BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
3. INVESTMENTS--(CONTINUED)
The carrying value and estimated fair value of bonds at December 31, 1998,
by contractual maturity, are shown below. Expected maturities may differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
CARRYING ESTIMATED
VALUE FAIR VALUE
------------ -------------
<S> <C> <C>
Due in one year or less ............................ $ 151,747 $ 148,410
Due after one year through five years .............. 1,211,064 1,232,329
Due after five years through ten years ............. 753,543 761,787
Due after ten years ................................ 304,497 326,258
---------- ----------
2,420,851 2,468,784
Mortgage and other asset-backed securities ......... 2,401,591 2,431,732
---------- ----------
$4,822,442 $4,900,516
========== ==========
</TABLE>
A detail of net investment income is presented below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Interest on bonds and notes ............. $374,478 $373,496 $364,356
Dividends on equity investments ......... 1,357 1,460 1,436
Interest on mortgage loans .............. 77,960 80,266 69,418
Rental income on real estate ............ 6,553 7,501 9,526
Interest on policy loans ................ 4,080 3,400 3,273
Other investment income ................. 2,576 613 1,799
-------- -------- --------
Gross investment income ................. 467,004 466,736 449,808
Investment expenses ..................... 20,020 20,312 21,471
-------- -------- --------
Net investment income ................... $446,984 $446,424 $428,337
======== ======== ========
</TABLE>
103
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS -- STATUTORY BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
3. INVESTMENTS--(CONTINUED)
Proceeds from sales and maturities of debt securities and related gross
realized gains and losses were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Proceeds ...................... $3,347,174 $3,284,095 $2,112,831
========== ========== ==========
Gross realized gains .......... $ 48,760 $ 30,094 $ 19,876
Gross realized losses ......... (8,072) (17,265) (19,634)
---------- ---------- ----------
Net realized gains ............ $ 40,688 $ 12,829 $ 242
========== ========== ==========
</TABLE>
At December 31, 1998, investments with an aggregate carrying value of
$5,935,160 were on deposit with regulatory authorities or were restrictively
held in bank custodial accounts for the benefit of such regulatory authorities
as required by statute.
Realized investment gains (losses) and changes in unrealized gains
(losses) for investments are summarized below:
<TABLE>
<CAPTION>
REALIZED
--------------------------------------
YEAR ENDED DECEMBER 31
--------------------------------------
1998 1997 1996
--------- --------- --------
<S> <C> <C> <C>
Debt securities .................................. $ 40,688 $ 12,829 $ 242
Short-term investments ........................... 1,533 (19) (197)
Equity securities ................................ (879) 6,972 1,798
Mortgage loans on real estate .................... 12,637 2,252 (5,530)
Real estate ...................................... 3,176 4,252 1,210
Other invested assets ............................ (2,523) 1,632 12
--------- --------- --------
54,632 27,918 (2,465)
Tax effect ....................................... (22,290) (10,572) (1,235)
Transfer to interest maintenance reserve ......... (28,944) (10,187) 197
--------- --------- --------
Net realized gains (losses) ...................... $ 3,398 $ 7,159 $ (3,503)
========= ========= ========
</TABLE>
104
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS -- STATUTORY BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
3. INVESTMENTS--(CONTINUED)
<TABLE>
<CAPTION>
CHANGE IN UNREALIZED
---------------------------------------
YEAR ENDED DECEMBER 31
---------------------------------------
1998 1997 1996
--------- ------- ----------
<S> <C> <C> <C>
Debt securities ................. $ (60,604) $40,289 $ (115,867)
Equity securities ............... 5,750 5,653 2,929
--------- ------- ----------
Change in unrealized appreciation
(depreciation) ................. $ (54,854) $45,942 $ (112,938)
========= ======= ==========
</TABLE>
Gross unrealized gains and gross unrealized losses on equity securities
were as follows:
<TABLE>
<CAPTION>
DECEMBER 31
----------------------------------
1998 1997 1996
----------------------------------
<S> <C> <C> <C>
Unrealized gains ............. $ 15,980 $ 10,356 $ 9,590
Unrealized losses ............ (3,710) (3,836) (8,723)
-------- -------- --------
Net unrealized gains ......... $ 12,270 $ 6,520 $ 867
======== ======== ========
</TABLE>
During 1998, the Company issued mortgage loans with interest rates ranging
from 5.88% to 7.86%. The maximum percentage of any one mortgage loan to the
value of the underlying real estate at origination was 90% for commercial loans
and 95% for residential loans. Mortgage loans with a carrying value of $245
were non-income producing for the previous twelve months. Accrued interest of
$89 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.
105
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS -- STATUTORY BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
3. INVESTMENTS--(CONTINUED)
At December 31, 1998 and 1997, the Company held a mortgage loan loss
reserve in the asset valuation reserve of $16,104 and $11,985, respectively.
The mortgage loan portfolio is diversified by geographic region and specific
collateral property type as follows:
GEOGRAPHIC DISTRIBUTION PROPERTY TYPE DISTRIBUTION
- ----------------------------------------- -----------------------------
DECEMBER 31 DECEMBER 31
--------------- --------------
1998 1997 1998 1997
------ ------ ------ -----
South Atlantic 32% 29% Retail 35% 35%
E. North Central 16 12 Office 30 31
Pacific 15 15 Industrial 21 6
Mountain 10 10 Apartment 12 14
Middle Atlantic 10 7 Other 2 14
W. South Central 6 9
W. North Central 5 6
E. South Central 3 8
New England 3 4
At December 31, 1998, 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.
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 exchange agreements (swaps and caps),
options, and commitments to extend credit and all involve elements of credit
and market risks in excess of the amounts recognized in the accompanying
financial statements at a given point in time. The contract or notional amounts
of those instruments reflect the extent of involvement in the various types of
financial instruments.
The Company's exposure to credit risk is the risk of loss from a
counterparty failing to perform according to the terms of the contract. That
exposure includes settlement risk (i.e., the risk that the counterparty
defaults after the Company has delivered funds or securities under terms of the
contract) that would result in an accounting loss and replacement cost risk
(i.e., the cost to replace the contract at current market rates should the
counterparty default prior to settlement date). Credit loss exposure resulting
from nonperformance by a counterparty for commitments to extend credit is
represented by the contractual amounts of the instruments.
106
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS -- STATUTORY BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
3. INVESTMENTS--(CONTINUED)
At December 31, 1998 and 1997, 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
-------------------------
1998 1997
----------- -----------
<S> <C> <C>
Derivative securities:
Interest rate swaps:
Receive fixed - pay floating ................................ $100,000 $100,000
Receive floating (uncapped) - pay floating (capped) ......... 53,011 67,229
Receive floating (LIBOR) - pay floating (S&P) ............... 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.
Reinsurance assumption and cession treaties are transacted primarily with
affiliates. Premiums earned reflect the following reinsurance assumed and ceded
amounts:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Direct premiums ............. $1,533,822 $1,312,446 $1,457,450
Reinsurance assumed ......... 2,366 2,038 1,796
Reinsurance ceded ........... (173,564) (246,372) (300,546)
---------- ---------- ----------
Net premiums earned ......... $1,362,624 $1,068,112 $1,158,700
========== ========== ==========
</TABLE>
The Company received reinsurance recoveries in the amount of $173,297,
$183,638 and $168,155 during 1998, 1997 and 1996, respectively. At December 31,
1998 and 1997, estimated amounts recoverable from reinsurers that have been
deducted from policy and contract claim reserves totaled $47,956 and $60,437,
respectively. The aggregate reserves for policies and contracts were reduced
for reserve credits for reinsurance ceded at December 31, 1998 and 1997 of
$2,163,905 and $2,434,130, respectively.
107
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS -- STATUTORY BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
4. REINSURANCE--(CONTINUED)
At December 31, 1998, amounts recoverable from unauthorized reinsurers of
$55,379 (1997 - $73,080) and reserve credits for reinsurance ceded of $49,835
(1997 - $78,838) were associated with a single reinsurer and its affiliates.
The Company holds collateral under these reinsurance agreements in the form of
trust agreements totaling $106,226 at December 31, 1998 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.
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
----------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Computed tax at federal statutory
rate (35%) .................................... $ 39,177 $ 42,775 $ 37,256
Tax reserve adjustment ......................... 607 2,004 2,211
Excess tax depreciation ........................ (223) (392) (384)
Deferred acquisition costs - tax basis ......... 11,827 4,308 5,583
Prior year under (over) accrual ................ 1,750 (1,016) (499)
Dividend received deduction .................... (1,053) (941) (454)
Charitable contribution ........................ -- (848) --
Other items - net .............................. (2,250) (2,509) (2,536)
-------- -------- --------
Federal income tax expense ..................... $ 49,835 $ 43,381 $ 41,177
======== ======== ========
</TABLE>
108
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS -- STATUTORY BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
5. INCOME TAXES--(CONTINUED)
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, 1998). To the extent dividends are paid from
the amount accumulated in the policyholders' surplus account, net earnings
would be reduced by the amount of tax required to be paid. Should the entire
amount in the policyholders' surplus account become taxable, the tax thereon
computed at current rates would amount to approximately $7,135.
The Company's federal income tax returns have been examined and closing
agreements have been executed with the Internal Revenue Service through 1987.
During 1996, there was a $5,025 prior period adjustment to the tax accrual.
This included a $2,100 writeoff of an intangible asset for tax purposes, and a
federal income tax refund of $1,829 for tax years 1984 through 1986 and related
interest of $1,686, net of a tax effect of $590. An examination is underway for
years 1993 through 1995.
109
<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) relates to liabilities established on
a variety of the Company's products that are not subject to significant
mortality or morbidity risk; however, there may be certain restrictions placed
upon the amount of funds that can be withdrawn without penalty. The amount of
reserves on these products, by withdrawal characteristics, are summarized as
follows:
<TABLE>
<CAPTION>
DECEMBER 31
----------------------------------------------------
1998 1997
------------------------- ------------------------
PERCENT PERCENT
AMOUNT OF TOTAL AMOUNT OF TOTAL
---------- -------- ---------- --------
<S> <C> <C> <C> <C>
Subject to discretionary
withdrawal with market
value adjustment .............. $ 82,048 1% $ 8,912 0%
Subject to discretionary
withdrawal at book value
less surrender charge ......... 515,778 5 755,300 8
Subject to discretionary
withdrawal at market value 3,211,896 34 2,454,845 27
Subject to discretionary
withdrawal at book value
(minimal or no charges or
adjustments) .................. 5,519,265 58 5,821,049 63
Not subject to discretionary
withdrawal provision .......... 228,030 2 203,522 2
---------- --- ---------- ---
9,557,017 100% 9,243,628 100%
Less reinsurance ceded ......... 2,124,769 2,372,495
---------- ----------
Total policy reserves on
annuities and deposit fund
liabilities ................... $7,432,248 $6,871,134
========== ==========
</TABLE>
110
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS -- STATUTORY BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
6. POLICY AND CONTRACT ATTRIBUTES--(CONTINUED)
A reconciliation of the amounts transferred to and from the separate
accounts is presented below:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Transfers as reported in the summary of
operations of the separate accounts
statement:
Transfers to separate accounts ............. $345,319 $281,095 $227,864
Transfers from separate accounts ........... 79,808 9,819 75,172
-------- -------- --------
Net transfers to separate accounts ......... 265,511 271,276 152,692
Reconciling adjustments - charges for
investment manage-ment, administration
fees and contract guarantees ............... 191 26,204 19,093
-------- -------- --------
Transfers as reported in the summary of
operations of the life, accident and
health annual statement .................... $265,702 $297,480 $171,785
======== ======== ========
</TABLE>
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, 1998 and 1997, 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, 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>
111
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS -- STATUTORY BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
6. POLICY AND CONTRACT ATTRIBUTES--(CONTINUED)
<TABLE>
<CAPTION>
GROSS LOADING NET
--------- ------- --------
<S> <C> <C> <C>
DECEMBER 31, 1997
Life and annuity:
Ordinary direct first year business ......... $ 2,316 $1,698 $ 618
Ordinary direct renewal business ............ 22,724 6,834 15,890
Group life direct business .................. 1,523 646 877
Reinsurance ceded ........................... (1,464) (81) (1,383)
-------- ------ --------
25,099 9,097 16,002
Accident and health:
Direct ...................................... 148 -- 148
Reinsurance ceded ........................... (49) -- (49)
-------- ------ --------
Total accident and health .................... 99 -- 99
-------- ------ --------
$ 25,198 $9,097 $ 16,101
======== ====== ========
</TABLE>
At December 31, 1998 and 1997, the Company had insurance in force
aggregating $44,233 and $69,271, 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 $998 and $1,128 to cover these
deficiencies at December 31, 1998 and 1997, respectively.
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 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 1999, without the
prior approval of insurance regulatory authorities, is $62,100.
The Company paid dividends to its parent of $120,000, $62,000 and $20,000
in 1998, 1997 and 1996, 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
FASB No. 87
112
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS -- STATUTORY BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
8. RETIREMENT AND COMPENSATION PLANS--(CONTINUED)
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 $380, $422 and $1,056 for the years
ended December 31, 1998, 1997 and 1996, 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 $233, $226 and $297 for
the years ended December 31, 1998, 1997 and 1996, respectively.
AEGON sponsors supplemental retirement plans to provide the Company's
senior management with benefits in excess of normal pension benefits. The plans
are noncontributory, and benefits are based on years of service and the
employee's compensation level. The plans are unfunded and nonqualified under
the Internal Revenue Service Code. In addition, AEGON has established incentive
deferred compensation plans for certain key employees of the Company. AEGON
also sponsors an employee stock option plan for individuals employed at least
three years and a stock purchase plan for its producers, with the participating
affiliated companies establishing their own eligibility criteria, producer
contribution limits and company matching formula. These plans have been accrued
or funded as deemed appropriate by management of AEGON and the Company.
In addition to pension benefits, the Company participates in plans
sponsored by AEGON that provide postretirement medical, dental and life
insurance benefits to employees meeting certain eligibility requirements.
Portions of the medical and dental plans are contributory. The expenses of the
postretirement plans calculated on the pay-as-you-go basis are charged to
affiliates in accordance with an intercompany cost sharing arrangement. The
Company expensed $62, $62 and $184 for the years ended December 31, 1998, 1997
and 1996, respectively.
113
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS -- STATUTORY BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
9. RELATED PARTY TRANSACTIONS
The Company shares certain offices, employees and general expenses with
affiliated companies.
The Company receives data processing, investment advisory and management,
marketing and administration services from certain affiliates. During 1998,
1997 and 1996, the Company paid $18,706, $18,705 and $17,028, respectively, for
these services, which approximates their costs to the affiliates.
