<PAGE>
As filed with the Securities and Exchange Commission on October 10, 2000
Registration File Nos. ________/811-9115
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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: December 4, 2000 or as soon as
practicable after the effective date of the Registration Statement.
Title of securities being registered: Estate Enhancer flexible premium variable
life insurance policy.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
PROSPECTUS
(Date)
PFL Life Insurance Company is offering Estate Enhancer (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.
--------------------------------------------------------------------------------
---------------------------------------------------
---------------------------------------------
Estate Enhancer
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:
[_] Advantus Series Fund, Inc.
Advantus Series Capital Appreciation Portfolio
Advantus Series Mortgage Securities Portfolio
Advantus Series Real Estate Securities Portfolio
[_] Dreyfus Stock Index Fund
[_] Dreyfus Variable Investment Fund
Dreyfus VIF - Money Market Portfolio
[_] MFS(R) Variable Insurance Trust/SM/
MFS Emerging Growth Series
MFS Research Series
MFS Total Return Series
MFS Utilities Series
[_] Warburg Pincus Trust
Warburg Pincus Emerging Growth Portfolio
Warburg Pincus Emerging Markets Portfolio
Warburg Pincus Global Post-Venture
Capital Portfolio
Warburg Pincus International Equity Portfolio
Warburg Pincus Small Company Growth Portfolio
Warburg Pincus Value Portfolio
[_] WRL Series Fund, Inc.
WRL Janus Growth
WRL VKAM Emerging Growth
<PAGE>
<TABLE>
<CAPTION>
Table of Contents
================================================================================
<S> <C>
Glossary.................................................................... 1
Policy Summary.............................................................. 3
Portfolio Expense Table..................................................... 6
Risk Summary................................................................ 9
The Company and the Fixed Account........................................... 11
PFL Life Insurance Company.............................................. 11
The Fixed Account....................................................... 11
The Variable Account and the Portfolios..................................... 11
The Variable Account.................................................... 11
The Portfolios.......................................................... 12
Your Right to Vote Portfolio Shares..................................... 13
The Policy.................................................................. 14
Purchasing a Policy..................................................... 14
When Insurance Coverage Takes Effect.................................... 14
Extending the Maturity Date............................................. 14
Ownership Rights........................................................ 14
Changing the Owner.................................................. 15
Selecting and Changing the Beneficiary.............................. 15
Assigning the Policy................................................ 15
Canceling a Policy...................................................... 15
Premiums.................................................................... 15
Premium Payments........................................................ 15
Allocating Premiums..................................................... 17
Policy Values............................................................... 18
Cash Value.............................................................. 18
Growth Accelerator...................................................... 18
Cash Surrender Value.................................................... 18
Subaccount Value........................................................ 18
Unit Value.............................................................. 19
Fixed Account Value..................................................... 19
Charges and Deductions...................................................... 19
Premium Expense Charge.................................................. 20
Monthly Deduction....................................................... 20
Cost of Insurance................................................... 20
Monthly Policy Charge............................................... 20
Daily Charge............................................................ 21
Surrender Charge........................................................ 21
Partial Surrender Charge................................................ 21
Transfer Charge......................................................... 21
Portfolio Expenses...................................................... 22
Death Benefit............................................................... 22
Death Benefit........................................................... 22
Accelerated Death Benefit Rider......................................... 22
Payment Options......................................................... 23
Full and Partial Surrenders................................................. 23
Full Surrenders......................................................... 23
Partial Surrenders...................................................... 23
Transfers................................................................... 24
Dollar Cost Averaging................................................... 25
Asset Rebalancing Program............................................... 25
Loans....................................................................... 26
Collateral.............................................................. 26
Interest Rate........................................................... 27
Policy Lapse and Reinstatement.............................................. 27
Lapse................................................................... 27
Reinstatement........................................................... 27
Federal Tax Considerations.................................................. 28
Other Policy Information.................................................... 30
Our Right to Contest the Policy......................................... 30
Suicide Exclusion....................................................... 30
Misstatement of Age or Sex.............................................. 30
Modifying the Policy.................................................... 30
Payments We Make........................................................ 31
Reports to Owners....................................................... 31
Records................................................................. 31
Policy Termination...................................................... 31
Performance Data............................................................ 32
Additional Information...................................................... 39
Sale of Policies........................................................ 39
Associate Policies...................................................... 39
Legal Matters........................................................... 39
Legal Proceedings....................................................... 39
Experts................................................................. 39
Financial Statements.................................................... 40
Additional Information about PFL Life Insurance Company................. 40
PFL's Executive Officers and Directors.................................. 40
Illustrations............................................................... 41
</TABLE>
<PAGE>
Glossary
================================================================================
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 it does 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 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.
