<PAGE>
As filed with the Securities and Exchange Commission on April 28, 2000
Registration File Nos. 333-86231/811-9115
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 1
TO
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT
OF 1933 OF SECURITIES OF UNIT INVESTMENT TRUSTS
REGISTERED ON FORM N-8B-2
LEGACY BUILDER VARIABLE LIFE SEPARATE ACCOUNT
(Exact Name of Trust)
PFL LIFE INSURANCE COMPANY
(Name of Depositor)
4333 Edgewood Road, NE
Cedar Rapids, Iowa 52499
(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
(Name and Complete Address of Agent for Service)
Copies to:
Frederick R. Bellamy, Esq.
Sutherland Asbill & Brennan LLP
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004-2404
Approximate Date of Proposed Public Offering: May 1, 2000
Title of securities being registered: Legacy Builder Plus flexible premium
variable life insurance policy.
It is proposed that this filing will become effective:
[ ] Immediately upon filing pursuant to paragraph (b).
[X] On May 1, 2000 pursuant to paragraph (b).
[ ] 60 days after filing pursuant to paragraph (a)(1).
[ ] On (date) pursuant to paragraph (a)(1) of Rule 485.
<PAGE>
PROSPECTUS
May 1, 2000
PFL Life Insurance Company is offering Legacy Builder Plus (the "Policy"), the
flexible premium variable life insurance policy described in this prospectus.
This prospectus provides information that a prospective owner should know
before investing in the Policy. You should consider the Policy in conjunction
with other insurance you own.
You can allocate your Cash Value to:
. the Legacy Builder Variable Life Separate Account (the "variable
account"), which invests in the portfolios listed on this page; or
. a fixed account, which credits a specified rate of interest.
A prospectus for each of the portfolios available through the variable account
must accompany this prospectus. Please read these documents before investing
and save them for future reference.
Please note that the Policies and the portfolios:
. are not bank deposits
. are not federally insured
. are not endorsed by any bank or government agency
. are not guaranteed to achieve their goals
. are subject to risks, including loss of the amount invested.
The Policy generally will be a "modified endowment contract" for Federal
income tax purposes. This means all loans, surrenders and partial surrenders
are treated first as distributions of taxable income, and then as a return of
basis. Prior to your age 59 1/2, all these distributions generally are subject
to a 10% penalty tax.
The Securities and Exchange Commission has not approved or disapproved this
Policy or determined that this prospectus is accurate or complete. Any
representation to the contrary is a criminal offense.
Legacy Builder Plus
Flexible Premium Variable Life
Insurance Policy
issued by
Legacy Builder Variable Life Separate
Account
and
PFL Life Insurance Company
4333 Edgewood Road NE
Cedar Rapids, Iowa 52499
(800) 732-7754
The available portfolios are:
.AIM Variable Insurance Funds
AIM V.I. Capital Appreciation Fund
AIM V.I. Government Securities Fund
AIM V.I. Growth and Income Fund
AIM V.I. Value Fund
.Dreyfus Stock Index Fund
.Dreyfus Variable Investment Fund
Dreyfus VIF--Money Market Portfolio
Dreyfus VIF--Small Company Stock Portfolio
.MFS(R) Variable Insurance TrustSM
MFS Emerging Growth Series
MFS Research Series
MFS Total Return Series
MFS Utilities Series
.Oppenheimer Variable Account Funds
Oppenheimer Capital Appreciation Fund/VA
Oppenheimer Global Securities Fund/VA
Oppenheimer High Income Fund/VA
Oppenheimer Main Street Growth & Income Fund/VA
Oppenheimer Strategic Bond Fund/VA
.Transamerica Variable Insurance Fund, Inc.
Transamerica VIF Growth Portfolio
. Variable Insurance Products Fund (VIP)--Service Class 2
Fidelity--VIP Equity-Income Portfolio
Fidelity--VIP Growth Portfolio
Fidelity--VIP High Income Portfolio
. Variable Insurance Products Fund II (VIP II)--Service Class 2
Fidelity--VIP II Contrafund(R) Portfolio
Fidelity--VIP II Investment Grade Bond Portfolio
. Variable Insurance Products Fund III (VIP III) Service Class 2
Fidelity--VIP III Growth & Income Portfolio
Fidelity--VIP III Balanced Portfolio
Fidelity--VIP III Mid Cap Portfolio
.WRL Series Fund, Inc.
WRL Janus Global
WRL Janus Growth
WRL VKAM Emerging Growth
<PAGE>
Table of Contents
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<TABLE>
<S> <C>
Glossary.................................................................... 1
Policy Summary.............................................................. 3
Portfolio Expense Table..................................................... 6
Risk Summary................................................................ 10
The Company and the Fixed Account........................................... 12
PFL Life Insurance Company................................................ 12
The Fixed Account......................................................... 12
The Variable Account and the Portfolios..................................... 13
The Variable Account...................................................... 13
The Portfolios............................................................ 14
Your Right to Vote Portfolio Shares....................................... 15
The Policy.................................................................. 16
Purchasing a Policy....................................................... 16
When Insurance Coverage Takes Effect...................................... 16
Extending the Maturity Date............................................... 16
Ownership Rights.......................................................... 17
Changing the Owner...................................................... 17
Selecting and Changing the Beneficiary.................................. 17
Assigning the Policy.................................................... 17
Canceling a Policy........................................................ 18
Premiums.................................................................... 18
Premium Payments.......................................................... 18
Allocating Premiums....................................................... 20
Policy Values............................................................... 21
Cash Value................................................................ 21
Growth Accelerator........................................................ 21
Cash Surrender Value...................................................... 21
Subaccount Value.......................................................... 21
Unit Value................................................................ 22
Fixed Account Value....................................................... 22
Charges and Deductions...................................................... 23
Premium Expense Charge.................................................... 23
Monthly Deduction......................................................... 23
Cost of Insurance....................................................... 24
Monthly Policy Charge................................................... 24
Daily Charge.............................................................. 24
Surrender Charge.......................................................... 25
Partial Surrender Charge.................................................. 25
</TABLE>
<TABLE>
<S> <C>
Transfer Charge........................................................... 25
Portfolio Expenses........................................................ 25
Death Benefit............................................................... 26
Death Benefit............................................................. 26
Payment Options........................................................... 26
Full and Partial Surrenders................................................. 27
Full Surrenders........................................................... 27
Partial Surrenders........................................................ 27
Transfers................................................................... 28
Dollar Cost Averaging..................................................... 29
Asset Rebalancing Program................................................. 29
Loans....................................................................... 30
Loan Conditions........................................................... 30
Effect of Policy Loans.................................................... 31
Policy Lapse and Reinstatement.............................................. 32
Lapse..................................................................... 32
Reinstatement............................................................. 32
Federal Tax Considerations.................................................. 33
Other Policy Information.................................................... 35
Our Right to Contest the Policy........................................... 35
Suicide Exclusion......................................................... 35
Misstatement of Age or Sex................................................ 35
Modifying the Policy...................................................... 36
Payments We Make.......................................................... 36
Reports to Owners......................................................... 36
Records................................................................... 37
Policy Termination........................................................ 37
Performance Data............................................................ 37
Additional Information...................................................... 50
Sale of Policies.......................................................... 50
Associate Policies........................................................ 50
Legal Matters............................................................. 50
Legal Proceedings......................................................... 50
Experts................................................................... 50
Financial Statements...................................................... 51
Additional Information about PFL Life Insurance Company................... 51
PFL's Executive Officers and Directors.................................... 52
Illustrations............................................................... 53
</TABLE>
<PAGE>
Glossary
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Cash Value
The sum of your Policy's value in the subaccounts and the fixed account
(including amounts held in the fixed account to secure any loans).
Cash Surrender Value
The amount we pay when you surrender your Policy. It is equal to: (1) the Cash
Value as of the date of surrender; minus (2) any surrender charge; minus (3)
any outstanding Policy loan; minus (4) any loan interest you owe.
Death benefit proceeds
The amount we will pay to the beneficiary when we receive proof of the
insured's death. We will reduce the proceeds by the amount of any outstanding
loans (including any interest you owe), and any due and unpaid monthly
deductions.
Initial premium
The amount you must pay before insurance coverage begins under this Policy.
Your Policy's schedule page shows the initial premium. It must be at least
$10,000.
Insured
The person whose life is insured by this Policy.
Lapse
If the Policy has an outstanding loan and you do not have enough Cash Value to
pay the monthly deduction, the surrender charge and any outstanding loan amount
(including any interest you owe on the loan(s)), the Policy will enter a 61-day
grace period. The Policy will lapse (terminate without value) if you do not
make a sufficient payment by the end of a grace period.
Maturity Date
The Policy anniversary when the insured reaches age 100 and life insurance
coverage under this Policy ends. You may elect to continue the Policy beyond
insured's age 100 under the extended maturity provision. However, the extended
maturity provision may not be available in all states.
Monthly Date
This is the same day of each month as the Policy Date. If there is no Valuation
Date in a calendar month that coincides with the Policy Date, the Monthly Date
is the next Valuation Date. On each Monthly Date, we determine Policy charges
and deduct them from the Cash Value.
Monthly Deduction
The amount we deduct from the Cash Value each month. The monthly deduction
includes the cost of insurance charge, and any monthly administration charge.
Net Premium
The amount we receive as premium, less the premium expense charge.
Office
Our administrative and service office is Financial Markets Division, P.O. Box
3183, Cedar Rapids, Iowa 52406-3183; or 4333 Edgewood Road NE, Cedar Rapids,
Iowa 52499-0001. The telephone number is 1-800-732-7754.
Owner (you, your)
The person entitled to exercise all rights as owner under the Policy.
Policy Date
The date when we complete our underwriting process, full life insurance
coverage goes into effect, we issue the Policy, and we begin to deduct the
Monthly Deductions. Your Policy's schedule page shows the Policy Date. The free
look period begins on the Policy Date. We measure Policy months, years, and
anniversaries from the Policy Date.
Premiums
All payments you make under the Policy other than loan repayments.
Reallocation Date
The date shown on the Policy schedule page when we reallocate any premium (plus
interest) held in the fixed account to the subaccounts and fixed account as you
directed in your application. The Reallocation Date varies by state according
to a state's free look
1
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requirement. In states that require a full refund of premium upon exercise of
the free look right, the Reallocation Date is 5 days after the end of the free
look period. In other states, the Reallocation Date is the Policy Date.
Subaccount
A subdivision of the Legacy Builder Variable Life Separate Account. We invest
each subaccount's assets exclusively in shares of one investment portfolio.
Surrender
To cancel the Policy by signed request from the owner.
Valuation Date
Each day that both the New York Stock Exchange and PFL Life Insurance Company
are open for business, except for any days when a subaccount's corresponding
investment portfolio does not value its shares. As of the date of this
prospectus, there are no days when both the New York Stock Exchange and PFL are
open for business and an investment portfolio does not value its shares.
Valuation Period
The period beginning at the close of business of the New York Stock Exchange on
one Valuation Date and continuing to the close of business on the next
Valuation Date.
Variable account
Legacy Builder Variable Life Separate Account. It is a separate investment
account that is divided into subaccounts, each of which invests in a
corresponding portfolio of a designated mutual fund.
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 in our sole
discretion is necessary for us to take the action you request or for you to
exercise the right specified, and (3) be received at our Office.
2
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Policy Summary
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This summary describes important features of the Policy and corresponds to
sections in this prospectus which discuss the topics in more detail. All
capitalized words and phrases, and a number of others, are defined or explained
in the Glossary.
Premiums
. You can select a premium payment plan but you are not required to pay
premiums according to the plan. You can vary the frequency and amount, and
can skip premium payments. We will not accept any premiums after the insured
reaches age 100.
. In general, the minimum initial premium is $10,000, and the minimum
additional premium is $5,000.
. If the insured qualifies for simplified underwriting:
-- Conditional life insurance coverage begins as soon as you complete an
application and pay an initial premium.
-- The maximum initial premium you may pay is $1,500 multiplied by the
insured's age at issue. (For example, if the insured is age 50 at issue,
the maximum initial premium for simplified underwriting is $75,000.)
-- You may pay the maximum initial premium at issue or at any time during
the first 2 Policy years; however, premiums paid in the second Policy
year may not exceed premiums paid in the first Policy year.
. If the insured undergoes full underwriting:
-- You designate the total premium for which we will underwrite the insured
(the "underwriting premium").
-- In the second and subsequent Policy years, you have different premium
payment options depending on what premiums you paid in the previous
Policy year. See "Premiums" for further information.
-- At issue, you must pay an amount equal to the greater of: (1) 50% of the
underwriting premium; or (2) the underwriting premium minus $100,000.
-- In the second and subsequent Policy years, you have different premium
payment options depending on what premiums you paid in the previous
Policy year. See "Premiums" for further information.
. If you have no outstanding loans (or if you fully repay a loan), then we
guarantee that your Policy will never lapse.
. If you have an outstanding loan, your Policy will enter a 61-day grace
period whenever the loan amount exceeds the Cash Value minus any surrender
charge. The loan amount is the total amount of all outstanding Policy loans,
including both principal and interest due. If that occurs, then your Policy
will terminate without value unless you make a sufficient payment during the
grace period. See "Risk of Lapse," and "Policy Lapse and Reinstatement."
. Once we issue your Policy, the free look period begins. The free look period
is the period when you may return the Policy and receive a refund. The
length of the free look period varies by state. See "Canceling a Policy."
The front cover of your Policy shows the applicable free look period.
. We put all premiums (minus any premium expense charge) in the fixed account
until the Reallocation Date.
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Investment Options
You may allocate your money among the variable account investment options, and
the fixed account options.
Variable Account:
. You may allocate the money in your Policy to any of the subaccounts of the
variable account. We do not guarantee any money you place in the
subaccounts. The value of each subaccount will increase or decrease,
depending on the investment performance of the corresponding portfolio. You
could lose some or all of your money.
. Each subaccount invests exclusively in one of the following investment
portfolios:
<TABLE>
<S> <C>
. Transamerica Variable Insurance Fund,
. AIM Variable Insurance Funds Inc.
AIM V.I. Capital Appreciation Transamerica VIF Growth Portfolio
Fund
AIM V.I. Government Securities
Fund
AIM V.I. Growth and Income
Fund
AIM V.I. Value Fund
. Dreyfus Stock Index Fund . Variable Insurance Products Fund
(VIP)--Series Class 2
Fidelity--VIP Equity-Income
Portfolio
Fidelity--VIP Growth Portfolio
Fidelity--VIP High Income
Portfolio
. Dreyfus Variable Investment Fund . Variable Insurance Products Fund II
Dreyfus VIF--Money Market (VIP)--Series Class 2
Portfolio Fidelity--VIP II Contrafund(R)
Dreyfus VIF--Small Company Portfolio
Stock Portfolio Fidelity--VIP II Investment Grade
Bond Portfolio
. MFS(R) Variable Insurance TrustSM . Variable Insurance Products Fund III
MFS Emerging Growth Series (VIP)--Series Class 2
MFS Research Series Fidelity--VIP III Growth & Income
MFS Total Return Series Portfolio
MFS Utilities Series Fidelity--VIP III Balanced
Portfolio
Fidelity--VIP III Mid Cap
Portfolio
. Oppenheimer Variable Account Funds . WRL Series Fund, Inc.
Oppenheimer Capital WRL Janus Global
Appreciation Fund/VA WRL Janus Growth
Oppenheimer Global Securities WRL VKAM Emerging Growth
Fund/VA
Oppenheimer High Income
Fund/VA
Oppenheimer Main Street Growth
& Income Fund/VA
Oppenheimer Strategic Bond
Fund/VA
</TABLE>
Fixed Account:
. You may also place money in the basic fixed account where it earns interest
at an annual rate of at least 3%. We may declare a higher rate of interest,
but we are not obligated to do so.
. At the time of purchase, you may place some or all of your initial net
premium in the Dollar Cost Averaging Fixed Account ("DCA Fixed Account").
Money you place in the DCA Fixed Account will earn interest at an annual
rate of at least 3.0%. We will transfer money out of the DCA Fixed Account
in equal installments over a period of 6 months (or other periods available
at the time of issue) and place it in the variable subaccounts according to
your instructions.
4
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Cash Value
. Cash Value is the sum of your amounts in the subaccounts and the fixed
account. If you have any loans outstanding, Cash Value also includes amounts
we hold in our fixed account to secure any loans.
. Cash Value varies from day to day, depending on the investment experience of
the subaccounts you choose, the interest we credit to the fixed account, the
charges we deduct, and any other transactions (transfers, partial
surrenders, and loans.)
. Cash Value is the starting point for calculating important values under the
Policy, such as the Cash Surrender Value and the death benefit.
. Your Policy may lapse if you do not have sufficient Cash Surrender Value to
pay the monthly deductions.
. Growth Accelerator: At the end of each month in any Policy year, we will
credit your Cash Value with additional interest at an annual rate of 0.50%
if your Policy satisfies the following requirements at the beginning of the
Policy year:
X Cash Value is greater than 200% of the total premiums paid; and
X Cash Value exceeds $50,000.
. We do not guarantee a minimum Cash Value. Cash Value can go down--all the
way to zero.
Charges and Deductions
$ Premium expense charge: We deduct a premium expense charge equal to the
actual premium tax imposed by the state where we issue your Policy. Premium
taxes currently range from 0.00% to 3.50% of each premium payment. We credit
the remaining net premium to your Cash Value.
$ Monthly Deduction. On the Policy Date and on each Monthly Date, we deduct
the following charges on a pro-rata basis from each subaccount and the fixed
account:
-- a cost of insurance charge for the Policy
-- a monthly Policy charge including two components:
(1) a monthly administrative charge of $2.50 if the Cash Value at the
beginning of a Policy year is less than $50,000; and
(2) a monthly asset based charge equal to 0.55% annually of the assets
in the variable account. We deduct this charge from the assets in
the variable account during the first 10 Policy years.
$ Surrender charge: During the first 6 years after a premium payment, we
deduct a 7% surrender charge on any surrender attributable to the premium. A
separate surrender charge applies to each premium payment.
We deduct a 7% surrender charge on the entire amount of any full or partial
surrender during the first Policy year. After the first Policy year, you
may partially surrender amounts up to your Policy's gain (Cash Value minus
premiums) free of charge; however, the 7% surrender charge will apply to
the portion of any partial surrender that exceeds the gain and is
attributable to a premium paid within the 6 years prior to the partial
surrender.
$ Daily Charge: We deduct a daily charge equal (on an annual basis) to 0.75%
of the average daily net assets of the variable account.
$ Transfer charge: We currently assess no charge for transfers. We reserve the
right to charge $10 for the 13th and each additional transfer in a Policy
year.
$ Portfolio Expenses: The portfolios deduct investment advisory (management)
fees and other expenses from their assets. These charges vary by portfolio
and in 1999 the total annual amount of these charges ranged from 0.26% to
1.25% of average portfolio assets.
5
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Portfolio Expense Table
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The following table shows the fees and expenses charged by the portfolios. The
purpose of the 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 for the fiscal year ended December 31, 1999.
Expenses of the portfolios may be higher or lower in the future. For more
information on the management fees described in this table, see the portfolios'
prospectuses.
Annual Portfolio Operating Expenses (1) (as a percentage of average net assets
and after fee waivers and expense reimbursements)
<TABLE>
<CAPTION>
Management Other Rule Total Annual
Portfolio Fees Expenses 12b-1 Fees Expenses
- --------- ---------- -------- ---------- ------------
<S> <C> <C> <C> <C>
AIM V.I. Capital Appreciation Fund 0.62% 0.11% -- 0.73%
AIM V.I. Government Securities
Fund 0.50% 0.40% -- 0.90%
AIM V.I. Growth and Income Fund 0.61% 0.16% -- 0.77%
AIM V.I. Value Fund 0.61% 0.15% -- 0.76%
Dreyfus Stock Index Fund 0.25% 0.01% -- 0.26%
Dreyfus VIF - Money Market
Portfolio 0.50% 0.08% -- 0.58%
Dreyfus VIF - Small Company Stock
Portfolio 0.75% 0.22% -- 0.97%
MFS Emerging Growth Series (2) 0.75% 0.09% -- 0.84%
MFS Research Series (2) 0.75% 0.11% -- 0.86%
MFS Total Return Series (2) 0.75% 0.15% -- 0.90%
MFS Utilities Series (2) 0.75% 0.16% -- 0.91%
Oppenheimer Capital Appreciation
Fund/VA 0.68% 0.02% -- 0.70%
Oppenheimer Global Securities
Fund/VA 0.67% 0.02% -- 0.69%
Oppenheimer High Income Fund/VA 0.74% 0.01% -- 0.75%
Oppenheimer Main Street Growth &
Income Fund/VA 0.73% 0.05% -- 0.78%
Oppenheimer Strategic Bond Fund/VA 0.74% 0.04% -- 0.78%
Transamerica VIF Growth Portfolio
(3) 0.70% 0.15% -- 0.85%
Fidelity - VIP Equity-Income
Portfolio - Service Class 2 (4) 0.48% 0.10% 0.25% 0.83%
Fidelity - VIP Growth Portfolio -
Service Class (4) 0.58% 0.10% 0.25% 0.93%
Fidelity - VIP High Income Service
Class 2 (4) 0.58% 0.12% 0.25% 0.95%
Fidelity - VIP II Contrafund(R)
Portfolio - Service Class 2 (4) 0.58% 0.12% 0.25% 0.95%
Fidelity - VIP II Investment Grade
Bond Portfolio - Service Class 2
(4) 0.43% 0.14% 0.25% 0.82%
Fidelity - VIP III Growth & Income
Portfolio - Service Class 2 (4) 0.48% 0.13% 0.25% 0.86%
Fidelity - VIP III Balanced
Portfolio - Service Class 2 (4) 0.43% 0.16% 0.25% 0.84%
Fidelity - VIP III Mid Cap
Portfolio - Service Class 2 (4) 0.57% 0.43% 0.25% 1.25%
WRL Janus Global (5) 0.80% 0.12% -- 0.92%
WRL Janus Growth (6) 0.80% 0.05% -- 0.85%
WRL VKAM Emerging Growth 0.80% 0.07% -- 0.87%
</TABLE>
(1) The fee table information relating to the underlying funds was provided to
PFL by the underlying funds, their investment advisers or managers, and PFL
has not independently verified such information. Actual future expenses of
the underlying funds may be greater or less than those shown in the Table.
(2) 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. Other expenses do
not take into account these expense reductions, and are therefore higher
than the actual expenses of
6
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the series. The ratios for Other Expenses and Total Underlying Fund Annual
Expenses (reduced by custodial offset arrangements), respectively, would have
been as follows: 0.08%, 0.83%--MFS Emerging Growth Series; 0.10%, 0.85%--MFS
Research Series; 0.14%, 0.85%--MFS Total Return Series; and 0.156%, 0.90%--
MFS Utilities Series.
(3) For the Transamerica VIF Growth Portfolio, the management fees before
waiver were 0.75% and other expenses before reimbursement were 0.15%.
Therefore, Total Portfolio Annual Expenses before waiver and other expenses
before reimbursements (reduced by custodial offset arrangements) for the
period ended December 31, 1999 were 0.90%.
(4) Service Class 2 expenses are based on estimated expenses for the first
year. VIP expenses are without any reimbursement.
(5) For WRL Janus Global, the investment adviser currently waives 0.025% of its
advisory fee on portfolio average daily net assets over $2 billion (net
fee--0.775%). This waiver is voluntary and will be terminated on June 25,
2000.
(6) For WRL Janus Growth, the investment adviser currently waives 0.025% of its
advisory fee for the first $3 billion of the portfolio's average daily net
assets (net fee--0.775%); and 0.05% for the portfolio's average daily net
assets above $3 billion (net fee--0.75%). The fee table reflects estimated
2000 expenses because of the termination of the fee waiver. This waiver is
voluntary and will be terminated on June 25, 2000.
7
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Surrenders
. Full surrender: At any time while the Policy is in force, you may make a
written request to surrender your Policy and receive the Cash Surrender
Value (that is, the Cash Value minus any surrender charge, and minus any
outstanding loan amount including any accrued interest). Surrendering the
Policy may have tax consequences. (See "Federal Tax Considerations.")
. Partial surrenders: You may make a written request to withdraw part of the
Cash Value, subject to the following rules:
-- You must request at least $500;
-- At least $5,000 of Cash Surrender Value must remain in the Policy after
the partial surrender;
-- During the first Policy year, any amount you surrender is subject to a
surrender charge; and
-- After the first Policy year, you may surrender amounts up to your
Policy's gain (Cash Value minus premiums paid) free of charge.
. A partial surrender automatically causes a pro-rata reduction in the death
benefit.
. Full and partial surrenders may be taxable and, prior to your age 59 1/2,
may be subject to a 10% tax penalty.
. When assessing the 7% surrender charge, we deem premiums to be withdrawn on
a "first-in-first-out" (FIFO) basis.
. Partial surrenders may have tax consequences. (See "Federal Tax
Considerations.")
Death Benefit
. While the Policy is in force, the death benefit is the greater of: (1) the
Basic Death Benefit; or (2) the Guaranteed Minimum Death Benefit ("GMDB").
. Basic Death Benefit: The Basic Death Benefit is equal to the Cash Value
divided by the net single premium. The net single premium is calculated
using guaranteed cost of insurance charges with a 4% interest rate. The
Basic Death Benefit will change monthly due to changes in the Cash Value.
The net single premium will change annually.
. Guaranteed Minimum Death Benefit: The GMDB is the greater of premiums paid
or highest Cash Value on a Policy anniversary prior to the insured's age 75
(both adjusted for partial surrenders). At the insured's age 75, the GMDB
remains fixed for the remainder of the Policy. For Policies issued after age
74, the GMDB will be the premiums paid less partial surrenders.
. We deduct any unpaid loans from the proceeds payable on the insured's death.
8
<PAGE>
Transfers
. Each year, you may make an unlimited number of transfers of Cash Value from
the subaccounts and the fixed account.
. Transfers from the fixed account each Policy year may not exceed the greater
of:
-- 25% of the amount in the fixed account; or
-- $1,000.
If the balance after the transfer is less than $1,000, we will transfer the
entire amount in the fixed account.
. We may charge $10 for the 13th and each additional transfer during a Policy
year.
. We do not impose transfer charges for Dollar Cost Averaging or Asset
Rebalancing.
Loans
. You may take a loan against the Policy for any amount from $500 up to 90% of
the Cash Value net of surrender charge, minus any outstanding loans and
interest you owe.
. To secure the loan, we transfer an amount equal to the loan from the
variable account and fixed account to the loan account (part of our general
account).
. Amounts in the loan account earn interest at the guaranteed minimum rate of
3% per year.
. We currently charge you an interest rate of 4.5% per year on your loan. We
guarantee that this interest rate will not exceed 6% per year. Interest is
due and payable at the end of each calendar quarter. Unpaid interest becomes
part of the outstanding loan.
. Loan interest generally is not tax deductible (consult your tax advisor for
possible exceptions).
. You may repay all or part of your outstanding loans at any time. Loan
repayments must be at least $500, and must be clearly marked as "loan
repayments" or they will be credited as premiums if they equal or exceed
minimum premium amounts.
. We deduct any unpaid loans from the proceeds payable on the insured's death.
. Loans taken from, or secured by, this Policy generally will be taxed as
distributions and, prior to age 59 1/2, a tax penalty may apply.
. The "no-lapse guarantee" does not apply if there is an outstanding loan.
. Policy loans may have tax consequences. (See "Federal Tax Considerations.")
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Risk Summary
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Investment If you invest your Cash Value in one or more subaccounts, then
Risk you will be subject to the risk that investment performance
will be unfavorable and that the Cash Value will decrease. You
could lose everything you invest. If you select the fixed
account, then we credit your Cash Value with a declared rate
of interest, but you assume the risk that the rate may
decrease, although it will never be lower than a guaranteed
minimum annual effective rate of 3%.
Because we deduct charges from Cash Value every month, if
investment results are negative or not sufficiently favorable,
then your Cash Surrender Value may fall to zero. If your Cash
Surrender Value is zero and you have an outstanding loan, then
your Policy will enter a 61-day grace period. Unless you make
a sufficient payment during the grace period, the Policy will
lapse without value and insurance coverage will no longer be
in effect. However, if investment experience is sufficiently
favorable and you have kept the Policy in force for a
substantial time, then you may be able to draw upon Cash
Value, through partial surrenders and loans.
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Risk of If you do not have an outstanding loan, we guarantee that your
Lapse Policy will never lapse (terminate without value), regardless
of investment performance.
If you have an outstanding loan and your Cash Surrender Value
becomes zero, then the Policy will enter a 61-day grace
period.
Whenever your Policy enters the grace period, if you do not
make a sufficient payment before the grace period ends, your
Policy will lapse, insurance coverage will no longer be in
effect, and you will receive no benefits. The payment must be
sufficient enough to cause the Cash Surrender Value to exceed
zero, after deducting all due and unpaid monthly deductions
and outstanding loans. You might not be able to reinstate a
policy that has lapsed (depending on applicable state law).
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Tax Risks We anticipate that the Policy should be deemed a life
insurance contract under Federal tax law. However, there is
some uncertainty in this regard. The Policy generally will be
treated as a modified endowment contract ("MEC") under Federal
tax laws (except, in some cases for a Policy issued in
exchange for another life issuance policy that was not a MEC).
If a Policy is treated as a MEC, then surrenders, partial
surrenders, and loans under a Policy will be taxable as
ordinary income to the extent there are earnings in the
Policy. In addition, a 10% penalty tax may be imposed on
surrenders, partial surrenders, and loans taken before you
reach age 59 1/2. You should consult a qualified tax advisor
for assistance in all tax matters involving your Policy.
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Surrender The 7% surrender charge under this Policy applies for 6 years
Charge after each premium payment. You should purchase this Policy
only if you have the financial ability to keep it in force for
a substantial period of time.
Even if you do not ask to surrender your Policy, surrender
charges may play a role in determining whether your Policy
will lapse. Cash Surrender Value (that is, Cash Value minus
any surrender charges and outstanding loans) is one measure we
use to determine whether your Policy will enter a grace
period, and possibly lapse.
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<PAGE>
Partial You may request partial surrenders of a portion of the Cash
Surrender Surrender Value. We impose a 7% surrender charge on all
Limits partial surrenders in the first Policy year. After the first
Policy year, you may request partial surrenders of amounts up
to your Policy's gain free of charge. The amount partially
surrendered must be at least $500 and must not cause the Cash
Surrender Value after the partial surrender to be less than
$5,000. We impose a 7% surrender charge on the portion of any
surrender that exceeds the gain in the Policy and is
attributable to a premium paid within the 6 years prior to the
surrender.
A partial surrender reduces the Cash Surrender Value, so it
will increase the risk that the Policy will lapse. A partial
surrender will reduce the death benefit and also may have tax
consequences.
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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 as collateral. We then credit a
fixed interest rate of 3.0% to the collateral in the loan
account. As a result, the loan collateral does not participate
in the investment results of the subaccounts nor does it
receive any higher current interest rate credited to the fixed
account. 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 rate credited to the fixed
account, the effect could be favorable or unfavorable.
A Policy loan affects the death benefit because a loan reduces
the death benefit proceeds and Cash Surrender Value by the
amount of the outstanding loan, plus any interest you owe on
Policy loans.
While a loan is outstanding, the "no-lapse guarantee" does not
apply. See Policy Lapse and Reinstatement.
A Policy loan could make it more likely that a Policy would
terminate. There is a risk that if the loan reduces your Cash
Surrender Value to too low an amount and investment results
are unfavorable, then the Policy will lapse, resulting in loss
of insurance and possibly adverse tax consequences. A loan
will likely be taxed as a partial surrender and a 10% penalty
tax may apply.
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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 value
Insurance on surrender. However, the Policy differs from a fixed benefit
Policies policy because it allows you to place your premiums in
investment subaccounts. The amount and duration of life
insurance protection will vary with the investment performance
of the amounts you place in the subaccounts. In addition, the
Cash Surrender Value will always vary with the investment
results 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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Illustrations The hypothetical illustrations in this prospectus or used in
connection with the purchase of a Policy are based on
hypothetical rates of return. These rates are not guaranteed,
and are provided only to illustrate how the Policy charges and
hypothetical rates of return affect death benefit levels, Cash
Value and Cash 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. Actual
rates of return undoubtedly will be higher or lower than those
illustrated, so the values under your Policy will be different
from those illustrated.