Payables to affiliates bear interest at the thirty-day commercial paper
rate of 4.95% at December 31, 1998. During 1998, 1997 and 1996, the Company
paid net interest of $1,491, $1,188 and $174, respectively, to affiliates.
During 1997, the Company received a capital contribution of $153 in cash
from its parent.
At December 31, 1998 and 1997, the Company has short-term notes payable to
an affiliate of $9,421 and $16,400, respectively. Interest on these notes
accrues at rates ranging from 5.13% to 5.52% at December 31, 1998 and at 5.60%
at December 31, 1997.
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 $181,720
at December 31, 1998.
10. COMMITMENTS AND CONTINGENCIES
The Company is a party to legal proceedings incidental to its business.
Although such litigation sometimes includes substantial demands for
compensatory and punitive damages, in addition to contract liability, it is
management's opinion, after consultation with counsel and a review of available
facts, that damages arising from such demands will not be material to the
Company's financial position.
The Company is subject to insurance guaranty laws in the states in which
it writes business. These laws provide for assessments against insurance
companies for the benefit of policyholders and claimants in the event of
insolvency of other insurance companies. Assessments are charged to operations
when received by the Company except where right of offset against other taxes
paid is allowed by law; amounts available for future offsets are recorded as an
asset on the Company's balance sheet. Potential future obligations for unknown
insolvencies are not determinable by the Company. The future obligation has
been based on the most recent information available from the National
Organization of Life and Health Insurance Guaranty Associations. The Company
has established a reserve of $17,901 and $17,700 and an offsetting premium
114
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS -- STATUTORY BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
10. COMMITMENTS AND CONTINGENCIES--(CONTINUED)
tax benefit of $7,631 and $7,984 at December 31, 1998 and 1997, respectively,
for its estimated share of future guaranty fund assessments related to several
major insurer insolvencies. The guaranty fund expense (benefit) was $1,985,
$(975) and $2,617 for December 31, 1998, 1997 and 1996, respectively.
11. YEAR 2000 (UNAUDITED)
The term Year 2000 issue generally refers to the improper processing of
dates and incorrect date calculations that might occur in computer software and
hardware and embedded systems as the Year 2000 is approached. The use of
computer programs that rely on two-digit date fields to perform computations
and decision-making functions may cause systems to malfunction when processing
information involving dates after 1999. For example, any computer software that
has date-sensitive coding might recognize a code of 00 as the year 1900 rather
than the year 2000.
The Company has developed a Year 2000 Project Plan (the Plan) to address
the Year 2000 issue as it affects the Company's internal IT ("Information
Technology") and non-IT systems, and to assess Year 2000 issues relating to
third parties with whom the Company has critical relationships.
The Plan for addressing internal systems generally includes an assessment
of internal IT and non-IT systems and equipment affected by the Year 2000
issue; definition of strategies to address affected systems and equipment;
remediation of identified systems and equipment; internal testing and
certification that each internal system is Year 2000 compliant; and a review of
existing and revised business resumption and contingency plans to address
potential Year 2000 issues. The Company has remediated and tested substantially
all of its mission-critical internal IT systems as of December 31, 1998. The
Company continues to remediate and test certain non-critical internal IT
systems, internal non-IT systems and will continue with a revalidation testing
program throughout 1999.
The Company's Year 2000 issues are more complex because a number of its
systems interface with other systems not under the Company's control. The
Company's most significant interfaces and uses of third-party vendor systems
are in the bank, financial services and trust areas. The Company utilizes
various banks to handle numerous types of financial and sales transactions.
Several of these banks also provide trustee and custodial services for the
Company's investment holdings and transactions. These services are critical to
a financial services company such as the Company as its business centers around
cash receipts and disbursements to policyholders and the investment of
policyholder funds. The Company has received written confirmation from its
vendor banks regarding their status on Year 2000. The banks indicate their
dedication
115
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS -- STATUTORY BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
11. YEAR 2000 (UNAUDITED)--(CONTINUED)
to resolving any Year 2000 issues related to their systems and services prior
to December 31, 1999. The Company anticipates that a considerable effort will
be necessary to ensure that its corrected or new systems can properly interface
with those business partners with whom it transmits and receives data and other
information (external systems). The Company has undertaken specific testing
regimes with these third-party business partners and expects to continue
working with its business partners on any interfacing of systems. However, the
timing of external system compliance cannot currently be predicted with
accuracy because the implementation of Year 2000 readiness will vary from one
company to another.
The Company does have some exposure to date-sensitive embedded technology
such as micro-controllers, but the Company views this exposure as minimal.
Unlike other industries that may be equipment intensive, like manufacturing,
the Company is a life insurance, and financial services organization providing
insurance annuities and pension products to its customers. As such, the primary
equipment and electronic devices in use are computers and telephone-related
equipment. This type of hardware can have date-sensitive embedded technology
which could have Year 2000 problems. Because of this exposure, the Company has
reviewed its computer hardware and telephone systems, with assistance from the
applicable vendors, and has upgraded, or replaced, or is in the process of
replacing any equipment that will not properly process date-sensitive data in
the Year 2000 or beyond.
For the Company, a reasonably likely worst case scenario might include one
or more of the Company's significant policyholder systems being non-compliant.
Such an event could result in a material disruption of the Company's
operations. Specifically, a number of the Company's operations could experience
an interruption in the ability to collect and process premiums or deposits,
process claim payments, accurately maintain policyholder information,
accurately maintain accounting records, and/or perform adequate customer
service. Should the worst case scenario occur, it could, dependent upon its
duration, have a material impact on the Company's business and financial
condition. Simple failures can be repaired and returned to production within a
matter of hours with no material impact. Unanticipated failures with a longer
service disruption period could have a more serious impact. For this reason,
the Company is placing significant emphasis on risk management and Year 2000
business resumption contingency planning in 1999 by modifying its existing
business resumption and disaster recovery plans to address potential Year 2000
issues.
The actions taken by management under the Year 2000 Project Plans are
intended to significantly reduce the Company's risk of a material business
interruption based on the Year 2000 issues. It should be noted that the Year
2000 computer problem, and its resolution, is complex and multifaceted, and any
company's success cannot be
116
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS -- STATUTORY BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
11. YEAR 2000 (UNAUDITED)--(CONTINUED)
conclusively known until the Year 2000 is reached. In spite of its efforts or
results, the Company's ability to function unaffected to and through the Year
2000 may be adversely affected by actions (or failure to act) of third parties
beyond our knowledge or control. It is anticipated that there may be problems
that will have to be resolved in the ordinary course of business on and after
the Year 2000. However, the Company does not believe that the problems will
have a material adverse affect on the Company's operations or financial
condition.
117
<PAGE>
PFL LIFE INSURANCE COMPANY
SUMMARY OF INVESTMENTS -- OTHER THAN
INVESTMENTS IN RELATED PARTIES
(DOLLARS IN THOUSANDS)
December 31, 1998
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 ............................ $ 926,370 $ 943,313 $ 926,370
States, municipalities and political subdivisions ..... 107,975 114,146 107,975
Foreign governments ................................... 54,670 53,950 54,670
Public utilities ...................................... 139,732 142,230 139,732
All other corporate bonds ............................. 3,593,695 3,646,877 3,593,695
Redeemable preferred stock ............................. 14,754 14,738 14,754
---------- --------- ----------
Total fixed maturities ................................. 4,837,196 4,915,254 4,837,196
EQUITY SECURITIES
Common stocks:
Affiliated entities ................................... 8,060 5,613 5,613
Banks, trust and insurance ............................ 5,935 7,193 7,193
Industrial, miscellaneous and all other ............... 28,796 42,255 42,255
---------- --------- ----------
Total equity securities ................................ 42,791 55,061 55,061
Mortgage loans on real estate .......................... 1,012,433 1,012,433
Real estate ............................................ 52,381 52,381
Real estate acquired in satisfaction of debt ........... 11,778 11,778
Policy loans ........................................... 60,058 60,058
Other long-term investments ............................ 76,482 76,482
Cash and short-term investments ........................ 83,289 83,289
---------- ----------
Total investments ...................................... $6,176,408 $6,188,678
========== ==========
</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.
118
<PAGE>
PFL LIFE INSURANCE COMPANY
SUPPLEMENTARY INSURANCE INFORMATION
(DOLLARS IN THOUSANDS)
SCHEDULE III
<TABLE>
<CAPTION>
FUTURE POLICY POLICY AND
BENEFITS AND UNEARNED CONTRACT
EXPENSES PREMIUMS LIABILITIES
---------- ------- -----------
<S> <C> <C> <C>
YEAR ENDED
DECEMBER 31, 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
========== ======= =======
YEAR ENDED
DECEMBER 31, 1996
Individual life ........... $ 734,350 $ -- $ 7,240
Individual health ......... 39,219 8,680 13,631
Group life and health 78,418 14,702 53,486
Annuity ................... 4,408,419 -- --
---------- ------- -------
$5,260,406 $23,382 $74,357
========== ======= =======
<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, 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
========== ======== ========== ========
YEAR ENDED
DECEMBER 31, 1996
Individual life ........... $ 202,082 $ 66,538 $ 197,526 $ 38,067 --
Individual health ......... 55,871 5,263 32,903 29,511 $55,678
Group life and health 174,781 12,877 105,459 122,953 171,320
Annuity ................... 725,966 343,659 800,121 230,417 --
---------- -------- ---------- --------
$1,158,700 $428,337 $1,136,009 $420,948
========== ======== ========== ========
</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.
119
<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, 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%
========== ======== ======= ========== ====
YEAR ENDED DECEMBER 31, 1996
Life insurance in force ......... $4,863,416 $477,112 $30,685 $4,416,989 .7%
========== ======== ======= ========== ====
Premiums:
Individual life ................ $ 204,144 $ 3,858 $ 1,796 $ 202,082 .9%
Individual health .............. 68,699 12,828 -- 55,871 --
Group life and health .......... 390,296 215,515 -- 174,781 --
Annuity ........................ 794,311 68,345 -- 725,966 --
---------- -------- ------- ---------- ---
$1,457,450 $300,546 $ 1,796 $1,158,700 .2%
========== ======== ======= ========== ====
</TABLE>
120
<PAGE>
PART II.
OTHER INFORMATION
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the undersigned registrant hereby undertakes to file with
the Securities and Exchange Commission such supplementary and periodic
information, documents, and reports as may be prescribed by any rule or
regulation of the Commission heretofore or hereafter duly adopted pursuant to
authority conferred in that Section.
REPRESENTATION PURSUANT TO SECTION 26(e)(2)(A)
PFL Life Insurance Company ("PFL Life") hereby represents that the fees
and charges deducted under the Contracts, in the aggregate, are reasonable in
relation to the services rendered, the expenses expected to be incurred, and the
risks assumed by PFL Life.
RULE 484 UNDERTAKING
Insofar as indemnification for liability arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant 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
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel, the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
CONTENTS OF REGISTRATION STATEMENT
This registration statement comprises the following papers and documents:
The facing sheet
The Prospectus, consisting of 120 pages
The undertaking to file reports
Representation Pursuant to Section 26(e)(2)(A)
The Rule 484 undertaking
The signatures
Written consent of the following persons:
(a) Richard R. Greer, Actuary
(b) Frank A. Camp, Esq.
(c) Sutherland Asbill & Brennan LLP
(d) Ernst & Young LLP
II-1
<PAGE>
The following exhibits:
1. The following exhibits correspond to those required by paragraph A to
the instructions as to exhibits in Form N-8B-2:
A. (1) Resolutions of the Board of Directors of PFL Life
establishing the Separate Account (6)
(2) Not Applicable
(3) Distribution of Policies:
(a) Form of Principal Underwriting Agreement (4)
(b) Form of Broker-Dealer Supervision and Sales
Agreement by and between AFSG Securities
Corporation and the Broker-Dealer (4)
(4) Not Applicable
(5) Specimen Modified Single Premium Variable Life Insurance
Policies (6)
(a) Individual Policy Form (VL20) (6)
(b) Joint Policy Form (JL20) (6)
(c) Guaranteed Minimum Death Benefit Rider (PGDB01)
(d) Dollar Cost Averaging Endorsement (PES102)
(e) Asset Rebalancing Program Endorsement (PES104)
(f) Preferred Loan Endorsement (PES101)
(6) (a) Certificate of Incorporation of PFL Life (2)
(b) By-Laws of PFL Life (2)
(7) Not Applicable
(8) Participation Agreements:
(a) Among MFS Variable Insurance Trust and PFL Life and
Massachusetts Financial Services Company (6)
(b) Among AIM Variable Insurance Funds, Inc., PFL Life
and AFSG Securities Corporation (4)
(c) Among PFL Life and Dreyfus Variable Investment
Fund (4)
(d) Amendment to Participation Agreement Among PFL Life
and Dreyfus Variable Investment Fund (6)
(e) Amendment to Participation Agreement Among
Oppenheimer Variable Account Funds,
OppenheimerFunds, Inc. and PFL Life (6)
(f) Among Oppenheimer Variable Account Funds,
OppenheimerFunds, Inc. and PFL Life (4)
(g) Among WRL Series Fund, Inc. and PFL Life and
amendments thereto (3)
(h) Among Variable Insurance Product Funds and Variable
Insurance Products Fund II, Fidelity Distributors
Corporation, and PFL Life, and amendments
thereto (5)
(i) Amendments dated November 27, 1998 to
Participation Agreements:
(i) Among MFS Variable Insurance Trust,
Massachusetts Financial Services Company
and PFL Life
(ii) Among PFL Life and Dreyfus Variable
Investment Fund
(iii) Among Oppenheimer Variable Account Funds,
OppenheimerFunds, Inc. and PFL Life
(iv) Among AIM Variable Insurance Funds, Inc.,
A I M Distributors, Inc., PFL Life and AFSG
Securities Corporation
II-2
<PAGE>
(v) Among WRL Series Fund, Inc., PFL Life and
AUSA Life Insurance Company, Inc.
(9) Not Applicable
(10) Application for Modified Single Premium Variable Life
Insurance Policy
(11) Memorandum describing issuance, transfer and redemption
procedures
2. See Exhibit 1.A.
3. Opinion of Counsel as to the legality of the securities being registered
4. No financial statement will be omitted from the Prospectus pursuant to
Instruction 1(b) or (c) of Part I
5. Not Applicable
6. Opinion and consent of Richard R. Greer as to actuarial matters
pertaining to the securities being registered
7. Consent of Frank A. Camp, Esq.
8. Consent of Sutherland Asbill & Brennan LLP
9. Consent of Ernst & Young LLP
10. Powers of Attorney (6)
- ----------------------------------------
(1) This exhibit was previously filed on Pre-Effective Amendment No. 1 to
the Registration Statement on Form S-6 (File No. 33-92226) filed on July
10, 1998 and hereby is incorporated by reference.