1
<PAGE>
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
<PAGE>
Policy Summary
================================================================================
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.
. Paying planned premiums does not guarantee that the Policy will not
lapse.
. 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, 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.
3
<PAGE>
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>
[_] Advantus Series Fund, Inc. [_] MFS(R)Variable Insurance Trust(SM)
Advantus Series Capital Appreciation Portfolio MFS Emerging Growth Series
Advantus Series Mortgage Securities Portfolio MFS Research Series
Advantus Series Real Estate Securities Portfolio MFS Total Return Series
MFS Utilities Series
[_] Dreyfus Stock Index Fund [_] Warburg Pincus Trust
Warburg Pincus Emerging Growth Portfolio
Warburg Pincus Emerging Markets Portfolio
Warburg Pincus Global-Post Venture Capital Portfolio
Warburg Pincus International Equity Portfolio
Warburg Pincus Small Company Growth Portfolio
Warburg Pincus Value Portfolio
[_] Dreyfus Variable Investment Fund [_] WRL Series Fund, Inc.
Dreyfus VIF - Money Market Portfolio WRL Janus Growth
WRL VKAM Emerging Growth
</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
<PAGE>
Cash Value
. Cash Value is the sum of your amounts in the subaccounts and the fixed
account.
. 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 when a Policy Loan is outstanding.
. 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 only 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
1.40% of average portfolio assets.
5
<PAGE>
Portfolio Expense Table
================================================================================
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>
Advantus Capital Appreciation Portfolio 0.50% 0.04% 0.25% 0.79%
Advantus Mortgage Securities Portfolio 0.30% 0.06% 0.25% 0.61%
Advantus Real Estate Securities Portfolio/(6)/ 0.60% 0.15% 0.25% 1.00%
Dreyfus Stock Index Fund 0.25% 0.01% -- 0.26%
Dreyfus VIF - Money Market Portfolio 0.50% 0.08% -- 0.58%
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%
Warburg Pincus Emerging Growth Portfolio/(5)/ 0.72% 0.53% -- 1.25%
Warburg Pincus Emerging Markets Portfolio/(4)/ 0.00% 1.40% -- 1.40%
Warburg Pincus Global Post-Venture Capital Portfolio/(4)/ 1.07% 0.33% -- 1.40%
Warburg Pincus International Equity Portfolio/(4)/ 1.00% 0.32% -- 1.32%
Warburg Pincus Small Company Growth Portfolio/(4)/ 0.90% 0.24% -- 1.14%
Warburg Pincus Value Portfolio/(4)/ 0.56% 0.44% -- 1.00%
WRL Janus Growth/(3)/ 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 and can not independently verify the accuracy or completeness of
such information. Actual future expenses of the portfolios may be greater
or less than those shown in the Table. Therefore, PFL disclaims any and all
liability for such information.
(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 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 0.15%, 0.90% - MFS Utilities Series.
(3) 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.
(4) Actual Management Fees, Other Expenses, and Total Annual Expenses for the
fiscal year ending December 31, 1999, are based on actual expenses for the
fiscal year ending December 31, 1999. Management Fees, Other Expenses, and
Total Annual Expenses were 1.25%, 1.88% and 3.13% for the Emerging Markets
Portfolio; 1.25%, 0.33%, and 1.58% for the Global Post-Venture Capital
Portfolio; 1.00%, .0.32%, and 1.32% for the International Equity Portfolio;
0.90%, 0.24%, and 1.14% for the Small Company Growth Portfolio; and 0.75%,
0.59%, and 1.34% for the Value Portfolio.