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<PAGE>
The Company and the Fixed Account
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PFL Life Insurance Company
PFL Life Insurance Company ("PFL," "Company," "we," "us" or "our") 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 we
may issue. Our general account supports the fixed account options under the
Policy.
IMSA. PFL is a member of the Insurance Marketplace Standards Association
(IMSA). IMSA is an independent voluntary organization of life insurance
companies. It promotes high ethical standards in the sales and advertising of
individual life insurance and annuity products. Companies must undergo a
rigorous self- and independent assessment of their practices to become a member
of IMSA. The IMSA logo in our sales literature shows our ongoing commitment to
these standards.
The Fixed Account
The basic 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 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 will be credited
interest daily at a net effective interest rate of at least 3%. We will
determine any interest rate credited in excess of the guaranteed rate at our
sole discretion.
The Dollar Cost Averaging Fixed Account. At the time you purchase a Policy,
you may place some or all of your initial net premium in the Dollar Cost
Averaging Fixed Account ("DCA Fixed Account"). Money you place in the DCA Fixed
Account will earn interest at an annual rate of at least 3%. We may declare a
higher rate of interest at our sole discretion. We will transfer money out of
the DCA Fixed Account in equal installments over a period of 6 months (or other
periods available at the time of issue) and place it in the subaccounts and
basic fixed account according to your instructions. The first such transfer
occurs on the Monthly Date after the Reallocation Date. In the last month of
the DCA Fixed Account term, we will transfer interest accrued on the premium.
There is no charge for participating in the DCA Fixed Account, and transfers
under this program do not count in determining any transfer charge.
We reserve the right to stop offering the DCA Fixed Account at any time for any
reason.
The fixed account is not 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.
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<PAGE>
The Variable Account and the Portfolios
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The Variable Account
PFL established the variable account as a separate investment account under
Iowa law on November 20, 1998. PFL owns the assets in the variable account and
is obligated to pay all benefits under the Policies. PFL may use the variable
account to support other variable life insurance policies PFL issues. The
variable account is registered with the Securities and Exchange Commission as
an unit investment trust under the Investment Company Act of 1940 and qualifies
as a "separate account" within the meaning of the Federal securities laws.
The variable account is divided into subaccounts, each of which invests in
shares of a specific portfolio of one of the following mutual funds:
. AIM Variable Insurance Funds . Transamerica Variable
(managed by AIM Advisors, Insurance Fund, Inc. (managed
Inc.) by Transamerica Investment
Services, LLC)
. Dreyfus Variable Investment . Variable Insurance Products
Fund (managed by The Dreyfus Fund (VIP)--Service Class 2
Corporation) (managed by Fidelity
Management & Research Company)
. Dreyfus Stock Index Fund
(managed by The Dreyfus . Variable Insurance Products
Corporation) Fund II (VIP II)--Service
Class 2 (managed by Fidelity
Management & Research Company)
. MFS(R) Variable Insurance
TrustSM (managed by
Massachusetts Financial
Services Company)
. Variable Insurance Products
Fund III (VIP III)--Service
Class 2 (managed by Fidelity
Management & Research Company)
. Oppenheimer Variable Account
Funds (managed by
OppenheimerFunds, Inc.)
. WRL Series Fund, Inc. (managed
by WRL Investment Management,
Inc.)
The subaccounts buy and sell portfolio shares at net asset value. 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
variable account reflect the subaccount's own investment experience and not the
investment experience of our other assets. The variable account's assets may
not be used to pay any of PFL's liabilities other than those arising from the
Policies. If the variable account's assets exceed the required reserves and
other liabilities, we may transfer the excess to our general account.
The variable account may include other subaccounts that are not available under
the Policies and are not discussed in this prospectus. Where permitted by
applicable law, PFL reserves the right to:
1. Create new separate accounts;
2. Combine separate accounts, including the variable account;
3. Remove, combine or add subaccounts and make the new subaccounts
available to you at our discretion;
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<PAGE>
4. Make new portfolios available under the variable account or remove
existing portfolios;
5. Substitute new portfolios for any existing portfolios if shares of the
portfolio are no longer available for investment or if we determine that
investment in a portfolio is no longer appropriate in light of the
variable account's purposes;
6. Deregister the variable account under the Investment Company Act of 1940
if such registration is no longer required;
7. Operate the variable account as a management investment company under
the Investment Company Act of 1940 or as any other form permitted by
law; and
8. Make any changes required by the Investment Company Act of 1940 or any
other law.
We will not make any such changes without receiving any necessary approval of
the Securities and Exchange Commission and applicable state insurance
departments. We will notify you of any changes.
The Portfolios
The variable account invests in shares of certain portfolios of the Funds. Each
of the Funds is registered with the Securities and Exchange Commission as an
open-end management investment company. Such registration does not involve
supervision of the management or investment practices or policies of the Funds
by the Securities and Exchange Commission.
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 other portfolios. Thus, each portfolio operates as
a separate investment fund, and the income or losses of one portfolio generally
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.
There is no assurance that any of the portfolios will achieve its stated
objective(s). You can find more detailed information about the portfolios,
including an explanation of the portfolios' investment objectives and a
description of the risks, in the current prospectuses for the underlying fund
portfolios, which are attached to this prospectus. You should read the Funds'
prospectuses carefully.
In addition to the variable account, the portfolios may sell shares to other
separate investment accounts established by other insurance companies to
support variable annuity contracts and variable life insurance policies or
qualified retirement plans. It is possible that, in the future, it may become
disadvantageous for variable life insurance separate accounts and variable
annuity separate accounts to invest in the portfolios simultaneously. Although
neither PFL nor the portfolios currently foresee any such disadvantages, either
to variable life insurance policy owners or to variable annuity contract
owners, each fund's Board of Directors (or Trustees) will monitor events in
order to identify any material conflicts between the interests of such variable
life insurance policy owners and variable annuity contract owners, and will
determine what action, if any, it should take. Such action could include the
sale of fund 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 policy owners and those given by variable annuity contract owners.
If a fund's Board of Directors (Trustees) were to conclude that separate funds
should be established for variable life insurance and variable annuity separate
accounts, then variable life insurance policy owners and variable annuity
contract owners would no longer have the economies of scale resulting from a
larger combined fund.
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<PAGE>
These portfolios are not available for purchase directly by the general public,
and are not the same as other portfolios with very similar or nearly identical
names that are sold directly to the public. However, the investment objectives
and policies of certain portfolios available under the Policy are very similar
to the investment objectives and policies of other portfolios that are or may
be managed by the same investment adviser or manager. Nevertheless, the
investment performance and results of the portfolios available under the Policy
may be lower or higher than the investment results of such other (publicly
available) portfolios. There can be no assurance, and we make no
representation, that the investment results of any of the portfolios available
under the Policy will be comparable to the investment results of any other
portfolio, even if the other portfolio has the same investment adviser or
manager, the same investment objectives and policies, and a very similar name.
Please read the attached portfolio prospectuses to obtain more complete
information regarding the portfolios. Keep these prospectuses for future
reference.
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 Policy owners
instruct, so long as such action is required by law.
Before a vote of a portfolio's shareholders occurs, you will receive voting
materials. 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 owners, 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 owner voting instructions. If we ever disregard voting
instructions, we will send you a summary in the next annual report to Policy
owners advising you of the action and the reasons we took such action.
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<PAGE>
The Policy
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Purchasing a Policy
To purchase a Policy, you must submit a completed application and an initial
premium to us at our Office. 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.
We determine the basic death benefit for a Policy based on the age of the
insured when we issue the Policy, the initial premium paid, and other
characteristics of the proposed insured(s) such as age, gender and risk class.
Generally, the Policy is available for insureds between issue ages 30-80 for
standard risk classes, and between issue ages 30-70 for non-standard risk
classes. We use different underwriting standards (simplified underwriting, or
full underwriting) in relation to the Policy. We can provide you with details
as to these underwriting standards when you apply for a Policy. We must receive
evidence of insurability that satisfies our underwriting standards before we
will issue a Policy. We reserve the right: (1) to modify our underwriting
requirements at any time; or (2) to reject an application for any reason
permitted by law. There is no insurance coverage until we complete our
underwriting process and accept the application.
When Insurance Coverage Takes Effect
Once we determine that the insured meets our underwriting requirements,
insurance coverage begins, we issue the Policy, and we begin to deduct monthly
charges from your premium. This date is the Policy Date. On the Policy Date, we
will allocate your premium (less charges) to the fixed account. On the
Reallocation Date, we will transfer your Cash Value from the fixed account to
the subaccounts or maintain your Cash Value in the fixed account as you
directed on your application. The Reallocation Date varies by state according
to a state's free look requirement. In states that require a full refund of
premium upon exercise of the free look right, the Reallocation Date is 5 days
after the end of the free look period. In other states, the Reallocation Date
is the Policy Date.
Full insurance coverage under the Policy will take effect only if the proposed
insured is alive and in the same condition of health as described in the
application when we deliver the Policy to you, and if the initial premium is
paid.
Extending the Maturity Date
You may request to extend the Maturity Date for your Policy. You must make your
request in writing and we must receive it at least 90 days, but no more than
180 days, prior to the scheduled Maturity Date. After you extend the Maturity
Date, we will automatically extend your Maturity Date every year unless you
direct us in writing to do otherwise. Interest on any outstanding Policy loan
will continue to accrue during the period for which the Maturity Date is
extended.
The Cash Value at the Maturity Date will be equal to the death benefit, less
any indebtedness. If you choose to extend the Maturity Date, the Cash Value
will continue to earn interest and no monthly deductions will be deducted from
the Cash Value.
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<PAGE>
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. The owner is
the insured unless the application specifies a different person as the insured.
If the owner dies before the 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.
Changing the Owner
. You may change the owner by providing a written request to us at any
time while the insured is alive.
. The change takes effect on the date that the written request is signed.
. We are not liable for any actions we take before we receive the written
request.
. Changing the owner does not automatically change the beneficiary or the
insured.
. Changing the owner may have tax consequences.
Selecting and Changing the Beneficiary
. You designate the beneficiary (the person to receive the death benefit
when the insured dies) in the application.
. If you designate more than one beneficiary, then each beneficiary shares
equally in any death benefit proceeds unless the beneficiary designation
states otherwise.
. If the beneficiary dies before the insured, then any contingent
beneficiary becomes the beneficiary.
. If both the beneficiary and contingent beneficiary die before the
insured, then we will pay the death benefit to the owner or the owner's
estate once the insured dies.
. You can change the beneficiary by providing us with a written request
while the insured is living.
. The change in beneficiary is effective as of the date you sign the
written request.
. We are not liable for any actions we take before we receive the written
request.
Assigning the Policy
. You may assign Policy rights while the insured is alive.
. The owner retains any ownership rights that are not assigned.
. Assignee may not change the owner or the beneficiary, and may not elect
or change an optional method of payment. We will pay any amount payable
to the assignee in a lump sum.
. Claims under any assignment are subject to proof of interest and the
extent of the assignment.
. If you assign your Policy as collateral for a loan, you should consider
that loans secured by this Policy are treated as distributions and could
be subject to income tax and a 10% penalty if you are under age 59 1/2.
. We are not:
-- bound by any assignment unless we receive a written notice of the
assignment;
-- responsible for the validity of any assignment; or
-- liable for any actions we take before we receive written notice of
the assignment.
. Assigning the Policy may have tax consequences.
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<PAGE>
Canceling a Policy
You may cancel a Policy during the free-look period by returning it to PFL at
4333 Edgewood Road, N.E., Cedar Rapids, Iowa 52499, or to the agent who sold
it. The free-look period generally expires 10 days after you receive the
Policy, but this period will be longer if required by state law. If you decide
to cancel the Policy during the free-look period, we will treat the Policy as
if we never issued it. Within seven calendar days after we receive the returned
Policy, we will refund either (a) an amount equal to the Cash Value plus any
charges we deducted, or (b) where required by state law, we will refund all
premiums paid for the Policy.
Premiums
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Premium Payments
Before we issue a Policy, you must pay an initial premium equal to at least
$10,000. Thereafter, you may pay premiums at any time and in any amount of
$5,000 or more. However, because most additional premium payments will increase
the death benefit, we will require additional underwriting for most additional
premium payments.
We have the right to limit or refund any premium, if the premium would
disqualify the Policy as a life insurance contract under the Internal Revenue
Code. Your Policy's schedule page will show the maximum additional premium you
can pay during the first two Policy Years without additional underwriting. As
indicated below, it is the Company's policy to use simplified issue
underwriting for these Policies. However, the Company reserves the right to
impose full underwriting on future premium payments. If we return a portion of
your premium based on the maximum premium amount, we will not allow you to make
additional premium payments until they are allowed by the maximum premium
limitations. We reserve the right to modify our premium limitations at any
time. You make all premium payments to our Office or to one of our authorized
agents.
You can stop paying premiums at any time and your Policy will continue in force
until the earlier of the maturity date (when the insured reaches age 100), or
the date when either (1) the insured dies, or (2) the grace period ends without
a sufficient payment, or (3) we receive your signed request to surrender the
Policy.
The type of underwriting you qualify for depends upon the amount of premium
paid at issue. Listed below are the two types of underwriting you may qualify
for. See "Policy Summary--Premiums" for more information.
Simplified Issue Guidelines.
In the second and subsequent Policy years, you will have different options
depending on your actions in the previous Policy year. In the second Policy
year, you may have up to three options as follows:
1. Pay an amount up to the difference between the simplified issue limit
and the amount paid in the first Policy year, but not more than the
amount paid in the first Policy year, with no additional underwriting.
This option is only available if no partial withdrawals have been taken.
2. Pay an amount that exceeds the limit in option (1) up to your attained
Age times 1,500 subject to simplified issue underwriting. "Age" is
defined as the insured's age on the Policy Date, plus the number of
completed Policy years since the Policy Date.
3. Pay an amount that exceeds the limit in option (2) on a fully
underwritten basis.
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In the third and subsequent Policy years you would have one or two options
depending on the premium paid in the previous Policy year.
1. IF you paid a premium in the previous Policy year, you may pay
additional premium on a simplified issue basis up to the simplified
issue limit (attained Age times 1,500). You may pay more than simplified
issue limit on a fully underwritten basis. (Note that the minimum
additional premium that we will accept is $5,000.)
2. IF you did not pay premium in the previous Policy year, additional
premium payments can be made subject to underwriting at our discretion,
including full underwriting.
Fully Underwritten Guidelines.
In the second and subsequent Policy years, you will have different options
available to you depending on your actions in the previous Policy year. In the
second Policy year, you may have up to three options as follows:
1. Pay an amount up to the difference between the underwriting premium and
the amount paid in the first Policy year. The underwriting premium is
the total premium that you designate yourself to be underwritten for.
This option is only available if no partial withdrawals have been taken
and if the underwriting premium actually exceeds total premium paid in
the first Policy year.
2. Pay an amount that exceeds the limit in option (1) up to the attained
Age times 1,500 subject to simplified issue underwriting. Note that this
option may not exist if the limit in (1) exceeds the attained Age times
1,500.
3. Pay an amount that exceeds the greater of the limit in options (1) and
(2) on a fully underwritten basis.
With respect to both options 2 and 3, the premium will not be accepted if
you do not qualify for the underwriting class under which the Policy was
issued.
In the third and subsequent Policy years you would have one or two options
depending on the premium paid in the previous Policy year.
1. IF you paid a premium in the previous Policy year, you may pay
additional premium on a simplified issue basis up to the simplified
issue limit (attained Age time 1,500). You may pay more than the
simplified issue limit on a fully underwritten basis. (Note that the
minimum additional premium that we will accept is $5,000.)
2. IF you did not pay premium in the previous Policy year, additional
premium payments can be made subject to underwriting at our discretion,
including full underwriting.
Tax-Free Exchanges (1035 Exchanges). We may 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, contingent upon receipt of the cash
from that contract. We will accept a Section 1035 exchange of a contract with
an outstanding loan; however, we will not preserve the loan (i.e., you will pay
off the loan and transfer the net policy value). If you contemplate a tax-free
exchange, you should consult a competent tax advisor to discuss the potential
tax effects of such a transaction.
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Allocating Premiums
When you apply for a Policy, you must instruct us to allocate your net premium
to one or more subaccounts of the variable account and to the fixed account
according to the following rules:
. You must put at least 1% of each net premium in any subaccount or the
fixed account you select (you can, of course, put nothing in some
subaccounts or the fixed account).
. Allocation percentages must be in whole numbers and the sum of the
percentages must equal 100.
. You can change the allocation instructions for additional premiums
without charge at any time by providing us with written notification (or
any other notification we deem satisfactory).
. Any allocation change will be effective on the date we record the
change. We record the allocation change on the same day that we receive
the request for the change.
. We reserve the right to limit the number of premium allocation changes;
and to limit the number of subaccount allocations in effect at any one
time.
We will credit interest on your initial net premium from the date we receive
payment and the necessary documents to the Reallocation Date. Interest will be
credited at the current fixed account rate. Interest is guaranteed to equal at
least 3% annually.
Investment returns from amounts allocated to the subaccounts will vary with the
investment experience of these subaccounts and will be reduced by Policy
charges. You bear the entire investment risk for amounts you allocate to the
subaccounts.
On the Policy Date, we will allocate your Cash Value to the fixed account. We
also allocate any net premiums we receive from the Policy Date to the
Reallocation Date to the fixed account. On the Reallocation Date, we will
reallocate the Cash Value in the fixed account to the subaccounts or retain it
in the fixed account in accordance with the allocation percentages provided in
the application. We invest all net premiums paid after the Reallocation Date on
the Valuation Date we receive them. We credit these net premiums to the
subaccounts (as appropriate) at the unit value next determined after we receive
your payment. (Please refer to the Glossary for an explanation of the
Reallocation Date.)
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Policy Values
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Cash Value . serves as the starting point for calculating values under a
Policy;
. equals the sum of all values in the fixed account and in
each subaccount of the variable account;
. is determined on the Policy Date and on each Valuation
Date; and
. has no guaranteed minimum amount and may be more or less
than premiums paid (except for amounts allocated to the
fixed account).
Growth Accelerator
At the end of each month in any Policy year, we will credit your Cash Value
with additional interest at an annual rate of 0.50% if your Policy satisfies
the following requirements at the beginning of the Policy year:
Cash Value is greater than 200% of the total premiums paid; and
Cash Value exceeds $50,000.
We will allocate the additional interest to the variable account and the fixed
account on a pro-rata basis. We guarantee to credit the monthly interest
(0.04167% multiplied by the Cash Value at the end of each month); however, the
Policy needs to be requalified to meet the specified requirements on a year-to-
year basis. There is no charge for this benefit.
Cash Surrender Value
The Cash Surrender Value is the amount we pay to you when you surrender your
Policy. We determine the Cash Surrender Value at the end of the Valuation
Period when we receive your written surrender request.
Cash . the Cash Value as of such date; minus
Surrender . any surrender charge as of such date; minus
Value on any . any outstanding Policy loans; minus
Valuation . any interest you owe on the Policy loans.
Date equals:
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 . the initial units purchased at the unit value on the Policy
units in any Date; plus
subaccount on . units purchased with additional net premiums; plus
any Valuation . units purchased via transfers from another subaccount or
Date equals: the fixed account; plus
. units purchased via growth accelerator, if any; minus
. units redeemed to pay for monthly deductions; minus
. units redeemed to pay for partial surrenders; minus
. units redeemed as part of a transfer to another subaccount
or the fixed account.
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Every time you allocate or transfer 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 by the unit value
for that subaccount at the end of the Valuation Period.
Unit Value
We determine a unit value for each subaccount to reflect how investment results
affect the Policy values. 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.
The unit . the total value of the assets held in the subaccount,
value of any determined by multiplying the number of shares of the
subaccount at designated portfolio owned by the subaccount times the
the end of a portfolio's net asset value per share; minus
Valuation . a deduction for the mortality and expense risk charge;
Period is minus
calculated . the accrued amount of reserve for any taxes or other
as: economic burden resulting from applying tax laws that we
determine to be properly attributable to the subaccount;
and the result divided by
. the number of outstanding units in the subaccount.
Fixed Account Value
On the Policy Date, the fixed account value is equal to the net premiums
allocated to the fixed account, less the portion of the first monthly deduction
taken from the fixed account.
The fixed . the net premium(s) allocated to the fixed account; plus
account value . any amounts transferred to the fixed account; plus
at the end of . interest credited to the fixed account; plus
any Valuation . amount credited via growth accelerator, if any; minus
Period is . amounts charged to pay for monthly deductions; minus
equal to: . amounts withdrawn from the fixed account; minus
. amounts transferred from the fixed account to a subaccount.
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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 . the death benefit, cash and loan benefits under the Policy
benefits we . investment options, including premium allocations
provide: . administration of elective options and the distribution of
reports to owners
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Costs and . costs associated with processing and underwriting
expenses we applications, issuing and administering the Policy
incur: . overhead and other expenses for providing services and
benefits
. sales and marketing expenses
. 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 . that the cost of insurance charges we may deduct are
assume: insufficient to meet our actual claims because insureds die
sooner than we estimate
. that the costs of providing the services and benefits under
the Policies exceed the charges we deduct
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Premium Expense Charge
When you make a premium payment, we deduct a premium expense charge equal to
the premium tax imposed by the state where we issue your Policy. State premium
taxes currently range from 0.00% to 3.50% of each premium payment. After we
deduct any premium expense charge, we apply the remaining amount (the net
premium) to the subaccounts and the fixed account according to your allocation
instructions. The premium expense charge compensates us for state premium
taxes.
Monthly Deduction
We deduct a monthly deduction from the Cash Value on the Policy Date and on
each Monthly Date. We will make deductions from each subaccount and the fixed
account on a pro rata basis (i.e., in the same proportion that the value in
each subaccount and the fixed account bears to the total Cash Value on the
Monthly Date). If the value of any subaccount or the fixed account is
insufficient to pay that subaccount or fixed account's portion of the monthly
deduction, we will take the monthly deduction on a pro-rata basis from all
accounts. Because portions of the monthly deduction (such as the cost of
insurance) can vary from month-to-month, the monthly deduction will also vary.
The monthly deduction has two components:
1. The cost of insurance charge for the Policy; plus
2. The monthly Policy charge, if applicable.
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Cost of Insurance. We assess a monthly cost of insurance charge to compensate
us for underwriting the death benefit (i.e., the anticipated cost of paying the
amount of the death benefit that exceeds your Cash Surrender Value upon the
insured's death). The charge depends on a number of variables (age, gender,
risk class) that would cause it to vary from Policy to Policy and from Monthly
Date to Monthly Date.
Cost of The cost of insurance charge is equal to:
Insurance
Charge
-- the cost of insurance rates; multiplied by
-- the net amount at risk for your Policy on the Monthly
Date.
The net amount at risk is equal to:
-- the death benefit at the beginning of the month;
divided by
-- a "risk rate divisor" (a factor that reduces the net
amount at risk, for purposes of computing the cost of
insurance, by taking into account assumed monthly
earnings at an annual rate of 3%); minus
-- the Cash Value at the beginning of the month.
We base the cost of insurance rates on the insured's age, gender, and risk
class. The actual monthly cost of insurance rates are based on our expectations
as to future mortality experience. The rates will never be greater than the
guaranteed amount stated in your Policy. These guaranteed rates are based on
the 1980 Commissioner's Standard Ordinary (C.S.O.) Mortality Tables
(smoker/non-smoker) and the insured's age and rate class. For standard rate
classes, these guaranteed rates will never be greater than the rates in the
C.S.O. tables. When required, we use a unisex table.
Monthly Policy Charge. We assess a monthly Policy charge to compensate us for
administrative expenses such as record keeping, processing death benefit claims
and Policy changes, and overhead costs. The monthly Policy charge includes two
components:
(1) a monthly administrative charge of $2.50 if the Cash Value at the beginning
of a Policy year is less than $50,000; and
(2) a monthly asset based charge equal to an annual rate of 0.55% of the assets
in the variable account. We deduct this charge from the assets in the
variable account during the first 10 Policy years.
Daily Charge
We deduct a daily charge from each subaccount to compensate us for certain
mortality and expense risks we assume. The mortality risk is that an insured
will live for a shorter time than we project. The expense risk is that the
expenses that we incur will exceed the administrative charge limits we set in
the Policy. The daily charge is equal to:
. the assets in each subaccount, multiplied by
. the daily pro rata portion of the annual charge rate of 0.75%.
If this charge does not cover our actual costs, we absorb the loss. Conversely,
if the charge more than covers actual costs, the excess is added to our
surplus. We expect to profit from this charge. We may use any profits for any
lawful purpose including covering distribution costs.
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Surrender Charge
If you fully surrender your Policy during the first 6 years following any
premium payment, we deduct a surrender charge from your Cash Value and pay the
remaining amount (less any outstanding loan amount) to you. The payment you
receive is called the Cash Surrender Value. The surrender charge is equal to 7%
of the premium(s) that was paid within 6 years of the surrender.
The surrender charge may be significant. You should carefully calculate this
charge before you request a surrender. Under some circumstances the level of
surrender charges might result in no Cash Surrender Value available if you
surrender your Policy in the first few years after paying a premium.
Partial Surrender Charge
You may request partial surrenders of a portion of the Cash Surrender Value;
however, the entire amount surrendered in the first Policy year is subject to a
surrender charge. After the first Policy year, you may partially surrender
amounts up to your Policy's gain (Cash Value minus premium) free of charge. We
deduct a 7% surrender charge on the portion of any partial surrender that
exceeds the gain and is attributable to a premium paid within 6 years prior to
the partial surrender. For this purpose, we deem any gain to be withdrawn
first, and then the oldest premiums in the order they were paid (i.e., first-
in-first-out, or "FIFO").
Transfer Charge
. We guarantee that you can make 12 transfers each year free from charge.
We currently allow an unlimited number of free transfers.
. We reserve the right to charge $10 for each transfer in excess of 12
during a Policy Year. We will not increase this charge.
. For purposes of assessing the transfer charge, each written or telephone
request is considered to be one transfer, regardless of the number of
subaccounts (or fixed account) affected by the transfer.
. We deduct the transfer charge from the amount being transferred.
. Transfers we effect on the Reallocation Date, and transfers due to
dollar cost averaging, asset rebalancing, and loans, do not count as
transfers for the purpose of assessing this charge.
Portfolio Expenses
The value of the net assets of each subaccount reflects the investment advisory
fees and other expenses incurred by the corresponding portfolio in which the
subaccount invests. See the Portfolio Annual Expenses Table in this prospectus,
and the portfolios' prospectuses for further information on these fees and
expenses.
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Death Benefit
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Death Benefit
While the Policy is in force, the death benefit is the greater of:
(1) the Basic Death Benefit; or
(2) the Guaranteed Minimum Death Benefit ("GMDB").
. Basic Death Benefit: The Basic Death Benefit is the minimum amount that
must be payable at the insured's death, before reduction for any
outstanding loans, for the Policy to be treated as life insurance under
the Internal Revenue Code. We determine the Basic Death Benefit by
dividing the Cash Value by the net single premium. The net single
premium is the amount of premium needed to provide a paid up death
benefit of $1.00, assuming the guaranteed cost of insurance charges, a
4% interest rate, and mortality as set forth in the "Commissioners 1980
Standard Ordinary Mortality Table." The Basic Death Benefit will change
monthly, or as of the date of death, due to changes in the Cash Value.
The net single premium will change annually.
. Guaranteed Minimum Death Benefit: Until the insured's age 75, the GMDB
is the greater of premiums paid (less partial surrenders) or the highest
Cash Value on a Policy anniversary (adjusted for subsequent partial
surrenders). At age 75, the GMDB remains fixed for the remainder of the
Policy. For Policies issued after age 74, the GMDB will be the premiums
paid less partial surrenders. If you take a partial surrender, the GMDB
is reduced on a "dollar for dollar" basis.
As long as the Policy is in force, we will pay the death benefit proceeds on an
individual Policy once we receive satisfactory proof of the insured's death. We
may require return of the Policy. We will pay the death benefit proceeds to the
primary beneficiary or a contingent beneficiary. If the beneficiary dies before
the 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.
Death benefit . the death benefit (described above); minus
proceeds . any past due monthly deductions; minus
equal: . any outstanding Policy loan on the date of death; minus
. any interest you owe 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 only if required by applicable state law, from the date we
receive due proof of the insured's death to the date we make payment.
We may further adjust the amount of the death benefit proceeds under certain
circumstances. See Our Right to Contest the Policy; and Misstatement of Age or
Sex.
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.
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Full and Partial Surrenders
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Full Surrenders
You may make a written request to surrender your Policy for its Cash Surrender
Value as calculated at the end of the Valuation Date when we receive your
request.
Full . The insured must be alive and the Policy must be in force
surrender when you make your written request. A surrender is
conditions: effective as of the date when we receive your written
request. We may require that you return the Policy.
. You will incur a surrender charge of 7% of any premium
payments made within 6 years before the surrender. See
Charges and Deductions--Surrender Charge.
. Once you surrender your Policy, all coverage and other
benefits under it cease.
. We will pay you the Cash Surrender Value in a lump sum
within seven days unless you request other arrangements.
Surrendering the Policy may have adverse tax consequences. See Federal Tax
Considerations--Tax Treatment of Policy Benefits.
Partial Surrenders
You may request a partial surrender of a portion of your Cash Value subject to
certain conditions.
-- You must make your partial surrender request to us in writing.
-- You must request at least $500.
-- You may withdraw up to the Policy's gain (Cash Value minus premiums)
free of charge after the first Policy year.
-- At least $5,000 of Cash Surrender Value must remain in the Policy after
the partial surrender.
-- We assess a surrender charge equal to 7% of the whole amount surrendered
in the first Policy year.
-- We assess a surrender charge equal to 7% of the portion of any partial
surrender after the first Policy year that exceeds the gain and is
attributable to a premium payment made within 6 years before the partial
surrender. See Charges and Deductions--Partial Surrenders.
-- We deduct the surrender charge from the remaining Cash Value.
-- You can specify the subaccount(s) and fixed account from which to make
the partial surrender; otherwise we will deduct the amount (including
any partial surrender charge) from the subaccounts and the fixed account
on a pro-rata basis (that is, according to the percentage of Cash Value
contained in each subaccount and the fixed account).
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-- We will process the partial surrender at the unit values next determined
after we receive your request.
-- We generally will pay a partial surrender request within seven days
after the Valuation Date when we receive the request.
Partial surrenders may have adverse tax consequences. See Federal Tax
Considerations--Tax Treatment of Policy Benefits.
Transfers
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You may make transfers from (i.e., out of) the subaccounts or from 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:
. You may make an unlimited number of transfers in a Policy Year.
. You may request transfers in writing (in a form we accept), or by
telephone.
. For transfers out of the fixed account, you may not transfer more than
25% of the value in the fixed account (not including amounts securing
Policy loans), or $1,000 (whichever is greater). If the balance after
the transfer is less than $1,000, we will transfer the entire amount in
the fixed account. We allow one transfer out of the fixed account every
12 months.
. We may deduct a $10 charge from the amount transferred for the 13th and
each additional transfer in a Policy Year. Transfers we effect on the
Reallocation Date, and transfers resulting from loans, dollar cost
averaging and asset rebalancing are not treated as transfers for the
purpose of the transfer charge.
. We consider each written or telephone request to be a single transfer,
regardless of the number of subaccounts (or fixed account) involved.
. We process transfers based on the unit values next determined after we
receive your request (which is at the end of the Valuation Date during
which we receive your request).
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 1-800-732-7754.
Please note the following regarding telephone 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.
-- Such procedures may include requiring forms of personal identification
prior to acting upon telephone instructions, providing written
confirmation of transactions to you, and/or tape recording telephone
instructions received from you.
-- If we do not employ reasonable confirmation procedures, we may be liable
for losses due to unauthorized or fraudulent instructions.
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The corresponding portfolio of any subaccount determines its net asset value
per each share once daily, as of the close of the regular business session of
the New York Stock Exchange ("NYSE") (usually 4:00 p.m. Eastern time), which
coincides with the end of each Valuation Period. Therefore, we will process any
transfer request we receive after the close of the regular business session of
the NYSE, using the net asset value for each share of the applicable portfolio
determined as of the close of the next regular business session of the NYSE.