(2) This exhibit was previously filed on Pre-Effective Amendment No. 2 to
the Registration Statement on Form N-3 (File No. 333-36297) filed on
February 27, 1998 and is hereby incorporated by reference.
(3) This exhibit was previously filed on Post-Effective Amendment No. 1 to
the Registration Statement on Form N-4 (File No. 333-26209) filed on
April 29, 1998 and is hereby incorporated by reference.
(4) This exhibit was previously filed on Post-Effective Amendment No. 4 to
the Registration Statement on Form N-4 (File 333-7509) filed on April
30, 1998 and is hereby incorporated by reference.
(5) This exhibit was previously filed on Pre-Effective Amendment No. 1 to
the Registration Statement on Form N-4 (File 333-7509) filed on December
6, 1996 and is hereby incorporated by reference.
(6) This exhibit was previously filed on the Initial Registration Statement
on Form S-6 (File 333-68087) filed on November 30, 1998 and is hereby
incorporated by reference.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant, Legacy Builder Variable Life Separate Account, has duly caused this
Pre-Effective Amendment No. 1 to its Registration Statement to be signed on its
behalf by the undersigned thereunto duly authorized, and its seal to be hereunto
affixed and attested, all in Cedar Rapids, Iowa on the 27th day of May, 1999.
(Seal) LEGACY BUILDER VARIABLE LIFE
SEPARATE ACCOUNT
PFL LIFE INSURANCE COMPANY
Depositor
/s/ CRAIG D. VERMIE By: /s/ WILLIAM L. BUSLER
- --------------------------------------- ---------------------------------
Craig D. Vermie William L. Busler
Vice President, Secretary, General President, Chairman of the Board
Counsel and Director and Chief Executive Officer
As required by the Securities Act of 1933, this Pre-Effective Amendment
No. 1 to this Registration Statement has been signed by the following persons in
the capacities and on the dates indicated.
SIGNATURE AND TITLE DATE
- ------------------- ----
/s/ WILLIAM L. BUSLER May 27, 1999
- ------------------------------------------
William L. Busler
President, Chairman of the Board, Chief
Executive Officer and President
/s/ PATRICK S. BAIRD** May 27, 1999
- ------------------------------------------
Patrick S. Baird
Senior Vice President and Director
/s/ CRAIG D. VERMIE May 27, 1999
- ------------------------------------------
Craig D. Vermie
Vice President, Secretary, General
Counsel and Director
/s/ LARRY N. NORMAN** May 27, 1999
- ------------------------------------------
Larry N. Norman
Executive Vice President and Director
/s/ DOUGLAS C. KOLSRUD** May 27, 1999
- ------------------------------------------
Douglas C. Kolsrud
Senior Vice President, Chief Investment
Officer, Corporate Actuary and Director
<PAGE>
SIGNATURE AND TITLE DATE
- ------------------- ----
/s/ ROBERT J. KONTZ** May 27, 1999
- ------------------------------------------
Robert J. Kontz
Vice President and Corporate Controller
/s/ BRENDA K. CLANCY** May 27, 1999
- ------------------------------------------
Brenda K. Clancy*
Vice President, Treasurer and
Financial Officer
*Principal Financial Officer
**/s/ CRAIG D. VERMIE May 27, 1999
- ------------------------------------------
Signed by: Craig D. Vermie
As Attorney-in-Fact
<PAGE>
Exhibit Index
EXHIBIT DESCRIPTION
NO. OF EXHIBIT
- ------- -----------
1.A.(5)(c) Guaranteed Minimum Death Benefit Rider (PGDB01)
1.A.(5)(d) Dollar Cost Averaging Endorsement (PES102)
1.A.(5)(e) Asset Rebalancing Program Endorsement (PES104)
1.A.(5)(f) Preferred Loan Endorsement (PES101)
1.A.(8)(i) Amendments dated November 27, 1998 to Participation
Agreements:
1.A.(8)(i)(i) Among MFS Variable Insurance Trust, Massachusetts Financial
Services Company and PFL Life
1.A.(8)(i)(ii) Among PFL Life and Dreyfus Variable Investment Fund
1.A.(8)(i)(iii) Among Oppenheimer Variable Account Funds, OppenheimerFunds,
Inc. and PFL Life
1.A.(8)(i)(iv) Among AIM Variable Insurance Funds, Inc., A I M
Distributors,
Inc., PFL Life and AFSG Securities Corporation
1.A.(8)(i)(v) Among WRL Series Fund, Inc., PFL Life and AUSA Life
Insurance Company, Inc.
1.A.(10) Application for Modified Single Premium Variable Life
Insurance Policy
1.A.(11) Memorandum describing issuance, transfer and redemption
procedures
3. Opinion of Counsel as to the legality of the securities
being registered
6. Opinion and consent of Richard R. Greer as to actuarial
matters pertaining to the securities being registered
7. Consent of Frank A. Camp, Esq.
8. Consent of Sutherland Asbill & Brennan LLP
9. Consent of Ernst & Young LLP
EXHIBIT 1.A.(5)(c)
GUARANTEED MINIMUM DEATH BENEFIT RIDER (PGDB01)
<PAGE>
================================================================================
PFL LIFE INSURANCE COMPANY
================================================================================
GUARANTEED MINIMUM DEATH BENEFIT RIDER
- --------------------------------------------------------------------------------
IN THIS RIDER, the Insured will be referred to as YOU or YOUR. If issued to
Joint Insureds, YOU or YOUR refers to the younger Joint Insured covered under
the Policy. PFL Life Insurance Company will be referred to as WE, OUR or US.
GENERAL This Rider is part of the Policy. It is subject to all the
terms of this Rider and the Policy. This Rider has no Cash
Value.
BENEFIT If the Net Surrender Value on any Monthiversary is not
sufficient to cover the monthly deductions on such day, then
coverage will be provided as indicated below, and no grace
period will begin, provided no policy loans have been taken
under the policy.
If a death benefit is payable due to the provisions of this
Rider, then the following minimum death benefit is applicable:
During the first fifteen policy years, or before the
Anniversary next following Your 75th birthday, if sooner, the
minimum death benefit payable will be as provided in the Death
Benefit Provisions of the Policy to which this Rider is
attached.
After the first fifteen policy years, or on or after the
Anniversary next following Your 75th birthday, if sooner, the
minimum death benefit payable will be the Initial Premium,
reduced by any partial withdrawals.
However, in no event will this minimum death benefit ever be
less than $1,000.
CONSIDERATION This Rider is issued in consideration of:
1. the application for this Rider; and
2. payment of the Initial Premium.
INCONTESTABILITY This Rider shall be incontestable after it has been In Force
while You are still alive, for two years after the effective
date of this Rider.
<PAGE>
SUICIDE This Rider is issued on the same date as the Policy and the
Suicide Provision of the Policy is applicable to this Rider.
TERMINATION This Rider will terminate on the earliest of:
1. the date the Policy terminates;
2. the date any policy loan is taken under the Policy;
3. the Monthiversary on which this Rider is terminated by
written request from the Owner.
MONTHLY CHARGE On the Policy Date and each Monthiversary thereafter, a
monthly charge will be deducted from the Policy Cash Value for
this Rider. The monthly charge will be equal to:
1. 0.02% multiplied by the sum of the Subaccount Values, if
any, on the Valuation Date of each Monthiversary; plus
2. 0.02% multiplied by the Fixed Account value on the
Valuation Date of each monthly deduction.
EFFECTIVE DATE This Rider is effective as of the Policy Date.
PFL LIFE INSURANCE COMPANY
/s/ CRAIG D. VERMIE
-----------------------------
Secretary
EXHIBIT 1.A.(5)(d)
DOLLAR COST AVERAGING ENDORSEMENT (PES102)
<PAGE>
================================================================================
PFL LIFE INSURANCE COMPANY
================================================================================
ENDORSEMENT
- --------------------------------------------------------------------------------
This Endorsement is made a part of the Policy to which it is attached.
DOLLAR COST We will automatically transfer pre-determined amounts from the
AVERAGING designated Account to any other Subaccount in accordance with
the Owner's current allocation instructions. The transfers
will be made on a monthly basis and under the following
conditions:
1. We must receive proper written election of this
option on a form provided by Us;
2. The entire Initial Premium must be allocated to the
designated Dollar Cost Averaging Account;
3. No less than the designated amount for this option on the
date Dollar Cost Averaging begins may be transferred each
month.
The first transfer will occur on the Monthiversary following
the Policy Date. Each transfer which occurs under the Dollar
Cost Averaging option will be without charge and will not be
counted toward the number of transfers allowed without charge
under the Policy.
Dollar Cost Averaging will terminate if We receive:
1. Written instruction from the Owner for cancellation;
2. Election to participate in any Asset Rebalancing Program;
or
3. Notification of election to participate in any asset
allocation service provided by a third party.
We reserve the right to discontinue, modify or suspend Dollar
Cost Averaging at any time following prior written
notification to all policyowners.
Except as otherwise set forth above, this Endorsement is subject to the
exclusions, definitions and provisions of the Policy.
Signed for Us at Our Office in Cedar Rapids, Iowa.
/s/ CRAIG D. VERMIE /s/ WILLIAM L. BUSLER
- -------------------------------------- --------------------------------------
Secretary President
EXHIBIT 1.A.(5)(e)
ASSET REBALANCING PROGRAM ENDORSEMENT (PES104)
<PAGE>
================================================================================
PFL LIFE INSURANCE COMPANY
================================================================================
ENDORSEMENT
- --------------------------------------------------------------------------------
The following provision is added to this Policy, effective as of the date We
receive Your written request to participate in the Asset Rebalancing Program.
ASSET The Owner may instruct Us to automatically transfer Cash
REBALANCING Values among the Subaccounts for purposes of maintaining a
PROGRAM particular percentage allocation among the Subaccounts.
The Cash Value allocated to each Subaccount will grow or
decline in value at different rates. The Asset Rebalancing
Program automatically reallocates the Cash Value in the
Subaccounts at the end of each period to pro-rata match the
Owner's current Subaccount allocation schedule.
1. We must receive written election of this option on a form
provided by Us;
2. Asset Rebalancing is only available prior to the Maturity
Date;
3. Cash Values in the Fixed Account are not eligible for Asset
Rebalancing.
The Owner may elect for rebalancing to occur on each quarter,
semi-annual or annual Anniversary. Following receipt of
written request, the initial rebalancing will occur on the
next such Anniversary, and will occur in accordance with the
current Premium allocation.
Asset Rebalancing is not available and will terminate if:
1. Dollar Cost Averaging is elected;
2. The Owner participates in any asset allocation service
provided by a third party;
3. We receive a request to discontinue participation; or
4. A transfer is made to, or from, any Subaccount other than
under a scheduled rebalancing.
<PAGE>
Each reallocation which occurs under Asset Rebalancing will be
counted towards the number of transfers allowed without
charge.
We reserve the right to limit re-entry into the Asset
Rebalancing Program following termination to once per Policy
Year.
We reserve the right to discontinue, modify or suspend the Asset Rebalancing
Program at any time, following proper written notification to all policyholders.
Signed for Us at Our Office in Cedar Rapids, Iowa.
/s/ CRAIG D. VERMIE /s/ WILLIAM L. BUSLER
- ------------------------------------------ --------------------------------
Secretary President
EXHIBIT 1.A.(5)(f)
PREFERRED LOAN ENDORSEMENT (PES101)
<PAGE>
================================================================================
PFL LIFE INSURANCE COMPANY
================================================================================
ENDORSEMENT
- --------------------------------------------------------------------------------
This Endorsement is made a part of the Policy to which it is attached. The
Policy Loans Provision of the Policy Value Provisions is hereby expanded by
adding the following:
PREFERRED While this Policy is In Force, the Owner may borrow against
LOANS this Policy an amount which is equal to the amount of the Cash
Value in excess of total premiums paid, less any outstanding
policy loans plus accrued loan interest. This amount, if any,
will be processed as a Preferred Loan. Interest credited to
Preferred Loans will be at the same rate as the policy loan
interest rate, payable annually in arrears. Any existing loan,
other than an existing Preferred Loan, will not be eligible
for a Preferred Loan rate.
We reserve the right to discontinue, modify, or suspend
Preferred Loans at any time, following prior written
notification to all policyowners.
Except as otherwise set forth above, this Endorsement is subject to the
exclusions, definitions and provisions of the Policy.
Signed for Us at Our Office in Cedar Rapids, Iowa.
/s/ CRAIG D. VERMIE /s/ WILLIAM L. BUSLER
- ---------------------------------------- ----------------------------------
Secretary President
Addendum dated November 27, 1998 to Participation Agreement among
MFS Variable Insurance Trust,
Massachusetts Financial Services Company and PFL Life
<PAGE>
ADDENDUM TO PARTICIPATION AGREEMENT
Amendment to the Participation Agreement, dated as of November 24,
1997, by and among MFS VARIABLE INSURANCE TRUST, MASSACHUSETTS FINANCIAL
SERVICES COMPANY, and PFL LIFE INSURANCE COMPANY (the "Agreement").
Schedule A of the Agreement is hereby deleted in its entirety and
replaced with the following:
SCHEDULE A
ACCOUNTS, POLICIES AND PORTFOLIOS
SUBJECT TO THE PARTICIPATION AGREEMENT
<TABLE>
<CAPTION>
===========================================================================================================================
Name of Separate
account and Date Policies Funded Portfolios
Established by Board of Directors by Separate Account Applicable to Policies
===========================================================================================================================
<S> <C> <C>
PFL Retirement Builder PFL Life Insurance Company MFS Emerging Growth Series
Variable Annuity Account Policy Form MFS Research Series
March 29, 1996 No. AV288-101-985-796 MFS Total Return Series
(including successor forms, addenda MFS Utilities Series
Legacy Builder Variable Life Separate and endorsements - may vary by MFS Foreign & Colonial Emerging
Account state) under marketing names: Markets Equity Series"
November 20, 1998 "Retirement Income Builder Variable
Annuity"
"Portfolio Select Variable Annuity"
PFL Life Insurance Company
Policy Form No.'s VL20 & JL20 under
the marketing name "Legacy Builder
II"
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
All other terms and provisions of the Agreement not amended herein
shall remain in full force and effect.