(5) The expense figures are based on estimated expenses for the fiscal year
ending December 31, 2000 after fee waivers and expense reimbursements.
Before fee waivers and expense reimbursements, estimated Management Fees,
Other Expenses, and Total Annual Expenses are 0.90%, 0.63% , and 1.53%,
respectively.
(6) Management Fees, Other Expenses, Rule 12b-1 Fees, and Total Annual Expenses
are based on actual expenses for the fiscal year ended December 31, 1999.
Management Fees, Other Expenses, Rule 12b-1 Fees and Total Annual Expenses
before waivers were 0.60%, 1.30%, 0.25%, and 2.15%, respectively. It is
Advantus Capital's intention to waive other expenses during the current
fiscal year which exceed, as a percentage of average daily net assets,
0.15%. Advantus Capital reserves the option to reduce the level of other
expenses which it will voluntarily absorb.
6
<PAGE>
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.
. You may apply for the Accelerated Death Benefit Rider for long-term care
under the Policy. The Accelerated Death Benefit Rider is a portion of the
Death Benefit under the Policy that may be payable monthly to Insured as
reimbursement of actual charges incurred for long-term care.
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, Asset
Rebalancing or transfers to the Fixed Account due to Policy Loan Collateral
requirements.
7
<PAGE>
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. This Policy will be the sole security for the Policy
Loan.
. Interest is due and payable at the end of each calendar quarter. Unpaid
interest becomes part of the outstanding loan.
. The loan interest rate may be adjusted at the end of the calendar quarter.
The rate will never be more than the maximum permitted by law. Loan
interest rates will be guaranteed for one calendar quarter. This means that
the loan interest rate will not change more often than once a calendar
quarter. If there is a change in the loan interest rate, it will be made at
the end of that calendar quarter.
. The loan interest rate we charge will not exceed the greater of:
. The "Published Monthly Average" for the calendar month ending two
months before the date on which the rate is determined; or
. The interest rate used to determine the Cash Surrender Value in the
Fixed Account under the Policy during the applicable period plus 1%
per year.
. The "Published Monthly Average" is Moody's Corporate Bond Yield Average -
Monthly Average Corporates, as published by Moody's Investors Service,
Inc., or any successor to it.
. In the event that Moody's Corporate Bond Yield Average - Monthly Average
Corporates is no longer published, the "Published Monthly Average" will be
a substantially similar average established by regulation issued by the
Iowa Commissioner of Insurance.
. The maximum loan interest rate on the Policy will be determined quarterly.
If this maximum rate exceeds the existing interest rate charged on loans by
0.5% or more, the rate charged may be increased at the end of the calendar
quarter. If the maximum rate is less than the existing interest rate
charged on loans by a difference of 0.5% or more, the rate charged will be
lowered at the end of the calendar quarter.
. We will notify you of the initial interest rate to be charged on the loan
at the time the loan is made. We will notify you in advance of any increase
in the interest rate applicable to any existing loan(s).
. 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 and interest 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.")
This variable interest Policy Loan provision may not be available in all states.
8
<PAGE>
Risk Summary
================================================================================
Investment If you invest your Cash Value in one or more subaccounts,
Risk then 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.
--------------------------------------------------------------------------------
Risk of If you do not have an outstanding loan, we guarantee that
Lapse your 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).
--------------------------------------------------------------------------------
Tax Risk 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.
--------------------------------------------------------------------------------
Surrender The 7% surrender charge under this Policy applies for 6
Charge years 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.
--------------------------------------------------------------------------------
9
<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.
--------------------------------------------------------------------------------
Loan Risks
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.
--------------------------------------------------------------------------------
Comparison Like fixed benefit life insurance, the Policy offers a death
with Other benefit and provides a Cash Value, loan privileges and a
Insurance value on surrender. However, the Policy differs from a fixed
Policies benefit policy because it allows you to place your 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.
--------------------------------------------------------------------------------
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.
--------------------------------------------------------------------------------
10
<PAGE>
The Company and the Fixed Account
================================================================================
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. You bear the
risk that we will credit only 3% interest.
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.
The Variable Account and the Portfolios
================================================================================
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.