Dollar Cost Averaging
When purchasing a Policy, you may place some or all of your initial net premium
in the Dollar Cost Averaging Fixed Account ("DCA Fixed Account"). 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 allows you to
potentially 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 carefully consider 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 it is high.
Money you place in the DCA Fixed Account will earn interest at an annual rate
of at least 3%. We will transfer money out of the DCA Fixed Account in equal
installments over a specified period of 6 months (or other periods available at
issue) and place it in the subaccounts according to your instructions.
We may credit different interest rates for dollar cost averaging programs of
varying time periods. If you discontinue the dollar cost averaging program
before its completion, then the interest credited on amounts in the DCA Fixed
Account may be adjusted downward, but not below the minimum guaranteed
effective annual interest rate of 3%.
There is no charge for dollar cost averaging. A transfer under this program is
not considered a transfer for purposes of assessing the transfer fee.
-- we receive your request to cancel your participation;
Dollar cost -- the value in the DCA Fixed Account is depleted;
Averaging -- you elect to participate in the asset rebalancing program;
will or
Terminate if: -- you elect to participate in any asset allocation services
provided by a third party.
We may modify, suspend, or discontinue the dollar cost averaging program at any
time.
Asset Rebalancing Program
We also offer an asset rebalancing program under which we will automatically
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.
The asset rebalancing program will transfer Cash Value from those subaccounts
that have increased in value to those subaccounts that have declined in value
(or not increased as much). Over time, this method of investing may help you
buy low and sell high. The asset rebalancing program does not guarantee gains,
nor does it assure that any subaccount will not have losses. Cash Value in the
fixed account and the DCA Fixed Account are not available for this program.
-- you must complete an asset rebalancing request form and
To submit it to us before the maturity date
participate -- you must have a minimum Cash Value of $10,000.
in the asset
rebalancing
program:
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You may elect for 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 New York Stock Exchange ("NYSE") is closed,
rebalancing will occur on the next day the NYSE is open. There is no charge for
the asset rebalancing program. Any reallocation which occurs under the asset
rebalancing program will not be counted towards the 12 free transfers allowed
during each Policy Year. You can begin or end this program only once each
Policy year. We may modify, suspend, or discontinue the asset rebalancing
program at any time.
-- you elect to participate in the DCA Fixed Account;
Asset -- we receive your request to discontinue participation;
rebalancing -- you make a transfer to or from any subaccount other than
will cease under a scheduled rebalancing; or
if: -- you elect to participate in any asset allocation services
provided by a third party
The policy you are purchasing was not designed for professional market timing
organizations or other persons that use programmed, large, or frequent
transfers. The use of such transfers may be disruptive to an underlying fund
portfolio. We reserve the right to reject any premium payment or transfer
request from any person, if, in our judgment, an underlying fund portfolio
would be unable to invest effectively in accordance with its investment
objectives and policies or would otherwise be potentially adversely affected or
if an underlying portfolio would reject our purchase order.
Loans
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While the Policy is in force, you may borrow money from us using the Policy as
the only security for the loan. A loan that is taken from, or secured by, a
Policy may have tax consequences.
Loan Conditions
You may take a loan against the Policy for amounts from $500 up to 90% of the
Cash Value net of any surrender charge, minus outstanding loans and any
interest you owe.
. To secure the loan, we transfer an amount equal to the loan from the
variable account and fixed account to the loan account, which is a part
of the fixed account. If your loan application does not specify any
allocation instructions, we will transfer the loan from the subaccounts
and the fixed account on a pro-rata basis (that is, according to the
percentage of Cash Value contained in each subaccount and the fixed
account).
. Amounts in the loan account earn interest at the guaranteed minimum rate
of 3% per year, compounded annually. We may credit the loan account with
an interest rate different than the fixed account.
. 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.
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. We currently charge you an interest rate of 4.50% (the guaranteed
maximum is 6%) per year on your loan. Interest is due and payable at the
end of each calendar quarter, or, if earlier, on the date of any loan
increase or repayment. Unpaid interest becomes part of the outstanding
loan and accrues interest accordingly. We reserve the right to change
the interest rate on any new and existing loans. However, the interest
rate will never be raised above the guaranteed rate of 6%.
. You may repay all or part of your outstanding loans at any time. Loan
repayments must be at least $500, and must be clearly marked as "loan
repayments" or they will be credited as premiums if they meet minimum
premium requirements.
. Upon each loan repayment, we will transfer an amount equal to the loan
repayment from the loan account to the fixed and/or variable account
according to your current premium allocation schedule.
. We deduct any unpaid loans from the Cash Surrender Value and death
benefit proceeds payable on the insured's death.
. If any unpaid loan, including interest you owe, equals or exceeds the
Cash Value, causing the Cash Surrender Value to become zero, then your
Policy will enter a 61-day grace period. See Policy Lapse and
Reinstatement, below.
Effect of Policy Loans
A Policy loan affects the Policy, because we reduce the death benefit proceeds
and Cash 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 Cash 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 account. This amount is not affected by the variable account's investment
performance and may not be credited with the interest rates accruing on the
fixed account. Amounts transferred from the variable account to the loan
account will affect the Cash Value, even if the loan is repaid, because we
credit such amounts with an interest rate we declare rather than a rate of
return reflecting the investment results of the variable account.
There are risks involved in taking a Policy loan, including the potential for a
Policy to lapse if projected earnings, taking into account outstanding loans,
are not achieved. If the Policy is a "modified endowment contract" (see Federal
Tax Considerations, below), then a loan will be treated as a partial surrender
for Federal income tax purposes. A Policy loan may also have possible adverse
tax consequences that could occur if a Policy lapses with loans outstanding.
See Loan Risks.
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 Cash Surrender Value. If you
do not submit a sufficient payment within 61 days from the date of the notice,
your Policy may lapse.
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Policy Lapse and Reinstatement
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Lapse
If you have no outstanding Policy loans, then we guarantee that your Policy
will not lapse, regardless of investment performance. If you do have an
outstanding loan, then certain circumstances will cause your Policy to enter a
grace period during which you must make a sufficient payment to keep your
Policy in force:
. If you have an outstanding Policy loan and your Policy's Cash Surrender
Value becomes zero (or negative), then the Policy will enter a 61-day
grace period.
If your Policy enters into a grace period, we will mail a notice to your last
known address and to any assignee of record. The 61-day grace period begins on
the date of the notice. The notice will specify the minimum payment required
and the final date by which we must receive the payment to keep the Policy from
lapsing. If we do not receive the specified minimum payment by the end of the
grace period, all coverage under the Policy will terminate and you will receive
no benefits. The payment must be sufficient enough to cause the Cash Surrender
Value to exceed zero, after deducting all due and unpaid monthly deductions and
outstanding loans.
Reinstatement
You may not reinstate your Policy if it lapses unless we issued your Policy in
a state which requires that the Policy include a reinstatement provision. If
your Policy was issued in a state which requires that the Policy include a
reinstatement provision, then you may request a reinstatement of a lapsed
Policy within five years of the date of lapse (and prior to the Maturity Date).
To reinstate a Policy, you must:
. submit a written application for reinstatement;
. provide evidence of insurability satisfactory to us; and
. make a premium payment that is large enough to cover the sum of:
-- the monthly deductions not previously paid during the grace period,
plus
-- $10,000.
We will not reinstate any outstanding loans (including interest you owe). The
amount in the loan account on the reinstatement date will be zero. Your Cash
Surrender Value on the reinstatement date will equal the premium you pay at
reinstatement minus the sum of:
(1) monthly deductions to cover the grace period;
(2) one additional monthly deduction; and
(3) any surrender charge.
The reinstatement date for your Policy will be the monthly date on or following
the day we approve your application for reinstatement. We may decline a request
for reinstatement.
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Federal Tax Considerations
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The following summarizes some of the basic 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 ("Code") in order to qualify as a life insurance
contract for Federal income tax purposes and to receive the tax treatment
normally accorded life insurance contracts. The guidance as to how these
requirements are to be generally applied is limited and the manner in which
such requirements should be applied to certain features of the Policy is not
directly addressed by the available legal authorities. Nevertheless, we believe
that a Policy should satisfy the applicable Code requirements. Because of 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 contracts have been
considered for Federal income tax purposes to be the owners of the assets of
the separate account supporting their contracts due to their ability to
exercise investment control over those assets. Where this is the case, the
contract owners 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 the 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 variable
account assets, we reserve the right to modify the Policy as necessary to
prevent you from being treated as the owner of the variable account assets
supporting the Policy.
In addition, the Code requires that the investments of the variable account be
"adequately diversified" in order to treat the Policy as a life insurance
contract for Federal income tax purposes. We intend that the variable account,
through the portfolios, will satisfy these diversification requirements.
The following discussion assumes that the Policy will qualify as a life
insurance contract for Federal income tax purposes.
Tax Treatment of Policy Benefits
In General. We believe that the death benefit under a Policy generally should
be excludible 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. You should
consult a tax advisor 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 a Policy (e.g., by assignment),
then the tax consequences depend on whether the Policy is classified as a
"Modified Endowment Contract."
33
<PAGE>
Modified Endowment Contracts. Under the Code, certain life insurance contracts
are classified as "Modified Endowment Contracts" ("MECs") and receive less
favorable tax treatment than other life insurance contracts. The Policy will
generally be classified as a MEC, although some policies issued in exchange for
life insurance contracts that are not classified as MECs may not 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.
Distributions other than Death Benefits from Modified Endowment Contracts.
Policies classified as MECs are subject to the following tax rules:
. All distributions other than death benefits from a MEC, including
distributions upon surrender and partial surrenders, will be treated
first as distributions of gain taxable as ordinary income and as tax-
free recovery of the owner's investment in the Policy only after all
gain has been distributed.
. Loans taken from such a Policy (or secured by such a Policy, e.g., by
assignment) are treated as distributions and taxed accordingly.
. A 10% additional income tax penalty is imposed on the amount included in
income except where the distribution or loan is made when you have
attained age 59 1/2 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
the beneficiary.
. If a Policy becomes a modified endowment contract, distributions that
occur during the policy year will be taxed as distributions from a
modified endowment contract. In addition, distributions from a Policy
within two years before it becomes a modified endowment contract will be
taxed in this manner. This means that a distribution made from a Policy
that is not a modified endowment contract could later become taxable as
a distribution from a modified endowment contract.
Distributions other than Death Benefits from Policies that are not Modified
Endowment Contracts. Distributions (other than death benefits) from a Policy
that is not a MEC are generally treated first as a recovery of your investment
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 contract 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. However, if the difference between the interest rate credited
on an amount in the loan account and the interest rate changed on the Policy
loan is negligible, the tax consequences are uncertain. In these circumstances,
you should consult a tax adviser as to such consequences. In addition, if a
Policy that is not a MEC lapses when a Policy loan is outstanding, the loan
balance will be treated as a distribution and taxed accordingly.
Finally, neither distributions from nor loans from (or secured by) a Policy
that is not a MEC are subject to the 10% additional tax.
Investment in the Policy. Your investment in the Policy is generally your
aggregate 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.
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.
34
<PAGE>
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 includible in the owner's income when a taxable
distribution occurs.
Continuing the Policy Beyond Age 100. The tax consequences of continuing the
Policy beyond the 100th birthday of the insured are uncertain. You should
consult a tax advisor as to these consequences.
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, 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 adviser.
Possible Tax Law Changes. While the likelihood of legislative or other changes
is uncertain, there is always a possibility that the tax treatment of the
Policy could change by legislation or otherwise. It is even possible that any
legislative change could be retroactive (effective prior to the date of the
change). Consult a tax advisor with respect to legislative developments and
their effect on the Policy.
Other Policy Information
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Our Right to Contest the Policy
In issuing this Policy, we rely on all statements made by or for you and/or the
insured 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 for two years from the Policy Date, or if reinstated, for two years
from the date of reinstatement.
Suicide Exclusion
If the insured commits suicide, while sane or insane, within two years of the
Policy Date, the Policy will terminate and our liability is limited to an
amount equal to the premiums paid, less any loans, and less any partial
surrenders previously paid.
Misstatement of Age or Sex
If the insured's age or sex was stated incorrectly in the application or any
supplemental application, we will adjust the death benefit to the amount that
would have been payable at the correct age and sex based on the most recent
deduction for cost of insurance. If the insured's age has been overstated or
understated, we will calculate future monthly deductions using the cost of
insurance based on the insured's correct age and sex.
35
<PAGE>
Modifying the Policy
Only one of our officers 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.
Upon notice to you, we may modify the Policy:
-- to conform the Policy, our operations, or the variable account's
operations to the requirements of any law (or regulation issued by a
government agency) to which the Policy, our company or the variable
account is subject; or
-- to assure continued qualification of the Policy as a life insurance
contract under the Federal tax laws; or
-- to reflect a change in the variable account's operation.
If we modify the Policy, we will make appropriate endorsements to the Policy.
If any provision of the Policy conflicts with the laws of a jurisdiction that
govern the Policy, we reserve the right to amend the provision to conform with
such laws.
Payments We Make
We usually pay the amounts of any surrender, partial surrender, 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:
. the NYSE is closed, other than customary weekend and holiday closing, or
trading on the NYSE is restricted as determined by the Securities and
Exchange Commission (SEC); or
. the SEC permits, by an order or less formal interpretation (e.g., no-
action letter), the postponement of any payment for the protection of
Owners; or
. the SEC determines that an emergency exists that would make the disposal
of securities held in the variable 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 surrenders, death benefit proceeds, or payments
under a payment option until such check or draft has been honored.
Reports to Owners
Once each calendar quarter, we plan to mail to Owners at their last known
address a report showing the following information as of the end of the report
period:
X the current Cash Value
X the current Cash Surrender Value
X the current death benefit
36
<PAGE>
X any activity (e.g., premiums paid, partial surrenders, deductions, loans
or loan repayments, other transactions) since the last report
X any other information required by law
We may amend these reporting procedures at any time, and/or provide less
frequent reports.
Records
We will maintain all records relating to the variable account and the fixed
account.
Policy Termination
Your Policy will terminate on the earliest of:
-- the maturity date (insured's age 100)
-- the end of the grace period without a
-- the date the insured dies sufficient payment
-- the date you surrender the Policy
Performance Data
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Hypothetical illustrations based on adjusted historic portfolio performance
In order to demonstrate how the actual investment experience of the portfolios
could have affected the death benefit, Cash Value and Cash Surrender Value of
the Policy, we may provide hypothetical illustrations using the actual
investment experience of each portfolio since its inception. These hypothetical
illustrations are designed to show the performance that could have resulted if
the Policy had been in existence during the period illustrated. Hypothetical
illustrations are not indicative of future performance.
The values we illustrate for death benefit, Cash Value and Cash Surrender Value
take into account any charges and deductions from the Policy, the variable
account and the portfolios. We have not deducted any charges for premium taxes.
These charges could be substantial and would lower the performance figures
significantly if reflected.
The charges and deductions that are used to determine the Cash Value are as
follows:
. monthly cost of insurance charges;
. monthly administrative charges; and
. monthly asset based charges.
If the Cash Value is greater than 200% of the total premiums paid, and the Cash
Value exceeds $2,000, then we will credit your Cash Value with additional
interest at an annual rate of 0.50%.
Each of the following hypothetical illustrations is based on the historical
investment performance of the portfolios. Each illustration assumes that the
entire premium of $50,000 is allocated to the particular subaccount, and that
there are no transfers, no loans, and no partial surrenders. The values would
be different for an insured of a different sex, age, or risk class. The
adjusted historical annual total return figures are the total returns of the
portfolio for each year, less the 0.75% daily charge deducted from the variable
account.
37
<PAGE>
AIM V.I. CAPITAL APPRECIATION FUND
Male, Issue Age 55, Non-Tobacco Use, Approved Preferred Class
($109,800 Specified Amount, Initial Premium $50,000)
Both Current and Guaranteed Cost of Insurance
<TABLE>
<CAPTION>
Cash Surrender Ajusted
Death Benefit Cash Value Value Historical
------------------ ------------------ ------------------ Annual
Current Guaranteed Current Guaranteed Current Guaranteed Total Return
------- ---------- ------- ---------- ------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
5/31/1993 109,800 109,800 48,943 48,934 45,443 45,434 N/A
12/31/1993 125,555 125,391 55,966 55,882 52,466 52,382 N/A
12/31/1994 122,359 121,905 56,159 55,939 52,659 52,439 1.73%
12/31/1995 157,966 156,948 74,618 74,120 71,118 70,620 34.70%
12/31/1996 176,759 175,081 85,897 85,059 82,397 81,559 16.71%
12/31/1997 190,994 188,531 95,442 94,183 91,942 90,683 12.66%
12/31/1998 217,298 213,966 111,811 109,910 108,311 106,410 18.42%
12/31/1999 301,479 295,194 159,147 155,771 159,147 155,771 43.56%
</TABLE>
Note: Assuming the policy was purchased on 5/31/1993
AIM V.I. GOVERNMENT SECURITIES FUND
Male, Issue Age 55, Non-Tobacco Use, Approved Preferred Class
($109,800 Specified Amount, Initial Premium $50,000)
Both Current and Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
Cash Surrender Adjusted
Death Benefit Cash Value Value Historical
------------------ ------------------ ------------------ Annual
Current Guaranteed Current Guaranteed Current Guaranteed Total Return
------- ---------- ------- ---------- ------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
5/31/1993 109,800 109,800 48,943 48,934 45,443 45,434 N/A
12/31/1993 112,393 112,246 50,099 50,024 46,599 46,524 N/A
12/31/1994 102,829 102,447 47,193 47,008 43,693 43,508 -4.46%
12/31/1995 113,025 112,297 53,390 53,033 49,890 49,533 14.71%
12/31/1996 110,016 108,972 53,463 52,941 49,963 49,441 1.53%
12/31/1997 113,272 111,811 56,603 55,856 53,103 52,356 7.35%
12/31/1998 116,208 114,270 59,686 58,671 56,186 55,171 6.93%
12/31/1999 109,243 106,965 57,641 56,418 57,641 56,418 -2.06%
</TABLE>
Note: Assuming the policy was purchased on 5/31/1993
AIM V.I. GROWTH AND INCOME
Male, Issue Age 55, Non-Tobacco Use, Approved Preferred Class
($109,800 Specified Amount, Initial Premium $50,000)
Both Current and Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
Cash Surrender Adjusted
Death Benefit Cash Value Value Historical
------------------ ------------------ ------------------ Annual
Current Guaranteed Current Guaranteed Current Guaranteed Total Return
------- ---------- ------- ---------- ------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
5/31/1994 109,800 109,800 48,943 48,934 45,443 45,434 N/A
12/31/1994 110,404 110,260 49,212 49,139 45,712 45,639 N/A
12/31/1995 140,537 140,015 64,503 64,249 61,003 60,749 32.88%
12/31/1996 160,371 159,338 75,754 75,248 72,254 71,748 19.06%
12/31/1997 191,882 190,060 93,246 92,336 89,746 88,836 24.80%
12/31/1998 233,893 230,243 116,933 115,021 113,433 111,521 26.57%
12/31/1999 300,702 294,068 154,516 151,056 151,016 147,556 33.27%
</TABLE>
Note: Assuming the policy was purchased on 5/31/1994
38
<PAGE>
AIM V.I. VALUE FUND
Male, Issue Age 55, Non-Tobacco Use, Approved Preferred Class
($109,800 Specified Amount, Initial Premium $50,000)
Both Current and Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
Cash Surrender Adjusted
Death Benefit Cash Value Value Historical
------------------ ------------------ ------------------ Annual
Current Guaranteed Current Guaranteed Current Guaranteed Total Return
------- ---------- ------- ---------- ------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
5/31/1993 109,800 109,800 48,943 48,934 45,443 45,434 N/A
12/31/1993 122,425 122,265 54,571 54,489 51,071 50,989 N/A
12/31/1994 121,102 120,651 55,582 55,364 52,082 51,864 3.26%
12/31/1995 156,990 155,979 74,157 73,662 70,657 70,162 35.25%
12/31/1996 171,844 170,213 83,509 82,694 80,009 79,194 14.17%
12/31/1997 202,370 199,760 101,127 99,792 97,627 96,292 22.79%
12/31/1998 255,870 251,604 131,479 129,244 127,979 125,744 31.42%
12/31/1999 318,415 311,777 168,087 164,522 168,087 164,522 28.95%
</TABLE>
Note: Assuming the policy was purchased on 5/31/1993
DREYFUS STOCK INDEX FUND
Male, Issue Age 55, Non-Tobacco Use, Approved Preferred Class
($109,800 Specified Amount, Initial Premium $50,000)
Both Current and Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
Cash Surrender Adjusted
Death Benefit Cash Value Value Historical
------------------ ------------------ ------------------ Annual
Current Guaranteed Current Guaranteed Current Guaranteed Total Return
------- ---------- ------- ---------- ------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
9/30/1989 109,800 109,800 48,943 48,934 45,443 45,434 N/A
12/31/1989 111,568 111,505 49,731 49,694 46,231 46,194 N/A
12/31/1990 102,340 102,046 46,968 46,824 43,468 43,324 -4.21%
12/31/1991 126,382 125,688 59,699 59,357 56,199 55,857 28.90%
12/31/1992 128,820 127,734 62,601 62,056 59,101 58,556 6.31%
12/31/1993 131,436 129,896 65,680 64,891 62,180 61,391 6.38%
12/31/1994 128,806 126,827 66,157 65,119 62,657 61,619 2.14%
12/31/1995 167,988 164,789 88,556 86,838 88,556 86,838 35.78%
12/31/1996 197,903 194,135 106,527 104,460 106,527 104,460 21.63%
12/31/1997 253,495 248,668 139,243 136,540 139,243 136,540 31.99%
12/31/1998 314,628 308,637 176,241 172,821 176,241 172,821 27.27%
12/31/1999 368,054 361,046 210,501 206,415 210,501 206,415 19.72%
</TABLE>
Note: Assuming the policy was purchased on 9/30/1989
39
<PAGE>
DREYFUS VIF--MONEY MARKET PORTFOLIO
Male, Issue Age 55, Non-Tobacco Use, Approved Preferred Class
($109,800 Specified Amount, Initial Premium $50,000)
Both Current and Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
Cash Surrender Adjusted
Death Benefit Cash Value Value Historical
------------------ ------------------ ------------------ Annual
Current Guaranteed Current Guaranteed Current Guaranteed Total Return
------- ---------- ------- ---------- ------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
8/31/1990 109,800 109,800 48,943 48,934 45,443 45,434 N/A
12/31/1990 111,685 111,601 49,783 49,737 46,283 46,237 N/A
12/31/1991 112,530 112,183 51,648 51,478 48,148 47,978 5.19%
12/31/1992 111,488 110,850 52,663 52,349 49,163 48,849 3.37%
12/31/1993 109,585 108,632 53,253 52,776 49,753 49,276 2.52%
12/31/1994 108,883 107,576 54,410 53,741 50,910 50,241 3.60%
12/31/1995 109,558 107,839 56,271 55,369 52,771 51,869 4.87%
12/31/1996 109,693 107,525 57,674 56,451 57,674 56,451 4.32%
12/31/1997 109,973 107,305 58,524 56,749 58,524 56,749 4.41%
12/31/1998 110,198 106,978 59,301 56,899 59,301 56,899 4.31%
12/31/1999 109,607 105,807 59,584 56,497 59,584 56,497 3.49%
</TABLE>
Note: Assuming the policy was purchased on 8/31/1990
DREYFUS VIF--SMALL COMPANY STOCK PORTFOLIO
Male, Issue Age 55, Non-Tobacco Use, Approved Preferred Class
($109,800 Specified Amount, Initial Premium $50,000)
Both Current and Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
Cash Surrender Adjusted
Death Benefit Cash Value Value Historical
------------------ ------------------ ------------------ Annual
Current Guaranteed Current Guaranteed Current Guaranteed Total Return
------- ---------- ------- ---------- ------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
5/31/1996 109,800 109,800 48,943 48,934 45,443 45,434 N/A
12/31/1996 113,442 113,295 50,566 50,491 47,066 46,991 N/A
12/31/1997 131,350 130,862 60,286 60,049 56,786 56,549 20.87%
12/31/1998 117,484 116,727 55,496 55,125 51,996 51,625 -6.68%
12/31/1999 123,658 122,484 60,092 59,506 56,592 56,006 9.78%
</TABLE>
Note: Assuming the policy was purchased on 5/31/1996
MFS EMERGING GROWTH SERIES
Male, Issue Age 55, Non-Tobacco Use, Approved Preferred Class
($109,800 Specified Amount, Initial Premium $50,000)
Both Current and Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
Cash Surrender Adjusted
Death Benefit Cash Value Value Historical
------------------ ------------------ ------------------ Annual
Current Guaranteed Current Guaranteed Current Guaranteed Total Return
------- ---------- ------- ---------- ------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
7/31/1995 109,800 109,800 48,943 48,934 45,443 45,434 N/A
12/31/1995 126,885 126,767 56,559 56,496 53,059 52,996 N/A
12/31/1996 141,184 140,719 64,800 64,573 61,300 61,073 16.16%
12/31/1997 163,747 162,770 77,349 76,869 73,849 73,369 21.01%
12/31/1998 208,082 207,208 101,604 100,667 98,104 97,167 33.18%
12/31/1999 352,471 348,134 176,214 173,994 172,714 170,494 75.45%
</TABLE>
Note: Assuming the policy was purchased on 7/31/1995
40
<PAGE>
MFS RESEARCH SERIES
Male, Issue Age 55, Non-Tobacco Use, Approved Preferred Class
($109,800 Specified Amount, Initial Premium $50,000)
Both Current and Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
Cash Surrender Adjusted
Death Benefit Cash Value Value Historical
------------------ ------------------ ------------------ Annual
Current Guaranteed Current Guaranteed Current Guaranteed Total Return
------- ---------- ------- ---------- ------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
7/31/1995 109,800 109,800 48,943 48,934 45,443 45,434 N/A
12/31/1995 120,385 120,272 53,661 53,601 50,161 50,101 N/A
12/31/1996 140,029 139,568 64,269 64,044 60,769 60,544 21.43%
12/31/1997 160,215 159,259 75,680 75,211 72,180 71,711 19.37%
12/31/1998 188,133 186,447 91,424 90,581 87,924 87,081 22.48%
12/31/1999 222,185 219,451 111,028 109,629 107,528 106,129 23.14%
</TABLE>
Note: Assuming the policy was purchased on 7/31/1995
MFS TOTAL RETURN SERIES
Male, Issue Age 55, Non-Tobacco Use, Approved Preferred Class
($109,800 Specified Amount, Initial Premium $50,000)
Both Current and Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
Cash Surrender Adjusted
Death Benefit Cash Value Value Historical
------------------ ------------------ ------------------ Annual
Current Guaranteed Current Guaranteed Current Guaranteed Total Return
------- ---------- ------- ---------- ------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
1/31/1995 109,800 109,800 48,943 48,934 45,443 45,434 N/A
12/31/1995 136,430 136,150 60,814 60,678 57,314 57,178 N/A
12/31/1996 148,389 147,712 68,106 67,781 64,606 64,281 13.52%
12/31/1997 171,240 169,974 80,888 80,271 77,388 76,771 20.41%
12/31/1998 183,054 181,122 88,956 87,993 85,456 84,493 11.50%
12/31/1999 179,620 177,091 89,758 88,468 86,258 84,968 2.32%
</TABLE>
Note: Assuming the policy was purchased on 1/31/1995
MFS UTILITIES SERIES
Male, Issue Age 55, Non-Tobacco Use, Approved Preferred Class
($109,800 Specified Amount, Initial Premium $50,000)
Both Current and Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
Cash Surrender Adjusted
Death Benefit Cash Value Value Historical
------------------ ------------------ ------------------ Annual
Current Guaranteed Current Guaranteed Current Guaranteed Total Return
------- ---------- ------- ---------- ------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
1/31/1995 109,800 109,800 48,943 48,934 45,443 45,434 N/A
12/31/1995 140,841 140,552 62,780 62,639 59,280 59,139 N/A
12/31/1996 158,735 158,010 72,855 72,507 69,355 69,007 17.64%
12/31/1997 198,895 197,424 93,952 93,235 90,452 89,735 30.74%
12/31/1998 223,462 221,103 108,593 107,417 105,093 103,917 17.19%
12/31/1999 279,562 275,626 139,764 137,755 136,264 134,255 29.85%
</TABLE>
Note: Assuming the policy was purchased on 1/31/1995
41
<PAGE>
OPPENHEIMER CAPITAL APPRECIATION FUND/VA
Male, Issue Age 55, Non-Tobacco Use, Approved Preferred Class
($109,800 Specified Amount, Initial Premium $50,000)
Both Current and Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
Cash Surrender Adjusted
Death Benefit Cash Value Value Historical
------------------ ------------------ ------------------ Annual
Current Guaranteed Current Guaranteed Current Guaranteed Total Return
------- ---------- ------- ---------- ------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
4/30/1985 109,800 109,800 48,943 48,934 45,443 45,434 N/A