Effective Date: November 27, 1998
<TABLE>
MFS VARIABLE INSURANCE TRUST, MASSACHUSETTS FINANCIAL SERVICES
on behalf of the Portfolios COMPANY
<S> <C>
By: /S/ JAMES R. BORDEWICK, JR. By: /S/ JEFFREY L. SHAMES
--------------------------------------- ---------------------------------------
Name: JAMES R. BOREEWICK, JR. Name: JEFFREY L. SHAMES
Title: ASSISTANT SECRETARY Title: CHAIRMAN, CHIEF EXECUTIVE OFFICER
PFL LIFE INSURANCE COMPANY
By: /S/ RONALD L. ZIEGLER
--------------------------------------
Name: RONALD L. ZIEGLER
Title: VICE PRESIDENT AND ACTUARY
</TABLE>
Exhibit 1.A.(8)(i)(ii)
Amendment dated November 27, 1998 to Participation Agreement
among PFL Life and Dreyfus Variable Investment Fund
<PAGE>
AMENDMENT TO PARTICIPATION AGREEMENT
The Participation Agreement, dated as of April 15, 1997, between
DREYFUS VARIABLE INVESTMENT FUND, THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND,
INC., DREYFUS LIFE AND ANNUITY INDEX FUND, INC. (d/b/a DREYFUS STOCK INDEX
FUND), and PFL LIFE INSURANCE COMPANY (the "Agreement") is hereby amended as
follows:
ARTICLE 1
DEFINTIONS
Section 1.12 is hereby deleted in its entirety and replaced with the
following:
"Separate Account" shall mean PFL Life Separate Account A, PFL
Retirement Builder Variable Annuity Account, and Legacy Builder
Variable Life Separate Account, separate accounts established by
Insurance Company in accordance with the laws of the State of Iowa.
All other terms and provisions of the Agreement not amended herein
shall remain in full force and effect.
Effective Date: November 27, 1998
DREYFUS VARIABLE INVESTMENT FUND THE DREYFUS SOCIALLY RESPONSIBLE
GROWTH FUND, INC.
By: /s/ ELBA VASQUEZ By: /s/ ELBA VASQUEZ
-------------------------------------- --------------------------------
Name: Elba Vasquez Name: Elba Vasquez
------------------------------------ ------------------------------
Title: Vice President & Assist. Secretary Title: Vice President & Assist.
----------------------------------- Secretary
------------------------------
DREYFUS LIFE AND ANNUITY INDEX FUND, PFL LIFE INSURANCE COMPANY
INC. (d/b/a DREYFUS STOCK INDEX FUND)
By: /s/ ELBA VASQUEZ By: /s/ WILLIAM L. BUSLER
-------------------------------------- ---------------------------------
Name: Elba Vasquez Name: William L. Busler
------------------------------------ -------------------------------
Title: Vice President & Assist. Secretary Title: President
----------------------------------- ------------------------------
Exhibit 1.A.(8)(i)(iii)
Amendment dated November 27, 1998 to Participation Agreement
among Oppenheimer Variable Account Funds, Oppenheimer Funds, Inc. and PFL Life
<PAGE>
AMENDMENT TO PARTICIPATION AGREEMENT
The Participation Agreement, dated as of December 15, 1997, by and
among OPPENHEIMER VARIABLE ACCOUNT FUNDS, OPPENHEIMERFUNDS, INC., and PFL LIFE
INSURANCE COMPANY (the "Agreement") is hereby amended as follows:
Schedule 1 of the Agreement is hereby deleted in its entirety and
replaced with the following:
SCHEDULE 1
PFL Retirement Builder Variable Annuity Account
Established by the Board of Directors on March 29, 1996
Legacy Builder Variable Life Separate Account
Established by the Board of Directors on November 20, 1998
Schedule 2 of the Agreement is hereby deleted in its entirety and replaced
with the following:
SCHEDULE 2
PFL Life Insurance Company Policy Form No. AV 288-101-95-796
(including successor forms, addenda and endorsements - may vary by state)
Under the marketing names: "Retirement Income Builder Variable Annuity"
or "Portfolio Select Variable Annuity"
PFL Life Insurance Company Policy Form No.'s VL20 & JL20
Under the marketing name "Legacy Builder II"
All other terms and provisions of the Agreement not amended herein
shall remain in full force and effect.
Effective Date: November 27, 1998
OPPENHEIMER VARIABLE ACCOUNT OPPENHEIMERFUNDS, INC.
FUNDS
By: /s/ ANDREW J. DONOHUE By: /s/ WESLEY W. MAYER
------------------------------- ---------------------------------
Name: Andrew J. Donohue Name: Wesley W. Mayer
----------------------------- -------------------------------
Title: Vice President Title: Vice President
---------------------------- ------------------------------
PFL LIFE INSURANCE COMPANY
By: /s/ Frank A. Camp
-------------------------------
Name: Frank A. Camp
-----------------------------
Title: Vice President and Division
General Counsel
----------------------------
Exhibit 1.A.(8)(i)(iv)
Amendment dated November 27, 1998 to Participation Agreement
among AIM Variable Insurance Funds, Inc., A I M Distributors, Inc.,
PFL Life and AFSG Securities Corporation
<PAGE>
AMENDMENT NO. 2
PARTICIPATION AGREEMENT
The Participation Agreement (the "Agreement"), dated May 1, 1998, by and among
AIM Variable Insurance Funds, Inc. a Maryland corporation, A I M Distributors,
Inc., a Delaware corporation, PFL Life Insurance Company, an Iowa life insurance
company and AFSG Securities Corporation, a Pennsylvania corporation, is hereby
amended as follows:
Schedule A of the Agreement is hereby deleted in its entirety and replaced with
the following:
SCHEDULE A
<TABLE>
<CAPTION>
- ------------------------------------ ------------------------------ ---------------------------------
FUNDS AVAILABLE UNDER SEPARATE ACCOUNTS POLICIES FUNDED BY THE
THE POLICIES UTILIZING THE FUNDS SEPARATE ACCOUNTS
- ------------------------------------ ------------------------------ ---------------------------------
<S> <C> <C>
AIM V.I. Capital Appreciation PFL Retirement Builder Variable PFL Life Insurance Company
Fund Annuity Account Policy Form No.
AV288-1010-95-796
AIM V.I. Government Securities Legacy Builder Variable Life (including successors forms,
Fund Separate Account addenda and endorsements may
vary by state under marketing
AIM V.I. Growth & Income Fund names: "Retirement Income Builder
Variable Annuity," "Portfolio
AIM V.I. International Equity Select Variable Annuity")
Fund
PFL Life Insurance Company
AIM V.I. Value Fund Policy Form No.'s
VL20 & JL20 under the marketing name
"Legacy Builder II"
- ------------------------------------ ------------------------------ -------------------------------
</TABLE>
All other terms and provisions of the Agreement not amended herein shall remain
in full force and effect.
Effective Date: November 27, 1998
AIM VARIABLE INSURANCE FUNDS, INC.
Attest: /s/ NANCY L. MARTIN By: /s/ ROBERT H. GRAHAM
-------------------------------- ----------------------------------
Name: Nancy L. Martin Name: Robert H. Graham
---------------------------------- --------------------------------
Title: Assistant Secretary Title: President
--------------------------------- -------------------------------
<PAGE>
A I M DISTRIBUTORS, INC.
Attest: /s/ NANCY L. MARTIN By: /s/ MICHAEL J. CEMO
-------------------------------- ---------------------------------
Name: Nancy L. Martin Name: Michael J. Cemo
---------------------------------- -------------------------------
Title: Assistant Secretary Title: President
--------------------------------- ------------------------------
PFL LIFE INSURANCE COMPANY
Attest: /s/ FRANK A. CAMP By: /s/ WILLIAM L. BUSLER
-------------------------------- ---------------------------------
Name: Frank A. Camp Name: William L. Busler
---------------------------------- -------------------------------
Title: Vice President & Div. General Title: President
Counsel
--------------------------------- ------------------------------
AFSG SECURITIES CORPORATION
Attest: /s/ FRANK A. CAMP By: /S/ LARRY N. NORMAN
-------------------------------- --------------------------------
Name: Frank A. Camp Name: Larry N. Norman
-------------------------------- ------------------------------
Title: Secretary Title: President
--------------------------------- -----------------------------
Exhibit 1.A(8)(i)(v)
Addendum No. 8 dated November 27, 1998 to Participation Agreement
among WRL Series Fund, Inc., PFL Life and AUSA Life Insurance Company, Inc.
<PAGE>
ADDENDUM NO. 8 TO
PARTICIPATION AGREEMENT
AMONG
WRL SERIES FUND, INC.,
PFL LIFE INSURANCE COMPANY,
AND
AUSA LIFE INSURANCE COMPANY, INC.
Amendment No. 8 to the Participation Agreement among WRL Series Fund,
Inc., PFL Life Insurance Company, AUSA Life Insurance Company, Inc. dated July
1, 1992 ("Participation Agreement").
WHEREAS, PFL Life Insurance Company has recently established the Legacy
Builder Variable Life Separate Account, a separate account for purposes of
selling a variable life product funded by WRL Series Fund, Inc.
NOW, THEREFORE, IT IS HEREBY AGREED that PFL Life Insurance Company,
through its separate account, the Legacy Builder Variable Life Separate Account,
is authorized to acquire shares issued by WRL Series Fund, Inc., subject to the
terms and conditions of the Participation Agreement.
IN WITNESS WHEREOF, each of the parties has caused this Addendum to be
executed in its name and on its behalf by its duly authorized representative as
of November 27, 1998.
PFL LIFE INSURANCE COMPANY WRL SERIES FUND, INC.
By its authorized officer By its authorized officer
By: /s/ WILLIAM L. BUSLER By: /s/ THOMAS E. PIERPAN
---------------------------------- --------------------------------
Vice President, Secretary and
Title: President Title: Associate General Counsel
------------------------------- ------------------------------
Date: December 18, 1998 Date: December 16, 1998
-------------------------------- -------------------------------
AUSA LIFE INSURANCE
COMPANY, INC.
By its authorized officer
By: /s/ WILLIAM L. BUSLER
----------------------------------
Title: Vice President
-------------------------------
Date: December 19, 1998
--------------------------------
<PAGE>
AMENDED
SCHEDULE A
Effective November 27, 1998
Account(s), Policy(ies) and Portfolio(s) Subject
to the Participation Agreement
Accounts: PFL Endeavor Variable Annuity Account
AUSA Endeavor Variable Annuity Account
Mutual Fund Account
PFL Life Variable Annuity Account A
PFL Retirement Builder Variable Annuity Account
Legacy Builder Variable Life Separate Account
Policies: PFL Endeavor Variable Annuity
PFL Endeavor ML Variable Annuity
PFL Endeavor Platinum Variable Annuity
AUSA Endeavor Variable Annuity
Atlas Portfolio Builder Variable Annuity
Flexible Premium Individual Deferred Variable Annuity
(Policy Form No. AV288-101-95-796;
marketing name - PFL Retirement Income Builder II)
Legacy Builder II
Portfolios: WRL Series Fund, Inc.
Growth Portfolio
Bond Portfolio
Money Market Portfolio
Global Portfolio
Strategic Total Return Portfolio
Emerging Growth Portfolio
Aggressive Growth Portfolio
Balanced Portfolio
Growth & Income Portfolio
C.A.S.E. Growth Portfolio
Value Equity Portfolio
Global Sector Portfolio
International Equity Portfolio
U.S. Equity Portfolio
Real Estate Securities Portfolio
Third Avenue Value Portfolio
Tactical Asset Allocation Portfolio
EXHIBIT 1.A.(10)
APPLICATION FOR MODIFIED SINGLE PREMIUM VARIABLE LIFE INSURANCE POLICY
<PAGE>
LEGACY BUILDER II
PFL Life
Insurance Company
- --------------------------------------------------------------------------------
APPLICATION FOR
LIFE INSURANCE
PFL Life Insurance Company
Cedar Rapids, Iowa
6200VLPFL R1198
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NOTICE TO PROPOSED INSURED
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Thank you for your application. We appreciate your efforts in completing each
part of the application truthfully, accurately, and completely.
Once we receive your application, we will begin an evaluation process called
underwriting to determine whether you are eligible for insurance and, if so, the
rate you should pay for that insurance. We may find that we are unable to give
you the insurance you have applied for or that we are able to give it to you
only on a modified basis or at a rate greater than our lowest rate. For example,
if you have ever used any kind of tobacco or any other nicotine product, you may
not be eligible for our lowest rate. Your application will be our primary source
of information; therefore, it must be true, complete, and accurate. You must
inform us of a change to any answer in any part of your application before
accepting delivery of a policy; in fact, you agree to do so when you sign your
application. We may seek information from other sources to help us evaluate the
information you give us on your application.
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CONTESTABILITY
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We strongly urge you to review the completed application closely for accuracy.
During the first two policy years, a claim may be denied or your coverage may be
rescinded or contested by a lawsuit if the application is incomplete or if it
contains false statements, misrepresentations, acts, omissions, or is procured
by fraud. If the policy is rescinded or the lawsuit is successful, the policy
will be void and coverage will be lost. Any policy that is delivered to you will
indicate when and under what circumstances it may be contested. Please be aware
that if the application contains false or deceptive statements and you submitted
it with the intent to defraud or to facilitate fraud against us, you may also be
guilty of insurance fraud.
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REPLACEMENT OF EXISTING COVERAGE
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If you intend to replace existing coverage, tell the agent of your intention and
answer "yes" to the replacement question in the application; state law may
require the agent to give you information that will help you compare the policy
you are applying for with the policy you intend to replace. If you are undecided
about keeping existing coverage, indicating an intention to replace existing
coverage may help you get the information you need to make a decision. If you do
replace existing coverage, the new policy may contain new suicide and
contestable periods. The following would be considered replacement; you stop
paying premiums for the insurance for which you are applying. State laws define
replacement to include other situations. Please ask your agent if you are
unsure.
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INSURANCE INFORMATION PRACTICES
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We will rely primarily on information provided by you. We may supplement that
information with information from other sources such as medical professionals
who have treated you. In some cases, we may ask a consumer reporting agency to
collect information and submit an investigative consumer report to us as
explained in this Notice under Federal Fair Credit Reporting Act. You may
request to be interviewed in connection with the preparation of this report. You
have the right to be told about, and to see and copy if you wish, items of
personal information about you that appear in our files, including information
contained in investigate consumer reports. You also have the right to seek
correction of information you believe to be inaccurate. We will send you a more
detailed explanation of our information practices if you send us a written
request. You may send your request to the Director of Underwriting, P.O. Box
3183, Cedar Rapids, Iowa 52406-3183.
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FAIR CREDIT REPORTING PRE-NOTICE
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A routine investigative consumer report may possibly be made regarding your
general reputation, character, mode of living, and personal characteristics.
This information may be obtained through personal interviews with your friends,
neighbors and associates. Should you desire additional information on the nature
and scope of such a report, you may write the Underwriting Department, P.O. Box
3183, Cedar Rapids, Iowa 52406-3183. You have the right to request additional
information concerning the nature and scope of the investigation to be
performed. A summary of your rights is set forth on the attached signature page
of the application. To make this request, you must write the Underwriting
Department, P.O. Box 3183, Cedar Rapids, Iowa 52406-3183.