11
<PAGE>
The variable account is divided into subaccounts, each of which invests in
shares of a specific portfolio of one of the following mutual funds:
<TABLE>
<CAPTION>
<S> <C>
[_] Advantus Series Fund, Inc. [_] MFS(R)Variable Insurance Trust(SM)
(managed by Advantus Capital Management, Inc.) (managed by Massachusetts Financial
Services Company)
[_] Dreyfus Variable Investment Fund [_] Warburg Pincus Trust
(managed by The Dreyfus Corporation) (managed by Credit Suisse Asset Management, LLC)
[_] Dreyfus Stock Index Fund [_] WRL Series Fund, Inc.
(managed by The Dreyfus Corporation) (managed by WRL Investment Management, Inc.)
</TABLE>
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;
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
12
<PAGE>
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.
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.
13
<PAGE>
The Policy
================================================================================
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 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.
The tax consequences of continuing a Policy beyond the Insured's age 100 are
unclear; consult a tax advisor.
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.
14
<PAGE>
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.
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
================================================================================
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.
15
<PAGE>
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.
If simplified issue underwriting is used, then 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.
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.
If full underwriting is used, then 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.
16
<PAGE>
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 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.
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.)
17
<PAGE>
Policy Values
================================================================================
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, 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 Surrender . the Cash Value as of such date; minus
Value on any . any surrender charge as of such date; minus
Valuation Date . any outstanding Policy loans; minus
equals: . any interest you owe on the Policy loans.
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
units in any on the Policy Date; plus
subaccount on . units purchased with additional net premiums; plus
any Valuation . units purchased via transfers from another
Date equals: subaccount or 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.
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
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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 value of . the total value of the assets held in the
any subaccount subaccount, determined by multiplying the
at the end of a number of shares of the designated portfolio
Valuation Period owned by the subaccount times the portfolio's
is calculated as: net asset value per share; minus
. a deduction for the mortality and expense risk
charge; minus
. the accrued amount of reserve for any taxes or
other economic burden resulting from applying
tax laws that we determine to be properly
attributable to the subaccount; and the result
divided by
. 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 account . the net premium(s) allocated to the fixed
value at the end account; plus
of any Valuation . any amounts transferred to the fixed account;
Period is equal to: plus
. interest credited to the fixed account; plus
. amount credited via growth accelerator, if any;
minus
. amounts charged to pay for monthly deductions;
minus
. amounts withdrawn from the fixed account;
minus
. amounts transferred from the fixed account to
a subaccount.
Charges and Deductions
================================================================================
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
benefits we Policy
provide: . investment options, including premium allocations
. administration of elective options and the
distribution of reports to owners
----------------------------------------------------------
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
----------------------------------------------------------
Risks we assume: . that the cost of insurance charges we may deduct are
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
----------------------------------------------------------
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
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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.
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 Insurance Charge
The cost of insurance charge is equal to:
-> 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. For
substandard rate classes, these rates could be higher 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 only 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:
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<PAGE>
. 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.
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.
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<PAGE>
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 Expenses Table in this prospectus, and the
portfolios' prospectuses for further information on these fees and expenses.
Death Benefit
================================================================================
Death Benefit
While the Policy is in force and if no loan is outstanding when the Insured
dies, then, 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 only the Basic Death Benefit is paid if
there is an outstanding Policy Loan when the Insured dies.
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 equal: [_] any past due monthly deductions; minus
[_] any outstanding Policy loan on the date of death; minus
[_] any interest you owe on the Policy loan(s); minus
[_] any payments under the Accelerated Death Benefit Rider
(see below).
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.
. Accelerated Death Benefit Rider
You may apply for the simplified issue Accelerated Death Benefit Rider for long-
term care under the Policy. The Accelerated Death Benefit is a portion of the
Death Benefit under the Policy that may be payable monthly as reimbursement of
actual charges incurred. The Insured becomes eligible for benefits under the
Accelerated Death Benefit Rider by being certified as a chronically ill
individual and by being confined to a nursing or assisted living facility, or by
receiving home health care from a home health agency or adult day care in an
adult day care center.