12/31/1985 119,475 119,297 53,256 53,166 49,756 49,666 N/A
12/31/1986 133,785 133,259 61,403 61,149 57,903 57,649 16.89%
12/31/1987 131,483 130,604 62,108 61,679 58,608 58,179 2.54%
12/31/1988 152,775 151,284 74,241 73,497 70,741 69,997 21.19%
12/31/1989 179,747 177,376 89,822 88,610 86,322 85,110 22.68%
12/31/1990 157,095 154,424 80,686 79,288 77,186 75,788 -8.90%
12/31/1991 187,894 183,909 99,258 97,153 99,258 97,153 24.62%
12/31/1992 205,094 199,791 111,245 108,369 111,245 108,369 13.68%
12/31/1993 210,505 203,984 117,168 113,538 117,168 113,538 6.45%
12/31/1994 203,866 196,405 116,368 112,109 116,368 112,109 0.21%
12/31/1995 268,439 256,964 157,035 150,323 157,035 150,323 35.66%
12/31/1996 324,585 308,541 194,476 184,863 194,476 184,863 24.28%
12/31/1997 397,355 374,843 243,688 229,882 243,688 229,882 25.75%
12/31/1998 476,397 445,707 298,874 279,260 298,874 279,620 23.09%
12/31/1999 652,990 605,487 418,825 388,357 418,825 388,357 40.63%
</TABLE>
Note: Assuming the policy was purchased on 4/30/1985
OPPENHEIMER GLOBAL SECURITIES FUND/VA
Male, Issue Age 55, Non-Tobacco Use, Approved Preferred Class
($109,800 Specified Amount, Initial Premium $50,000)
Both Current and Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
Cash Surrender Adjusted
Death Benefit Cash Value Value Historical
------------------ ------------------ ------------------ Annual
Current Guaranteed Current Guaranteed Current Guaranteed Total Return
------- ---------- ------- ---------- ------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
11/30/1990 109,800 109,800 48,943 48,934 45,443 45,434 N/A
12/31/1990 110,261 110,240 49,148 49,130 45,648 45,630 N/A
12/31/1991 108,352 108,087 49,728 49,596 46,228 46,096 2.62%
12/31/1992 95,689 95,209 45,198 44,960 41,698 41,460 -7.81%
12/31/1993 155,068 153,843 75,356 74,741 71,856 71,241 69.11%
12/31/1994 139,165 137,617 69,542 68,748 66,042 65,248 -6.43%
12/31/1995 135,496 133,503 69,593 68,546 66,093 65,046 1.48%
12/31/1996 152,071 149,230 80,239 78,711 80,239 78,711 16.93%
12/31/1997 170,917 167,662 87,503 85,803 87,503 85,803 21.52%
12/31/1998 178,532 175,133 88,332 86,614 88,332 86,614 13.26%
12/31/1999 259,374 254,435 123,467 121,063 123,467 121,063 57.34%
</TABLE>
Note: Assuming the policy was purchased on 11/30/1990
42
<PAGE>
OPPENHEIMER HIGH INCOME FUND/VA
Male, Issue Age 55, Non-Tobacco Use, Approved Preferred Class
($109,800 Specified Amount, Initial Premium $50,000)
Both Current and Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
Cash Surrender Adjusted
Death Benefit Cash Value Value Historical
------------------ ------------------ ------------------ Annual
Current Guaranteed Current Guaranteed Current Guaranteed Total Return
------- ---------- ------- ---------- ------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
1/31/1988 109,800 109,800 48,943 48,934 45,443 45,434 N/A
12/31/1988 122,164 121,913 54,454 54,332 50,954 50,832 N/A
12/31/1989 121,798 121,242 55,902 55,635 52,402 52,135 4.06%
12/31/1990 121,251 120,354 57,275 56,838 53,775 53,338 3.87%
12/31/1991 154,532 152,901 75,096 74,283 71,596 70,783 32.94%
12/31/1992 173,468 171,026 86,684 85,438 83,184 81,938 17.05%
12/31/1993 208,710 204,956 107,196 105,234 103,696 101,734 25.41%
12/31/1994 193,372 189,060 102,743 100,415 102,743 100,415 -3.90%
12/31/1995 223,076 217,041 123,792 120,394 123,792 120,394 19.48%
12/31/1996 246,511 238,550 138,622 134,084 138,622 134,084 14.40%
12/31/1997 265,352 255,256 153,620 147,702 153,620 147,702 11.38%
12/31/1998 256,718 245,339 152,900 146,043 152,900 146,043 -0.45%
12/31/1999 258,507 245,286 154,404 146,420 154,404 146,420 3.51%
</TABLE>
Note: Assuming the policy was purchased on 1/31/1988
OPPENHEIMER MAIN STREET GROWTH & INCOME FUND/VA
Male, Issue Age 55, Non-Tobacco Use, Approved Preferred Class
($109,800 Specified Amount, Initial Premium $50,000)
Both Current and Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
Cash Surrender Adjusted
Death Benefit Cash Value Value Historical
------------------ ------------------ ------------------ Annual
Current Guaranteed Current Guaranteed Current Guaranteed Total Return
------- ---------- ------- ---------- ------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
7/31/1995 109,800 109,800 48,943 48,934 45,443 45,434 N/A
12/31/1995 131,703 131,580 58,706 58,641 55,206 55,141 N/A
12/31/1996 165,952 165,406 76,167 75,900 72,667 72,400 31.54%
12/31/1997 209,181 207,934 98,811 98,198 95,311 94,698 31.51%
12/31/1998 208,798 206,927 101,513 100,576 98,013 97,076 3.92%
12/31/1999 243,268 240,275 121,620 120,087 118,120 116,587 20.81%
</TABLE>
Note: Assuming the policy was purchased on 7/31/1995
43
<PAGE>
OPPENHEIMER STRATEGIC BOND FUND/VA
Male, Issue Age 55, Non-Tobacco Use, Approved Preferred Class
($109,800 Specified Amount, Initial Premium $50,000)
Both Current and Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
Cash Surrender Adjusted
Death Benefit Cash Value Value Historical
------------------ ------------------ ------------------ Annual
Current Guaranteed Current Guaranteed Current Guaranteed Total Return
------- ---------- ------- ---------- ------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
5/31/1993 109,800 109,800 48,943 48,934 45,443 45,434 N/A
12/31/1993 113,723 113,575 50,692 50,616 47,192 47,116 N/A
12/31/1994 104,000 103,614 47,731 47,543 44,231 44,043 -4.50%
12/31/1995 114,081 113,346 53,888 53,528 50,388 50,028 14.48%
12/31/1996 121,671 120,515 59,126 58,549 55,626 55,049 11.24%
12/31/1997 125,908 124,284 62,918 62,087 59,418 58,587 7.90%
12/31/1998 123,370 121,312 63,364 62,287 59,864 58,787 2.13%
12/31/1999 120,847 118,327 63,764 62,411 63,764 62,411 2.06%
</TABLE>
Note: Assuming the policy was purchased on 5/31/1993
TRANSAMERICA VIF GROWTH PORTFOLIO
Male, Issue Age 55, Non-Tobacco Use, Approved Preferred Class
($109,800 Specified Amount, Initial Premium $50,000)
Both Current and Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
Adjusted
Death Benefit Cash Value Cash Surrender Value Historical
-------------------- -------------------- -------------------- Annual
Current Guaranteed Current Guaranteed Current Guaranteed Total Return
--------- ---------- --------- ---------- --------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
12/31/1980 109,800 109,800 48,943 48,934 45,443 45,434 N/A
12/31/1981 102,595 102,365 47,085 46,970 43,585 43,470 -2.43%
12/31/1982 116,338 115,783 54,955 54,679 51,455 51,179 18.38%
12/31/1983 128,125 127,147 62,263 61,771 58,763 58,271 14.86%
12/31/1984 118,723 117,438 59,327 58,667 55,827 55,167 -3.39%
12/31/1985 146,255 144,152 75,118 74,014 71,618 70,514 28.39%
12/31/1986 156,083 153,225 82,356 80,818 82,356 80,818 11.18%
12/31/1987 168,216 164,405 93,228 91,078 93,228 91,078 12.23%
12/31/1988 215,418 209,503 124,651 121,173 124,651 121,173 33.30%
12/31/1989 277,245 268,169 142,503 137,769 142,503 137,769 33.15%
12/31/1990 237,391 228,245 147,918 142,141 147,918 142,141 -11.45%
12/31/1991 324,015 309,483 196,574 187,645 196,574 187,645 40.27%
12/31/1992 356,290 337,865 225,631 213,823 225,631 213,823 12.96%
12/31/1993 422,722 397,732 274,084 257,699 274,084 257,699 21.81%
12/31/1994 440,112 410,595 286,032 266,645 286,032 266,645 6.83%
12/31/1995 645,103 604,667 425,053 392,629 425,053 392,629 52.38%
12/31/1996 809,239 741,269 597,886 547,251 597,886 547,251 26.86%
12/31/1997 1,147,757 1,041,798 816,142 740,234 816,142 740,234 45.44%
12/31/1998 1,591,899 1,431,801 1,226,696 1,102,487 1,226,696 1,102,487 42.23%
12/31/1999 2,123,061 1,892,184 1,311,302 1,167,815 1,311,302 1,167,815 36.78%
</TABLE>
Note: Assuming the policy was purchased on 12/31/1980
44
<PAGE>
FIDELITY--VIP EQUITY-INCOME PORTFOLIO -- SERVICE CLASS 2
Male, Issue Age 55, Non-Tobacco Use, Approved Preferred Class
($109,800 Specified Amount, Initial Premium $50,000)
Both Current and Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
Cash Surrender Adjusted
Death Benefit Cash Value Value Historical
------------------ ------------------ ------------------ Annual
Current Guaranteed Current Guaranteed Current Guaranteed Total Return
------- ---------- ------- ---------- ------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
10/31/1986 109,800 109,800 48,943 48,934 45,443 45,434 N/A
12/31/1986 108,431 108,390 48,332 48,305 44,832 44,805 N/A
12/31/1987 101,896 101,625 46,765 46,631 43,265 43,131 -1.87%
12/31/1988 118,908 118,284 56,169 55,860 52,669 52,360 21.81%
12/31/1989 132,795 131,711 64,532 63,988 61,032 60,488 16.48%
12/31/1990 107,063 105,841 53,498 52,871 49,998 49,371 -15.93%
12/31/1991 133,976 131,961 68,812 67,754 65,312 64,254 30.48%
12/31/1992 149,197 146,355 81,022 79,450 81,022 79,450 16.02%
12/31/1993 168,223 164,275 95,093 92,824 95,093 92,824 17.42%
12/31/1994 171,742 166,874 96,910 94,120 96,910 94,120 6.27%
12/31/1995 221,583 214,113 129,980 125,535 129,980 125,535 34.11%
12/31/1996 243,289 233,656 147,740 141,812 147,740 141,812 13.44%
12/31/1997 300,897 287,054 179,741 171,369 179,741 171,369 27.12%
12/31/1998 324,285 307,111 198,061 187,450 198,061 187,450 10.71%
12/31/1999 333,102 312,965 226,728 212,871 226,728 212,871 5.46%
</TABLE>
Note: Assuming the policy was purchased on 10/31/1986
FIDELITY--VIP GROWTH PORTFOLIO -- SERVICE CLASS 2
Male, Issue Age 55, Non-Tobacco Use, Approved Preferred Class
($109,800 Specified Amount, Initial Premium $50,000)
Both Current and Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
Cash Surrender Adjusted
Death Benefit Cash Value Value Historical
------------------ ------------------ ------------------ Annual
Current Guaranteed Current Guaranteed Current Guaranteed Total Return
------- ---------- ------- ---------- ------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
10/31/1986 109,800 109,800 48,943 48,934 45,443 45,434 N/A
12/31/1986 109,734 109,693 48,913 48,886 45,413 45,386 N/A
12/31/1987 108,129 107,842 49,626 49,483 46,126 45,983 2.89%
12/31/1988 118,847 118,223 56,140 55,831 52,640 52,331 14.72%
12/31/1989 148,764 147,549 72,293 71,683 68,793 68,183 30.55%
12/31/1990 124,987 123,560 62,457 61,726 58,957 58,226 -12.40%
12/31/1991 173,235 170,631 88,976 87,609 85,476 84,109 44.46%
12/31/1992 180,420 176,986 97,016 95,134 97,016 95,134 8.51%
12/31/1993 205,468 200,648 114,096 111,373 114,096 111,373 18.49%
12/31/1994 196,956 191,375 107,404 104,313 107,404 104,313 -0.77%
12/31/1995 255,823 247,201 184,122 143,059 148,122 143,059 34.38%
12/31/1996 281,919 270,759 174,249 167,259 174,249 167,259 13.85%
12/31/1997 336,381 320,908 204,071 194,567 204,071 194,567 22.64%
12/31/1998 453,104 429,112 300,125 284,047 300,125 284,047 38.36%
12/31/1999 601,515 565,157 352,049 330,535 352,049 330,535 36.29%
</TABLE>
Note: Assuming the policy was purchased on 10/31/1986
45
<PAGE>
FIDELITY--VIP HIGH INCOME PORTFOLIO -- SERVICE CLASS 2
Male, Issue Age 55, Non-Tobacco Use, Approved Preferred Class
($109,800 Specified Amount, Initial Premium $50,000)
Both Current and Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
Cash Surrender Adjusted
Death Benefit Cash Value Value Historical
------------- ---------- -------------- Annual
Current Guaranteed Current Guaranteed Current Guaranteed Total Return
------- ---------- ------- ---------- ------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
09/30/1985 109,800 109,800 48,943 48,934 45,443 45,434 N/A
12/31/1985 115,919 115,854 51,670 51,632 48,170 48,132 N/A
12/31/1986 129,695 129,323 59,526 59,343 56,026 55,843 16.81%
12/31/1987 124,872 124,187 58,986 58,648 55,486 55,148 0.45%
12/31/1988 132,671 131,553 64,472 63,912 60,972 60,412 10.81%
12/31/1989 121,024 119,606 60,477 59,751 56,977 56,251 -4.89%
12/31/1990 112,672 110,942 57,870 56,962 54,370 53,462 -2.97%
12/31/1991 145,015 142,201 80,554 78,962 80,554 78,962 34.09%
12/31/1992 170,242 166,180 94,645 92,349 94,645 92,349 22.26%
12/31/1993 195,731 190,098 112,428 109,143 112,428 109,143 19.51%
12/31/1994 184,671 178,358 106,442 102,752 106,442 102,752 -2.37%
12/31/1995 214,287 205,691 128,152 122,944 128,152 122,944 19.83%
12/31/1996 235,971 224,982 143,169 136,420 143,169 136,420 13.19%
12/31/1997 268,097 253,736 168,140 159,029 168,140 159,029 16.71%
12/31/1998 247,896 232,747 159,694 149,830 159,694 149,830 -5.06%
12/31/1999 259,161 241,227 165,049 153,511 165,049 153,511 7.27%
</TABLE>
Note: Assuming the policy was purchased on 09/30/1985
FIDELITY--VIP II CONTRAFUND(R) PORTFOLIO -- SERVICE CLASS 2
Male, Issue Age 55, Non-Tobacco Use, Approved Preferred Class
($109,800 Specified Amount, Initial Premium $50,000)
Both Current and Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
Cash Surrender Adjusted
Death Benefit Cash Value Value Historical
------------- ---------- -------------- Annual
Current Guaranteed Current Guaranteed Current Guaranteed Total Return
------- ---------- ------- ---------- ------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
01/31/1995 109,800 109,800 48,943 48,934 45,443 45,434 N/A
12/31/1995 152,440 152,127 67,950 67,798 64,450 64,298 N/A
12/31/1996 175,736 174,934 80,658 80,273 77,158 76,773 20.33%
12/31/1997 207,451 205,917 97,993 97,246 94,493 93,746 23.17%
12/31/1998 256,534 253,826 124,664 123,315 121,164 119,815 28.98%
12/31/1999 304,581 300,293 152,272 150,083 148,772 146,583 23.23%
</TABLE>
Note: Assuming the policy was purchased on 01/31/1995
46
<PAGE>
FIDELITY--VIP II INVESTMENT GRADE BOND PORTFOLIO--SERVICE CLASS 2
Male, Issue Age 55, Non-Tobacco Use, Approved Preferred Class
($109,800 Specified Amount, Initial Premium $50,000)
Both Current and Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
Cash Surrender Adjusted
Death Benefit Cash Value Value Historical
------------------ ------------------ ------------------ Annual
Current Guaranteed Current Guaranteed Current Guaranteed Total Return
------- ---------- ------- ---------- ------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
12/31/1988 109,800 109,800 48,943 48,934 45,443 45,434 N/A
12/31/1989 115,083 114,826 52,820 52,691 49,320 49,191 9.44%
12/31/1990 116,293 115,738 54,933 54,658 51,433 51,158 5.42%
12/31/1991 128,806 127,823 62,594 62,099 59,094 58,599 15.52%
12/31/1992 130,780 129,365 65,352 64,626 61,852 61,126 5.86%
12/31/1993 138,204 136,218 70,984 69,940 67,484 66,440 10.14%
12/31/1994 126,714 124,394 66,860 65,611 66,860 65,611 -4.48%
12/31/1995 141,703 138,493 77,213 75,433 77,213 75,433 16.46%
12/31/1996 139,423 135,596 77,651 75,485 77,651 75,485 2.42%
12/31/1997 145,069 140,320 83,707 80,927 83,707 80,927 8.25%
12/31/1998 150,723 144,916 88,797 85,329 88,797 85,329 8.04%
12/31/1999 143,218 136,795 84,772 80,922 84,772 80,922 -1.79%
</TABLE>
Note: Assuming the policy was purchased on 12/31/1988
FIDELITY--VIP III GROWTH & INCOME PORTFOLIO--SERVICE CLASS 2
Male, Issue Age 55, Non-Tobacco Use, Approved Preferred Class
($109,800 Specified Amount, Initial Premium $50,000)
Both Current and Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
Cash Surrender Adjusted
Death Benefit Cash Value Value Historical
------------------ ------------------ ------------------ Annual
Current Guaranteed Current Guaranteed Current Guaranteed Total Return
------- ---------- ------- ---------- ------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
01/31/1997 109,800 109,800 48,943 48,934 45,443 45,434 N/A
12/31/1997 131,619 131,349 58,669 58,538 55,169 55,038 N/A
12/31/1998 166,326 165,567 76,339 75,974 72,839 72,474 31.90%
12/31/1999 172,562 171,286 81,513 80,891 78,013 77,391 8.25%
</TABLE>
Note: Assuming the policy was purchased on 01/31/1997
47
<PAGE>
FIDELITY--VIP III BALANCED PORTFOLIO -- SERVICE CLASS 2
Male, Issue Age 55, Non-Tobacco Use, Approved Preferred Class
($109,800 Specified Amount, Initial Premium $50,000)
Both Current and Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
Cash Surrender Adjusted
Death Benefit Cash Value Value Historical
------------------ ------------------ ------------------ Annual
Current Guaranteed Current Guaranteed Current Guaranteed Total Return
------- ---------- ------- ---------- ------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
01/31/1995 109,800 109,800 48,943 48,934 45,443 45,434 N/A
12/31/1995 122,769 122,517 54,724 54,602 51,224 51,102 N/A
12/31/1996 128,397 127,811 58,930 58,649 55,430 55,149 9.16%
12/31/1997 149,353 148,249 70,550 70,011 67,050 66,511 21.37%
12/31/1998 166,680 164,920 80,999 80,122 77,499 76,622 16.41%
12/31/1999 165,689 163,356 82,797 81,606 79,297 78,106 3.65%
</TABLE>
Note: Assuming the policy was purchased on 01/31/1995
FIDELITY--VIP III MID CAP PORTFOLIO -- SERVICE CLASS 2
Male, Issue Age 55, Non-Tobacco Use, Approved Preferred Class
($109,800 Specified Amount, Initial Premium $50,000)
Both Current and Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
Cash Surrender Adjusted
Death Benefit Cash Value Value Historical
------------------ ------------------ ------------------ Annual
Current Guaranteed Current Guaranteed Current Guaranteed Total Return
------- ---------- ------- ---------- ------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
12/31/1998.. 109,800 109,800 48,943 48,934 45,443 45,434 N/A
12/31/1999.. 155,489 155,142 71,365 71,191 67,865 67,691 47.87%
Note: Assuming the policy was purchased on 12/31/1998
WRL JANUS GLOBAL
Male, Issue Age 55, Non-Tobacco Use, Approved Preferred Class
($109,800 Specified Amount, Initial Premium $50,000)
Both Current and Guaranteed Cost of Insurance Rates
<CAPTION>
Cash Surrender Adjusted
Death Benefit Cash Value Value Historical
------------------ ------------------ ------------------ Annual
Current Guaranteed Current Guaranteed Current Guaranteed Total Return
------- ---------- ------- ---------- ------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
12/31/1992.. 109,800 109,800 48,943 48,934 45,443 45,434 N/A
12/31/1993.. 140,980 140,665 64,706 64,548 61,206 61,048 34.07%
12/31/1994.. 134,463 133,821 63,516 63,198 60,016 59,698 -0.49%
12/31/1995.. 157,491 156,289 76,533 75,929 73,033 72,429 22.16%
12/31/1996.. 191,535 189,462 95,712 94,648 92,212 91,148 26.80%
12/31/1997.. 216,624 213,511 111,262 109,626 107,762 106,126 17.88%
12/31/1998.. 269,706 264,767 142,374 139,715 142,374 139,715 29.06%
12/31/1999.. 442,495 432,369 237,255 231,784 237,255 231,784 69.88%
</TABLE>
Note: Assuming the policy was purchased on 12/31/1992
48
<PAGE>
WRL JANUS GROWTH
Male, Issue Age 55, Non-Tobacco Use, Approved Preferred Class
($109,800 Specified Amount, Initial Premium $50,000)
Both Current and Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
Cash Surrender Adjusted
Death Benefit Cash Value Value Historical
-------------------- ------------------ ------------------ Annual
Current Guaranteed Current Guaranteed Current Guaranteed Total Return
--------- ---------- ------- ---------- ------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
10/31/1986.. 109,800 109,800 48,943 48,934 45,443 45,434 N/A
12/31/1987.. 114,233 113,929 52,430 52,279 48,930 48,779 N/A
12/31/1988.. 128,922 128,245 60,899 60,564 57,399 57,064 17.75%
12/31/1989.. 180,435 178,962 87,683 86,944 84,183 83,444 45.97%
12/31/1990.. 171,386 169,430 85,644 84,640 82,144 81,140 -0.97%
12/31/1991.. 260,992 257,069 134,111 132,051 130,611 128,551 58.64%
12/31/1992.. 255,862 250,990 135,004 132,385 135,004 132,385 1.58%
12/31/1993.. 257,190 252,294 138,568 135,880 138,568 135,880 3.21%
12/31/1994.. 228,065 223,723 125,391 122,958 125,391 122,958 -9.00%
12/31/1995.. 324,862 318,677 182,144 178,609 182,144 178,609 46.05%
12/31/1996.. 371,515 364,442 212,580 208,454 212,580 208,454 17.09%
12/31/1997.. 425,596 417,493 249,418 244,577 249,418 244,577 16.68%
12/31/1998.. 682,858 669,857 409,618 401,668 409,618 401,668 63.29%
12/31/1999.. 1,064,203 1,043,942 653,034 640,359 653,034 640,359 58.52%
Note: Assuming the policy was purchased on 10/31/1986
WRL VKAM EMERGING GROWTH
Male, Issue Age 55, Non-Tobacco Use, Approved Preferred Class
($109,800 Specified Amount, Initial Premium $50,000)
Both Current and Guaranteed Cost of Insurance Rates
<CAPTION>
Cash Surrender Adjusted
Death Benefit Cash Value Value Historical
-------------------- ------------------ ------------------ Annual
Current Guaranteed Current Guaranteed Current Guaranteed Total Return
--------- ---------- ------- ---------- ------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
3/31/1993... 109,800 109,800 48,943 48,934 45,443 45,434 N/A
12/31/1993.. 127,872 127,658 56,999 56,893 53,499 53,393 N/A
12/31/1994.. 112,638 112,172 51,698 51,473 48,198 47,973 -8.05%
12/31/1995.. 157,326 156,238 74,316 73,784 70,816 70,284 45.73%
12/31/1996.. 177,988 176,204 86,494 85,604 82,994 82,104 18.00%
12/31/1997.. 205,796 203,021 102,839 101,421 99,339 97,921 20.56%
12/31/1998.. 270,151 265,470 138,817 136,366 135,317 132,866 36.33%
12/31/1999.. 531,230 519,770 279,786 273,649 279,786 273,649 103.70%
</TABLE>
Note: Assuming the policy was purchased on 3/31/1993
49
<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 4425 North
River Blvd. NE, Cedar Rapids, Iowa 52402, 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% of the initial premium. In addition, certain production, persistency and
managerial bonuses may be paid.
Associate Policies
The Policy may be acquired by an employee or registered representative of any
broker/dealer authorized to sell the policy or their spouse or minor children,
or by an officer, director, trustee or bona-fide full-time employee of PFL or
its affiliated companies or their spouse or minor children. In such a case, PFL
may credit an amount equal to a percentage of each premium payment to the
policy due to lower acquisition costs PFL experiences on those purchases. The
credit will be reported to the Internal Revenue Service as taxable income to
the employee or registered representative. PFL may offer certain employer
sponsored savings plans, in its discretion reduced fees and charges including,
but not limited to, the annual service charge, the surrender charges, the
mortality and expense risk fee and the administrative charge for certain sales
under circumstances which may result in savings of certain costs and expenses.
In addition, there may be other circumstances of which PFL is not presently
aware which could result in reduced sales or distribution expenses. Credits to
the policy or reductions in these fees and charges will not be unfairly
discriminatory against any owner.
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.
Frank A. Camp, Vice President and Division General Counsel, PFL Life Insurance
Company, has passed upon all matters of Iowa law pertaining to the Policy.
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
variable account. In some lawsuits involving other insurers, substantial
damages have been sought and/or material settlement payments have been made. We
believe that there are no pending or threatened lawsuits that will adversely
impact us or the variable account.
Experts
The statutory-basis financial statements and schedules of PFL as of December
31, 1999 and 1998 and for each of the three years in the period ended December
31, 1999, appearing in this prospectus
50
<PAGE>
and registration statement have been audited by Ernst & Young LLP, Independent
Auditors, 801 Grand Avenue, Suite 3400, Des Moines, Iowa 50309, as set forth in
their report thereon appearing elsewhere herein. The statutory-basis financial
statements referred to above are included in reliance upon such reports given
upon the authority of such firm as experts in accounting and auditing.
Actuarial matters included in this prospectus have been examined by Richard R.
Greer as stated in the opinion filed as an exhibit to the registration
statement.
Financial Statements
This prospectus does not include financial statements of the variable account
because, as of the date of this prospectus, the variable account had not yet
commenced operations, had no assets, and had incurred no liabilities. PFL's
statutory-basis financial statements appear in Appendix A. PFL's statutory-
basis financial statements should be distinguished from the variable account's
financial statements and you should consider our financial statements only as
bearing upon our ability to meet our obligations under the Policies.
Additional Information about PFL Life Insurance Company
PFL is a stock life insurance company that is a wholly-owned indirect
subsidiary of AEGON USA, Inc. AEGON USA, Inc. is a wholly owned indirect
subsidiary of AEGON N.V., a Netherlands corporation that is a publicly traded
international insurance group. PFL's home office is located at 4333 Edgewood
Road NE, Cedar Rapids, Iowa 52499.
PFL was incorporated in 1961 under Iowa law and is subject to regulation by the
Iowa Commissioner of Insurance. PFL is engaged in the business of issuing life
insurance policies and annuity contracts, and is licensed to do business in the
District of Columbia, Guam and all states except New York. PFL submits annual
statements on its operations and finances to insurance officials in all states
and jurisdictions in which it does business. PFL has filed the Policy described
in this prospectus with insurance officials in those jurisdictions in which the
Policy is sold.
PFL intends to reinsure a portion of the risks assumed under the Policies.
51
<PAGE>
PFL's Executive Officers and Directors
PFL is governed by a board of directors. The following table sets forth the
name and principal occupation during the past five years of each of PFL's
directors and senior officers. Each person is located at PFL Life Insurance
Company, 4333 Edgewood Road, NE, Cedar Rapids, IA 52449.
Board of Directors and Senior Officers
<TABLE>
<CAPTION>
Principal Occupation
Name Position with PFL During Past 5 years
---- ----------------- --------------------
<C> <C> <S>
William L. Busler Director, Chairman of the Director, Chairman of the
Board, and President Board, and President
Director, Executive Vice Director, Executive Vice
Larry N. Norman President President
Patrick S. Baird Director, Senior Vice Executive Vice President
President, and Chief Operating (1995-present), Chief
Officer Operating Officer (1996-
present), Chief Financial
Officer (1992-1995), Vice
President and Chief Tax
Officer (1984-1995) of
AEGON USA.
Douglas C. Kolsrud Director, Senior Vice
Director, Senior Vice President, Chief
President, Chief Investment Investment Officer and
Officer and Corporate Actuary Corporate Actuary
Craig D. Vermie Director, Vice President,
Director, Vice President, Secretary and General
Secretary and General Counsel Counsel
Robert J. Kontz Vice President and Corporate Vice President and
Controller Corporate Controller
Brenda K. Clancy Vice President, Treasurer
Vice President, Treasurer and and Chief Financial
Chief Financial Officer Officer
</TABLE>
PFL holds the assets of the variable account physically segregated and apart
from the general account. PFL maintains records of all purchases and sale of
portfolio shares by each of the subaccounts. A blanket bond in the amount of
$10 million (subject to a $1 million deductible), covering directors, officers
and all employees of AEGON USA, Inc. and its affiliates has been issued to PFL
and its affiliates. A Stockbrokers Blanket Bond, issued to AEGON USA providing
fidelity coverage, covers the activities of registered representatives of AFSG
to a limit of $10 million (subject to a $50,000 deductible).
52
<PAGE>
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 Cash Surrender Value under a Policy covering a male
insured of age 55 on the Policy Date, would change over time if the planned
premiums were paid and the return on the assets in the subaccounts were a
uniform gross annual rate (before any expenses) of 0%, 6% or 12%. The tables
also show how the Policy would operate if premiums accumulated at 5% interest.
The tables illustrate Policy values that would result based on assumptions that
you pay the premiums indicated, you do not increase your principal sum, and you
do not make any partial surrenders 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.
The hypothetical investment returns are provided only to illustrate the
mechanics of a hypothetical Policy and do not represent past or future
investment rates of return. Actual rates of return for a particular Policy may
be more or less than the hypothetical investment rates of return. The actual
return on your Cash Value will depend on factors such as the amounts you
allocate to particular portfolios, the amounts deducted for the Policy's
monthly charges, the portfolios' expense ratios, your Policy loan and partial
surrender history, and rates of inflation.
The illustrations assume that the assets in the portfolios are subject to an
annual expense ratio of 0.75% of the average daily net assets. This annual
expense ratio is based on the average of the expense ratios of each of the
portfolios for the last fiscal year and takes into account current expense
reimbursement arrangements. For more information on portfolio expenses, see the
Portfolio Expense Table in this prospectus. For more specific information on
management fees, see the portfolios' prospectuses.
Separate illustrations on each of the following pages reflect our current cost
of insurance charges and the higher guaranteed maximum cost of insurance that
we have has the contractual right to charge. The illustrations assume no
charges for Federal or state taxes or charges for supplemental benefits.
However, these illustrations assume a premium tax charge of 2%; actual premium
tax charges could be higher or lower, depending on the state of issue.
After deducting portfolio expenses, the illustrated gross annual investment
rates of return of 0%, 6% and 12% would correspond to approximate net annual
rates for the variable account of 1.50%, 4.50%, and 10.50%, respectively.
The illustrations are based on PFL's sex distinct rates for non-tobacco users.
Upon request, we will furnish a comparable illustration based upon the proposed
insured's individual circumstances. Such illustrations may assume different
hypothetical rates of return than those illustrated in the following
illustrations.
53
<PAGE>
PFL FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE
HYPOTHETICAL ILLUSTRATIONS
MALE ISSUE AGE 55
SPECIFIED AMOUNT: $109,800 INITIAL PREMIUM: $50,000
USING CURRENT PRACTICE CHARGES FOR NON-TOBACCO USERS, APPROVED PREFERRED
CLASS
<TABLE>
<CAPTION>
End of Premiums
Policy Accumulated
Year at 5% DEATH BENEFIT CASH VALUE CASH SURRENDER VALUE
- ------ ----------- ----------------------- ---------------------- ----------------------
Assuming Hypothetical Gross and Net Annual Investment Return of
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Gross 0% 6% 12% 0% 6% 12% 0% 6% 12%
Net -1.50% 4.50% 10.50% -1.50% 4.50% 10.50% -1.50% 4.50% 10.50%
1 52,500 106,901 112,857 118,788 47,591 50,490 53,392 44,091 46,990 49,892
2 55,125 100,823 112,991 125,759 46,214 52,050 58,202 42,714 48,550 54,702
3 57,881 95,118 113,166 133,185 44,872 53,652 63,438 41,372 50,152 59,938
4 60,775 89,763 113,376 141,094 43,563 55,298 69,138 40,063 51,798 65,638
5 63,814 84,737 113,625 149,522 42,288 56,988 75,342 38,788 53,488 71,842
6 67,005 80,018 113,915 158,511 41,044 58,723 82,094 37,544 55,223 78,594
7 70,355 75,588 114,250 168,106 39,831 60,505 89,441 39,831 60,505 89,441
8 73,873 71,432 114,633 178,354 38,648 62,333 97,434 38,648 62,333 97,434
9 77,566 67,534 115,069 189,312 37,495 64,206 106,124 37,495 64,206 106,124
10 81,445 63,879 115,563 201,043 36,370 66,126 115,624 36,370 66,126 115,624
11 85,517 60,761 116,715 214,704 35,470 68,476 126,606 35,470 68,476 126,606
12 89,793 57,852 117,998 229,528 34,590 70,904 138,623 34,590 70,904 138,623
13 94,282 55,114 119,366 245,521 33,729 73,417 151,777 33,729 73,417 151,777
14 98,997 52,536 120,822 262,784 32,890 76,019 166,180 32,890 76,019 166,180
15 103,946 50,108 122,371 281,433 32,071 78,716 181,955 32,071 78,716 181,955
16 109,144 50,000 123,932 301,387 31,219 81,448 199,079 31,219 81,448 199,079
17 114,601 50,000 125,495 322,714 30,308 84,206 217,640 30,308 84,206 217,640
18 120,331 50,000 127,062 345,502 29,324 86,980 237,714 29,324 86,980 237,714
19 126,348 50,000 128,633 369,851 28,248 89,758 259,386 28,248 89,758 259,386
20 132,665 50,000 130,202 395,857 27,058 92,526 282,739 27,058 92,526 282,739
21 139,298 50,000 131,768 423,618 25,732 95,280 307,870 25,732 95,280 307,870
22 146,263 50,000 133,322 453,223 24,240 98,013 334,884 24,240 98,013 334,884
23 153,576 50,000 134,856 484,758 22,552 100,721 363,896 22,552 100,721 363,896
24 161,255 50,000 136,359 518,306 20,625 103,444 395,029 20,625 103,444 395,029
25 169,318 50,000 137,821 553,940 18,405 106,090 428,395 18,405 106,090 428,395
26 177,784 50,000 139,265 591,886 15,850 108,718 464,216 15,850 108,718 464,216
27 186,673 50,000 140,690 632,277 12,872 111,318 502,607 12,872 111,318 502,607
28 196,006 50,000 142,093 675,246 9,356 113,873 543,667 9,356 113,873 543,667
29 205,807 50,000 143,471 720,944 5,153 116,371 587,495 5,153 116,371 587,495
30 216,097 50,000 144,825 769,532 72 118,803 634,208 72 118,803 634,208
</TABLE>
Note:
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 investment 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 portfolio(s). The death
benefit, Cash Values and Cash 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 years, but fluctuated above or below that average for
individual Policy years. No presentation can be made by PFL that these
hypothetical investment rates of return can be achieved for any one year or
sustained over any period of time.