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MIB DISCLOSURE NOTICE
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Information regarding your insurability will be treated as confidential. The
Company or its reinsurers may, however, make a brief report to the Medical
Information Bureau, a non-profit membership organization of life insurance
companies, which operates an information exchange on behalf of its members. If
you apply to another Bureau member for life or health insurance coverage, or a
claim for benefits is submitted to such a Company, the Bureau, upon request,
will supply such company with the information in its file.
Upon receipt of a request from you, the Bureau will arrange disclosure of any
information it may have in your file. If you question the accuracy of the
information in the Bureau's file, you may contact the Bureau and seek a
correction in accordance with the procedures set forth in the Federal Fair
Credit Reporting Act. The address of the Bureau's information office is Post
Office Box 105, Essex Station, Boston, Massachusetts 02122, telephone number
(617) 426-3660.
The Company or its reinsurers may also release information in file to other life
insurance companies to whom you may apply for life or health insurance or to
whom a claim for benefits may be submitted.
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6200VLPFL R1198 Page 2
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APPLICATION FOR LIFE INSURANCE PFL LIFE INSURANCE COMPANY
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Part I PLAN OF INSURANCE
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Plan of Insurance: Premium Amount: $ Face Amount: $
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Part II PRIMARY INSURED INFORMATION
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Name: Social Security Number: Sex: [ ] Male [ ] Female
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Street Address: Date of Birth: Age:
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City: Place of Birth (State or County):
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State: ZIP Code: Occupation:
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Beneficiary: Relationship to Insured:
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Contingent Beneficiary: Relationship to Insured:
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Will this policy replace or change any existing life insurance or annuity
policy(ies)? [ ] Yes [ ] No
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If yes, indicate policy number(s) and Company names(s)?
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Is this intended to be a 1035 Exchange? [ ] Yes [ ] No
Indicate Exchange amount:
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If this policy will replace an existing policy, complete required replacement
forms.
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Part IIA JOINT INSURED INFORMATION
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Name: Social Security Number: Sex: [ ] Male [ ] Female
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Street Address: Date of Birth: Age:
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City: Place of Birth (State or County):
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State: ZIP Code: Occupation:
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Part III CONTACT INFORMATION
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Insured's Home Telephone Business Telephone Fax:
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Preferred Place to call: [ ] Home [ ] Business
Best time to call: [ ] A.M. [ ] P.M.
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Special Comments:
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Part IV OWNER INFORMATION: (if other than proposed insured)
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Name:
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Street Address: Date of Birth:
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City: State: ZIP Code:
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Relationship To Insured: Social Security Or Tax ID Number:
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Part V BASIC HEALTH QUESTIONS
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A. Primary Insured: Height: Weight: Joint Insured: Height: Weight:
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B. Within the last 5 years, has any Proposed Insured been treated for or been
told by a member of the medical profession that you had heart disease or
circulatory problems, stroke, cancer, diabetes, kidney or liver disorder,
lung or respiratory disorder, Alzheimer's Disease, mental or psychiatric
disorder, alcohol or drug abuse? If yes, please circle the applicable
ailment(s). [ ] Yes [ ] No
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C. Within the last 10 years, has any Proposed Insured been diagnosed by a member
of the medical profession as having AIDS (Acquired Immune Deficiency
Syndrome), or have you tested positive for HIV (Human Immunodeficiency
Virus)? [ ] Yes [ ] No
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D. Within the past 12 months, has any Proposed Insured, smoked cigarettes,
cigars, pipes or used chewing tobacco? [ ] Yes [ ] No
If "yes", please circle applicable insured: Primary Insured Joint Insured
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E. Within the past 12 months, has any Proposed Insured been admitted to a
hospital or nursing home? [ ] Yes [ ] No
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F. Has any Proposed Insured ever been declined, rated or postponed for insurance
or reinstatement of life, accident or sickness insurance or has a policy ever
been cancelled or renewal refused? [ ] Yes [ ] No
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Part VI SPECIAL REQUEST
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If this life insurance cannot be issued, do you want to apply for an annuity
policy? [ ] Yes [ ] No
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6200VLPFL R1198 Page 3
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MEDICAL QUESTIONNAIRE
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NOTE: QUESTIONS APPLY TO EACH PERSON PROPOSED FOR INSURANCE.
YES NO
A. To the best of your knowledge, has any Proposed Insured within
the last 10 years had or been told by a member of the medical
profession that he or she had:
1. Heart murmur, high blood pressure, chest pain, heart
attack, stroke, or other disorder of the heart or
circulatory system? ..........................................[ ] [ ]
2. Asthma, Emphysema, Chronic Bronchitis or any other
Respiratory disorder, colitis, ulcer, or any other
gastrointestinal disorder; hepatitis, liver or kidney
disorder? ....................................................[ ] [ ]
3. Cancer, tumor, polyp, breast, prostate or any other
reproductive disorder; or any thyroid or endocrine
disorder? ....................................................[ ] [ ]
4. Brain, mental, nervous or seizure disorder; or any paralysis
or suicide attempt? ..........................................[ ] [ ]
5. Diabetes, sugar, albumin, blood or pus in the urine?..........[ ] [ ]
B. To the best of your knowledge has any Proposed Insured within
the last 10 years had or been told by a member of the medical
profession that he or she had: ..................................[ ] [ ]
1. Used amphetamines, heroin, cocaine, marijuana or any other
illegal or controlled substance except as prescribed by a
physician? ...................................................[ ] [ ]
2. Been on or are now on prescribed medication or diet? .........[ ] [ ]
3. Had or been advised to have any hospitalization, surgery
or any diagnostic test including, but not limited to,
electrocardiograms, blood studies, scans, MRI's or other
test? ........................................................[ ] [ ]
4. An examination, treatment, or consultation with a doctor
other than above? ............................................[ ] [ ]
5. Have or have had a parent, brother or sister who has/had
coronary artery death or disease prior to age 60? ............[ ] [ ]
6. Sought or been advised to seek treatment, limit or discontinue
use of alcohol? ..............................................[ ] [ ]
C. To the best of your knowledge have you or any Proposed Insured
in the last 10 years:
1. Ever piloted a plane, helicopter or glider, or have any
intentions of piloting an aircraft? ..........................[ ] [ ]
2. Ever participated in any sport, avocation or hobby such as
skin-diving, skydiving, automobile or motorcycle racing,
mountain climbing, or have you any intention to do so? .......[ ] [ ]
3. Has any Proposed Insured had their driver's license restricted,
revoked, or been cited for a moving violation? ...............[ ] [ ]
Give reason, Driver's License Number and Licensed State.
D. Has any Proposed insured ever been convicted of a misdemeanor or
felony? .........................................................[ ] [ ]
E. Is there an application for life, accident or sickness insurance
now pending or contemplated on any proposed insured with this or
any other company? ..............................................[ ] [ ]
DETAILS OF "YES" ANSWERS. Include: a. Identity of person, b. Question number,
c. Diagnosis and treatment, d. Results, e. Dates and durations, f. Names and
addresses of all attending physicians and medical facilities.
I represent that the above statements and answers are full, complete and true to
the best of my knowledge and belief. I also agree that the above Medical
Questionnaire is part of the application and as such is subject to all terms and
conditions contained in the application.
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Date Signature of Proposed Insured
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Signature of Joint Insured
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6200VL R1198 Page 3A
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<TABLE>
<CAPTION>
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Part VII PERSONAL FINANCIAL STATEMENT Part VIII ADDITIONAL BENEFITS - PRIMARY INSURED ONLY
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<S> <C>
A) Gross Income Current Yr $____ ____ ____ [ ] Asset Rebalancing
B) Gross Income Previous Yr $____ ____ ____ [ ] Dollar Cost Averaging
C) Net Worth $____ ____ ____ [ ] Guaranteed Death Benefit Rider
For over $1 million applied coverage complete
a separate financial questionnaire
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Part IX SUITABILITY FOR VARIABLE LIFE INSURANCE POLICY - COMPLETE FOR ALL VARIABLE PLANS
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A) Have you, the Proposed Insured, and Purchaser, if other than the
Proposed Insured, received the current Prospectus for the policy? [ ] Yes [ ] No
B) DO YOU UNDERSTAND THAT UNDER THE POLICY APPLIED FOR (EXCLUSIVE OF ANY OPTIONAL
BENEFITS), THE AMOUNT OF DEATH BENEFIT AND THE ENTIRE AMOUNT OF THE POLICY CASH
VALUE MAY INCREASE OR DECREASE DEPENDING UPON THE INVESTMENT EXPERIENCE? [ ] Yes [ ] No
C) With this in mind, is the policy in accord with your insurance objectives and your
anticipated financial needs? [ ] Yes [ ] No
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Part X TO BE COMPLETED BY APPLICANT/OWNER
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Telephone Transfer Authorization: (See Prospectus for telephone transfer procedures.)
Your policy applied for, if issued, will automatically receive telephone transfer
privileges described in the applicable prospectus unless instructions to the contrary
are indicated below. These privileges allow you to give the registered
representative/agent of record for this policy authority to make telephone transfers
and to change the allocation future payments among the Sub-Accounts and the Fixed
Account on your behalf according to your instructions.
[ ] I do NOT want telephone transfer privileges.
PFL Life will not be liable for complying with telephone instructions it reasonably
believes to be authentic, nor for any loss, damage, costs or expenses in acting on such
telephone instructions, and Policyowners will bear the risk of any such loss. PFL Life
will employ reasonable procedures to confirm that telephone instructions genuine. If
PFL Life does not employ such procedures, it may be liable for losses due to unauthorized
or fraudulent instructions. Such procedures may include, among others, requiring forms of
personal identification prior to acting upon such telephone instruction, providing written
confirmation of such transactions to Policyowners and/or tape recording of telephone
transfer request instructions received.
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Part XI ACCOUNT ALLOCATIONS - (FOR VARIABLE PLANS ONLY) MUST EQUAL A WHOLE NUMBER AND TOTAL 100%
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AIM V.I. Capital Appreciation Fund .0% MFS Foreign & Colonial Emerging Oppenheimer Growth Fund .0%
AIM V.I. Government Securities Fund .0% Markets Equity Series .0% Oppenheimer High Income Fund .0%
AIM V.I. Growth & Income Fund .0% MFS Research Series .0% Oppenheimer Strategic Bond Fund .0%
AIM V.I. Value Fund .0% MFS Total Return Series .0% WRL Global .0%
Dreyfus Money Market Portfolio .0% MFS Utilities Series .0% WRL Growth .0%
Dreyfus Small Company Stock Portfolio .0% Oppenheimer Global Securities Fund .0% WRL Emerging Growth .0%
Dreyfus Stock Index Fund .0% Oppenheimer Growth & Income Fund .0% Fixed Account .0%
MFS Emerging Growth Series .0%
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Part XII INVESTMENT OBJECTIVE
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[ ] Safety of Principal
[ ] Income
[ ] Long-Term Growth
[ ] Trading Profits
[ ] Other
____________________________
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</TABLE>
6200VLPFL R1198 Page 4
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TAXPAYER IDENTIFICATION NUMBER STATEMENT
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Taxpayer Identification Number (of) policyowner:________________________________
Social Security Number or
Taxpayer Identification Number
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Check the box if you ARE NOT subject to Check the box if you ARE subject to
backup withholding under the provisions backup withholding under the
of section 3406(a)(1)(C) of the Internal provisions of section 3406(a)(1)(C)
Revenue Code...................[ ] of the Internal Revenue Code.....[ ]
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The Internal Revenue Service does not require your consent to any provision of
this document other than the following certification required to avoid backup
withholding.
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Under penalties of perjury, I hereby certify (1) that the Social Security or
Taxpayer I.D. number listed above is correct and (2) that my current status
regarding backup withholding is correct.
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I agree that: (1) If the receipt is issued in return for the full first premium,
the Company's liability will be as set forth in such receipt. If the receipt has
not been issued, the Company shall incur liability under this application only
when a policy has been delivered and the full first premium specified in the
policy has been paid during the lifetime and continued insurability of the
Persons to be insured, as determined by the Company from this application. (2)
No modification may be made to the policy or no right of the Company waived
unless agreed to in writing and signed by: (A) The President; (B) The Vice
President; or (C) The Secretary of the Company.
The Proposed Insured acknowledges receipt of the MIB Disclosure Notice and Fair
Credit Reporting Pre-Notice.
I represent that all the statements and answers in this application are complete
and true to the best of my knowledge and belief. I agree that the statements and
answers given in this application, and any amendments or application supplements
to it will be the basis of any insurance issued.
Unless we have been notified of a community or marital property interest in this
policy, we will rely on our good faith belief that no such interest exists and
will assume no responsibility for inquiry.
AUTHORIZATION: I hereby authorize any licensed physician, medical practitioner,
hospital, clinic or medically related facility, insurance company, the Medical
Information Bureau, consumer reporting agency, or other organization, employer,
institution or person that has any records or knowledge of me or my health (or
of additional insured(s), if included in the coverage applied for), to give to
the Company, or its reinsurers, any such information. This includes information
about drugs and alcohol and about diagnosis, treatment and prognosis of any
physical or mental condition, as well as any other non-medical information. A
photographic copy of this authorization shall be as valid as the original. The
authorization will be valid from the date signed for a period of two and one
half years.
I also hereby authorize the Company to provide its affiliated companies any and
all information provided herein and obtained hereafter on me. This authorization
shall be valid from the date signed below until affirmatively withdrawn in
writing by myself.
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Signed at: (City and State) Date:
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Signature of Proposed Primary Insured
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Signature of Owner (if other than Proposed Insured)
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Signature of Proposed Joint Insured
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TO BE COMPLETED BY AGENT
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Do you have reason to believe the policy applied for is to replace or change any
existing annuity or insurance owned by the applicant?
[ ] Yes [ ] No (If Yes, include state replacement forms if applicable)
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If yes, indicate policy number(s) and Company name(s):
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Did you give the "MIB Disclosure Notice" to the Proposed Insured? [ ] Yes [ ] No
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Did you comply with all requirements relative to obtaining Informed Consent for
HIV and AIDS testing? [ ] Not required [ ] Yes [ ] No
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Signature of Agent Agent's State License Number:
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Agent's Social Security Number:
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Print Agent's Name: Telephone Number:
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6200VLPFL R1198 Page 5
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FRAUD WARNING
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The following states require that insurance applicants (owners) acknowledge a
fraud warning statement. If you reside in one of the states listed below, please
refer to the applicable fraud warning.
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For applicants (owners)in ARKANSAS, NEW MEXICO AND PENNSYLVANIA
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Any person who knowingly and with intent to defraud any insurance company or
other person files an application for insurance or statement of claim containing
any materially false information or conceals for the purpose of misleading
information concerning any fact material thereto commits a fraudulent insurance
act, which is a crime and subjects such person to criminal and civil penalties.