The Death Benefit under the Policy will be reduced by the amount paid under the
Accelerated Death Benefit Rider. If the Insured dies while the Policy is in
force and while benefits under the rider are being paid, the remaining Death
Benefit proceeds will be
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<PAGE>
paid to the Beneficiary and no further payments under this rider will be made to
you. However, if the entire Death Benefit proceeds are paid under the terms of
the rider prior to the Insured's death, the Policy will terminate and there will
be no Death Benefit payable upon the Insured's death.
Benefits under the Accelerated Death Benefit Rider are not intended to be
considered taxable income to you. We urge you to consult your personal tax
advisor or attorney on specific points of interest to you.
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.
Full and Partial Surrenders
================================================================================
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 surrender . The insured must be alive and the Policy must be in
Conditions: force when you make your written request. A surrender
is 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.
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<PAGE>
-> 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).
-> 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
================================================================================
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 only 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.
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<PAGE>
-> 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.
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.
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.
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.
Dollar cost -> we receive your request to cancel your participation;
Averaging will -> the value in the DCA Fixed Account is depleted;
Terminate if: -> you elect to participate in the asset rebalancing
program; or
-> you elect to participate in any asset allocation
services provided by a third party.
We may modify, suspend, or discontinue 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.
To participate in -> you must complete an asset rebalancing request form and
the asset submit it to us before the maturity date
Rebalancing -> you must have a minimum Cash Value of $10,000.
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.
Asset rebalancing -> you elect to participate in the DCA Fixed Account;
Will cease if: -> we receive your request to discontinue participation;
-> you make a transfer to or from any subaccount other
than under a scheduled rebalancing; or
-> you elect to participate in any asset allocation
services provided by a third party
Loans
================================================================================
You may take a Policy Loan against the Policy while it is in force. The amount
of your Policy Loan may not be greater than 90% of the Cash Value of the Policy
less the applicable Surrender Charge as of the date of the Policy Loan request,
less any Outstanding Loan amount. The Outstanding Loan amount is the total
Policy Loan payoff amount, including accrued loan interest and any new loan(s).
The minimum amount of any Policy Loan request is $500. Our Policy Loan review
procedure generally results in making a Policy Loan within 7 days after review
of the request. However, in certain circumstances, we may be required to defer
making a policy Loan for not more than six (6) months after the Policy Loan
request is made.
The Loan Date is the date that we process your Policy Loan request. The Policy
Loan may be repaid at any time while the Policy is in force.
Collateral
The Policy is the only Collateral that we require for your Policy Loan. The Cash
Value of the Policy becomes the Collateral for the repayment of the Policy Loan.
For a Policy Loan of up to 50% of the Cash Value of the Policy, you may choose
to have the Collateral in the Fixed Account, the Separate Account or both the
Fixed and Separate Accounts. For a Policy Loan greater than 50% of the Cash
Surrender Value of the Policy, an amount of Collateral must remain in the Fixed
Account equal to two times the portion of the Policy Loan that exceeds 50% of
the Cash Surrender Value of the Policy. If the amount in the Fixed Account is
not sufficient to meet this requirement, the additional amount necessary will be
transferred from the Separate Account to the Fixed Account on a pro-rata basis,
according to your existing fund allocation instructions.
We will reevaluate Policy values whenever any of the following occurs:
-> A new Policy Loan or an addition to an existing Policy Loan is taken;
-> A partial withdrawal is processed;
-> A benefit is paid under the Acceleration of Death Benefit Rider; or
-> A transfer is made from the Fixed Account to the Separate Account.
We will not automatically transfer amounts from the Fixed Account to the
Separate Account. You may request a transfer from the Fixed Account to the
Separate Account within 30 days after a Policy Loan repayment. A transfer to the
Separate Account following a Policy Loan repayment may be for any amount up to
the amount of the repayment. No transfer to the Separate Account will be
permitted to the extent that such transfer would result in the Fixed Account
being less than the required amount.