54
<PAGE>
PFL FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE
HYPOTHETICAL ILLUSTRATIONS
MALE ISSUE AGE 55
SPECIFIED AMOUNT: $109,800 INITIAL PREMIUM: $50,000
USING GUARANTEED CHARGES FOR NON-TOBACCO USERS, APPROVED PREFERRED CLASS
<TABLE>
<CAPTION>
End of Premiums
Policy Accumulated
Year at 5% DEATH BENEFIT CASH VALUE CASH SURRENDER VALUE
- ------ ----------- ----------------------- --------------------- ---------------------
Assuming Hypothetical Gross and Net Annual Investment Return of
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Gross 0% 6% 12% 0% 6% 12% 0% 6% 12%
Net -1.50% 4.50% 10.50% -1.50% 4.50% 10.50% -1.50% 4.50% 10.50%
1 52,500 106,682 112,626 118,544 47,484 50,378 53,272 43,984 46,878 49,772
2 55,125 100,363 112,475 125,185 45,993 51,802 57,924 42,493 48,302 54,424
3 57,881 94,414 112,329 132,201 44,529 53,243 62,954 41,029 49,743 59,454
4 60,775 88,815 112,179 139,604 43,091 54,700 68,390 39,591 51,200 64,890
5 63,814 83,542 112,025 147,417 41,679 56,169 74,259 38,179 52,669 70,759
6 67,005 78,576 111,866 155,660 40,291 57,648 80,590 36,791 54,148 77,090
7 70,355 73,899 111,703 164,357 38,927 59,134 87,415 38,927 59,134 87,415
8 73,873 69,495 111,532 173,528 37,585 60,621 94,759 37,585 60,621 94,759
9 77,566 65,347 111,353 183,198 36,264 62,104 102,650 36,264 62,104 102,650
10 81,445 61,441 111,166 193,394 34,965 36,579 111,169 34,965 63,579 111,169
11 85,517 58,058 111,541 205,187 33,874 65,405 120,928 33,874 65,405 120,928
12 89,793 54,883 111,964 217,790 32,794 67,238 131,455 32,794 67,238 131,455
13 94,282 51,877 112,383 231,158 31,727 69,077 142,805 31,727 69,077 142,805
14 98,997 50,000 112,799 245,334 30,665 70,921 155,036 30,665 70,921 155,036
15 103,946 50,000 113,209 260,362 29,530 72,767 168,204 29,530 72,767 168,204
16 109,144 50,000 113,609 276,284 28,301 74,607 182,359 28,301 74,607 182,359
17 114,601 50,000 113,997 293,146 26,958 76,433 197,548 26,958 76,433 197,548
18 120,331 50,000 114,371 310,992 25,472 78,233 213,808 25,472 78,233 213,808
19 126,348 50,000 114,733 329,882 23,809 79,997 231,179 23,809 79,997 231,179
20 132,665 50,000 115,080 349,878 21,933 81,717 249,709 21,933 81,717 249,709
21 139,298 50,000 115,417 371,053 19,801 83,394 269,465 19,801 83,394 269,465
22 146,263 50,000 115,747 393,477 17,363 85,029 290,524 17,363 85,029 290,524
23 153,576 50,000 116,069 417,226 14,562 86,627 312,976 14,562 86,627 312,976
24 161,255 50,000 116,383 442,374 11,324 88,191 336,923 11,324 88,191 336,923
25 169,318 50,000 116,684 468,985 7,549 89,722 362,451 7,549 89,722 362,451
26 177,784 50,000 116,968 497,121 3,101 91,213 389,632 3,101 91,213 389,632
27 186,673 50,000 117,230 526,844 * 92,655 418,520 * 92,655 418,520
28 196,006 50,000 117,467 558,223 * 94,037 449,152 * 94,037 449,152
29 205,807 50,000 117,679 591,339 * 95,349 481,565 * 95,349 481,565
30 216,097 50,000 117,867 626,291 * 96,586 515,821 * 96,586 515,821
</TABLE>
Note:
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 investment 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 portfolio(s). The death
benefit, Cash Values and Cash 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 years, but fluctuated above or below that average for
individual Policy years. No presentation can be made by PFL that these
hypothetical investment rates of return can be achieved for any one year or
sustained over any period of time.
* The Policy has no Cash Value, however, the Policy will stay in force with a
death benefit if the Policy does not have a Policy loan outstanding.
55
<PAGE>
APPENDIX A
Financial Statements -- Statutory Basis
PFL Life Insurance Company
Years ended December 31, 1999, 1998 and 1997
with Report of Independent Auditors
<PAGE>
Financial Statements--Statutory Basis
PFL Life Insurance Company
Years ended December 31, 1999, 1998 and 1997
with Report of Independent Auditors
<PAGE>
PFL Life Insurance Company
Financial Statements--Statutory Basis
Years ended December 31, 1999, 1998 and 1997
Contents
<TABLE>
<S> <C>
Report of Independent Auditors.............................................. 1
Audited Financial Statements
Balance Sheets--Statutory Basis........................................... 3
Statements of Operations--Statutory Basis................................. 5
Statements of Changes in Capital and Surplus--Statutory Basis............. 6
Statements of Cash Flows--Statutory Basis................................. 7
Notes to Financial Statements--Statutory Basis............................ 9
Statutory-Basis Financial Statement Schedules
Summary of Investments--Other Than Investments in Related Parties......... 28
Supplementary Insurance Information....................................... 29
Reinsurance............................................................... 31
</TABLE>
<PAGE>
[LETTERHEAD OF ERNST & YOUNG LLP APPEARS HERE]
Report of Independent Auditors
The Board of Directors
PFL Life Insurance Company
We have audited the accompanying statutory-basis balance sheets of PFL Life
Insurance Company, an indirect wholly-owned subsidiary of AEGON N.V., as of
December 31, 1999 and 1998, and the related statutory-basis statements of
operations, changes in capital and surplus, and cash flows for each of the
three years in the period ended December 31, 1999. Our audits also included the
accompanying statutory-basis financial statement schedules required by Article
7 of Regulation S-X. These financial statements and schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and schedules based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
As described in Note 1 to the financial statements, the Company presents its
financial statements in conformity with accounting practices prescribed or
permitted by the Insurance Division, Department of Commerce, of the State of
Iowa, which practices differ from accounting principles generally accepted in
the United States. The variances between such practices and accounting
principles generally accepted in the United States also are described in Note
1. The effects on the financial statements of these variances are not
reasonably determinable but are presumed to be material.
In our opinion, because of the effect of the matter described in the preceding
paragraph, the financial statements referred to above do not present fairly, in
conformity with accounting principles generally accepted in the United States,
the financial position of PFL Life Insurance Company at December 31, 1999 and
1998, or the results of its operations or its cash flows for each of the three
years in the period ended December 31, 1999.
1
<PAGE>
However, in our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of PFL Life Insurance
Company at December 31, 1999 and 1998, and the results of its operations and
its cash flows for each of the three years in the period ended December 31,
1999, in conformity with accounting practices prescribed or permitted by the
Insurance Division, Department of Commerce, of the State of Iowa. Also, in our
opinion, the related financial statement schedules, when considered in relation
to the basic statutory-basis financial statements taken as a whole, present
fairly in all material respects the information set forth therein.
/s/ Ernst & Young LLP
Des Moines, Iowa
February 18, 2000
2
<PAGE>
PFL Life Insurance Company
Balance Sheets--Statutory Basis
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
December 31
1999 1998
----------- ----------
<S> <C> <C>
Admitted Assets
Cash and invested assets:
Cash and short-term investments........................ $ 53,695 $ 83,289
Bonds.................................................. 4,892,156 4,822,442
Stocks:
Preferred............................................ 17,074 14,754
Common (cost: 1999--$61,813; 1998--$34,731).......... 71,658 49,448
Affiliated entities (cost: 1999--$10,318; 1998--
$8,060)............................................. 6,764 5,613
Mortgage loans on real estate.......................... 1,339,202 1,012,433
Real estate, at cost less accumulated depreciation
($10,891 in 1999; $9,500 in 1998):
Home office properties............................... 7,829 8,056
Properties acquired in satisfaction of debt.......... 16,336 11,778
Investment properties................................ 33,707 44,325
Policy loans........................................... 59,871 60,058
Other invested assets.................................. 123,722 76,482
----------- ----------
Total cash and invested assets..................... 6,622,014 6,188,678
Premiums deferred and uncollected....................... 14,656 15,318
Accrued investment income............................... 65,364 65,308
Receivable from affiliate............................... -- 643
Federal income taxes recoverable........................ 1,335 639
Transfers from separate accounts due or accrued......... 92,309 70,866
Other assets............................................ 30,119 29,511
Separate account assets................................. 4,905,374 3,348,611
----------- ----------
Total admitted assets................................... $11,731,171 $9,719,574
=========== ==========
</TABLE>
3
<PAGE>
PFL Life Insurance Company
Balance Sheets--Statutory Basis
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
December 31
1999 1998
----------- ----------
<S> <C> <C>
Liabilities and Capital and Surplus
Liabilities:
Aggregate reserves for policies and contracts:
Life................................................. $ 1,552,781 $1,357,175
Annuity.............................................. 4,036,751 3,925,293
Accident and health.................................. 254,571 205,736
Policy and contract claim reserves:
Life................................................. 8,681 9,101
Accident and health.................................. 37,466 48,906
Other policyholders' funds............................. 172,774 162,266
Remittances and items not allocated.................... 33,020 19,690
Asset valuation reserve................................ 103,193 91,588
Interest maintenance reserve........................... 36,120 50,575
Short-term notes payable to affiliates................. 144,500 9,421
Other liabilities...................................... 70,717 76,766
Payable for securities................................. 15,136 57,645
Payable to affiliates.................................. 11,517 --
Separate account liabilities........................... 4,899,289 3,342,884
----------- ----------
Total liabilities....................................... 11,376,516 9,357,046
Commitments and contingencies (Note 10)
Capital and surplus:
Common stock, $10 par value, 500,000 shares autho-
rized, 266,000 issued and outstanding................. 2,660 2,660
Paid-in surplus........................................ 154,282 154,282
Unassigned surplus..................................... 197,713 205,586
----------- ----------
Total capital and surplus............................... 354,655 362,528
----------- ----------
Total liabilities and capital and surplus............... $11,731,171 $9,719,574
=========== ==========
</TABLE>
See accompanying notes.
4
<PAGE>
PFL Life Insurance Company
Statements of Operations--Statutory Basis
(Dollars in thousands)
<TABLE>
<CAPTION>
Year ended December 31
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Premiums and other considerations, net of
reinsurance:
Life.................................... $ 227,510 $ 516,111 $ 202,435
Annuity................................. 1,413,049 667,920 657,695
Accident and health..................... 160,570 178,593 207,982
Net investment income..................... 437,549 446,984 446,424
Amortization of interest maintenance re-
serve.................................... 7,588 8,656 3,645
Commissions and expense allowances on
reinsurance ceded........................ 24,741 32,781 49,859
Separate account fee income............... 49,826 37,137 --
---------- ---------- ----------
2,320,833 1,888,182 1,568,040
Benefits and expenses:
Benefits paid or provided for:
Life and accident and health benefits... 115,621 135,184 146,583
Surrender benefits...................... 1,046,611 732,796 658,071
Other benefits.......................... 169,479 152,209 126,495
Increase (decrease) in aggregate
reserves for policies and contracts:
Life.................................... 195,606 473,158 149,575
Annuity................................. 111,427 (278,665) (203,139)
Accident and health..................... 48,835 36,407 30,059
Other................................... 10,480 17,550 16,998
---------- ---------- ----------
1,698,059 1,268,639 924,642
Insurance expenses:
Commissions............................... 167,146 136,569 157,300
General insurance expenses................ 54,191 48,018 57,571
Taxes, licenses and fees.................. 12,382 19,166 8,715
Net transfers to separate accounts........ 309,307 302,839 297,480
Other expenses............................ 229 1,016 119
---------- ---------- ----------
543,255 507,608 521,185
---------- ---------- ----------
2,241,314 1,776,247 1,445,827
---------- ---------- ----------
Gain from operations before federal income
tax expense and net realized capital gains
on investments............................. 79,519 111,935 122,213
Federal income tax expense.................. 25,316 49,835 43,381
---------- ---------- ----------
Gain from operations before net realized
capital gains on investments............... 54,203 62,100 78,832
Net realized capital gains on investments
(net of related federal income taxes and
amounts transferred to interest maintenance
reserve)................................... 6,365 3,398 7,159
---------- ---------- ----------
Net income.................................. $ 60,568 $ 65,498 $ 85,991
========== ========== ==========
</TABLE>
See accompanying notes.
5
<PAGE>
PFL Life Insurance Company
Statements of Changes in Capital and Surplus--Statutory Basis
(Dollars in thousands)
<TABLE>
<CAPTION>
Total
Capital
Common Paid-in Unassigned and
Stock Surplus Surplus Surplus
------ -------- ---------- --------
<S> <C> <C> <C> <C>
Balance at January 1, 1997 $2,660 $154,129 $261,558 $418,347
Capital contribution.................... -- 153 -- 153
Net income.............................. -- -- 85,991 85,991
Change in net unrealized capital gains.. -- -- 3,592 3,592
Change in non-admitted assets........... -- -- (481) (481)
Change in asset valuation reserve....... -- -- (14,974) (14,974)
Dividend to stockholder................. -- -- (62,000) (62,000)
Surplus effect of sale of a division.... -- -- (161) (161)
Surplus effect of ceding commissions
associated with the sale of a
division............................... -- -- 5 5
Amendment of reinsurance agreement...... -- -- 389 389
Surplus effect of reinsurance
agreement.............................. -- -- 402 402
Change in liability for reinsurance in
unauthorized companies................. -- -- (1,901) (1,901)
------ -------- -------- --------
Balance at December 31, 1997 2,660 154,282 272,420 429,362
Net income.............................. -- -- 65,498 65,498
Change in net unrealized capital gains.. -- -- 4,504 4,504
Change in non-admitted assets........... -- -- (260) (260)
Change in asset valuation reserve....... -- -- (21,763) (21,763)
Dividend to stockholder................. -- -- (120,000) (120,000)
Increase in liability for reinsurance in
unauthorized companies................. -- -- 2,036 2,036
Tax benefit on stock options exercised.. -- -- 2,476 2,476
Change in surplus in separate accounts.. -- -- 675 675
------ -------- -------- --------
Balance at December 31, 1998 2,660 154,282 205,586 362,528
Net income.............................. -- -- 60,568 60,568
Change in net unrealized capital gains.. -- -- (20,217) (20,217)
Change in non-admitted assets........... -- -- (980) (980)
Change in asset valuation reserve....... -- -- (11,605) (11,605)
Dividend to stockholder................. -- -- (40,000) (40,000)
Tax benefit on stock options exercised.. -- -- 1,305 1,305
Change in surplus in separate accounts.. -- -- 245 245
Settlement of prior period tax returns
and other tax-related adjustments...... -- -- 2,811 2,811
------ -------- -------- --------
Balance at December 31, 1999.............. $2,660 $154,282 $197,713 $354,655
====== ======== ======== ========
</TABLE>
See accompanying notes.
6
<PAGE>
PFL Life Insurance Company
Statements of Cash Flows--Statutory Basis
(Dollars in thousands)
<TABLE>
<CAPTION>
Year ended December 31
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Operating activities
Premiums and other considerations, net
of reinsurance......................... $ 1,830,365 $ 1,396,428 $ 1,119,936
Net investment income................... 441,737 469,246 452,091
Life and accident and health claims..... (124,178) (138,249) (154,383)
Surrender benefits and other fund
withdrawals............................ (1,046,611) (732,796) (658,071)
Other benefits to policyholders......... (169,476) (152,167) (126,462)
Commissions, other expenses and other
taxes.................................. (238,192) (197,135) (225,042)
Net transfers to separate accounts...... (280,923) (276,375) (319,146)
Federal income taxes.................... (24,709) (72,176) (47,909)
Cash paid in conjunction with an
amendment of a reinsurance agreement... -- -- (4,826)
Cash received in connection with a
reinsurance agreement.................. -- -- 1,477
Other, net.............................. (23,047) (93,095) 89,693
----------- ----------- -----------
Net cash provided by operating
activities............................. 364,966 203,681 127,358
Investing activities
Proceeds from investments sold, matured
or repaid:
Bonds and preferred stocks............ 3,283,038 3,347,174 3,284,095
Common stocks......................... 60,293 34,564 34,004
Mortgage loans on real estate......... 158,739 192,210 138,162
Real estate........................... 13,367 5,624 6,897
Policy loans.......................... 186 -- --
Cash received from ceding commissions
associated with the sale of a
division............................. -- -- 8
Other................................. 6,133 7,210 57,683
----------- ----------- -----------
3,521,756 3,586,782 3,520,849
Cost of investments acquired:
Bonds and preferred stocks............ (3,398,158) (3,251,822) (3,411,442)
Common stocks......................... (76,200) (36,379) (37,339)
Mortgage loans on real estate......... (480,750) (257,039) (159,577)
Real estate........................... (7,568) (11,458) (2,013)
Policy loans.......................... -- (2,922) (2,922)
Cash paid in association with the sale
of a division........................ -- -- (591)
Other................................. (48,719) (44,514) (15,674)
----------- ----------- -----------
(4,011,395) (3,604,134) (3,629,558)
----------- ----------- -----------
Net cash used in investing activities... (489,639) (17,352) (108,709)
</TABLE>
7
<PAGE>
PFL Life Insurance Company
Statements of Cash Flows--Statutory Basis
(Dollars in thousands)
<TABLE>
<CAPTION>
Year ended December 31
1999 1998 1997
-------- -------- -------
<S> <C> <C> <C>
Financing activities
Issuance (repayment) of short-term intercompany
notes payable................................... $135,079 $ (6,979) $16,400
Capital contribution............................. -- -- 153
Dividends to stockholder......................... (40,000) (120,000) (62,000)
-------- -------- -------
Net cash provided by (used in) financing
activities...................................... 95,079 (126,979) (45,447)
-------- -------- -------
Increase (decrease) in cash and short-term
investments..................................... (29,594) 59,350 (26,798)
Cash and short-term investments at beginning of
year............................................ 83,289 23,939 50,737
-------- -------- -------
Cash and short-term investments at end of year... $ 53,695 $ 83,289 $23,939
======== ======== =======
</TABLE>
See accompanying notes.
8
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis
(Dollars in thousands)
December 31, 1999
1. Organization and Summary of Significant Accounting Policies
Organization
PFL Life Insurance Company ("the Company") is a stock life insurance company
and is a wholly-owned subsidiary of First AUSA Life Insurance Company ("First
AUSA"), which, in turn, is a wholly-owned subsidiary of AEGON USA, Inc.
("AEGON"). AEGON is an indirect wholly-owned subsidiary of AEGON N.V., a
holding company organized under the laws of The Netherlands.
Nature of Business
The Company sells individual non-participating whole life, endowment and term
contracts, as well as a broad line of single fixed and flexible premium annuity
products. In addition, the Company offers group life, universal life, and
individual and specialty health coverages. The Company is licensed in 49 states
and the District of Columbia and Guam. Sales of the Company's products are
primarily through the Company's agents and financial institutions.
Basis of Presentation
The preparation of financial statements of insurance companies requires
management to make estimates and assumptions that affect amounts reported in
the financial statements and accompanying notes. Actual results could differ
from those estimates.
Significant estimates and assumptions are utilized in the calculation of
aggregate policy reserves, policy and contract claim reserves, guaranty fund
assessment accruals and valuation allowances on investments. It is reasonably
possible that actual experience could differ from the estimates and assumptions
utilized which could have a material impact on the financial statements.
The accompanying financial statements have been prepared on the basis of
accounting practices prescribed or permitted by the Insurance Division,
Department of Commerce, of the State of Iowa ("Insurance Department"), which
practices differ in some respects from generally accepted accounting
principles. The more significant of these differences are as follows: (a) bonds
are generally reported at amortized cost rather than segregating the portfolio
into held-to-maturity (reported at amortized cost), available-for-sale
(reported at fair value), and trading (reported at fair value) classifications;
(b) acquisition costs of acquiring new business are charged to current
operations as incurred rather than deferred and amortized over the life of the
policies; (c) policy reserves on traditional life products
9
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
1. Organization and Summary of Significant Accounting Policies (continued)
are based on statutory mortality rates and interest which may differ from
reserves based on reasonable assumptions of expected mortality, interest, and
withdrawals which include a provision for possible unfavorable deviation from
such assumptions; (d) policy reserves on certain investment products use
discounting methodologies based on statutory interest rates rather than full
account values; (e) reinsurance amounts are netted against the corresponding
asset or liability rather than shown as gross amounts on the balance sheet; (f)
deferred income taxes are not provided for the difference between the financial
statement and income tax bases of assets and liabilities; (g) net realized
gains or losses attributed to changes in the level of interest rates in the
market are deferred and amortized over the remaining life of the bond or
mortgage loan, rather than recognized as gains or losses in the statement of
operations when the sale is completed; (h) potential declines in the estimated
realizable value of investments are provided for through the establishment of a
formula-determined statutory investment reserve (reported as a liability),
changes to which are charged directly to surplus, rather than through
recognition in the statement of operations for declines in value, when such
declines are judged to be other than temporary; (i) certain assets designated
as "non-admitted assets" have been charged to surplus rather than being
reported as assets; (j) revenues for universal life and investment products
consist of premiums received rather than policy charges for the cost of
insurance, policy administration charges, amortization of policy initiation
fees and surrender charges assessed; (k) pension expense is recorded as amounts
are paid; (l) stock options settled in cash are recorded as expense of the
Company's indirect parent rather than charged to current operations; (m)
adjustments to federal income taxes of prior years are charged or credited
directly to unassigned surplus, rather than reported as a component of expense
in the statement of operations; (n) gains or losses on dispositions of business
are charged or credited directly to unassigned surplus rather than being
reported in the statement of operations; and (o) a liability is established for
"unauthorized reinsurers" and changes in this liability are charged or credited
directly to unassigned surplus. The effects of these variances have not been
determined by the Company but are presumed to be material.
In 1998, the National Association of Insurance Commissioners ("NAIC") adopted
codified statutory accounting principles ("Codification") effective January 1,
2001. Codification will likely change, to some extent, prescribed statutory
accounting practices and may result in changes to the accounting practices that
the Company uses to prepare its statutory-basis financial statements.
Codification will require adoption by the various states before it becomes the
prescribed statutory basis of accounting for insurance companies domesticated
within those states. Accordingly, before Codification becomes effective for the
Company, the State of Iowa must adopt Codification as the prescribed basis of
accounting on which domestic insurers must report their statutory-basis results
to the Insurance Department. At this time, it is anticipated that the State of
Iowa will adopt Codification. However, based on current guidance, management
believes that the impact of Codification will not be material to the Company's
statutory-basis financial statements.
10
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
1. Organization and Summary of Significant Accounting Policies (continued)
Cash and Short-Term Investments
For purposes of the statements of cash flows, the Company considers all highly
liquid investments with remaining maturity of one year or less when purchased
to be short-term investments.
Investments
Investments in bonds (except those to which the Securities Valuation Office of
the NAIC has ascribed a value), mortgage loans on real estate and short-term
investments are reported at cost adjusted for amortization of premiums and
accrual of discounts. Amortization is computed using methods which result in a
level yield over the expected life of the investment. The Company reviews its
prepayment assumptions on mortgage and other asset-backed securities at regular
intervals and adjusts amortization rates retrospectively when such assumptions
are changed due to experience and/or expected future patterns. Investments in
preferred stocks in good standing are reported at cost. Investments in
preferred stocks not in good standing are reported at the lower of cost or
market. Common stocks of unaffiliated and affiliated companies, which includes
shares of mutual funds and real estate investment trusts, are carried at market
value. Real estate is reported at cost less allowances for depreciation.
Depreciation is computed principally by the straight-line method. Policy loans
are reported at unpaid principal. Other invested assets consist principally of
investments in various joint ventures and are recorded at equity in underlying
net assets. Other "admitted assets" are valued, principally at cost, as
required or permitted by Iowa Insurance Laws.
Net realized capital gains and losses are determined on the basis of specific
identification and are recorded net of related federal income taxes. The Asset
Valuation Reserve ("AVR") is established by the Company to provide for
potential losses in the event of default by issuers of certain invested assets.
These amounts are determined using a formula prescribed by the NAIC and are
reported as a liability. The formula for the AVR provides for a corresponding
adjustment for realized gains and losses. Under a formula prescribed by the
NAIC, the Company defers, in the Interest Maintenance Reserve ("IMR"), the
portion of realized gains and losses on sales of fixed income investments,
principally bonds and mortgage loans, attributable to changes in the general
level of interest rates and amortizes those deferrals over the remaining period
to maturity of the security.
Interest income is recognized on an accrual basis. The Company does not accrue
income on bonds in default, mortgage loans on real estate in default and/or
foreclosure or which are delinquent more than twelve months, or on real estate
where rent is in arrears for more than three months. Further, income is not
accrued when collection is uncertain. During 1999, 1998 and 1997, the Company
excluded investment income due and accrued of $530, $102 and $177,
respectively, with respect to such practices.
11
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
1. Organization and Summary of Significant Accounting Policies (continued)
The Company uses interest rate swaps and caps as part of its overall interest
rate risk management strategy for certain life insurance and annuity products.
The Company entered into several interest rate swap contracts to modify the
interest rate characteristics of the underlying liabilities. The net interest
effect of such swap transactions is reported as an adjustment of interest
income from the hedged items as incurred.
The Company has entered into an interest rate cap agreement to hedge the
exposure of changing interest rates. The cash flows from the interest rate cap
will help offset losses that might occur from changes in interest rates. The
cost of such agreement is included in interest expense ratably during the life
of the agreement. Income received as a result of the cap agreement will be
recognized in investment income as earned. Unamortized cost of the agreement is
included in other invested assets.
Aggregate Policy Reserves
Life, annuity and accident and health benefit reserves are developed by
actuarial methods and are determined based on published tables based on
statutorily specified interest rates and valuation methods that will provide,
in the aggregate, reserves that are greater than or equal to the minimum
required by law.
The aggregate policy reserves for life insurance policies are based principally
upon the 1941, 1958 and 1980 Commissioners' Standard Ordinary Mortality and
American Experience Mortality Tables. The reserves are calculated using
interest rates ranging from 2.00 to 6.00 percent and are computed principally
on the Net Level Premium Valuation and the Commissioners' Reserve Valuation
Methods. Reserves for universal life policies are based on account balances
adjusted for the Commissioners' Reserve Valuation Method.
Deferred annuity reserves are calculated according to the Commissioners'
Annuity Reserve Valuation Method including excess interest reserves to cover
situations where the future interest guarantees plus the decrease in surrender
charges are in excess of the maximum valuation rates of interest. Reserves for
immediate annuities and supplementary contracts with life contingencies are
equal to the present value of future payments assuming interest rates ranging
from 2.50 to 11.25 percent and mortality rates, where appropriate, from a
variety of tables.
Accident and health policy reserves are equal to the greater of the gross
unearned premiums or any required midterminal reserves plus net unearned
premiums and the present value of amounts not yet due on both reported and
unreported claims.
12
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
1. Organization and Summary of Significant Accounting Policies (continued)
Policy and Contract Claim Reserves
Claim reserves represent the estimated accrued liability for claims reported to
the Company and claims incurred but not yet reported through the statement
date. These reserves are estimated using either individual case-basis
valuations or statistical analysis techniques. These estimates are subject to
the effects of trends in claim severity and frequency. The estimates are
continually reviewed and adjusted as necessary as experience develops or new
information becomes available.
Separate Accounts
Assets held in trust for purchases of variable annuity contracts and the
Company's corresponding obligation to the contract owners are shown separately
in the balance sheets. The assets in the separate accounts are valued at
market. Income and gains and losses with respect to the assets in the separate
accounts accrue to the benefit of the contract owners and, accordingly, the
operations of the separate accounts are not included in the accompanying
financial statements. The separate accounts do not have any minimum guarantees
and the investment risks associated with market value changes are borne
entirely by the contract owners. The Company received variable contract
premiums of $486,282, $345,319 and $281,095 in 1999, 1998 and 1997,
respectively. All variable account contracts are subject to discretionary
withdrawal by the contract owner at the market value of the underlying assets
less the current surrender charge.
Stock Option Plan
AEGON N.V. sponsors a stock option plan for eligible employees of the Company.
Under this plan, certain employees have indicated a preference to immediately
sell shares received as a result of their exercise of the stock options; in
these situations, AEGON N.V. has settled such options in cash rather than
issuing stock to these employees. These cash settlements are paid by the
Company, and AEGON N.V. subsequently reimburses the Company for such payments.
Under statutory accounting principles, the Company does not record any expense
related to this plan, as the expense is recognized by AEGON N.V. However, the
Company is allowed to record a deduction in the consolidated tax return filed
by the Company and certain affiliates. The tax benefit of this deduction has
been credited directly to surplus.
Reclassifications
Certain reclassifications have been made to the 1998 and 1997 financial
statements to conform to the 1999 presentation.
13
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
2. Fair Values of Financial Instruments
Statement of Financial Accounting Standard ("SFAS") No. 107, Disclosures about
Fair Value of Financial Instruments, requires disclosure of fair value
information about financial instruments, whether or not recognized in the
statutory-basis balance sheet, for which it is practicable to estimate that
value. SFAS No. 119, Disclosures about Derivative Financial Instruments and
Fair Value of Financial Instruments, requires additional disclosure about
derivatives. In cases where quoted market prices are not available, fair
values are based on estimates using present value or other valuation
techniques. Those techniques are significantly affected by the assumptions
used, including the discount rate and estimates of future cash flows. In that
regard, the derived fair value estimates cannot be substantiated by
comparisons to independent markets and, in many cases, could not be realized
in immediate settlement of the instrument. SFAS No. 107 and No. 119 exclude
certain financial instruments and all nonfinancial instruments from their
disclosure requirements and allow companies to forego the disclosures when
those estimates can only be made at excessive cost. Accordingly, the aggregate
fair value amounts presented do not represent the underlying value of the
Company.
The following methods and assumptions were used by the Company in estimating
its fair value disclosures for financial instruments:
Cash and short-term investments: The carrying amounts reported in the
balance sheet for these instruments approximate their fair values.
Investment securities: Fair values for fixed maturity securities (including
redeemable preferred stocks) are based on quoted market prices, where
available. For fixed maturity securities not actively traded, fair values
are estimated using values obtained from independent pricing services or,
in the case of private placements, are estimated by discounting expected
future cash flows using a current market rate applicable to the yield,
credit quality, and maturity of the investments. The fair values for equity
securities, including affiliated mutual funds and real estate investment
trusts, are based on quoted market prices.
Mortgage loans and policy loans: The fair values for mortgage loans are
estimated utilizing discounted cash flow analyses, using interest rates
reflective of current market conditions and the risk characteristics of the
loans. The fair value of policy loans is assumed to equal their carrying
amount.
Investment contracts: Fair values for the Company's liabilities under
investment-type insurance contracts are estimated using discounted cash
flow calculations, based on interest rates currently being offered for
similar contracts with maturities consistent with those remaining for the
contracts being valued.
14
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
2. Fair Values of Financial Instruments (continued)
Interest rate cap and interest rate swaps: Estimated fair value of the
interest rate cap is based upon the latest quoted market price. Estimated
fair value of interest rate swaps are based upon the pricing differential
for similar swap agreements.
Short-term notes payable to affiliates: The fair values for short-term
notes payable to affiliates are assumed to equal their carrying amount.