Applicant's Signature Date
________________________________________________________________________________
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For applicants (owners) in COLORADO
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It is unlawful to knowingly provide false, incomplete, or misleading facts or
information to an insurance company for the purpose of defrauding or attempting
to defraud the company. Penalties may include imprisonment, fines denial of
insurance, and civil damages. Any insurance company or agent or an insurance
company who knowingly provides false, incomplete, or misleading facts or
information to the policyholder or claimant for the purpose of defrauding or
attempting to defraud the policyholder or claimant with regard to a settlement
or award payable from insurance proceeds shall be reported to the Colorado
Division of Insurance within the Department of Regulatory Agencies.
Applicant's Signature Date
________________________________________________________________________________
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For applicants (owners) in FLORIDA
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Any person who knowingly and with intent to injure, defraud, or deceive any
insurer files a statement of claim or an application containing any false,
incomplete, or misleading information is guilty of a felony in the third degree.
Applicant's Signature Date
________________________________________________________________________________
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For applicants (owners) in KENTUCKY AND OHIO
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Any person who knowingly and with intent to defraud any insurance company or
other person files an application for insurance containing any materially false
information or conceals, for the purpose of misleading, information concerning
any fact material thereto commits a fraudulent insurance act, which is a crime.
Applicant's Signature Date
________________________________________________________________________________
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For applicants (owners) in NEW JERSEY
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Any person who includes any false or misleading information on an application
for an insurance policy is subject to criminal and civil penalties.
Applicant's Signature Date
________________________________________________________________________________
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For applicants (owners) in VIRGINIA
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Any person who, with the intent to defraud or knowing that he is facilitating a
fraud against an insurer, submits an application or files a claim containing a
false or deceptive statement may have violated state law.
Applicant's Signature Date
________________________________________________________________________________
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6200VLPFL R1198 Page 6
<PAGE>
CONDITIONAL RECEIPT (DO NOT COMPLETE AND GIVE TO APPLICANT UNLESS PAYMENT
IS MADE)
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CONDITIONS UNDER WHICH THIS PAYMENT SHALL CAUSE CONDITIONAL COVERAGE TO TAKE
EFFECT
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(1) Each and every person proposed for insurance must be insurable and
acceptable to the Company under its underwriting rules for the amount, plan and
risk classification applied for on the later of: (A) the date of application, or
(B) the date of completion of all medical tests and examinations required by the
Company. (2) Any check given for payment must be honored on first presentation.
(This receipt and all coverages applied for on the application are void if check
or draft received for payment of the initial premium is not honored for payment
on its first presentation.)
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AMOUNT OF CONDITIONAL LIFE INSURANCE COVERAGE
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If conditional coverage becomes effective under the terms of this receipt, then
the amount of conditional life insurance coverage on any person proposed for
insurance is the lesser of: (1) the amount of life insurance applied for on such
person, or (2) $300,000 reduced by the amounts payable under all other life
insurance or accidental death benefits then in force or pending with the
Company.
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WHEN CONDITIONAL COVERAGE BEGINS
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If the conditions listed above are fulfilled, then the amount of conditional
coverage specified above shall take effect on the later of (1) the date of the
application, or (2) the date of the completion of all medical tests and
examinations required by the Company. All conditional coverages for each and
every person proposed for insurance will be deemed void if the application
contains material misrepresentations or is fraudulently completed. Benefits
under this conditional receipt coverage will be denied if any person proposed
for insurance commits suicide.
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WHEN CONDITIONAL COVERAGE ENDS
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Conditional coverage shall terminate automatically, without notice, on the
earliest of the following dates: (1) the date the Company approves the policy as
applied for; (2) 10 days following any counter offer by the Company to offer
insurance to any person proposed for insurance under a different plan or at an
increased premium or on a different rate class; (3) at the end of the fraction
of a year which the payment bears to the premium required to provide one month
of insurance coverage in the amount as described above; or (4) at the beginning
of the 60th day following the date of this receipt.
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CONDITIONAL RECEIPT
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The Insurance Company has received from ________________________________________
this _____day of _____________, __________________a premium deposit of $________
in connection with an application for life insurance. Unless the conditions
stated above this receipt are fulfilled, no conditional coverage shall take
effect and this payment will be refunded. All premium checks must be made
payable to the Insurance Company indicated above. Do not make checks payable to
the agent or leave payee blank.
Date ____________________ Signature of Owner ___________________________________
Date ____________________ Signature of Agent ___________________________________
NOTE: If you do not receive a policy or refund of the amount you paid within 60
days from the date of this receipt please notify:
PFL Life Insurance Company
Cedar Rapids, Iowa
P.O. Box 3183, Cedar Rapids 52406-3183
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6200VLPFL R1198 Page 7
<PAGE>
PFL Life Insurance Company
Cedar Rapids, Iowa
P.O. Box 3183, Cedar Rapids 52406-3183
EXHIBIT 1.A.(11)
MEMORANDUM DESCRIBING ISSUANCE, TRANSFER AND REDEMPTION PROCEDURES
DESCRIPTION OF ISSUANCE,
TRANSFER AND REDEMPTION PROCEDURES
FOR INDIVIDUAL AND JOINT SURVIVORSHIP
MODIFIED SINGLE PREMIUM VARIABLE LIFE INSURANCE POLICIES
ISSUED BY
PFL LIFE INSURANCE COMPANY
This document sets forth the administrative procedures, as required by
Rule 6e-3(T)(b)(12)(iii), that will be followed by PFL Life Insurance Company
(the "Company" or "PFL") in connection with the issuance of Legacy Builder II,
its individual and joint survivorship modified single premium variable life
insurance policy ("Policy" or "Policies") and acceptance of payments thereunder,
the transfer of assets held thereunder, and the redemption by owners of the
Policy ("owners") of their interests in those Policies. Terms used herein have
the same definition as in the prospectus for the Policy that is included in the
current registration statement on Form S-6 for the Policy (File No. 333-68087)
as filed with the Securities and Exchange Commission ("Commission" or "SEC").
I. PROCEDURES RELATING TO PURCHASE AND ISSUANCE OF THE POLICIES AND
ACCEPTANCE OF PREMIUMS
A. OFFER OF THE POLICIES, APPLICATION, INITIAL PREMIUM, AND
ISSUANCE
OFFER OF THE POLICIES. The Policies are offered and issued for
a single premium pursuant to underwriting standards in
accordance with state insurance laws. The initial premium for
the Policies is not the same for all owners with the same
specified amount. Insurance is based on the principle of
pooling and distribution of mortality risks, which assumes
that each owner pays an initial premium commensurate with the
insured's (or joint insureds') mortality risk as actuarially
determined utilizing factors such as age, gender, and rate
class of the insured (or joint insureds). Uniform premiums for
all insureds would discriminate unfairly in favor of those
insureds representing greater risk. Although there is no
uniform premium for all insureds, there is a uniform premium
for all insureds of the same rate class, age, and gender and
same specified amount.
APPLICATION. Persons wishing to purchase a Policy must
complete an application and submit it to the Company or
through any licensed life insurance agent who is also a
registered representative of a broker-dealer having a selling
agreement with the principal underwriter for the Policy. The
application must specify the name of the insured(s) and
provide certain required information about the insured(s). The
application must be accompanied by an initial premium,
designate premium allocation percentages, and name the
beneficiary. The minimum initial premium
1
<PAGE>
is $20,000. The Company determines the specified amount for a
Policy based on the initial premium paid and other
characteristics of the proposed insured (or joint insureds),
such as age, gender and rate class. The Company bases the
minimum initial premium for the owner Policy on the guideline
single premium established under federal tax laws given the
age, gender and rate class of the insured (or joint insured).
RECEIPT OF APPLICATION AND UNDERWRITING. Upon receipt of the
initial premium and a completed application in good order from
an applicant, the Company will follow either simplified or
expanded insurance underwriting procedures for life insurance
designed to determine whether the proposed insured is
insurable. This process may involve such verification
procedures as medical examinations and may require that
further information be provided about the proposed insured (or
joint insured) before a determination can be made.
Generally, Policies issued within the simplified issue age and
premium limits will be underwritten on a simplified issue
basis. Policies outside the simplified issue age limits or for
premium amounts that exceed the simplified issue premium limit
will be underwritten on an expanded underwriting basis. For a
single life Policy the simplified issue age and premium limits
are as follows:
Issue Ages 35 - 59 $ 50,000
Issue Ages 50 - 80 $100,000
If the Policy is issued from ages 18 - 34 or 81 - 90 or if the
Policy is issued for an amount that exceeds the simplified
issue premium limit, then the Policy will be underwritten on
an expanded underwriting basis. For Joint Policies, the same
basic requirements apply, but some additional conditions are
required for simplified issue. These include: the insureds
must be spouses, the minimum age for both insureds is 45, and
the difference in age between the two insureds cannot exceed
20 years. The premium limit for a Joint Policy is based on the
age of the younger insured. If the Policy fails to meet these
requirements, it will be subject to expanded underwriting.
The underwriting process determines the rate class to which
the insured is assigned if the application is accepted. The
Company currently places insureds in the following rate
classes, based on the Company's underwriting: a male or female
rate class, and a standard tobacco use or a select non-tobacco
use rate class. This original rate class applies to the
initial specified amount.
The Company reserves the right to reject an application for
any reason permitted by law. If an application is rejected,
any premium received will be returned, without interest.
ISSUANCE OF POLICY. When the underwriting procedure has been
completed, the application has been approved, and an initial
premium of sufficient amount has been received, the Policy is
issued. This is the Policy date.
The Policy date is the date when our underwriting process is
complete, full life insurance coverage goes into effect, the
Company issues the Policy, and the Company begins to deduct
the daily and monthly insurance charges. The Policy date is
shown on the schedule page of the Policy. It is also the date
when, depending on the owner's state of residence, the Company
will allocate the initial premium either to the reallocation
account or to the subaccounts and fixed account options
selected on the application. We measure Policy months, years,
and anniversaries from the Policy date.
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INITIAL PREMIUM AND CONDITIONAL COVERAGE . An applicant must
pay an initial premium with the application. If the insured
qualifies for simplified underwriting, conditional coverage
becomes effective as of the date the Company receives the
initial premium of at least $20,000 and a completed
application. If the insured does not qualify for simplified
underwriting, conditional coverage begins on the date all
medical tests and exams are completed. Conditional coverage is
limited to the lesser of the specified amount applied for or
$300,000 (reduced by all amounts payable under other life
insurance or accidental death benefits that the insured (or
joint insured) has in force or pending with the Company.
Conditional coverage continues until the application is
approved or other conditions specified in the prospectus are
met.
FAXED APPLICATION AND PAYMENT BY WIRE TRANSFER. The Company
will accept the initial premium by wire transfer and Policy
applications by fax under the following conditions:
o If the owner wishes to make payments by wire transfer,
the owner should instruct his or her bank to wire federal
funds to the Company.
o If the owner sends the initial premium by wire transfer,
the owner must, at the same time, send a completed
application by faxed transmission and send the signed
application to the Company's office.
o If the Company accepts the initial premium payment by
wire transfer accompanied by a faxed application,
the Company will allocate the premium on the Policy date
(or reallocation date if the owner resides in a state
that requires the full refund of premium during the free
look period) according to the owner's instructions once
the application is received.
o If the owner sends the initial premium by wire transfer
but does not send the faxed application simultaneously,
or if the application is incomplete, the Company will
keep the initial premium for up to 5 business days. If
the Company cannot obtain the faxed application or
necessary information within 5 business days, the Company
will return the initial premium to the owner, unless the
owner allows the Company to keep it until the faxed
application or necessary information is received by the
Company.
o When the Company receives the original signed application
and if the allocation instructions are different from
those in the faxed application, then the Company will
reallocate the Policy's cash value in accordance with the
instructions on the original signed application on the
first valuation date following receipt of the original
signed application.
TAX-FREE EXCHANGES (1035 EXCHANGES). The Company will accept
as part of the initial premium money from one contract that
qualified for a tax-free exchange under Section 1035 of the
Internal Revenue Code. The Company will permit the owner to
make one additional cash payment within three business days of
receipt of the proceeds from the 1035 exchange before
determining the Policy's specified amount.
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B. ADDITIONAL PREMIUMS
ADDITIONAL PREMIUMS PERMITTED. The owner has limited
flexibility to add additional premiums to the Policy since the
Company requires that the initial premium equal the maximum
amount that can be applied to the Policy at issue. In general,
the owner may not pay any additional premiums on the Policy
for several years in order for the Policy to continue to
qualify as a life insurance contract as defined in federal tax
laws and regulations. At the time the Policy allows for the
payment of additional premiums, the Company reserves the right
to limit or refund any premium if: the amount is below our
current minimum additional premium requirement; OR the premium
would increase the death benefit by more than the amount of
the premium; OR accepting the premium would disqualify the
Policy as a life insurance contract as defined in federal tax
laws and regulations.
An owner may pay premiums by any method the Company deems
acceptable. The Company will treat any payment made as a loan
repayment unless it is clearly marked as a premium payment.
C. CREDITING PREMIUMS
INITIAL PREMIUM. The initial premium will be credited to the
Policy on the Policy date. Once the Company determines that
the insured(s) meets its underwriting requirements, full
insurance coverage begins, the Company issues the Policy, and
begins to deduct monthly and daily insurance charges from the
premium. On the Policy date, the Company will allocate the
initial premium to the subaccounts and fixed account options
the owner elected on the application, provided the owner lives
in a state that does not require a refund of full premium
during the free look period. If the owner's state requires a
return of the full premium in the event the owner exercises
his or her free look right, the Company will place the initial
premium in the reallocation account until the reallocation
date.
On any day that the Company credits premiums or transfers cash
value to a subaccount, the Company will convert the dollar
amount of the premium (or transfer) into subaccount units at
the unit value for that subaccount, determined at the end of
that valuation date. We will credit amounts to the subaccounts
only on a valuation date, that is, on a date the New York
Stock Exchange is open for trading.
REALLOCATION ACCOUNT. If the owner's state requires the
Company to return the initial premium in the event the owner
exercises his or her free-look right, the Company will
allocate the initial premium on the Policy date to the
reallocation account. While held in the reallocation account,
the premium will earn interest at the current rates for the
standard fixed account. The premium will remain in the
reallocation account for the number of days in the applicable
state free look period plus five days.
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On the first valuation date on or after the reallocation date,
the Company will reallocate all cash value from the
reallocation account to the subaccounts and fixed account
options the owner selected on the application. If the owner
requested either fixed or standard dollar cost averaging, the
Company will reallocate the cash value to the fixed DCA
account or the money market subaccount, respectively, on the
reallocation date.