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<PAGE>
Interest Rate
We will charge interest on the Policy Loan while it is outstanding. We may
adjust the rate of interest at the end of a calendar quarter. The rate will not
exceed the greater of (i) the "Published Monthly Average" for the calendar month
ending two months before the date on which the rate is determined; or (ii) the
interest rated used to determine cash surrender value in the Fixed Account under
the Policy during the applicable period plus 1% per year. The "Published Monthly
Average" is Moody's Corporate Bond Yield Average -Monthly Average Corporates as
published by Moody's Investors Service, Inc., for the calendar month ending two
months before the dare on which the maximum rare is to be determined. (In the
event that the Moody's Corporate Bond Yield Average -Monthly Average Corporates
is no longer published, a substantially similar average, established by
regulation by the Iowa Commissioner of Insurance will be instituted.)
We will notify you of the initial interest rate to be charged on the loan at the
time a Policy Loan is made. We will notify you in advance of any increase in the
interest rate applicable to any existing Policy Loan(s). Interest on your Policy
Loan is payable in arrears. Interest is due at the end of each calendar quarter.
Any interest not paid when due will be added to the Policy Loan at the end of
each calendar quarter.
The Guaranteed Minimum Death Benefit will not be paid if the Insured dies while
a Loan is Outstanding. Instead the death benefit under the Policy will be the
Basic Death Benefit. The Guaranteed Minimum Death Benefit will be reinstated if
all outstanding Policy Loans are repaid before Insured's death.
This variable interest Policy Loan provision may not be available in all states.
Policy Lapse and Reinstatement
================================================================================
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:
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(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.
Federal Tax Considerations
================================================================================
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."
28
<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 and your 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 charged 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.
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.
29
<PAGE>
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.
Modifying the Policy
Only one of our officers may modify the Policy or waive any of our rights or
requirements under the Policy. Any modification or waiver must be in writing. No
agent may bind us by making any promise not contained in the 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
30
<PAGE>
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
[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
sufficient payment
-> the date the insured dies -> the date you surrender
the Policy
31
<PAGE>
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 $50,000, then we will credit your Cash Value with additional
interest at an annual rate of 0.50%. This is reflected in the illustrations.
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.
32
<PAGE>
ADVANTUS SERIES CAPITAL APPRECIATION 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
Historical
Death Benefit Cash Value Cash Surrender Value Annual
------------------- ------------------- --------------------
Current Guaranteed Current Guaranteed Current Guaranteed Total Return
------- ---------- ------- ---------- -------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
5/31/1987 109,800 109,800 48,943 48,934 45,443 45,434 N/A
12/31/1987 102,227 102,093 45,567 45,499 42,067 41,999 N/A
12/31/1988 104,714 104,324 48,058 47,869 44,558 44,369 6.97%
12/31/1989 137,663 136,776 65,028 64,593 61,528 61,093 37.20%
12/31/1990 128,304 127,085 62,350 61,741 58,850 58,241 -2.79%
12/31/1991 173,216 170,981 86,558 85,416 83,058 81,916 40.77%
12/31/1992 173,257 170,368 88,987 87,474 85,487 83,974 4.25%
12/31/1993 182,285 178,484 96,182 94,141 96,182 94,141 9.62%
12/31/1994 177,628 173,105 96,233 93,744 96,233 93,744 1.49%
12/31/1995 208,645 201,612 116,048 112,032 116,048 112,032 21.88%
12/31/1996 235,419 225,643 134,279 128,639 134,279 128,639 16.75%
12/31/1997 291,001 277,152 170,183 161,994 170,183 161,994 27.41%
12/31/1998 367,698 347,772 220,240 208,180 220,240 208,180 29.87%
12/31/1999 431,730 405,252 264,567 248,179 264,567 248,179 20.61%
</TABLE>
Note: Assuming the policy was purchased on 5/31/1987