Fair values for the Company's insurance contracts other than investment
contracts are not required to be disclosed. However, the fair values of
liabilities under all insurance contracts are taken into consideration in the
Company's overall management of interest rate risk, which minimizes exposure
to changing interest rates through the matching of investment maturities with
amounts due under insurance contracts.
The following sets forth a comparison of the fair values and carrying amounts
of the Company's financial instruments subject to the provisions of SFAS No.
107 and No. 119:
<TABLE>
<CAPTION>
December 31
1999 1998
--------------------- ---------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Admitted assets
Cash and short-term investments... $ 53,695 $ 53,695 $ 83,289 $ 83,289
Bonds............................. 4,892,156 4,757,325 4,822,442 4,900,516
Preferred stocks.................. 17,074 15,437 14,754 14,738
Common stocks..................... 71,658 71,658 49,448 49,448
Affiliated common stock........... 6,764 6,764 5,613 5,613
Mortgage loans on real estate..... 1,339,202 1,299,160 1,012,433 1,089,315
Policy loans...................... 59,871 59,871 60,058 60,058
Interest rate cap................. 4,959 1,784 4,445 725
Interest rate swaps............... 8,134 10,609 1,916 6,667
Separate account assets........... 4,905,374 4,905,374 3,348,611 3,348,611
Liabilities
Investment contract liabilities... 4,207,369 4,059,842 4,084,683 4,017,509
Separate account liabilities...... 4,377,676 4,212,615 3,271,005 3,213,251
Short-term notes payable to
affiliates....................... 144,500 144,500 9,421 9,421
</TABLE>
15
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
3. Investments
The carrying amounts and estimated fair values of investments in debt
securities were as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Carrying Unrealized Unrealized Fair
Amount Gains Losses Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
December 31, 1999
Bonds:
United States Government and
agencies........................ $ 141,390 $ 142 $ 4,520 $ 137,012
State, municipal and other
government...................... 137,745 5,168 1,627 141,286
Public utilities................. 219,791 1,148 6,777 214,162
Industrial and miscellaneous..... 2,078,145 20,042 84,919 2,013,268
Mortgage and other asset-backed
securities...................... 2,315,085 24,214 87,702 2,251,597
---------- -------- -------- ----------
4,892,156 50,714 185,545 4,757,325
Preferred stocks................... 17,074 2 1,639 15,437
---------- -------- -------- ----------
$4,909,230 $ 50,716 $187,184 $4,772,762
========== ======== ======== ==========
December 31, 1998
Bonds:
United States Government and
agencies........................ $ 150,085 $ 2,841 $ 321 $ 152,605
State, municipal and other
government...................... 62,948 918 1,651 62,215
Public utilities................. 139,732 5,053 2,555 142,230
Industrial and miscellaneous..... 2,068,086 78,141 34,493 2,111,734
Mortgage and other asset-backed
securities...................... 2,401,591 45,185 15,044 2,431,732
---------- -------- -------- ----------
4,822,442 132,138 54,064 4,900,516
Preferred stocks................... 14,754 75 91 14,738
---------- -------- -------- ----------
$4,837,196 $132,213 $ 54,155 $4,915,254
========== ======== ======== ==========
</TABLE>
The carrying amounts and estimated fair values of bonds at December 31, 1999,
by contractual maturity, are shown below. Expected maturities may differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Carrying Estimated
Amount Fair Value
---------- ----------
<S> <C> <C>
Due in one year or less............................... $ 194,654 $ 192,453
Due after one year through five years................. 1,151,170 1,121,353
Due after five years through ten years................ 908,926 873,402
Due after ten years................................... 322,321 318,520
---------- ----------
2,577,071 2,505,728
Mortgage and other asset-backed securities............ 2,315,085 2,251,597
---------- ----------
$4,892,156 $4,757,325
========== ==========
</TABLE>
16
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
3. Investments (continued)
A detail of net investment income is presented below:
<TABLE>
<CAPTION>
Year ended December 31
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Interest on bonds and preferred stock............... $347,639 $374,478 $373,496
Dividends on equity investments..................... 734 1,357 1,460
Interest on mortgage loans.......................... 92,325 77,960 80,266
Rental income on real estate........................ 7,322 6,553 7,501
Interest on policy loans............................ 4,141 4,080 3,400
Other investment income............................. 7,978 2,576 613
-------- -------- --------
Gross investment income............................. 460,139 467,004 466,736
Less investment expenses............................ 22,590 20,020 20,312
-------- -------- --------
Net investment income............................... $437,549 $446,984 $446,424
======== ======== ========
</TABLE>
Proceeds from sales and maturities of debt securities and related gross
realized gains and losses were as follows:
<TABLE>
<CAPTION>
Year ended December 31
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Proceeds.................................... $3,283,038 $3,347,174 $3,284,095
========== ========== ==========
Gross realized gains........................ $ 21,171 $ 48,760 $ 30,094
Gross realized losses....................... (32,259) (8,072) (17,265)
---------- ---------- ----------
Net realized gains (losses)................. $ (11,088) $ 40,688 $ 12,829
========== ========== ==========
</TABLE>
At December 31, 1999, investments with an aggregate carrying value of
$6,346,831 were on deposit with regulatory authorities or were restrictively
held in bank custodial accounts for the benefit of such regulatory authorities
as required by statute.
17
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
3. Investments (continued)
Realized investment gains (losses) and changes in unrealized gains (losses) for
investments are summarized below:
<TABLE>
<CAPTION>
Realized
----------------------------
Year ended December 31
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Debt securities......... $(11,088) $ 40,688 $ 12,829
Equity securities....... 11,433 (879) 6,972
Mortgage loans on real
estate................. 4,661 12,637 2,252
Real estate............. 900 3,176 4,252
Short-term investments.. (1,407) 1,533 (19)
Other invested assets... 534 (2,523) 1,632
-------- -------- --------
5,033 54,632 27,918
Tax effect.............. (5,535) (22,290) (10,572)
Transfer from (to)
interest maintenance
reserve................ 6,867 (28,944) (10,187)
-------- -------- --------
Net realized gains...... $ 6,365 $ 3,398 $ 7,159
======== ======== ========
<CAPTION>
Change in Unrealized
----------------------------
Year ended December 31
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Bonds................... $(12,711) $ (836) $ 2,498
Preferred stocks........ (2,753) -- --
Common stocks........... (3,980) 3,751 1,097
Mortgage loans.......... (147) (150) --
Other invested assets... (626) 1,739 (3)
-------- -------- --------
Change in unrealized.... $(20,217) $ 4,504 $ 3,592
======== ======== ========
Gross unrealized gains and gross unrealized losses on equity securities are as
follows:
<CAPTION>
December 31
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Unrealized gains........ $ 11,369 $ 15,980 $ 10,356
Unrealized losses....... (5,078) (3,710) (3,836)
-------- -------- --------
Net unrealized gains.... $ 6,291 $ 12,270 $ 6,520
======== ======== ========
</TABLE>
18
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
3. Investments (continued)
During 1999, the Company issued mortgage loans with interest rates ranging from
6.42% to 8.67%. The maximum percentage of any one mortgage loan to the value of
the underlying real estate at origination was 84%. Mortgage loans with a
carrying value of $248 were non-income producing for the previous twelve
months. Accrued interest of $95 related to these mortgage loans was excluded
from investment income. The Company requires all mortgaged properties to carry
fire insurance equal to the value of the underlying property.
At December 31, 1999 and 1998, the Company held a mortgage loan loss reserve in
the asset valuation reserve of $15,173 and $16,104, respectively. The mortgage
loan portfolio is diversified by geographic region and specific collateral
property type as follows:
Geographic Distribution Property Type Distribution
<TABLE>
<CAPTION>
December 31
1999 1998
----- -----
<S> <C> <C>
South Atlantic.......... 27% 32%
Pacific................. 18 15
E. North Central........ 17 16
Middle Atlantic......... 15 10
Mountain................ 9 10
W. South Central........ 6 6
W. North Central........ 4 5
E. South Central........ 3 3
New England............. 1 3
</TABLE>
<TABLE>
<CAPTION>
December 31
1999 1998
----- -----
<S> <C> <C>
Office.................. 39% 30%
Retail.................. 28 35
Industrial.............. 18 21
Apartment............... 11 12
Other................... 4 2
</TABLE>
At December 31, 1999, the Company had no investments (excluding U. S.
Government guaranteed or insured issues) which individually represented more
than ten percent of capital and surplus and the asset valuation reserve,
collectively.
19
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
3. Investments (continued)
The Company utilizes a variety of off-balance sheet financial instruments as
part of its efforts to hedge and manage fluctuations in the market value of its
investment portfolio attributable to changes in general interest rate levels
and to manage duration mismatch of assets and liabilities. These instruments
include interest rate swaps and caps. All involve elements of credit and market
risks in excess of the amounts recognized in the accompanying financial
statements at a given point in time. The contract or notional amounts of those
instruments reflect the extent of involvement in the various types of financial
instruments.
The Company's exposure to credit risk is the risk of loss from a counterparty
failing to perform according to the terms of the contract. That exposure
includes settlement risk (i.e., the risk that the counterparty defaults after
the Company has delivered funds or securities under terms of the contract) that
would result in an accounting loss and replacement cost risk (i.e., the cost to
replace the contract at current market rates should the counterparty default
prior to settlement date). Credit loss exposure resulting from nonperformance
by a counterparty for commitments to extend credit is represented by the
contractual amounts of the instruments.
At December 31, 1999 and 1998, the Company's outstanding financial instruments
with on and off-balance sheet risks, shown in notional amounts, are summarized
as follows:
<TABLE>
<CAPTION>
Notional Amount
1999 1998
-------- --------
<S> <C> <C>
Derivative securities:
Interest rate swaps:
Receive fixed--pay floating............................... $115,000 $100,000
Receive floating--pay fixed............................... 64,017 --
Receive floating (uncapped)--pay floating (capped)........ 41,617 53,011
Receive floating (LIBOR--pay floating (S&P)............... 60,000 60,000
Interest rate cap agreements................................ 500,000 500,000
</TABLE>
4. Reinsurance
The Company reinsures portions of risk on certain insurance policies which
exceed its established limits, thereby providing a greater diversification of
risk and minimizing exposure on larger risks. The Company remains contingently
liable with respect to any insurance ceded, and this would become an actual
liability in the event that the assuming insurance company became unable to
meet its obligation under the reinsurance treaty.
20
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
4. Reinsurance (continued)
Reinsurance assumption and cession treaties are transacted primarily with
affiliates. Premiums earned reflect the following reinsurance assumed and ceded
amounts:
<TABLE>
<CAPTION>
Year ended December 31
----------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Direct premiums.......................... $1,942,716 $1,533,822 $1,312,446
Reinsurance assumed...................... 2,723 2,366 2,038
Reinsurance ceded........................ (144,310) (173,564) (246,372)
---------- ---------- ----------
Net premiums earned...................... $1,801,129 $1,362,624 $1,068,112
========== ========== ==========
</TABLE>
The Company received reinsurance recoveries in the amount of $139,138, $173,297
and $183,638 during 1999, 1998 and 1997, respectively. At December 31, 1999 and
1998, estimated amounts recoverable from reinsurers that have been deducted
from policy and contract claim reserves totaled $35,511 and $47,956,
respectively. The aggregate reserves for policies and contracts were reduced
for reserve credits for reinsurance ceded at December 31, 1999 and 1998 of
$1,870,190 and $2,163,905, respectively.
At December 31, 1999, amounts recoverable from unauthorized reinsurers of
$39,996 (1998--$55,379) and reserve credits for reinsurance ceded of $48,297
(1998--$49,835) were associated with a single reinsurer and its affiliates. The
Company holds collateral under these reinsurance agreements in the form of
trust agreements totaling $85,431 at December 31, 1999, that can be drawn on
for amounts that remain unpaid for more than 120 days.
5. Income Taxes
For federal income tax purposes, the Company joins in a consolidated tax return
filing with certain affiliated companies. Under the terms of a tax-sharing
agreement between the Company and its affiliates, the Company computes federal
income tax expense as if it were filing a separate income tax return, except
that tax credits and net operating loss carryforwards are determined on the
basis of the consolidated group. Additionally, the alternative minimum tax is
computed for the consolidated group and the resulting tax, if any, is allocated
back to the separate companies on the basis of the separate companies'
alternative minimum taxable income.
21
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
5. Income Taxes (continued)
Federal income tax expense differs from the amount computed by applying the
statutory federal income tax rate to gain from operations before federal income
tax expense and net realized capital gains (losses) on investments for the
following reasons:
<TABLE>
<CAPTION>
Year ended December 31
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Computed tax at federal statutory rate (35%)..... $27,832 $39,177 $42,775
IMR amortization................................. (2,656) (3,030) (1,276)
Tax reserve adjustment........................... 1,390 607 2,004
Excess tax depreciation.......................... (219) (223) (392)
Deferred acquisition costs-- tax basis........... 5,979 11,827 4,308
Prior year under (over) accrual ................. (3,492) 1,750 (1,016)
Dividend received deduction...................... (1,666) (1,053) (941)
Charitable contributions......................... -- -- (848)
Other items--net................................. (1,852) 780 (1,233)
------- ------- -------
Federal income tax expense....................... $25,316 $49,835 $43,381
======= ======= =======
</TABLE>
Federal income tax expense differs from the amount computed by applying the
statutory federal income tax rate to realized gains (losses) due to the
differences in book and tax asset bases at the time certain investments are
sold.
Prior to 1984, as provided for under the Life Insurance Company Tax Act of
1959, a portion of statutory income was not subject to current taxation but was
accumulated for income tax purposes in a memorandum account referred to as the
policyholders' surplus account. No federal income taxes have been provided for
in the financial statements on income deferred in the policyholders' surplus
account ($20,387 at December 31, 1999). To the extent dividends are paid from
the amount accumulated in the policyholders' surplus account, net earnings
would be reduced by the amount of tax required to be paid. Should the entire
amount in the policyholders' surplus account become taxable, the tax thereon
computed at current rates would amount to approximately $7,135.
In 1999, the Company reached a final settlement with the Internal Revenue
Service for 1990 and 1991, resulting in a tax refund of $904 and interest
received of $548. These amounts were credited directly to unassigned surplus.
The Company also corrected an error in 1999 which related to the 1997 tax-
sharing agreement between the Company and various affiliates. This resulted in
a credit to unassigned surplus of $1,359.
The Company's federal income tax returns have been examined and closing
agreements have been executed with the Internal Revenue Service through 1992.
An examination is underway for years 1993 through 1997.
22
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
6. Policy and Contract Attributes
A portion of the Company's policy reserves and other policyholders' funds
(including separate account liabilities) relate to liabilities established on a
variety of the Company's annuity and deposit fund products. There may be
certain restrictions placed upon the amount of funds that can be withdrawn
without penalty. The amount of reserves on these products, by withdrawal
characteristics, are summarized as follows:
<TABLE>
<CAPTION>
December 31
1999 1998
------------------- ------------------
Percent Percent
of of
Amount Total Amount Total
----------- ------- ---------- -------
<S> <C> <C> <C> <C>
Subject to discretionary withdrawal with
market value adjustment................ $ 114,544 1% $ 82,048 1%
Subject to discretionary withdrawal at
book value less surrender charge....... 828,490 8 515,778 5
Subject to discretionary withdrawal at
market value........................... 4,313,445 41 3,211,896 34
Subject to discretionary withdrawal at
book value (minimal or no charges or
adjustments)........................... 5,021,762 48 5,519,265 58
Not subject to discretionary withdrawal
provision.............................. 248,444 2 228,030 2
----------- --- ---------- ---
10,526,685 100% 9,557,017 100%
Less reinsurance ceded.................. 1,863,810 2,124,769
----------- ----------
Total policy reserves on annuities and
deposit fund liabilities............... $ 8,662,875 $7,432,248
=========== ==========
</TABLE>
A reconciliation of the amounts transferred to and from the separate accounts
is presented below:
<TABLE>
<CAPTION>
Year ended December 31
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Transfers as reported in the summary of
operations of the separate accounts statement:..
Transfers to separate accounts................. $486,282 $345,319 $281,095
Transfers from separate accounts............... (175,822) (42,671) (9,819)
-------- -------- --------
Net transfers to separate accounts............... 310,460 302,648 271,276
Reconciling adjustments--change in miscellaneous
income.......................................... (1,153) 191 26,204
-------- -------- --------
Transfers as reported in the summary of
operations of the life, accident and health
annual statement................................ $309,307 $302,839 $297,480
======== ======== ========
</TABLE>
23
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
6. Policy and Contract Attributes (continued)
Reserves on the Company's traditional life products are computed using mean
reserving methodologies. These methodologies result in the establishment of
assets for the amount of the net valuation premiums that are anticipated to be
received between the policy's paid-through date to the policy's next
anniversary date. At December 31, 1999 and 1998, these assets (which are
reported as premiums deferred and uncollected) and the amounts of the related
gross premiums and loadings, are as follows:
<TABLE>
<CAPTION>
Gross Loading Net
------- ------- -------
<S> <C> <C> <C>
December 31, 1999
Life and annuity:
Ordinary direct first year business................ $ 2,823 $2,085 $ 738
Ordinary direct renewal business................... 20,950 6,289 14,661
Group life direct business......................... 638 243 395
Reinsurance ceded.................................. (1,269) (16) (1,253)
------- ------ -------
23,142 8,601 14,541
Accident and health:
Direct............................................. 138 -- 138
Reinsurance ceded.................................. (23) -- (23)
------- ------ -------
Total accident and health............................ 115 -- 115
------- ------ -------
$23,257 $8,601 $14,656
======= ====== =======
December 31, 1998
Life and annuity:
Ordinary direct first year business................ $ 3,346 $2,500 $ 846
Ordinary direct renewal business................... 21,435 6,365 15,070
Group life direct business......................... 1,171 536 635
Reinsurance ceded.................................. (1,367) (44) (1,323)
------- ------ -------
24,585 9,357 15,228
Accident and health:
Direct............................................. 108 -- 108
Reinsurance ceded.................................. (18) -- (18)
------- ------ -------
Total accident and health............................ 90 -- 90
------- ------ -------
$24,675 $9,357 $15,318
======= ====== =======
</TABLE>
At December 31, 1999 and 1998, the Company had insurance in force aggregating
$41,720 and $44,233, respectively, in which the gross premiums are less than
the net premiums required by the standard valuation standards established by
the Insurance Division, Department of Commerce, of the State of Iowa. The
Company established policy reserves of $871 and $998 to cover these
deficiencies at December 31, 1999 and 1998, respectively.
24
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
7. Dividend Restrictions
The Company is subject to limitations, imposed by the State of Iowa, on the
payment of dividends to its parent company. Generally, dividends during any
twelve-month period may not be paid, without prior regulatory approval, in
excess of the greater of (a) 10 percent of statutory capital and surplus as of
the preceding December 31, or (b) statutory gain from operations before net
realized capital gains (losses) on investments for the preceding year. Subject
to the availability of unassigned surplus at the time of such dividend, the
maximum payment which may be made in 2000, without the prior approval of
insurance regulatory authorities, is $54,203.
The Company paid dividends to its parent of $40,000, $120,000 and $62,000 in
1999, 1998 and 1997, respectively.
8. Retirement and Compensation Plans
The Company's employees participate in a qualified benefit pension plan
sponsored by AEGON. The Company has no legal obligation for the plan. The
Company recognizes pension expense equal to its allocation from AEGON. The
pension expense is allocated among the participating companies based on the
SFAS No. 87 expense as a percent of salaries. The benefits are based on years
of service and the employee's compensation during the highest five consecutive
years of employment. Pension expense aggregated $408, $380 and $422 for the
years ended December 31, 1999, 1998 and 1997, respectively. The plan is subject
to the reporting and disclosure requirements of the Employee Retirement and
Income Security Act of 1974.
The Company's employees also participate in a contributory defined contribution
plan sponsored by AEGON which is qualified under Section 401(k) of the Internal
Revenue Service Code. Employees of the Company who customarily work at least
1,000 hours during each calendar year and meet the other eligibility
requirements, are participants of the plan. Participants may elect to
contribute up to fifteen percent of their salary to the plan. The Company will
match an amount up to three percent of the participant's salary. Participants
may direct all of their contributions and plan balances to be invested in a
variety of investment options. The plan is subject to the reporting and
disclosure requirements of the Employee Retirement and Income Security Act of
1974. Expense related to this plan was $267, $233 and $226 for the years ended
December 31, 1999, 1998 and 1997, respectively.
25
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
8. Retirement and Compensation Plans (continued)
AEGON sponsors supplemental retirement plans to provide the Company's senior
management with benefits in excess of normal pension benefits. The plans are
noncontributory, and benefits are based on years of service and the employee's
compensation level. The plans are unfunded and nonqualified under the Internal
Revenue Service Code. In addition, AEGON has established incentive deferred
compensation plans for certain key employees of the Company. AEGON also
sponsors an employee stock option plan for individuals employed at least three
years and a stock purchase plan for its producers, with the participating
affiliated companies establishing their own eligibility criteria, producer
contribution limits and company matching formula. These plans have been accrued
or funded as deemed appropriate by management of AEGON and the Company.
In addition to pension benefits, the Company participates in plans sponsored by
AEGON that provide postretirement medical, dental and life insurance benefits
to employees meeting certain eligibility requirements. Portions of the medical
and dental plans are contributory. The expenses of the postretirement plans are
charged to affiliates in accordance with an intercompany cost sharing
arrangement. The Company expensed $28, $62 and $62 for the years ended December
31, 1999, 1998 and 1997, respectively.
9. Related Party Transactions
The Company shares certain offices, employees and general expenses with
affiliated companies.
The Company receives data processing, investment advisory and management,
marketing and administration services from certain affiliates. During 1999,
1998 and 1997, the Company paid $19,983, $18,706 and $18,705, respectively, for
these services, which approximates their costs to the affiliates.
Payables to affiliates bear interest at the thirty-day commercial paper rate of
5.7% at December 31, 1999. During 1999, 1998 and 1997, the Company paid net
interest of $1,994, $1,491 and $1,188, respectively, to affiliates.
During 1997, the Company received a capital contribution of $153 in cash from
its parent.
At December 31, 1999 and 1998, the Company has short-term notes payable to an
affiliate of $144,500 and $9,421, respectively. Interest on these notes accrues
at rates ranging from 4.85% to 5.90% at December 31, 1999 and 5.13% to 5.52% at
December 31, 1998.
26
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
9. Related Party Transactions (continued)
During 1998, the Company issued life insurance policies to certain affiliated
companies, covering the lives of certain employees of those affiliates.
Premiums of $174,000 related to these policies were recognized during the year,
and aggregate reserves for policies and contracts are $190,299 and $181,720 at
December 31, 1999 and 1998, respectively.
10. Commitments and Contingencies
The Company has issued Trust (synthetic) GIC contracts to plan sponsors
totaling $374,124 at December 31, 1999, pursuant to terms under which the plan
sponsor retains ownership of the assets related to these contracts. The Company
guarantees benefit responsiveness in the event that plan benefit requests and
other contractual commitments exceed plan cash flows. The plan sponsor agrees
to reimburse the Company for such benefit payments with interest, either at a
fixed or floating rate, from future plan and asset cash flows. In return for
this guarantee, the Company receives a premium which varies based on such
elements as benefit responsive exposure and contract size. The Company
underwrites the plans for the possibility of having to make benefit payments
and also must agree to the investment guidelines to ensure appropriate credit
quality and cash flow matching. The assets relating to such contracts are not
recognized in the Company's statutory-basis financial statements.
The Company is a party to legal proceedings incidental to its business.
Although such litigation sometimes includes substantial demands for
compensatory and punitive damages, in addition to contract liability, it is
management's opinion, after consultation with counsel and a review of available
facts, that damages arising from such demands will not be material to the
Company's financial position.
The Company is subject to insurance guaranty laws in the states in which it
writes business. These laws provide for assessments against insurance companies
for the benefit of policyholders and claimants in the event of insolvency of
other insurance companies. Assessments are charged to operations when received
by the Company except where right of offset against other taxes paid is allowed
by law; amounts available for future offsets are recorded as an asset on the
Company's balance sheet. Potential future obligations for unknown insolvencies
are not determinable by the Company. The future obligation has been based on
the most recent information available from the National Organization of Life
and Health Insurance Guaranty Associations. The Company has established a
reserve of $19,662 and $17,901 and an offsetting premium tax benefit of $7,429
and $7,631 at December 31, 1999 and 1998, respectively, for its estimated share
of future guaranty fund assessments related to several major insurer
insolvencies. The guaranty fund expense (benefit) was $1,994, $1,985 and $(975)
for the years ended December 31, 1999, 1998 and 1997, respectively.
27
<PAGE>
PFL Life Insurance Company
Summary of Investments--Other than
Investments in Related Parties
(Dollars in thousands)
December 31, 1999
SCHEDULE I
<TABLE>
<CAPTION>
Amount at Which
Market Shown in the
Type of Investment Cost(1) Value Balance Sheet
------------------ ---------- --------- ---------------
<S> <C> <C> <C>
Fixed maturities
Bonds:
United States Government and government
agencies and authorities............... $ 195,119 $ 189,752 $ 195,119
States, municipalities and political
subdivisions........................... 545,562 535,945 545,562
Foreign governments..................... 134,584 138,767 134,584
Public utilities........................ 219,791 214,162 219,791
All other corporate bonds............... 3,797,100 3,678,699 3,797,100
Redeemable preferred stock................ 17,074 15,437 17,074
---------- --------- ----------
Total fixed maturities.................... 4,909,230 4,772,762 4,909,230
Equity securities
Common stocks:
Banks, trust and insurance.............. 2,676 2,809 2,809
Industrial, miscellaneous and all
other.................................. 59,137 68,849 68,849
---------- --------- ----------
Total equity securities................... 61,813 71,658 71,658
Mortgage loans on real estate............. 1,339,202 1,339,202
Real estate............................... 41,536 41,536
Real estate acquired in satisfaction of
debt..................................... 16,336 16,336
Policy loans.............................. 59,871 59,871
Other long-term investments............... 123,722 123,722
Cash and short-term investments........... 53,695 53,695
---------- ----------
Total investments......................... $6,605,405 $6,615,250
========== ==========
</TABLE>
(1) Original cost of equity securities and, as to fixed maturities, original
cost reduced by repayments and adjusted for amortization of premiums or
accrual of discounts.
28
<PAGE>
PFL Life Insurance Company
Supplementary Insurance Information
(Dollars in thousands)
SCHEDULE III
<TABLE>
<CAPTION>
Future
Policy Policy
Benefits and
and Unearned Contract
Expenses Premiums Liabilities
---------- -------- -----------
<S> <C> <C> <C>
Year ended December 31, 1999
Individual life................................. $1,550,188 $ -- $ 8,607
Individual health............................... 133,214 10,311 10,452
Group life and health........................... 105,035 8,604 27,088
Annuity......................................... 4,036,751 -- --
---------- ------- -------
$5,825,188 $18,915 $46,147
========== ======= =======
Year ended December 31, 1998
Individual life................................. $1,355,283 $ -- $ 8,976
Individual health............................... 94,294 9,631 12,123
Group life and health........................... 93,405 10,298 36,908
Annuity......................................... 3,925,293 -- --
---------- ------- -------
$5,468,275 $19,929 $58,007
========== ======= =======
Year ended December 31, 1997
Individual life................................. $ 882,003 $ -- $ 8,550
Individual health............................... 62,033 9,207 12,821
Group life and health........................... 88,211 11,892 44,977
Annuity......................................... 4,204,125 -- --
---------- ------- -------
$5,236,372 $21,099 $66,348
========== ======= =======
</TABLE>
29
<PAGE>
PFL Life Insurance Company
Supplementary Insurance Information
(Dollars in thousands)
SCHEDULE III
<TABLE>
<CAPTION>
Benefits,
Claims
Net Losses and Other
Premium Investment Settlement Operating Premiums
Revenue Income* Expenses Expenses* Written
---------- ---------- ---------- --------- --------
<S> <C> <C> <C> <C> <C>
Year ended December 31,
1999
Individual life........... $ 226,456 $104,029 $ 274,730 $141,030 $ --
Individual health......... 77,985 10,036 58,649 35,329 77,716
Group life and health..... 83,639 10,422 61,143 38,075 81,918
Annuity................... 1,413,049 313,062 1,303,537 278,995 --
---------- -------- ---------- --------
$1,801,129 $437,549 $1,698,059 $493,429
========== ======== ========== ========
Year ended December 31,
1998
Individual life........... $ 514,194 $ 85,258 $ 545,720 $ 87,455 $ --
Individual health......... 68,963 8,004 48,144 30,442 68,745
Group life and health..... 111,547 11,426 82,690 54,352 108,769
Annuity................... 667,920 342,296 592,085 298,222 --
---------- -------- ---------- --------
$1,362,624 $446,984 $1,268,639 $470,471
========== ======== ========== ========
Year ended December 31,
1997
Individual life........... $ 200,175 $ 75,914 $ 211,921 $ 36,185 $ --
Individual health......... 63,548 5,934 37,706 29,216 63,383
Group life and health..... 146,694 11,888 103,581 91,568 143,580
Annuity................... 657,695 352,688 571,434 364,216 --
---------- -------- ---------- --------
$1,068,112 $446,424 $ 924,642 $521,185
========== ======== ========== ========
</TABLE>
- --------
* Allocations of net investment income and other operating expenses are based
on a number of assumptions and estimates, and the results would change if
different methods were applied.
30
<PAGE>
PFL Life Insurance Company
Reinsurance
(Dollars in thousands)
SCHEDULE IV
<TABLE>
<CAPTION>
Assumed Percentage
Ceded to From of Amount
Gross Other Other Net Assumed
Amount Companies Companies Amount to Net
---------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Year ended December 31,
1999
Life insurance in
force.................. $6,538,901 $(500,192) $415,910 $6,454,619 6.4%
========== ========= ======== ========== ===
Premiums:
Individual life....... $ 227,363 $ 3,967 $ 2,723 $ 226,119 1.2%
Individual health..... 83,489 5,504 -- 77,985 --
Group life and
health............... 205,752 122,113 -- 83,639 --
Annuity............... 1,426,112 12,726 -- 1,413,386 --
---------- --------- -------- ---------- ---
$1,942,716 $ 144,310 $ 2,723 $1,801,129 0.2%
========== ========= ======== ========== ===
Year ended December 31,
1998
Life insurance in
force.................. $6,384,095 $ 438,590 $ 39,116 $5,984,621 .6%
========== ========= ======== ========== ===
Premiums:
Individual life....... $ 515,164 $ 3,692 $ 2,366 $ 513,838 .5%
Individual health..... 76,438 7,475 -- 68,963 --
Group life and
health............... 255,848 144,301 -- 111,547 --
Annuity............... 686,372 18,096 -- 668,276 --
---------- --------- -------- ---------- ---
$1,533,822 $ 173,564 $ 2,366 $1,362,624 .2%
========== ========= ======== ========== ===
Year ended December 31,
1997
Life insurance in
force.................. $5,025,027 $ 420,519 $ 35,486 $4,639,994 .8%
========== ========= ======== ========== ===
Premiums:
Individual life....... $ 201,691 $ 3,554 $ 2,038 $ 200,175 1.0%
Individual health..... 73,593 10,045 -- 63,548 --
Group life and
health............... 339,269 192,575 -- 146,694 --
Annuity............... 697,893 40,198 -- 657,695 --
---------- --------- -------- ---------- ---
$1,312,446 $ 246,372 $ 2,038 $1,068,112 .2%
========== ========= ======== ========== ===
</TABLE>
31
<PAGE>
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 88 pages
The undertaking to file reports
Representation Pursuant to Section 26(e) (2) (A)
The statement with respect to indemnification
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
<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:
<TABLE>
<CAPTION>
<S> <C> <C>
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 (10)
(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 Flexible Premium Variable Life Insurance Policy (9)
(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 (7)
(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 AUSA Life
Insurance Company, Inc. and amendments thereto (3)
(h) Amendments dated November 27, 1998 to Participation Agreements:
(i) Among MFS Variable Insurance Trust, Massachusetts
Financial Services Company and PFL Life (8)
(ii) Among PFL Life and Dreyfus Variable Investment Fund (8)
(iii) Among Oppenheimer Variable Account Funds,
OppenheimerFunds, Inc. and PFL Life (8)
(iv) Among AIM Variable Insurance Funds, Inc., AIM
Distributors, Inc., PFL Life and AFSG Securities
Corporation (8)
(v) Among WRL Series Fund, Inc., PFL Life and AUSA Life
Insurance Company, Inc. (8)
(i) Amendments dated August 1, 1999 to Participation Agreements:
(i) Among AIM Variable Insurance Funds, Inc., AIM
Distributors, Inc., PFL Life and AFSG Securities
Corporation (10)
(ii) MFS Variable Insurance Trust, Massachusetts Financial
Services Company and PFL Life (10)
(iii) WRL Series Fund, Inc. PFL Life and AUSA Life Insurance
Company, Inc. (10)
(j) Among Variable Insurance Products Funds and Variable Insurance
Products II, Fidelity Distributors Corporation, and PFL Life
Insurance Company, and Addendums thereto (12)
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
(k) Among Variable Insurance Products Fund III, Fidelity
Distributors Corporation, and PFL Life Insurance Company (13)
(l) Among Transamerica Variable Insurance Fund, Inc., Transamerica
Occidental Life Insurance Company and PFL Life Insurance
Company (14)
(m) Amendments dated April, 2000 to Participation Agreements:
(i) Among Variable Insurance Products Funds and Variable
Insurance Products II, Fidelity Distributors Corporation,
and PFL Life (14)
(ii) Among Variable Insurance Products Fund III, Fidelity
Distributors Corporation, and PFL Life (14)
(n) Amendment No. 13 dated April 17, 2000 to the Participation
Agreement among WRL Series Fund, Inc., PFL Life, AUSA Life
Insurance company, Inc., and Peoples Benefit Life Insurance
Company. (14)
(9) Not Applicable
(10) Application for Flexible Premium Variable Life Insurance Policy (9)
(11) Memorandum describing issuance, transfer and redemption
procedures (10)
</TABLE>
2. See Exhibit 1.A.
3. Opinion of Counsel as to the legality of the securities being registered
(11)
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 (14)
7. Consent of Frank A. Camp, Esq. (14)
8. Consent of Sutherland Asbill & Brennan LLP (14)
9. Consent of Ernst & Young LLP (14)
10. Powers of Attorney (9)
__________________
<TABLE>
<S> <C>
(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 333-07509) 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 333-07509) 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.