For states that do not require a full refund of the initial
premium, the reallocation date is the same as the Policy date
and the Company will allocate the initial premium on the
Policy date to the subaccounts and the fixed account options
in accordance with the instructions on the application.
D. PREMIUMS DURING A GRACE PERIOD AND PREMIUMS UPON REINSTATEMENT
If the net surrender value is less than the amount of the
monthly deduction due on any Monthiversary, and the Guaranteed
Minimum Death Benefit rider is not in effect, the Policy will
be in default and a grace period will begin. If the Guaranteed
Minimum Death Benefit rider is in effect, the Policy will
remain in force, regardless of the sufficiency of the net
surrender value.
The grace period will end 61 days after the date on which the
Company sends a grace period notice stating the amount
required to be paid and the final date by which the Company
must receive the payment. The notice will be sent to the
owner's last known address and to any assignee of record. The
Policy does not lapse, and the insurance coverage continues,
until the expiration of this grace period.
If the grace period ends and the Guaranteed Minimum Death
Benefit rider is not in effect, all coverage under the Policy
will terminate without value. The owner may reinstate the
Policy only if the owner resides in a state that provides for
reinstatement, the insured (or joint insureds) meets the
Company's insurability requirements and the owner pays an
amount large enough to cover any monthly deductions due at the
time of termination and upon restatement; plus one monthly
deduction; plus the repayment of any outstanding loan amount,
including interest due. On reinstatement, the net surrender
value will equal the premium paid, minus one monthly deduction
and any surrender charges due. Surrender charges will be
calculated from the Policy date to the date of reinstatement.
E. ALLOCATIONS OF INITIAL PREMIUM AMONG THE SUBACCOUNTS AND THE
FIXED ACCOUNT OPTIONS
THE SEPARATE ACCOUNT. An owner may allocate premiums to one or
more of the subaccounts of PFL Legacy Builder Variable Life
Separate Account (the "separate account"). The separate
account currently consists of 19 subaccounts,
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the assets of which are used to purchase shares of a
designated corresponding investment portfolio of a fund. Each
fund is registered under the Investment Company Act of 1940,
as amended, as an open-end management investment company.
Additional subaccounts may be added from time to time to
invest in other portfolios of the funds or any other
investment company.
When an owner allocates an amount to a subaccount (either by
premium allocation, transfer of cash value or repayment of a
Policy loan), the Policy is credited with units in that
subaccount. The number of units is determined by dividing the
amount allocated, transferred or repaid to the subaccount by
the subaccount's unit value for the valuation date when the
allocation, transfer or repayment is effected. A subaccount's
unit value is determined for each valuation period by
multiplying the value of a unit for a subaccount for the prior
valuation period by the net investment factor for the
subaccount for the current valuation period. The unit value
for each subaccount was arbitrarily set as $10 at the time the
subaccount commenced operations. The net investment factor is
an index used to measure the investment performance of a
subaccount from one valuation period to the next.
THE FIXED ACCOUNT OPTIONS. Owners also may allocate premiums
to the fixed account options-- the standard fixed account and
the fixed dollar cost averaging ("fixed DCA") account - both
of which guarantee principal and a minimum fixed rate of
interest.
Money allocated or transferred to the STANDARD fixed account
option will earn interest at a current interest rate in effect
at that time. The interest rate will equal at least 3%.
At the time of purchase, the owner may place a minimum of
$5,000 in the fixed DCA account. Money placed in the fixed DCA
account will earn interest for six months at an annual rate of
at least 3%. Money will be transferred out of the fixed DCA
account over the year in 6 equal monthly installments and
placed in the subaccounts and standard fixed option according
to the owner's allocation instructions.
ALLOCATIONS PREMIUM AMONG THE SEPARATE ACCOUNT AND THE FIXED
ACCOUNT OPTIONS. Premiums are allocated to the subaccounts and
the fixed account options in accordance with the following
procedures:
GENERAL. In the application for the Policy, the owner will
specify the percentage of premium to be allocated to each
subaccount of the separate account and/or the fixed account
options. The percentage of each premium that may be allocated
to any subaccount or the standard fixed account must be a
whole number, and the sum of the allocation percentages must
be 100%. If the owner selects the fixed DCA account, the
entire initial premium must be allocated to that account at
the
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time of application. If the owner selects standard dollar
cost averaging, then the owner must allocate at least $5,000
to the money market subaccount.
Allocation percentages may be changed at any time by the owner
submitting a written notice or telephone instructions to the
Company's office. In the future, the Company may decide that
the minimum amount that can be allocated to a particular
subaccount is 1.00% of each premium payment.
ALLOCATION TO THE REALLOCATION ACCOUNT. If the owner lives in
a state that requires a refund of full premium during the free
look period, then on the Policy date the Company will allocate
the initial premium to the reallocation account until the
reallocation date. The reallocation account is the standard
fixed account. While held in the reallocation account, premium
will earn interest at the current rates for the standard fixed
account. The premium will remain in the reallocation account
for the number of days in the applicable state's free look
period, plus five days. This is the reallocation date. On the
first valuation date on or after the reallocation date, the
cash value will be reallocated to the subaccounts or fixed
account options selected by the owner on the application.
ALLOCATION AFTER THE REALLOCATION DATE. Additional premiums
received after the reallocation date will be credited to the
Policy and allocated to the subaccounts or standard fixed
account in accordance with the allocation percentages in
effect on the valuation date that the premium is received at
the Company's office. Allocation percentages can be changed at
any time.
F. LOAN REPAYMENTS AND INTEREST PAYMENTS
REPAYING LOAN AMOUNT. The owner may repay all or part of the
loan amount at any time while the Policy is in force and the
insured is living. The loan amount is equal to the sum of all
outstanding Policy loans including both principal plus any
accrued interest. Loan repayments must be sent to the
Company's office and will be credited as of the date received.
If the death benefit becomes payable while a Policy loan is
outstanding, the loan amount will be deducted in calculating
the death benefit.
ALLOCATION FOR REPAYMENT OF POLICY LOANS. On the date the
Company receives a repayment of all or part of a loan, the
Company will compare the amount of the outstanding loan to the
amount in the loan reserve. Any amount in excess of the amount
of the outstanding loan amount will be transferred from the
loan reserve to the subaccounts and the standard fixed account
and allocated in the same manner as current premiums are
allocated, or as directed by the owner.
INTEREST ON LOAN RESERVE. The amount in the loan reserve will
be credited with interest at a minimum guaranteed annual
effective rate of 3%. See "Policy Loans" below. Any interest
earned that is in excess to the amount of the outstanding loan
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amount will be transferred on the Policy anniversary to the
subaccounts and the standard fixed account in accordance with
the instructions for premium allocations then in effect.
II. TRANSFERS
A. TRANSFERS AMONG THE SUBACCOUNTS AND THE FIXED ACCOUNT
The owner may transfer cash value between and among the
subaccounts of the separate account and, subject to certain
special rules, to and from the fixed account options.
In any Policy year, the owner may make an unlimited number of
transfers; however, the Company reserves the right to impose
an excess transfer charge of $10 for each transfer in excess
of 12 during any Policy year. For purposes of the transfer
charge, all transfer requests made in one day are considered
one transfer, regardless of the number of subaccounts affected
by the transfer. Any unused "free" transfers do not carry over
to the next year.
There is no minimum amount that may be transferred from each
subaccount or the standard fixed account option and there is
no minimum amount that must remain in a subaccount or the
fixed account options following a transfer. Money in the fixed
DCA account may be transferred entirely after the first Policy
month.
Requests to transfer from the standard fixed account must be
received by the Company during the 30-day period following the
end of each Policy year unless the owner has selected fixed
dollar cost averaging, and only one such transfer may be made
in a Policy year. The maximum transfer amount from the
standard fixed account to the subaccounts in any Policy year
is the greater of 25% of the cash value in the standard fixed
account on the date of the transfer, or the amount transferred
from the standard fixed account in the immediately prior
Policy year (excluding transfers from the fixed DCA account).
The Policy, as applied for and issued, will automatically
receive telephone transfer privileges unless the owner
provides other instructions. The telephone transfer privileges
allow the owner to give authority to the registered
representative or agent of record for the Policy to make
telephone transfers and to change the allocation of future
payments among the subaccounts and the standard fixed account
on the owner's behalf according to the owner's instructions.
The Company reserves the right to modify, restrict, suspend,
or eliminate the transfer privileges (including telephone
transfer privileges) at any time and for any reason.
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B. STANDARD DOLLAR COST AVERAGING
The standard dollar cost averaging program permits owners to
systematically transfer on a monthly basis a set dollar amount
from the subaccount investing in the money market portfolio to
any combination of subaccounts. Owners may elect to
participate in the dollar cost averaging program at any time
by sending the Company a written request. To use the dollar
cost averaging program, owners must have at least $5,000 in
the money market subaccount. At the beginning of dollar cost
averaging, the owner must choose the time period (12, 24, or
36 months) over which the entire amount in the money market
subaccount will be transferred in equal monthly installments.
There is no additional charge for dollar cost averaging. A
transfer under this program is not considered a transfer for
purposes of assessing a transfer charge. The Company reserves
the right to discontinue offering the dollar cost averaging
program at any time and for any reason. Dollar cost averaging
is not available while owners are participating in the asset
rebalancing program.
C. FIXED DOLLAR COST AVERAGING
To be eligible for fixed dollar cost averaging, the owner must
elect the fixed DCA account on the application and put the
entire initial premium in the fixed DCA account. Money placed
in the fixed DCA account will earn interest at rates we
declare from time to time. Money will be transferred out of
the fixed DCA account in 6 equal monthly installments with the
first transfer occurring on the first Monthiversary after the
Policy date or reallocation date. Interest accrued on the
initial premium will be transferred in the last month of the
fixed DCA account term. Money in the fixed DCA account may be
transferred entirely to other subaccounts or the standard
fixed account after one month .
There is no charge for participating in the fixed DCA account.
Transfers from the fixed DCA account do not count as transfers
for purposes of the transfer charge.
The Company reserves the right to stop offering the fixed DCA
account at any time for any reason. The Company may offer a
higher 30-day interest rate guaranteed for one month.
D. ASSET REBALANCING
An owner may instruct the Company to automatically rebalance
(on a quarterly, semi-annual or annual basis) the Policy's
cash value to return to the percentages specified in the
owner's currently effective allocation instructions. An owner
may elect to participate in the asset rebalancing program at
any time by sending the Company a written request to the
Company's office. The percentage allocations must be in whole
percentages. Subsequent changes to the percentage allocations
may be made at any time by written or telephone instructions
to the Company's
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office. Once elected, asset rebalancing remains in effect
until the owner instructs the Company to discontinue asset
rebalancing. There is no additional charge for using asset
rebalancing, and an asset rebalancing transfer is not
considered a transfer for purposes of assessing a transfer
charge. The Company reserves the right to discontinue offering
the asset rebalancing program at any time and for any reason.
Portfolio rebalancing is not available while an owner is
participating in the fixed or standard dollar-cost averaging
program. Asset rebalancing will cease if the owner makes any
transfer to or from any subaccount other than on a scheduled
basis.
E. TRANSFER ERRORS
In accordance with industry practice, the Company will
establish procedures to address and to correct errors in
amounts transferred among the subaccounts and the fixed
account, except for de minimis amounts. The Company will
correct non-de minimis errors it makes and will assume any
risk associated with the error. owners will not be penalized
in any way for errors made by the Company. The Company will
take any gain resulting from the error.
III. "REDEMPTION" PROCEDURES
A. "FREE-LOOK" RIGHTS
The Policy provides for an initial free-look right during
which an owner may cancel the Policy by returning it to the
Company or to an agent of the Company before the end of 10
days after the Policy is delivered. The free-look period may
be longer in some states. Upon returning the Policy to the
Company or to an authorized agent for forwarding to the
Company's office, the Policy will be deemed void from the
beginning. Within seven days after the Company's office
receives the cancellation request and Policy, the Company will
pay a refund. In most states, the refund will be equal to the
sum of:
o any monthly deductions or other charges we deducted
from amounts allocated to the subaccounts and the fixed
account options; PLUS
o the cash value to the subaccounts and the fixed account
options on the date the Company (or its agent) receives
the returned Policy, except that amounts allocated to
the fixed DCA account will be treated as if they had
been allocated to the standard fixed account.
If any state law prohibits the calculation above, the Company
will refund, without interest, the total of all premiums paid
for the Policy. In such states, the initial premium will be
allocated to the reallocation account on the Policy date and
remain in the reallocation account until the reallocation
date.
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B. SURRENDERS
REQUESTS FOR NET SURRENDER VALUE. The owner may surrender the
Policy at any time for its net surrender value. The net
surrender value on any valuation date is the cash value, minus
any applicable surrender charge, and minus any applicable loan
amount. The net surrender value will be determined by the
Company on the valuation date the Company's office receives
all required documents, including a satisfactory written
request signed by the owner. The Company will cancel the
Policy as of the date the written request is received at the
Company's office and the Company will ordinarily pay the net
surrender value within seven days following receipt of the
written request and all other required documents. The Policy
cannot be reinstated after it is surrendered.
SURRENDER OF POLICY -- SURRENDER CHARGE. If the Policy is
surrendered during the first 9 Policy years, the Company will
deduct a surrender charge from cash value and pay the
remaining cash value (less any outstanding loan amounts) to
the owner. The surrender charge is 9.75% of the initial
premium if the Policy is surrendered before the end of the
first Policy year, and then declines gradually to 0% after the
ninth Policy year. The rate at which the surrender charge
declines depends on the insured's (or joint insureds') age,
gender and whether the Policy is a single life or joint
policy.
C. PARTIAL WITHDRAWALS
WHEN WITHDRAWALS ARE PERMITTED. After the first Policy year,
the owner may withdraw a portion of the cash value, subject to
the following conditions:
o The owner must make partial withdrawal requests in writing.
o Only one partial withdrawal is allowed during a 12-month
period.
o The most that can be withdrawn is earnings, that is, cash
value MINUS total outstanding loans, MINUS any interest owed
on the Policy loans, and MINUS total premiums paid.
o The owner can specify the subaccount(s) and the standard
fixed account from which the withdrawal will be taken.
Otherwise, the Company will deduct the amount from the
separate account and the fixed account in accordance with
the current allocation instructions.
o The Company generally will pay a partial withdrawal request
within seven days following the valuation date on which the
withdrawal request is received.
o There is no charge for a partial withdrawal.
The Company may delay making a payment if: (1) the disposal or
valuation of the separate account's assets is not reasonably
practicable because the New York Stock Exchange is closed for
other than a regular holiday or weekend, trading is restricted
by the SEC, or the SEC declares that an emergency exists; or
(2) the SEC by order permits postponement of payment to
protect the Policy owners.