(7) This exhibit was previously filed on the Initial Registration Statement on
Form N-4 (File 333-
</TABLE>
<PAGE>
<TABLE>
<S> <C>
26209) filed on April 30, 1997 and is hereby incorporated by reference.
(8) This exhibit was previously filed on Pre-Effective Amendment No. 1 to the
Registration Statement on Form S-6 (File 333-68087) filed June 8, 1999 and
is incorporated by reference.
(9) This exhibit was previously filed on the Initial Registration Statement on
Form S-6 (File 333-86231)
filed August 31, 1999 and is incorporated by reference.
(10) This exhibit was previously filed on Pre-Effective Amendment No. 1 to the
Registration Statement on Form S-6 (File 333-86231) filed on December 29,
1999 and is incorporated by reference.
(11) This exhibit was previously filed on Pre-Effective Amendment No. 2 to the
Registration Statement on Form S-6 (File 333-86231) filed on January 20,
2000
(12) This exhibit was previously filed on Pre-Effective Amendment No. 1 to the
Registration Statement on Form N-4 (File 333-07509) filed on December 6,
1996.
(13) This exhibit was previously filed on Post-Effective Amendment No. 1 to the
Registration Statement on Form N-4 (File 333-07509) filed on April 29,
1997.
(14) Filed herewith.
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant,
Legacy Builder Variable Life Separate Account, certifies that it meets all of
the requirements for effectiveness of this registration statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this Post-
Effective Amendment No. 1 to Registration Statement on Form S-6 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
April, 2000.
(Seal) LEGACY BUILDER VARIABLE LIFE
SEPARATE ACCOUNT
PFL LIFE INSURANCE COMPANY
Depositor
WILLIAM L. BUSLER*
------------------
William L. Busler, President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
TITLE DATE
-------------------- --------------
<S> <C> <C>
PATRICK S. BAIRD* Director April 27, 2000
- ---------------------
Patrick S. Baird
CRAIG D. VERMIE* Director April 27, 2000
- ---------------------
Craig D. Vermie
WILLIAM L. BUSLER* Director April 27, 2000
- ---------------------
William L. Busler (Principal Executive
Officer)
LARRY N. NORMAN* Director April 27, 2000
- ---------------------
Larry N. Norman
DOUGLAS C. KOLSRUD* Director April 27, 2000
- ---------------------
Douglas C. Kolsrud
ROBERT J. KONTZ* Corporate Controller April 27, 2000
- ---------------------
Robert J. Kontz*
BRENDA K. CLANCY* Treasurer April 27, 2000
- ---------------------
Brenda K. Clancy**
</TABLE>
** Principal Accounting Officer
* /s/ Frank A. Camp
------------------
Frank A. Camp
Attorney-in-Fact
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ----------------------
1.A.(8)(l) Participation Agreement Among Transamerica Variable Insurance
Fund, Inc., Transamerica Occidental Life Insurance Company
and PFL Life Insurance Company
1.A.(8)(m)(i) Amendment to Participation Agreement Among Variable Insurance
Products Funds and Variable Insurance Products II, Fidelity
Distributors Corporation, and PFL Life Insurance Company
1.A.(8)(m)(ii) Amendment to Participation Agreement Among Variable Insurance
Products Fund III, Fidelity Distributors Corporation, and PFL
Life Insurance Company
1.A.(8)(n) Amendment No. 13 to Participation Agreement Among WRL Series
Fund, Inc., PFL Life Insurance Company, AUSA Life Insurance
Company, Inc., and Peoples Benefit Life Insurance Company
6 Opinion and Consent of Richard R. Greer as to actuarial
matters
7 Consent of Frank A. Camp, Esq.
8 Consent of Sutherland Asbill & Brennan LLP
9 Consent of Ernst & Young LLP
<PAGE>
EXHIBIT 1.A.(8)(l)
PARTICIPATION AGREEMENT AMONG
TRANSAMERICA VARIABLE INSURANCE FUND, INC.
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY
AND PFL LIFE INSURANCE COMPANY
<PAGE>
PARTICIPATION AGREEMENT
-----------------------
Among
TRANSAMERICA VARIABLE INSURANCE FUND, INC.
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY
and
PFL LIFE INSURANCE COMPANY
THIS AGREEMENT, effective of this 1st day of November 1999 by and among PFL
LIFE INSURANCE COMPANY (hereinafter "Insurance Company"), an Iowa life insurance
company, on its own behalf and on behalf of its SEPARATE ACCOUNT(S) (the
"Account"); TRANSAMERICA VARIABLE INSURANCE FUND, INC., a corporation organized
under the laws of Maryland (hereinafter the "Fund"); and TRANSAMERICA OCCIDENTAL
LIFE INSURANCE COMPANY, (hereinafter the "Adviser"), a California corporation.
WHEREAS, the Fund engages in business as an open-end management investment
company and is available to act as the investment vehicle for separate accounts
established for variable life insurance policies and/or variable annuity
contracts (collectively, the "Variable Insurance Products") to be offered by
insurance companies which have entered into participation agreements similar to
this Agreement (hereinafter "Participating Insurance Companies"), as well as
qualified pension and retirement plans; and
WHEREAS, the beneficial interests in the Fund are divided into several series
of shares, each designated a "Portfolio" and representing interests in a
particular managed portfolio of securities and other assets; and
WHEREAS, the Fund is registered as an open-end management investment company
under the 1940 Act and shares of the Portfolios are registered under the
Securities Act of 1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, the Adviser is duly registered as an investment adviser under the
Investment Advisers Act of 1940 as amended, and
WHEREAS, Insurance Company has registered the Account as a unit investment
trust under the 1940 Act, and certain variable annuity contracts supported
wholly or partially by the Account (the "Contracts") under the 1933 Act, and
said Account(s) are listed on Schedule A hereto, as it may be amended from time
to time by mutual written agreement; and
WHEREAS, the Account is a duly organized, validly existing segregated asset
account, established by resolution of the Board of Directors of Insurance
Company to set aside and invest assets attributable to the Contracts; and
WHEREAS, to the extent permitted by applicable insurance laws and regulations,
Insurance Company intends to purchase shares in the Portfolios listed in
Schedule B hereto, as it may be amended from time to time by mutual written
agreement (the "Designated Portfolios"), on behalf of the Account to fund the
aforesaid Contracts, and the Fund intends to sell such shares to the Account at
net asset value;
<PAGE>
NOW, THEREFORE, in consideration of their mutual promises, Insurance Company,
the Fund and the Adviser agree as follows:
ARTICLE I. Sale of Fund Shares
-------------------
1.1. The Fund agrees to sell to Insurance Company those shares of the
Designated Portfolios which Insurance Company orders, executing such orders on a
daily basis at the net asset value next computed after receipt by the Fund, or
its designee, of the order for the shares of the Designated Portfolios. For
purposes of this Section 1.1, Insurance Company shall be the agent of the Fund
for receipt of such orders and receipt by Insurance Company shall constitute
receipt by the Fund; provided that the Fund receives notice of such order by
9:30 a.m. New York time on the next following Business Day. "Business Day"
shall mean any day on which the New York Stock Exchange is open for trading and
on which the Fund calculates its net asset value.
1.2. The Fund agrees to make shares of the Designated Portfolios available
for purchase at the applicable net asset value per share by Insurance Company on
those days on which the Fund calculates its net asset value, and the Fund shall
use reasonable efforts to calculate such net asset value on each day which the
New York Stock Exchange is open for trading. Notwithstanding the foregoing, the
Board of Directors of the Fund (hereinafter the "Board") may refuse to sell
shares of any Portfolio to any person, or suspend or terminate the offering of
shares of any Portfolio if such action is required by law or by regulatory
authorities having jurisdiction or if , in the sole discretion of the Board
acting in good faith and in light of their fiduciary duties under federal and
any applicable state laws, necessary in the best interests of the shareholders
of such Portfolio.
1.3 The Fund agrees that shares of the Designated Portfolios will be sold
only to Participating Insurance Companies and their separate accounts and to
qualified pension and retirement plans. No shares of any Designated Portfolio
will be sold to the general public.
1.4. The Fund agrees to redeem for cash, on Insurance Companies request, any
full or fractional shares of the Fund held by Insurance Companies, executing
such requests on a daily basis at the net asset value next computed after
receipt by the Fund or its designee of the request for redemption, except that
the Fund reserves the right to suspend the right of redemption or postpone the
date of payment or satisfaction upon redemption consistent with Section 22(e) of
the 1940 Act. For purposes of this Section 1.5, Insurance Companies shall be
the agent of the Fund for receipt of requests for redemption and receipt by
Insurance Company shall constitute receipt by the Fund; provided that the Fund
receives notice of such request for redemption by 9:30 a.m. New York time on the
next following Business Day.
1.5. The Parties hereto acknowledge that the arrangement contemplated by this
Agreement is not exclusive; the Fund's shares may be sold to other insurance
companies and to qualified pension and retirement plans and the cash value of
the Contracts may be invested in other investment companies.
1.6. Insurance Company shall pay for Fund shares by 12:00 noon New York Time
the next Business Day after an order to purchase Fund shares is made in
accordance with the provisions of Section 1.1 hereof. Payment shall be in
federal funds transmitted by wire and/or by
-2-
<PAGE>
a credit for any shares redeemed the same day as the purchase. Upon receipt by
the Fund of the federal funds so wired, such funds shall cease to be the
responsibility of Insurance Company and shall become the responsibility of the
Fund.
1.7. The Fund shall pay and transmit the proceeds of redemptions of Fund
shares by 3:00 p.m. New York time the next Business Day after a redemption order
is received, subject to Section 1.5 hereof. Payment shall be in federal funds
transmitted by wire and/or a credit for any shares purchased the same day as the
redemption.
1.8. Issuance and transfer of the Fund's shares will be by book entry only.
Stock certificates will not be issued to Insurance Company or the Account.
Shares ordered from the Fund will be recorded in an appropriate title for the
Account or the appropriate sub-account of the Account.
1.9. The Fund shall furnish same day notice (by wire or telephone, followed
by written confirmation) to Insurance Company of any income, dividends, or
capital gain distributions payable on the Designated Portfolios' shares.
Insurance Company hereby elects to receive all such income dividends and capital
gain distributions in additional shares of that Portfolio. Insurance Company
reserves the right to revoke this election and to receive all such income
dividends and capital gain distributions in cash. The Fund shall notify
Insurance Company by the end of the next following Business Day of the number of
shares so issued as payment of such dividends and distributions.
1.10. The Fund shall make the net asset value per share for each Designated
Portfolio available to Insurance Company on a daily basis as soon as reasonably
practical after the net asset value per share is calculated and shall use its
best efforts to make such net asset value per share available by 6:30 p.m. New
York time. If the Fund provides incorrect per share net asset value
information, Insurance Company shall be entitled to an adjustment to the number
of shares purchased or redeemed to reflect the correct net asset value per
share. Any material error in the calculation or reporting of net asset value
per share, dividend or capital gains information shall be reported immediately
upon discovery to Insurance Company. Any error of a lesser amount shall be
corrected in the next Business Day's net asset value per share.
In the event adjustments are required to correct any error in the computation
of a Designated Portfolio's net asset value per share, or dividend or capital
gain distribution, the Fund shall notify Insurance Company as soon as possible
after discovering the need for such adjustments. Notification can be made
orally, but must be confirmed in writing. If an adjustment is necessary to
correct an error which caused Contract owners to receive less than the amount to
which they are entitled, the Fund shall make all necessary adjustments to the
number of shares owned by the Account and distribute to the Account the amount
of the underpayment. In no event shall Insurance Company be liable to the Fund
for any such adjustments or overpayment amounts.
ARTICLE II. Representations and Warranties
------------------------------
2.1. Insurance Company represents and warrants that the Contracts are or will
be registered under the 1933 Act; that the Contracts will be issued and sold in
compliance in all material respects with all applicable federal and state laws.
Insurance Company further represents and warrants that it is an insurance
company duly organized and in good standing under applicable
-3-
<PAGE>
law and that it has
legally and validly established the Account as a segregated asset account under
insurance law and has registered the Account as a unit investment trust in
accordance with the provisions of the 1940 Act to serve as a segregated
investment account for the Contracts.
2.2. The Fund and Adviser represent and warrants that Designated Portfolio
shares sold pursuant to this Agreement shall be registered under the 1933 Act,
duly authorized for issuance and sold in compliance with all applicable federal
and state securities laws including without limitation the 1933 Act, the 1934
Act, and the 1940 Act and that the Fund is and shall remain registered under the
1940 Act. The Fund shall amend the Registration Statement for its shares under
the 1933 Act and the 1940 Act from time to time as required in order to effect
the continuous offering of its shares. The Fund shall register and qualify the
shares for sale in accordance with the laws of the various states if and to the
extent required by applicable law.
2.3. The Fund reserves the right to adopt a plan pursuant to Rule 12b-1 under
the 1940 Act or impose an asset-based or other charge to finance distribution
expenses as permitted by applicable law and regulation. To the extent that the
Fund decides to finance distribution expenses pursuant to Rule 12b-1, the Fund
undertakes to have a Board, a majority of whom are not interested persons of the
Fund, formulate and approve any plan pursuant to Rule 12b-1 under the 1940 Act
to finance distribution expenses.
2.4. The Fund and Adviser represent and warrant that the Fund is lawfully
organized and validly existing under the laws of the State of Maryland and that
it does and shall comply in all material respects with the 1940 Act.
2.5 The Adviser represents and warrants that it is and shall remain duly
registered under all applicable federal and state securities laws and that it
shall perform its obligations for the fund in compliance with all applicable
state and federal securities laws.
2.6. The Fund and Adviser each represent and warrant that all of its
directors, officers, employees, investment advisers, and other individuals or
entities dealing with the money and/or securities of the Fund are, and shall
continue to be at all times, covered by a blanket fidelity bond or similar
coverage for the benefit of the Fund in an amount not less than the minimal
coverage required by Section 17g-(1) of the 1940 Act or related provisions as
may be promulgated from time to time. The aforesaid bond shall include coverage
for larceny and embezzlement and shall be issued by a reputable bonding company.
2.7. The Fund will provide Insurance Company with as much advance notice as
is reasonably practicable of any material change affecting the Designated
Portfolios (including, but not limited to, any material change in its
registration statement or prospectus affecting the Designated Portfolios and any
proxy solicitation affecting the Designated Portfolios) and consult with
Insurance Company in order to implement any such change in an orderly manner,
recognizing the expenses of changes and attempting to minimize such expenses by
implementing them in conjunction with regular annual updates of the prospectuses
for the Contracts.
2.8. Insurance Company represents and warrants, that, if the Fund complies
with Sections 2.9 and 2.10 of this Agreement, the Contracts are currently
treated as annuity contracts under applicable provisions of the Internal Revenue
Code of 1986, as amended, and that it shall make every effort necessary to
maintain such treatment and that it will notify the Underwriter immediately upon
having a reasonable basis for believing that the Contracts have ceased to be so
treated or that they might not be so treated in the future.
-4-
<PAGE>
2.9. The Fund and the Adviser represent and warrant that: (a) each Designated
Portfolio currently has elected to qualify as a regulated investment company
under Subchapter M of the Internal Revenue Code ("Code"); (b) the Fund and
Adviser shall make every effort necessary that each Portfolio shall maintain
such qualification (under Subchapter M or any successor or similar provision);
(c) the fund or the Adviser will notify Insurance Company immediately upon
having a reasonable basis for believing that a Portfolio has ceased to so
qualify or that it might not so qualify in the future; and (d) the Fund and the
Adviser will seek to minimize any damages and to rectify any Portfolio's failure
to so qualify promptly. The Fund and the Adviser acknowledge that any failure
by a Portfolio to qualify as a regulated investment company will eliminate the
ability of the Account to avail itself of the "look through" provisions of
Section 817(h) of the Code and that, as a result, the Contracts will almost
certainly fail to qualify as life insurance contracts under Section 817(h) of
the Code.
2.10. The Fund and the Adviser further represent and warrant that the assets
of each Designated Portfolio will at all times be invested in such a manner to
assure that the Contracts will be treated as life insurance contracts under the
Code and the regulations issued thereunder. Without limiting the scope of the
foregoing, the Fund and the Adviser represent that the each Designated Portfolio
will at all times comply with Section 817(h) of the Code and Treasury Regulation
1.817.5, as amended from time to time, relating to the diversification
requirements for variable annuity, endowment, or life insurance contracts and
any amendments or other modifications to such Section or Regulation. In the
event of a breach of this Section 2.10, the Fund and the Adviser warrant that
they will take all reasonable steps: (a) to immediately notify the Insurance
Company of such breach; and (b) to adequately diversify the Fund's assets so as
to achieve compliance within the grace period afforded by Regulation 1.817-5.
2.11. The Fund and Underwriter acknowledge that full compliance with the
requirements referred to in Sections 2.9 and 2.10 hereof is absolutely essential
because any failure to meet those requirements would result in the Contracts not
being treated as annuity contracts for federal income tax purposes, which would
have adverse tax consequences for Contract owners and could also adversely
affect the Insurance Company corporate tax liability.
ARTICLE III. Prospectuses, Reports, Proxy Statements and Voting
--------------------------------------------------
3.1. The Fund or Adviser, at their expense, shall provide Insurance Company
or its designee with current a prospectus, Statement of Additional Information,
and supplements thereto, and annual and semi-annual reports for the Designated
Portfolios in final "camera ready" copy form or on a diskette or such other form
as is required by a financial printer. The Fund and Adviser agrees that the
prospectuses, and supplements thereto, and the annual and semi-annual reports
for the Designated Portfolios will describe only the Designated Portfolios and
will not describe other Portfolios of the Fund. The Statement of Additional
Information may include information on other Portfolios of the Fund. It is
anticipated that the prospectuses and annual
-5-
<PAGE>
and semi-annual reports for the Contracts (if applicable), for the Designated
Portfolio(s) and for other portfolios available under the Contracts will be
printed together in one booklet. The Fund or Adviser shall pay a portion of the
printing expenses for prospectus and fund reports booklets distributed to
current Contract Owners. Such portion shall be the percentage, which is the
number of pages of the Fund prospectus or report as compared to the total number
of pages of the booklet. The Fund shall not pay any expenses for printing or
distribution of prospectuses or fund reports to prospective Contract Owners.
3.2. It is understood and agreed that, except with respect to information
regarding Insurance Company provided in writing by Insurance Company, Insurance
Company shall not be responsible for the content of the prospectus, SAI or
annual and semi-annual reports for the Designated Portfolios. It is also
understood and agreed that, except with respect to information regarding the
Fund and provided in writing by the Fund, the Fund shall not be responsible for
the content of the prospectus or SAI for the Contracts.
3.3. The Fund or Adviser at their expense shall provide Insurance Company
with as many copies of its Fund proxy material as Insurance Company shall
reasonably require for distributing to Contract owners.
3.4. If and to the extent required by law, Insurance Company shall, at its
expense:
(i) solicit voting instructions from Contract owners;
(ii) vote the Designated Portfolio shares in accordance with
instructions received from Contract owners: and
(iii) vote Designated Portfolio shares for which no instructions have
been received in the same proportion as Designated Portfolio
shares for which instructions have been received from Contract
owners in the same Account.
So long as and to the extent that the SEC continues to interpret the
1940 Act to require pass-through voting privileges for variable contract owners.
Insurance Company reserves the right to vote Fund shares held in any segregated
asset account in its own right, to the extent permitted by law.
ARTICLE IV. Sales Material and Information
------------------------------
4.1. Insurance Company shall furnish, or shall cause to be furnished, to the
Fund, or its designee, each prospectus, Statement of Additional Information and
each piece of sales literature and other promotional material that Insurance
Company develops or uses and in which the Fund (or a Portfolio thereof), its
investment adviser or one of its sub-advisers is named in connection with the
Contracts, at least 10 (ten) Business Days prior to its use. No such material
shall be used if the Fund, or its designee, objects to such use within 10 (ten)
Business Days after receipt of such material.
4.2. Insurance Company shall not give any information or make any
representations or statements on behalf of the Fund or concerning the Fund in
connection with the sale of the Contracts inconsistent with the information or
representations contained in the registration statement or prospectus for the
Fund shares, as such registration statement and prospectus may be amended or
supplemented from time to time, or in reports or proxy statements for the Fund,
or in sales literature or other promotional material approved by the Fund or its
designee, except with the permission of the Fund.
-6-
<PAGE>
4.3. The Fund shall furnish, or shall cause to be furnished, to Insurance
Company, each piece of sales literature and other promotional material developed
by the Fund or its designee in which Insurance Company and/or the Account is
named at least 10 (ten) Business Days prior to its use. No such material shall
be used if Insurance Company objects to such use within 10 (ten) Business Days
after receipt of such material. Notwithstanding the fact that Insurance Company
or its designee may not initially object to a piece of sales literature or other
promotional material, Insurance Company reserves the right to object at a later
date to the continued use of any such sales literature or promotional material
in which Insurance Company is named, and no such material shall be used
thereafter if Insurance Company or its designee so objects.
4.4. The Fund and Adviser shall not give any information or make any
representations on behalf of Insurance Company or concerning Insurance Company,
the Account, or the Contracts other than the information or representations
contained in a registration statement or prospectus for the Contracts, as such
registration statement and prospectus may be amended or supplemented from time
to time, or in reports for the Account, or in sales literature or other
promotional material approved by Insurance Company or its designee, except with
the permission of Insurance Company.
4.5. For purposes of this Article IV, the phrase "sales literature and other
promotional material" includes, but is not limited to, advertisements (material
published, or designed for use in, a newspaper, magazine, or other periodical,
radio, television, telephone or tape recording, videotape display, signs or
billboards, motion pictures, telephone directories (other than routine
listings), electronic or other public media), sales literature (i.e., any
----
written or electronic communication distributed or made generally available to
customers or the public, including brochures, circulars, research reports,
market letters, performance reports or summaries, form letters, telemarketing
scripts, seminar texts, reprints or excerpts of any other advertisement, sales
literature, or published article), educational or training materials or other
communications distributed or made generally available to some or all agents or
employees, and registration statements, prospectuses, Statements of Additional
Information, supplements thereto, shareholder reports, and proxy materials.
4.6. At the request of any party to this Agreement, each other party will
make available to the other party's independent auditors and/or representative
of the appropriate regulatory agencies, all records, data and access to
operating procedures that may be reasonably requested in connection with
compliance and regulatory requirements related to this Agreement or any party's
obligations under this Agreement.
ARTICLE V. Fees and Expenses
-----------------
5.1. The Fund shall pay no fee or other compensation to Insurance Company
under this Agreement, except that if the Fund or any Designated Portfolio adopts
and implements a plan pursuant to Rule 12b-1 of the 1940 Act to finance
distribution and shareholder servicing expenses, then the Fund's underwriter may
make payments to Insurance Company or to the distributor of the Contracts if and
in amounts agreed to by the Fund's underwriter in writing and
-7-
<PAGE>
such payments will be made out of existing fees otherwise payable to the Fund's
underwriter, past profits of the underwriter or other resources available to the
underwriter. No such payments shall be made directly by the Fund. Nothing herein
shall prevent the parties hereto from otherwise agreeing to perform, and arrange
for appropriate compensation for, other services relating to the Fund and/or the
Account. Insurance Company shall pay no fee or other compensation to the Fund
under this Agreement, although the parties hereto will bear certain expenses.
5.2. All expenses incident to performance by the Fund or the Adviser under
this Agreement shall be paid by the Fund or Adviser. The Fund shall see to it
that all shares of the Designated Portfolios are registered and authorized for
issuance in accordance with applicable federal law and, if and to the extent
required, in accordance with applicable state laws prior to their sale. The
Fund shall bear the expenses for the cost of registration and qualification of
the Fund's shares, preparation and filing of the Fund's prospectus and
registration statement, supplements thereto and its proxy materials and reports.
The Fund or Adviser will bear the expenses of fulfilling their obligations under
(S) 3.1.
5.3. Insurance Company shall bear the expenses of routine annual distribution
of the Fund's prospectus to owners of Contracts issued by Insurance Company and
of distributing the Fund's proxy materials and reports to such Contract owners;
Insurance Company shall bear all expenses associated with the registration,
qualification, and filing of the Contracts under applicable federal securities
and state insurance laws; the cost of preparing, printing, and distributing the
Contract prospectus and SAI; and the cost of preparing, printing and
distributing annual individual account statement to Contract owners as required
by state insurance laws.
5.4. The Fund acknowledges that a principal feature of the Contracts is the
Contract owner's ability to choose from a number of unaffiliated mutual funds
(and portfolios or series thereof), including the Designated Portfolios
("Unaffiliated Funds"), and to transfer the Contract's cash value between funds
and portfolios. The Fund and Underwriter agree to cooperate with Insurance
Company in facilitating the operation of the Account and the Contracts as
intended, including but not limited to cooperation in facilitating transfers
between Unaffiliated Funds.
ARTICLE VI. Potential Conflicts and Compliance With
Shared Funding Exemptive Order
---------------------------------------
6.1 In the event that Fund determines that it is appropriate for the Fund to
seek an order from the SEC granting insurance companies and their separate
accounts exemptions which purchase Fund shares from the provisions of Sections
9(a), 13(a) and 15(b) of the 1940 Act, and Rules 6e-2(b)(15) and 6e-3(T)(b)(15)
thereunder, to the extent necessary to permit shares of the Fund to be sold to
and held by variable annuity and variable life insurance separate accounts of
both affiliated and unaffiliated life insurance companies and certain qualified
pension and retirement plans (the "Shared Funding Exemptive"), this article
shall apply.
6.2. The Board will monitor the Fund for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
separate accounts investing in the Fund. An irreconcilable material conflict
may arise for a variety of reasons, including: (a) an action by any state
insurance regulatory authority; (b) a change in applicable federal or state
insurance, tax, or securities laws or regulations, or a public ruling, private
letter ruling, no-action or interpretative letter, or any similar action by
insurance, tax, or securities regulatory authorities; (c) an administrative
-8-
<PAGE>
or judicial decision in any relevant proceeding; (d) the manner in which the
investments of any Portfolio are being managed; (e) a difference in voting
instructions given by variable annuity contract and variable life insurance
contract owners; or (f) a decision by a participating insurance company to
disregard the voting instructions of contract owners. The Board shall promptly
inform Insurance Company if it determines that an irreconcilable material
conflict exists and the implications thereof.
6.3. Insurance Company will report any potential or existing conflicts of
which it is aware to the Board. Insurance Company will assist the Board in
carrying out its responsibilities under the Shared Funding Exemptive Order, by
providing the Board with all information reasonably necessary for the Board to
consider any issues raised. This includes, but is not limited to, an obligation
by Insurance Company to inform the Board whenever contract owner voting
instructions are disregarded. Such responsibilities shall be carried out by
Insurance Company with a view only to the interests of its Contract Owners.
6.4. If it is determined by a majority of the Board, or a majority of its
directors who are not interested persons of the Fund, its adviser or any sub-
adviser to any of the Portfolios (the "Independent Directors"), that a material
irreconcilable conflict exists, Insurance Company and other participating
insurance companies shall, at their expense and to the extent reasonably
practicable (as determined by a majority of the Independent Directors), take
whatever steps are necessary to remedy or eliminate the irreconcilable material
conflict, up to and including: (1) withdrawing the assets allocable to some or
all of the separate accounts from the Fund or any Portfolio and reinvesting such
assets in a different investment medium, including (but not limited to) another
Portfolio of the Fund, or submitting the question whether such segregation
should be implemented to a vote of all affected contract owners and, as
appropriate, segregating the assets of any appropriate group (i.e., annuity
----
contract owners, life insurance contract owners, or variable contract owners of
one or more participating insurance companies) that votes in favor of such
segregation, or offering to the affected contract owners the option of making
such a change; and (2) establishing a new registered management investment
company or managed separate account. Insurance Company shall not be required by
this Section 6.4 to establish a new funding medium for the Contracts if an offer
to do so has been declined by vote of a majority of Contract owners materially
adversely affected by the irreconcilable material conflict.
6.5. If a material irreconcilable conflict arises because of a decision by
Insurance Company to disregard contract owner voting instructions and that
decision represents a minority position or would preclude a majority vote,
Insurance Company may be required, at the Fund's election, to withdraw the
Account's investment in the Fund and terminate this Agreement; provided, however
that such withdrawal and termination shall be limited to the extent required by
the foregoing material irreconcilable conflict as determined by a majority of
the Independent Directors. Any such withdrawal and termination must take place
within six (6) months after the Fund gives written notice that this provision is
being implemented, and until the end of that six month period the Fund shall
continue to accept and implement orders by Insurance Company for the purchase
(and redemption) of shares of the Fund.
6.6. If a material irreconcilable conflict arises because a particular state
insurance regulator's decision applicable to Insurance Company conflicts with
the majority of other state regulators, then Insurance Company will withdraw the
Account's investment in the Fund and terminate this Agreement within six months
after the Board informs Insurance Company in
-9-
<PAGE>
writing that it has determined that such decision has created an irreconcilable
material conflict; provided, however, that such withdrawal and termination shall
be limited to the extent required by the foregoing material irreconcilable
conflict as determined by a majority of the disinterested members of the Board.
Until the end of the foregoing six month period, the Underwriter and the Fund
shall continue to accept and implement orders by Insurance Company for the
purchase (and redemption) of shares of the Fund.
6.7. For purposes of Sections 6.4 through 6.6 of this Agreement, a majority
of the Independent Directors shall determine whether any proposed action
adequately remedies any irreconcilable material conflict, but in no event will
the Fund be required to establish a new funding medium for the Contracts.
6.8. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or
Rule 6e-3 is adopted, to provide exemptive relief from any provision of the Act
or the rules promulgated thereunder with respect to mixed or shared funding (as
defined in the Shared Funding Exemptive Order) on terms and conditions
materially different from those contained in the Shared Funding Exemptive Order,
then (a) the Fund and/or the Participating Insurance Companies, as appropriate,
shall take such steps as may be necessary to comply with Rules 6e-2 and 6e-3(T),
as amended, and Rule 6e-3, as adopted, to the extent such rules are applicable:
and (b) Sections 6.2, 6.3, 6.4, 6.5 and 6.6 of this Agreement shall continue in
effect only to the extent that terms and conditions substantially identical to
such Sections are contained in such Rule(s) as so amended or adopted.