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The Company also may defer making payments attributable to a
check that has not cleared, and may defer payment of proceeds
from the fixed account for a withdrawal, surrender or Policy
loan request for up to six months from the date the request is
received. The Company will not defer payment of a withdrawal
or Policy loan requested to pay a premium due on a policy
issued by the Company.
EFFECT OF WITHDRAWAL ON DEATH BENEFIT. A partial withdrawal
will reduce the cash value by the amount of the partial
withdrawal. A partial withdrawal will reduce the specified
amount by an amount equal to the amount of the partial
withdrawal multiplied by the ratio of the initial specified
amount to the initial premium. A partial withdrawal will also
reduce the Guaranteed Minimum Death Benefit by an amount equal
to the amount of the partial withdrawal multiplied by the
ratio of the initial specified amount to the initial premium.
D. LAPSES
If a sufficient premium has not been received by the 61st day
after a grace period notice is sent, the Policy will lapse
without value and no amount will be payable to the owner.
E. MONTHLY DEDUCTION AND DAILY CHARGE
On each Monthiversary, redemptions in the form of
deductions will be made from cash value for the monthly
deduction, which is a charge compensating the Company for the
services and benefits provided, costs and expenses incurred,
and risks assumed by the Company in connection with the
Policy. The monthly deduction consists of three components:
(a) the cost of insurance charge, if any; (b) a monthly Policy
charge ; and (c) any charges for additional benefits added by
riders to the Policy.
THE MONTHLY DEDUCTION. A monthly deduction will be deducted
from each subaccount and the fixed account on the Policy date
and on each Monthiversary in accordance with the current
premium allocation instructions. If the value of any account
is insufficient to pay that account's portion of the monthly
deduction, the Company will take the monthly deduction on a
pro-rata basis from all accounts (I.E., in the same proportion
that the value in each subaccount and the fixed account bears
to the total cash value on the Monthiversary).
The monthly deduction is equal to:
o the monthly Policy charge based on the Policy's separate
account assets; PLUS
o the monthly Policy charge based on the Policy's fixed
account assets; PLUS
o the monthly cost of insurance charge for the Policy, if any;
PLUS
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o the monthly charge for any benefits provided by riders
attached to the Policy (currently, only the Guaranteed
Minimum Death Benefit rider).
COST OF INSURANCE CHARGE. The Company reserves the right to
deduct a cost of insurance charge. The cost of insurance
charges are calculated monthly, and depend on a number of
variables, including the age, gender and rate class of the
insured. The charge varies from Policy to Policy and from
Monthiversary to Monthiversary. The charge is calculated each
month for the specified amount at issue.
MONTHLY POLICY CHARGE. The monthly Policy charge based on the
separate account's assets is equal to: (1) the separate
account monthly deduction charge divided by 12; multiplied by
(2) the sum of the Policy's subaccount values on the
Monthiversary of each monthly deduction.
The monthly Policy charge based on the fixed account's assets
is equal to: (1) the fixed account monthly deduction charge
divided by 12; multiplied by (2) the fixed account value on
the Monthiversary of each monthly deduction, minus any
outstanding loans.
DAILY CHARGE. Each valuation date, the Company deducts a daily
charge at the annual rate of 0.50% from assets in the
subaccounts as part of the calculation of the unit value for
each subaccount.
GUARANTEED MINIMUM DEATH BENEFIT RIDER CHARGE. If the owner
selects the Guaranteed Minimum Death Benefit rider at
application, the Company will deduct a monthly charge on the
Policy date and on each Monthiversary equal to 0.02%
multiplied by the sum of the subaccount values, if any, on the
valuation date of each monthly deduction; plus 0.02%
multiplied by the fixed account value on the valuation date of
each monthly deduction.
F. DEATH BENEFITS
PAYMENT OF DEATH BENEFIT PROCEEDS. As long as the Policy
remains in force, the Company will pay the death benefit
proceeds to the beneficiary upon receipt at the Company's
office of due proof of the insured's (or surviving insured's)
death. The death benefit proceeds is equal to:
The death benefit will be paid to the beneficiary in a lump
sum generally within seven days after the valuation date by
which the Company has received at the Company's office all
materials necessary to constitute due proof of death. If a
payment option is elected, the death benefit will be applied
to the option within seven days after the valuation date by
which the Company received due proof of death and payments
will begin under that option when provided by the option.
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THE DEATH BENEFIT PROCEEDS. The death benefit proceeds will
equal:
o the death benefit (described below); MINUS
o any past due monthly deductions if the insured (or surviving
insured) dies during the grace period; MINUS
o any outstanding Policy loan on the date of death; MINUS
o any interest owed on the Policy loan(s).
If all or part of the death benefit proceeds are paid in one
sum, we will pay interest on this sum as required by
applicable state law from the date we receive due proof of the
insured's death to the date the Company makes payment.
THE DEATH BENEFIT. The death benefit is determined at the end
of the valuation period in which the insured (or surviving
insured) dies. The death benefit is equal to:
o The current specified amount; or
o A specified percentage, called the limitation percentage,
multiplied by the cash value on the insured's (or surviving
insured's) date of death.
THE GUARANTEED MINIMUM DEATH BENEFIT RIDER. If the owner
purchases the Guaranteed Minimum Death Benefit rider at the
time of application and the rider is in effect upon the
insured's (or surviving insured's) death, the Company
guarantees to provide a death benefit as described in the
current prospectus for the Policy.
G. POLICY LOANS
POLICY LOANS. The owner may obtain a Policy loan from the
Company at any time by submitting a written, faxed, or
telephone request to the Company's office. The maximum loan
amount is 90% of the Policy's cash value at the time of the
loan. Policy loans will be processed as of the valuation date
the request is received and loan proceeds generally will be
sent to the owner within seven days thereafter. Taking a
Policy loan will terminate the Guaranteed Minimum Death
Benefit rider, if any.
COLLATERAL FOR POLICY LOANS. When a Policy loan is made, an
amount equal to the loan proceeds is transferred from the cash
value in the subaccounts or standard fixed account to the loan
reserve. This withdrawal is made based on the owner's current
premium allocation instructions, unless the owner directs a
different allocation when requesting the loan.
INTEREST ON POLICY LOANS. The Company charges interest daily
on any outstanding Policy loan at an effective annual interest
rate of 6%. Interest is due and payable at the end of each
Policy anniversary. On each Policy anniversary, any unpaid
amount of loan interest accrued since the last Policy
anniversary becomes part of
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the outstanding loan. An amount equal to the unpaid amount of
interest is transferred to the loan reserve from each
subaccount and the standard fixed account based on the owner's
current premium allocation instructions, unless the owner
directs otherwise.
EFFECT ON DEATH BENEFIT. If the death benefit becomes payable
while a Policy loan is outstanding, the loan amount will be
deducted in calculating the death benefit. The Company will
send the owner, and any assignee of record, notice of the
default. The owner will have a 61-day grace period to submit a
sufficient payment to avoid lapse.
I. LUMP SUM PAYMENTS BY THE COMPANY
Lump sum payments of withdrawals, surrenders or death benefits
from the subaccounts will be ordinarily made within seven days
of the valuation date on which the Company receives the
request and all required documentation at the Company's
office. The Company may postpone the processing of any such
transactions for any of the following reasons:
1. If the disposal or valuation of the separate
account's assets is not reasonably practicable
because the New York Stock Exchange ("NYSE") is
closed for trading other than for customary holiday
or the weekend closings, or trading on the NYSE is
otherwise restricted, or an emergency exists, as
determined by the Securities and Exchange Commission
("SEC").
2. When the SEC by order permits a delay for the
protection of owners.
3. If the payment is attributable to a check that has
not cleared.
The Company may defer for up to six months after the date the
Company receives the request, the payment of any proceeds from
the fixed account for a transfer, partial withdrawal, or
surrender request.
J. CONVERSION RIGHT
The owner has the right to transfer all of the subaccount
value to the standard fixed account. During the first 24
Policy months, such a transfer is not counted for purposes of
determining whether a transfer charge applies.
K. REDEMPTION ERRORS
In accordance with industry practice, the Company will
establish procedures to address and to correct errors in
amounts redeemed from the subaccounts and the fixed account,
except for de minimus amounts. The Company will assume the
risk of any non de minimus errors caused by the Company.
15
<PAGE>
L. MISSTATEMENT OF AGE OR SEX
If the insured's (or either joint insured's) age or gender has
been misstated in the application or any other supplemental
application, then the death benefit under the Policy will be
adjusted based on what the initial premium would have
purchased based on the insured(s)' correct age and gender.
M. INCONTESTABILITY
The Policy limits the Company's right to contest the Policy as
issued or as increased, for reasons of material misstatements
contained in the application, after it has been in force
during the insured's lifetime (or while both joint insureds
are still alive) for a minimum period, generally for two years
from the Policy date of the Policy or effective date of a
reinstatement. If the Policy is purchased as a joint policy,
at the end of the second Policy year, the Company will send
the owner a notice asking whether either joint insured has
died. The Company can contest the Policy's validity if the
owner does not notify the Company that a joint insured has
died and if the Policy is still in force.
N. LIMITED DEATH BENEFIT
The Policy limits the death benefit if the insured dies by
suicide generally within two years after the Policy date of
the Policy (or reinstatement date, if provided by state law).
16
EXHIBIT 3.
OPINION OF COUNSEL AS TO THE LEGALITY OF THE SECURITIES BEING REGISTERED
<PAGE>
PFL Letterhead
May 27, 1999
Board of Directors
PFL Life Insurance Company
Legacy Builder Variable Life Separate Account
4333 Edgewood Road, NE
Cedar Rapids, Iowa 52499
Gentlemen:
In my capacity as Vice President and Division General Counsel of PFL Life
Insurance Company ("PFL"), I have participated in the preparation and review of
Pre-Effective Amendment No. 1 to the Registration Statement on Form S-6 (File
No. 333-68087) filed with the Securities and Exchange Commission under the
Securities Act of 1933 for the registration of both individual and joint
survivorship modified single premium variable life insurance policies (the
"Policies") to be issued with respect to the Legacy Builder Variable Life
Separate Account (the "Account"). The Account was established on November 20,
1998 by the Board of Directors of PFL as a separate account for assets
applicable to the Policies, pursuant to the provisions of Section 490.821 of the
Iowa Business Corporation Act.
I am of the following opinion:
1. PFL has been duly organized under the laws of Iowa and is a validly
existing corporation.
2. The Account has been duly created and is validly existing as a separate
account pursuant to the aforesaid provision of Iowa law.
3. Section 490.821 of the Iowa Business Corporation Act provides that the
portion of the assets of the Account equal to the reserves and other
liabilities for variable benefits under the Policies is not chargeable
with liabilities arising out of any other business PFL may conduct.
Assets allocated to the fixed account under the Policies, however, are
part of PFL's general account and are subject to PFL's general
liabilities from business operations.
4. The Policies, when issued as contemplated by the Registration Statement,
will be legal and binding obligations of PFL in accordance with their
terms.
In arriving at the foregoing opinion, I have made such examination of law and
examined such records and other documents as I judged to be necessary or
appropriate.
I hereby consent to the filing of this opinion as an exhibit to the Registration
Statement.
Very truly yours,
/s/ FRANK A. CAMP
- -------------------------------
Frank A. Camp
Vice President and Division
General Counsel
EXHIBIT 6.
OPINION AND CONSENT OF RICHARD R. GREER AS TO ACTUARIAL MATTERS PERTAINING
TO THE SECURITIES BEING REGISTERED
<PAGE>
PFL Letterhead
May 27, 1999
PFL Life Insurance Company
4333 Edgewood Road, NE
Cedar Rapids, Iowa 52499
RE: REGISTRATION NO. 333-68087
Gentlemen:
This opinion is furnished in connection with the Pre-Effective Amendment
No. 1 registration by PFL Life Insurance Company of both individual and joint
survivorship modified single premium variable life insurance policies
("Policies") under the Securities Act of 1933. The prospectus included in the
Registration Statement on Form S-6 describes the Policies. The forms of Policies
were prepared under my direction, and I am familiar with the Registration
Statement and exhibits thereof.
In my opinion, the illustrations of death benefits, cash values and net
surrender values included in the section entitled "Appendix A - Illustrations"
of the prospectus, based on the assumptions stated in the illustrations, are
consistent with the provisions of the respective forms of the Policies.
I hereby consent to the use of this opinion as an exhibit to the
Registration Statement and to the reference to my name under the heading
"Experts" in the prospectus.
Very truly yours,
/s/ RICHARD R. GREER
- ------------------------------------
Richard R. Greer
Vice President and Actuary
EXHIBIT 7.
CONSENT OF FRANK A. CAMP, ESQ.
<PAGE>
PFL Letterhead
May 27, 1999
PFL Life Insurance Company
4333 Edgewood Road, NE
Cedar Rapids, Iowa 52499
Gentlemen:
I hereby consent to the reference to my name under the caption "Legal Matters"
in the prospectus contained in Pre-Effective Amendment No. 1 to the Registration
Statement on Form S-6 (File No. 333-68087) for the PFL Life Insurance Company
Legacy Builder Variable Life Separate Account, as filed with the Securities and
Exchange Commission.
/s/ FRANK A. CAMP
- -------------------------------------
Frank A. Camp
Vice President and Division
General Counsel
EXHIBIT 8.
CONSENT OF SUTHERLAND ASBILL & BRENNAN LLP
<PAGE>
SAB Letterhead
May 27, 1999
Board of Directors
PFL Life Insurance Company
Legacy Builder Variable Life Separate Account
4333 Edgewood Road, NE
Cedar Rapids, Iowa 52499
Re: Legacy Builder Variable Life Separate Account
File No. 333-68087
Gentlemen:
We hereby consent to the use of our name under the caption "Legal
Matters" in the Prospectus for the PFL Legacy Builder II contained in
Pre-Effective Amendment No. 1 to the Registration Statement on Form S-6 (File
No. 333-68087) of the Legacy Builder Variable Life Separate Account filed by PFL
Life Insurance Company with the Securities and Exchange Commission. In giving
this consent, we do not admit that we are in the category of persons whose
consent is required under Section 7 of the Securities Act of 1933.
Very truly yours,
SUTHERLAND ASBILL & BRENNAN LLP
By: /s/ STEPHEN E. ROTH
---------------------------------
Stephen E. Roth
EXHIBIT 9.
CONSENT OF ERNST & YOUNG LLP
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated February 19, 1999, with respect to the statutory-basis
financial statements and schedules of PFL Life Insurance Company included in
Pre-Effective Amendment No. 1 to the Registration Statement (Form S-6 No.
333-68087) and related Prospectus of the Legacy Builder Variable Life Separate
Account.
ERNST & YOUNG LLP
Des Moines, Iowa
June 7, 1999