ARTICLE VII. Indemnification
---------------
7.1. Indemnification By Insurance Company
------------------------------------
8.1(a). Insurance Company agrees to indemnify and hold harmless the Fund
and the Adviser and their officers, directors, employees, and agents and each
person who controls the Fund within meaning of (S) 15 of the 1933 Act.
(collectively, the "Indemnified Parties" for purposes of this Section 7.1)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of Insurance Company) or litigation
(including legal and other expenses), to which the Indemnified Parties may
become subject under any statute or regulation, at common law or otherwise,
insofar as such losses, claims, damages, liabilities or expenses (or actions in
respect thereof) or settlements are related to the sale or acquisition of the
Fund's shares or the Contracts and:
(i) arise out of or are based upon any untrue statements or alleged
untrue statements of any material fact contained in the registration
statement or prospectus or SAI for the Contracts or contained in the
Contracts (or any amendment or supplement to any of the foregoing),
or arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading,
provided that this Agreement to indemnify shall not apply as to any
--------
Indemnified Party if such statement or omission or such alleged
statement or omission was made in reliance upon and in conformity
with information furnished in writing to Insurance Company by or on
behalf of the Underwriter or Fund for use in the registration
statement or prospectus for
-10-
<PAGE>
the Contracts or in the Contracts or sales literature (or any
amendment or supplement) or otherwise for use in connection with the
sale of the Contracts or Fund shares; or
(ii) arise out of or as a result of statements or representations (other
than statements or representations contained in the registration
statement, prospectus or sales literature of the Fund not supplied
by Insurance Company or persons under its control) or wrongful
conduct of Insurance Company or persons under its control, with
respect to the sale or distribution of the Contracts or Fund Shares;
or
(iii) arise out of any untrue statement or alleged untrue statement of a
material fact contained in a registration statement, prospectus, or
sales literature of the Fund or any amendment thereof or supplement
thereto or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading if such a statement or omission
was made in reliance upon information furnished in writing to the
Fund by or on behalf of Insurance Company; or
(iv) arise as a result of any failure by Insurance Company to provide the
services and furnish the materials under the terms of this
Agreement; or
(v) arise out of or result from any material breach of any
representation and/or warranty made by Insurance Company in this
Agreement or arise out of or result from any other material breach
of this Agreement by Insurance Company, as limited by and in
accordance with the provisions of Sections 7.1(b) and 7.1(c) hereof.
7.1(b). Insurance Company shall not be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation to which an Indemnified Party would otherwise be
subject if caused by such Indemnified Party's willful misfeasance, bad faith, or
negligence in the performance of such Indemnified Party's duties or by reason of
such Indemnified Party's reckless disregard of obligations or duties under this
Agreement.
7.1(c). Insurance Company shall not be liable under this
indemnification provision with respect to any claim made against an Indemnified
Party unless such Indemnified Party shall have notified Insurance Company in
writing within a reasonable time after the summons or other first legal process
giving information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify Insurance Company
of any such claim shall not relieve Insurance Company from any liability which
it may have to the Indemnified Party against whom such action is brought
otherwise than on account of this indemnification provision. In case any such
action is brought against the Indemnified Parties, Insurance Company shall be
entitled to participate, at its own expense, in the defense of such action.
Insurance Company also shall be entitled to assume the defense thereof, with
counsel satisfactory to the party named in the action. After notice from
Insurance Company to such party of Insurance Company's election to assume the
defense thereof, the Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it, and Insurance Company will not be liable to
such party under this Agreement for any legal or other expenses subsequently
incurred by such party independently in connection with the defense thereof
other than reasonable costs of investigation.
-11-
<PAGE>
7.1(d). The Indemnified Parties will promptly notify Insurance
Company of the commencement of any litigation or proceedings against them in
connection with the issuance or sale of the Fund shares or the Contracts or the
operation of the Fund.
7.2. Indemnification by the Adviser
------------------------------
7.2(a). The Adviser agrees to indemnify and hold harmless Insurance
Company and each of its directors, officers, employees, agents and each person,
if any, who controls Insurance Company within the meaning of Section 15 of the
1933 Act (collectively, the "Indemnified Parties" for purposes of this Section
7.2) against any and all losses, claims, damages, liabilities (including amounts
paid in settlement with the written consent of the Adviser) or litigation
(including legal and other expenses) to which the Indemnified Parties may become
subject under any statute or regulation, at common law or otherwise, insofar as
such losses, claims, damages, liabilities or expenses (or actions in respect
thereof) or settlements are related to the sale or acquisition of the Fund's
shares or the Contracts and:
(i) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the registration
statement or prospectus or SAI or sales literature of the Fund (or
any amendment or supplement to any of the foregoing), or arise out
of or are based upon the omission or the alleged omission to state
therein a material fact required to be stated therein or necessary
to make the statements therein not misleading, provided that this
--------
Agreement to indemnify shall not apply as to any Indemnified Party
if such statement or omission or such alleged statement or omission
was made in reliance upon and in conformity with information
furnished in writing to the Adviser or Fund by or on behalf of
Insurance Company for use in the registration statement or
prospectus for the Fund or in sales literature (or any amendment or
supplement) or otherwise for use in connection with the sale of the
Contracts or Fund shares; or
(ii) arise out of or as a result of statements or representations (other
than statements or representations contained in the registration
statement, prospectus or sales literature for the Contracts not
supplied by the Adviser or persons under its control) or wrongful
conduct of the Fund or Adviser or persons under their control, with
respect to the sale or distribution of the Contracts or Fund shares;
or
(iii) arise out of any untrue statement or alleged untrue statement of a
material fact contained in a registration statement, prospectus or
sales literature covering the Contracts, or any amendment thereof or
supplement thereto, or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary
to make the statement or statements therein not misleading, if such
statement or omission was made in reliance upon information
furnished in writing to Insurance Company by or on behalf of the
Adviser or Fund; or
(iv) arise as a result of any failure by the Fund or Adviser to provide
the services and furnish the materials under the terms of this
Agreement (including a failure, whether unintentional or in good
faith or otherwise, to comply with the diversification and other
qualification requirements specified (S) 2.9 and 2.10 in of this
Agreement); or
-12-
<PAGE>
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Fund or Adviser in this
Agreement or arise out of or result from any other material breach
of this Agreement by the Fund or Adviser; as limited by and in
accordance with the provisions of Sections 7.2(b) and 7.2(c) hereof.
7.2(b). The Adviser shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
to which an Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful misfeasance, bad faith, or negligence in the
performance or such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this Agreement.
7.2(c). The Adviser shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Adviser in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Adviser of any
such claim shall not relieve the Adviser from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Adviser will be entitled to participate, at
its own expense, in the defense thereof. The Adviser also shall be entitled to
assume the defense thereof, with counsel satisfactory to the party named in the
action. After notice from the Adviser to such party of the Adviser's election
to assume the defense thereof, the Indemnified Party shall bear the fees and
expenses of any additional counsel retained by it, and the Adviser will not be
liable to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with the defense
thereof other than reasonable costs of investigation.
7.2(d). Insurance Company agrees promptly to notify the Adviser of
the commencement of any litigation or proceedings against it or any of its
officers or directors in connection with the issuance or sale of the Contracts
or the operation of the Account.
ARTICLE VIII. Applicable Law
--------------
8.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of California,
without regard to that state's principles of conflicts of law, except that any
terms shall be defined and interpreted in accordance with, and the Agreement
subject to, the federal securities laws.
8.2. This Agreement shall be subject to the provisions of the 1933, 1934
and 1940 Acts, and the rules and regulations and rulings thereunder, including
such exemptions from those statutes, rules and regulations as the Securities and
Exchange Commission may grant (including, but not limited to, the Shared Funding
Exemptive Order) and the terms hereof shall be interpreted and construed in
accordance therewith.
-13-
<PAGE>
ARTICLE IX. Termination
-----------
9.1. This Agreement shall terminate:
(a) at the option of any party, with or without cause, with respect to
some or all Portfolios, upon one (1) year advance written notice
delivered to the other parties; provided, however, that such notice
shall not be given earlier than one year following the date of this
Agreement; or
(b) at the option of Insurance Company by written notice to the other
parties with respect to any Portfolio based upon Insurance Company's
determination that shares of such Portfolio are not reasonably
available to meet the requirements of the Contracts; or
(c) at the option of Insurance Company by written notice to the other
parties with respect to any Portfolio in the event any of the
Portfolio's shares are not registered, issued or sold in accordance
with applicable state and/ or federal law or such law precludes the
use of such shares as the underlying investment media of the Contracts
issued or to be issued by Insurance Company; or
(d) at the option of the Fund in the event that formal administrative
proceedings are instituted against Insurance Company by the National
Association of Securities Dealers, Inc. ("NASD"), the Securities and
Exchange Commission, the Insurance Commissioner or like official of
any state or any other regulatory body regarding Insurance Company's
duties under this Agreement or related to the sale of the Contracts,
the operation of any Account, or the purchase of the Fund shares,
provided, however, that the Fund determines in its sole judgment
exercised in good faith, that any such administrative proceedings will
have a material adverse effect upon the ability of Insurance Company
to perform its obligations under this Agreement; or
(e) at the option of Insurance Company in the event that formal
administrative proceedings are instituted against the Fund or Adviser
by the NASD, the Securities and Exchange Commission, or any state
securities or insurance department or any other regulatory body,
provided, however, that Insurance Company determines in its sole
judgment exercised in good faith, that any such administrative
proceedings will have a material adverse effect upon the ability of
the Fund or Adviser to perform its obligations under this Agreement;
or
(f) at the option of Insurance Company by written notice to the Fund
and the Adviser with respect to any Portfolio if Insurance Company
reasonably believes that the Portfolio may fail to meet the Section
817(h) diversification requirements or Subchapter M qualifications
specified in Section 2.9 and 2.10 of this Agreement; or
(g) at the option of either the Fund or the Adviser, if (i) the Fund
or Adviser, respectively, shall determine, in their sole judgement
reasonably exercised in good faith, that Insurance Company has
suffered a material adverse change in its business or financial
condition or is the subject of material adverse publicity and that
material adverse change or publicity will have a material adverse
-14-
<PAGE>
impact on Insurance Company's ability to perform its obligations under
this Agreement, (ii) the Fund or Adviser notifies Insurance Company of
that determination and its intent to terminate this Agreement, and
---
(iii) after considering the actions taken by Insurance Company and any
other changes in circumstances since the giving of such a notice, the
determination of the Fund or Adviser shall continue on the sixtieth
(60th) day following the giving of that notice, which sixtieth day
shall be the effective date of termination; or
(h) at the option of Insurance Company, if (i) Insurance Company
shall determine, in its sole judgement reasonably exercised in good
faith, that either the Fund or the Adviser have suffered a material
adverse change in their business or financial condition or is the
subject of material adverse publicity and that material adverse change
or publicity will have a material adverse impact on the Fund's or
Adviser's ability to perform its obligations under this Agreement,
(ii) Insurance Company notifies the Fund or Adviser, as appropriate,
of that determination and its intent to terminate this Agreement, and
---
(iii) after considering the actions taken by the Fund or Adviser and
any other changes in circumstances since the giving of such a notice,
the determination of Insurance Company shall continue on the sixtieth
(60th) day following the giving of that notice, which sixtieth day
shall be the effective date of termination; or
(i) at the option of any party to this Agreement, upon another party's
material breach of any provision of this Agreement; or
(j) upon assignment of this Agreement, unless made with the written
consent of the parties hereto, except that the Adviser may assign this
Agreement, or any of its rights or obligations hereunder, to any
affiliate of, or company under common control with, the Adviser (but
in such event the Adviser shall continue to be liable for any
indemnification due to Insurance Company and the assignee shall also
be liable), if such assignee is duly licensed and registered to
perform the obligations of the Adviser under this Agreement; or
(k) at the option of Insurance Company or the Fund by written notice
to the other party upon a determination by the Fund's Board that a
material irreconcilable conflict exists among the interests of (i) all
contract owners of all separate accounts investing in the Fund or (ii)
the interests of the Participating Insurance Companies; or
(l) at the option of Insurance Company by written notice to the Fund
or the Adviser upon the sale, acquisition or change of control of the
Adviser.
9.2. Notice Requirement. No termination of this Agreement shall be
------------------
effective unless and until the party terminating this Agreement gives prior
written notice to all other parties of its intent to terminate, which notice
shall set forth the basis for the termination.
9.3. Effect of Termination. Notwithstanding any termination of this
---------------------
Agreement, the Fund and the Adviser shall, at the option of Insurance Company,
continue to make available additional shares of the Fund for all Contracts in
effect on the effective date of termination of this Agreement (hereinafter
referred to as "Existing Contracts") pursuant to the terms and conditions of
this Agreement. Specifically, without limitation, the owners of the Existing
Contracts shall be permitted to reallocate investments in the Fund, redeem
investments in the Fund and/or invest in
-15-
<PAGE>
the Fund upon the making of additional purchase payments under the Existing
Contracts. The parties agree that this Section 9.3 shall not apply to any
terminations under Article VI and the effect of such Article VI terminations
shall be governed by Article VI of this Agreement.
9.4. Surviving Provisions. Notwithstanding any termination of this
--------------------
Agreement, each party's obligations under Article VIII to indemnify other
parties shall survive and not be affected by any termination of this Agreement.
In addition, with respect to Existing Contracts, all provisions of this
Agreement shall also survive and not be affected by any termination of this
Agreement.
ARTICLE X. Notices
-------
Any notice shall be sufficiently given when sent by registered or certified
mail or by overnight mail sent through a nationally-recognized delivery service
to the other party at the address of such party set forth below or at such other
address as such party may from time to time specify in writing to the other
party.
If to Insurance Company:
PFL Life Insurance Company
4333 Edgewood Road N.E.
Cedar Rapids, Iowa 52406
Attention: General Counsel, Financial Markets Division
If to the Fund:
Transamerica Variable Insurance Fund, Inc.
1150 South Olive Street
Los Angeles, CA 90015
Attention: Secretary
If to the Adviser:
Transamerica Occidental Life Insurance Company
1150 South Olive Street
Los Angeles, CA 90015
Attention: General Counsel
ARTICLE XI. Miscellaneous
-------------
10.1. Subject to the requirements of legal process and regulatory
authority, each party hereto shall treat as confidential the names and addresses
of the owners of the Contracts and all information reasonably identified as
confidential in writing by any other party hereto and, except
-16-
<PAGE>
as permitted by this Agreement, shall not disclose, disseminate or utilize such
names and addresses and other confidential information without the express
written consent of the affected party until such time as such information may
come into the public domain. Without limiting the foregoing, no party hereto
shall disclose any information that another party reasonably considers to be
proprietary.
10.2. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
10.3. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
10.4. If any provision of this Agreement shall be held or made invalid
by a court decision, statute, rule or otherwise, the remainder of the Agreement
shall not be affected thereby.
10.5. Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the
Securities and Exchange Commission, the NASD and state insurance regulators) and
shall permit such authorities reasonable access to its books and records in
connection with any investigation or inquiry relating to this Agreement or the
transactions contemplated hereby.
10.6. The rights, remedies and obligations contained in this Agreement
are cumulative and are in addition to any and all rights, remedies and
obligations, at law or in equity, which the parties hereto are entitled to under
state and federal laws.
10.7. This Agreement or any of the rights and obligations hereunder may
not be assigned by any party without the prior written consent of all parties
hereto.
10.8. The Schedules attached hereto, as modified from time to time, are
incorporated herein by reference and are part of this Agreement.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed in its name and on its behalf by its duly authorized representative
and its seal to be hereunder affixed hereto as of the date specified below.
PFL LIFE INSURANCE COMPANY:
By its authorized officer
By: /s/ William L. Busler
---------------------
Title: President
---------
-17-
<PAGE>
TRANSAMERICA VARIABLE INSURANCE FUND, INC.:
By its authorized officer,
By: /s/ Regina M. Fink
------------------
Title: Secretary
---------
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY:
By its authorized officer,
By: /s/ David Goldstein
-------------------
Title: Vice President and Deputy General Counsel
----------------------------------------
-18-
<PAGE>
Effective May 1, 2000
AMENDED SCHEDULE A
------------------
Extra Variable Annuity
Endeavor Variable Annuity
Endeavor ML Variable Annuity
Endeavor Platinum Variable Annuity
AUSA Endeavor Variable Annuity
Access Variable Annuity
Retirement Income Builder II Variable Annuity
Legacy Builder Plus
-19-
<PAGE>
SCHEDULE B
----------
Designated Portfolios
- ---------------------
Growth Portfolio of Transamerica Variable Insurance Fund, Inc.
-20-
<PAGE>
NOTICE
------
With regard to
November 1, 1999
Participation Agreement between
Transamerica Variable Insurance Fund
Transamerica Occidental Life Insurance Company
and
PFL Life Insurance Company
Effective January 1, 2000, and pursuant to (S) 8.1 and (S) 9.1(j) of this
Agreement, Transamerica Investment Management, LLC, replaced Transamerica
Occidental Life Insurance Company as Adviser.
/s/ Regina M. Fink
- -------------------
Regina M. Fink
Assistant General Counsel, Transamerica Occidental Life Insurance Company
Counsel to Transamerica Investment Management, LLC
Secretary, Transamerica Variable Insurance Fund, Inc.
<PAGE>
EXHIBIT 1.A.(8)(m)(i)
AMENDMENT TO PARTICIPATION AGREEMENT AMONG VARIABLE INSURANCE PRODUCTS
FUNDS AND VARIABLE INSURANCE PRODUCTS II, FIDELITY DISTRIBUTORS
CORPORATION, AND PFL LIFE INSURANCE COMPANY
<PAGE>
Participation Agreement Addendum
SCHEDULE A
----------
Accounts
--------
This Schedule shall be effective as of the date of the last signature below, and
replaces and supersedes Schedule A to the Participation Agreement dated April 1,
1991 (as amended) among Variable Insurance Products Fund, Variable Insurance
Products Fund II, Fidelity Distributors Corporation and PFL Life Insurance
Company.
<TABLE>
<CAPTION>
Date of Resolutions of
Company's Board which
Name of Contracts Name of Accounts established the Accounts
- ------------------------------- -------------------------------- -------------------------------
<S> <C> <C>
Fidelity Income Plus Fidelity Variable August 24, 1979 (by an
Individual Variable Annuity Annuity Account affiliate subsequently
Contracts acquired by the Company)
PFL Endeavor Individual and PFL Endeavor VA
Group Variable Annuity Separate Account January 19, 1990
Contracts
PFL Endeavor Platinum PFL Endeavor VA
Individual and Group Variable Separate Account January 19, 1990
Annuity Contracts
PFL Retirement Builder PFL Retirement Builder Variable
Individual Variable Annuity Annuity Account March 29, 1996
Contracts
PFL Retirement Builder PFL Retirement Builder Variable
Immediate Variable Annuity Annuity Account March 29, 1996
Contracts
Portfolio Select Individual PFL Retirement Builder Variable
Variable Annuity Contracts Annuity Account March 29, 1996
PFL Retirement Income Builder PFL Retirement Builder Variable
II Individual Variable Annuity Account March 29, 1996
Annuity Contracts
Extra Individual and Group PFL Life Variable February 20, 1997
Variable Annuity Contracts Annuity Account C
Access Individual and Group PFL Life Variable February 20, 1997
Variable Annuity Contracts Annuity Account D
Select Advantage Individual PFL Life Variable February 20, 1997
Variable Annuity Contracts Annuity Account E
Advantage V PFL Corporate Account One August 10, 1998
PFL Variable PFL Variable Life Account A July 1, 1999
Universal Life Policy
Legacy Builder Plus Variable Legacy Builder Separate Account November 20, 1998
Universal Life Policy
</TABLE>
In witness whereof, we have hereunto set our hand
as of the dates indicated:
<TABLE>
<CAPTION>
PFL Life Insurance Company Variable Insurance Products Fund
<S> <C> <C> <C>
By: /s/ William L. Busler By: /s/Robert C. Pozen
--------------------- ---------------------
Title: President Title: Senior Vice President
--------------------- ---------------------
Date: March 22, 2000 Date: April 6, 2000
--------------------- ---------------------
<CAPTION>
Fidelity Distributors Corporation Variable Insurance Products Fund II
<S> <C> <C> <C>
By: /s/ Kevin Kelly By: /s/ Robert C. Pozen
--------------- ---------------------
Title: Vice President Title: Senior Vice President
--------------- ---------------------
Date: April 6, 2000 Date: April 6, 2000
--------------- ---------------------
</TABLE>
<PAGE>
EXHIBIT 1.A.(8)(m)(ii)
AMENDMENT TO PARTICIPATION AGREEMENT AMONG VARIABLE INSURANCE PRODUCTS
FUNDS ANDVARIABLE INSURANCE PRODUCTS III, FIDELITY DISTRIBUTORS
CORPORATION, AND PFL LIFE INSURANCE COMPANY
<PAGE>
Participation Agreement Addendum
SCHEDULE A
----------
Accounts
--------
This Schedule shall be effective as of the date of the last signature below, and
replaces and supersedes Schedule A to the Participation Agreement dated March
21, 1997 among Variable Insurance Products Fund III, Fidelity Distributors
Corporation and PFL Life Insurance Company.
<TABLE>
<CAPTION>
Date of Resolutions of
Company's Board which
Name of Contracts Name of Accounts established the Accounts
- ------------------------------- -------------------------------- -------------------------------
<S> <C> <C>
Fidelity Income Plus Fidelity Variable August 24, 1979 (by an
Individual Variable Annuity Annuity Account affiliate subsequently
Contracts acquired by the Company)
PFL Endeavor Individual and PFL Endeavor VA
Group Variable Annuity Separate Account January 19, 1990
Contracts
PFL Endeavor Platinum PFL Endeavor VA
Individual and Group Variable Separate Account January 19, 1990
Annuity Contracts
PFL Retirement Builder PFL Retirement Builder Variable
Individual Variable Annuity Annuity Account March 29, 1996
Contracts
PFL Retirement Builder PFL Retirement Builder Variable
Immediate Variable Annuity Annuity Account March 29, 1996
Contracts
Portfolio Select Individual PFL Retirement Builder Variable
Variable Annuity Contracts Annuity Account March 29, 1996
PFL Retirement Income Builder PFL Retirement Builder Variable
II Individual Variable Annuity Account March 29, 1996
Annuity Contracts
Extra Individual and Group PFL Life Variable February 20, 1997
Variable Annuity Contracts Annuity Account C
Access Individual and Group PFL Life Variable February 20, 1997
Variable Annuity Contracts Annuity Account D
Select Advantage Individual PFL Life Variable February 20, 1997
Variable Annuity Contracts Annuity Account E
Advantage V PFL Corporate Account One August 10, 1998
PFL Variable PFL Variable Life Account A July 1, 1999
Universal Life Policy
Legacy Builder Plus Variable Legacy Builder Separate Account November 20, 1998
Universal Life Policy
</TABLE>
<TABLE>
In witness whereof, we have hereunto set our
hand as of the dates indicated:
PFL Life Insurance Company Variable Insurance Products Fund III
<S> <C> <C> <C>
By: /s/ William L. Busler By: /s/ Robert C. Pozen
--------------------- ---------------------
Title: President Title: Senior Vice President
--------------------- ---------------------
Date: March 22, 2000 Date: April 6, 2000
--------------------- ---------------------
<CAPTION>
Fidelity Distributors Corporation
<S> <C>
By: /s/ Kevin Kelly
---------------
Title: Vice President
--------------
Date: April 6, 2000
-------------
</TABLE>
<PAGE>
EXHIBIT 1.A.(8)(n)
AMENDMENT TO PARTICIPATION AGREEMENT AMONG WRL SERIES FUND, INC.,
PFL LIFE INSURANCE COMPANY, AUSA LIFE INSURANCE COMPANY, INC.,
AND PEOPLES BENEFIT LIFE INSURANCE COMPANY
<PAGE>
AMENDMENT NO. 13 TO
PARTICIPATION AGREEMENT
AMONG
WRL SERIES FUND, INC.,
PFL LIFE INSURANCE COMPANY,
AUSA LIFE INSURANCE COMPANY, INC., AND
PEOPLES BENEFIT LIFE INSURANCE COMPANY
Amendment No. 13 to the Participation Agreement among WRL Series Fund,
Inc., (the "Fund"), PFL Life Insurance Company ("PFL"), AUSA Life Insurance
Company, Inc. ("AUSA"), and Peoples Benefit Life Insurance Company ("Peoples")
dated July 1, 1992 ("Participation Agreement").
WHEREAS, Transamerica Occidental Life Insurance Company ("Transamerica"),
an affiliate of PFL, AUSA, and Peoples has registered or will register certain
variable annuity contracts and/or variable life insurance policies (both the
contracts and policies, collectively, "Policies") under the Securities Act of
1933; and
WHEREAS, Transamerica has, by resolution of its Board of Directors, duly
organized and established the Transamerica Occidental Life Separate Account VUL-
3 ("Account VUL-3") as a segregated asset account to receive, set aside and
invest assets attributable to net premiums and payments received under the
Policies; and
WHEREAS, Transamerica has registered the Account VUL-3 as a unit investment
trust under the Investment Company Act of 1940, as amended; and
WHEREAS, to the extent permitted by applicable insurance law and
regulation, Transamerica intends to purchase shares in one or more portfolios of
the Fund to fund the Policies on behalf of Account VUL-3, as specified in
Schedule A, dated May 1, 2000, attached to the Agreement, as such Schedule A is
amended by this Amendment No. 13 and as Schedule A may be amended from time to
time; and
WHEREAS, the Fund intends to sell shares of the Portfolio(s) to Account
VUL-3 at net asset value; and
WHEREAS, each of the current parties is desirous of adding Transamerica as
a party, subject to the same terms and conditions, to the Agreement, and
WHEREAS, the Fund, effective May 1, 2000, will add three new
portfolios consisting of the WRL Great Companies - America/sm/, WRL Great
Companies - Technology/sm/, and WRL Value Line Aggressive Growth.
<PAGE>
NOW, THEREFORE, IT IS HEREBY AGREED that Transamerica is authorized to
acquire shares issued by the Fund, subject to the terms and conditions of this
Agreement, and that Schedule A to the Participation Agreement is hereby amended
to add Transamerica Occidental Life Separate Account VUL-3 and to add WRL Great
Companies - America/sm/, WRL Great Companies - Technology/sm/, and WRL Value
Line Aggressive Growth portfolios of the Fund.
IN WITNESS WHEREOF, each of the parties has caused this Amendment to
be executed in its name and on its behalf by its duly authorized representative
as of April 17, 2000.
PFL LIFE INSURANCE COMPANY WRL SERIES FUND, INC.
By its authorized officer By its authorized officer
By: /s/ William L. Busler By: /s/ John K. Carter
--------------------- ---------------------------
William L. Busler John K. Carter
Title: President Title: Vice President, Secretary and
--------- ------------------------------
Counsel
--------
AUSA LIFE INSURANCE PEOPLES BENEFIT LIFE
COMPANY, INC. INSURANCE COMPANY
By its authorized officer By its authorized officer
By: /s/ William L. Busler By : /s/ Larry N. Norman
------------------------- -------------------
William L. Busler Larry N. Norman
Title: Vice President Title: Vice President
-------------- --------------
TRANSAMERICA OCCIDENTAL LIFE
INSURANCE COMPANY
By its authorized officer
By: /s/ Priscilla I. Hechler
-------------------------
Priscilla I. Hechler
Title: Assistant Vice President and
----------------------------
Assistant Secretary
-------------------
<PAGE>
AMENDED SCHEDULE A
Effective May 1, 2000
Account(s), Policy(ies) and Portfolio(s)
Subject to the Participation Agreement
Accounts: PFL Endeavor Variable Annuity Account
PFL Endeavor Platinum Variable Annuity Account
AUSA Endeavor Variable Annuity Account
Mutual Fund Account
PFL Life Variable Annuity Account A
PFL Life Variable Annuity Account C
PFL Life Variable Annuity Account D
PFL Retirement Builder Variable Annuity Account
AUSA Life Insurance Company, Inc. Separate Account C
Peoples Benefit Life Insurance Company Separate Account V
Legacy Builder Variable Life Separate Account
AUSA Series Life Account
Transamerica Occidental Life Separate Account VUL-3
Policies: PFL Endeavor Variable Annuity
PFL Endeavor Platinum Variable Annuity
AUSA Endeavor Variable Annuity
Atlas Portfolio Builder Variable Annuity
Extra Variable Annuity
Access Variable Annuity
Retirement Income Builder II Variable Annuity
AUSA & Peoples - Advisor's Edge Variable Annuity
Peoples - Advisor's Edge Select Variable Annuity
Legacy Builder II
Legacy Builder Plus
AUSA Financial Freedom Builder
Transamerica Elite
Portfolios: WRL Series Fund, Inc.
WRL Janus Growth
WRL AEGON Bond
WRL J.P. Morgan Money Market
WRL Janus Global
WRL LKCM Strategic Total Return
WRL VKAM Emerging Growth
WRL Alger Aggressive Growth
WRL AEGON Balanced
<PAGE>
AMENDED SCHEDULE A (continued)
WRL Series Fund, Inc.
WRL Federated Growth & Income
WRL C.A.S.E. Growth
WRL NWQ Value Equity
WRL GE International Equity
WRL GE U.S. Equity
WRL J.P. Morgan Real Estate Securities
WRL T. Rowe Price Dividend Growth
WRL T. Rowe Price Small Cap
WRL Goldman Sachs Growth
WRL Goldman Sachs Small Cap
WRL Pilgrim Baxter Mid Cap Growth
WRL Salomon All Cap
WRL Dreyfus Mid Cap
WRL Third Avenue Value
WRL Dean Asset Allocation
WRL Great Companies - America/sm/
WRL Great Companies - Technology/sm/
WRL Value Line Aggressive Growth
<PAGE>
EXHIBIT 6.
OPINION AND CONSENT OF RICHARD R. GREER AS TO ACTUARIAL MATTERS
<PAGE>
PFL Letterhead
April 27, 2000
PFL Life Insurance Company
4333 Edgewood Road, NE
Cedar Rapids, Iowa 52499
RE: REGISTRATION NO. 333-86231; 811-9115
Gentlemen:
This opinion is furnished in connection with the registration by PFL Life
Insurance Company of a flexible premium variable life insurance policies
("Policy") under the Securities Act of 1933. The prospectus included in the
Post-Effective Amendment No. 1 to the Registration Statement on Form S-6
describes the Policy. The form of Policy was 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 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, FSA, MAAA
Vice President and Actuary
<PAGE>
EXHIBIT 7.
CONSENT OF FRANK A. CAMP, ESQ.
<PAGE>
PFL Letterhead
April 27, 2000
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 the Post-Effective Amendment No. 1 to the
Registration Statement on Form S-6 (File No. 333-86231; 811-9115) 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
<PAGE>
EXHIBIT 8.
CONSENT OF SUTHERLAND ASBILL & BRENNAN LLP
<PAGE>
[Letterhead of Sutherland Asbill & Brennan LLP]
April 14, 2000
PFL Life Insurance Company
4333 Edgewood Road NE
Cedar Rapids, Iowa 52499
Re: Legacy Builder Plus Policy
Gentlemen:
We hereby consent to the reference to our name under the caption "Legal
Matters" in the prospectus filed as part of Post-Effective Amendment No. 1 to
the Form S-6 registration statement for Legacy Builder Variable Life Separate
Account (File No. 333-86231) (Legacy Builder Plus policy). 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.
Sincerely,
SUTHERLAND ASBILL & BRENNAN LLP
By: /s/ Frederick R. Bellamy, Esq
----------------------------------------
Frederick R. Bellamy, Esq.
<PAGE>
EXHIBIT 9.
CONSENT OF ERNST & YOUNG LLP
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Prospectus and to the use of our report dated February 18, 2000 with respect to
the statutory-basis financial statements and schedules of PFL Life Insurance
Company included in the Post-Effective Amendment No. 1 to the Registration
Statement (Form S-6 No. 333-86231) and related Prospectus of the Legacy Builder
Plus.
ERNST & YOUNG LLP
Des Moines, Iowa
April 24, 2000