ADVANTUS SERIES MORTGAGE SECURITIES 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
Historical
Death Benefit Cash Value Cash Surrender Value Annual
------------------- ------------------- --------------------
Current Guaranteed Current Guaranteed Current Guaranteed Total Return
------- ---------- ------- ---------- -------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
5/31/1987 109,800 109,800 48,943 48,934 45,443 45,434 N/A
12/31/1987 111,179 111,034 49,558 49,484 46,058 45,984 N/A
12/31/1988 114,782 114,356 52,682 52,475 49,182 48,975 7.77%
12/31/1989 123,955 123,156 58,552 58,161 55,052 54,661 12.67%
12/31/1990 129,084 127,858 62,729 62,116 59,229 58,616 8.62%
12/31/1991 142,871 141,028 71,394 70,452 67,894 66,952 15.40%
12/31/1992 144,710 142,297 74,325 73,062 70,825 69,562 5.57%
12/31/1993 150,621 147,481 79,474 77,789 79,474 77,789 8.45%
12/31/1994 138,699 135,168 75,142 73,199 75,142 73,199 -4.10%
12/31/1995 156,074 151,307 86,767 84,079 86,767 84,079 17.14%
12/31/1996 156,704 151,043 89,339 86,069 89,339 86,069 4.47%
12/31/1997 163,857 156,938 95,782 91,688 95,782 91,688 8.39%
12/31/1998 167,694 159,500 100,397 95,435 100,397 95,435 5.78%
12/31/1999 164,854 155,117 101,023 94,994 101,023 94,994 1.23%
</TABLE>
Note: Assuming the policy was purchased on 5/31/1987
33
<PAGE>
ADVANTUS SERIES REAL ESTATE SECURITIES 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
Historical
Death Benefit Cash Value Cash Surrender Value Annual
------------------- ------------------- --------------------
Current Guaranteed Current Guaranteed Current Guaranteed Total Return
------- ---------- ------- ---------- -------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
5/31/1998 109,800 109,800 48,943 48,934 45,443 45,434 N/A
12/31/1998 94,671 94,548 42,199 42,136 38,699 38,636 N/A
12/31/1999 86,464 86,143 39,682 39,526 36,182 36,026 -4.61%
</TABLE>
Note: Assuming the policy was purchased on 5/31/1998
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>
Adjusted
Historical
Death Benefit Cash Value Cash Surrender Value 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
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>
Adjusted
Historical
Death Benefit Cash Value Cash Surrender Value 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 110,092 106,275 59,848 56,747 59,848 56,747 3.94%
</TABLE>
Note: Assuming the policy was purchased on 8/31/1990
MFS EMERGING GROWTH SERIES
Male, Issue Age 55, Non-Tobacco Use, Approved Preferred Class
34
<PAGE>
($109,800 Specified Amount, Initial Premium $50,000)
Both Current and Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
Adjusted
Historical
Death Benefit Cash Value Cash Surrender Value 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 126,885 126,766 56,559 56,495 53,059 52,995 N/A
12/31/1996 141,184 140,719 64,799 64,572 61,299 61,072 16.16%
12/31/1997 163,746 162,769 77,348 76,869 73,848 73,369 21.01%
12/31/1998 209,081 207,208 101,604 100,667 98,104 97,167 33.18%
12/31/1999 352,469 348,133 176,213 173,993 172,713 170,493 75.45%
</TABLE>
Note: Assuming the policy was purchased on 7/31/1995
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>
Adjusted
Historical
Death Benefit Cash Value Cash Surrender Value 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 140,028 139,567 64,269 64,044 60,769 60,544 21.43%
12/31/1997 160,214 159,258 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>
Adjusted
Historical
Death Benefit Cash Value Cash Surrender Value 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 60,813 60,678 57,313 57,178 N/A
12/31/1996 148,388 147,711 68,106 67,781 64,606 64,281 13.52%
12/31/1997 171,239 169,973 80,888 80,271 77,388 76,771 20.41%
12/31/1998 183,053 181,120 88,955 87,933 85,455 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
35
<PAGE>
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>
Adjusted
Historical
Death Benefit Cash Value Cash Surrender Value 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
WARBURG PINCUS EMERGING 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
Historical
Death Benefit Cash Value Cash Surrender Value Annual
------------------- ------------------- --------------------
Current Guaranteed Current Guaranteed Current Guaranteed Total Return
------- ---------- ------- ---------- -------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
9/30/1999 109,800 109,800 48,943 48,934 45,443 45,434 N/A
12/31/1999 151,235 151,151 67,413 67,363 63,913 63,863 N/A
</TABLE>
Note: Assuming the policy was purchased on 9/30/1999
WARBURG PINCUS EMERGING MARKETS 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
Historical
Death Benefit Cash Value Cash Surrender Value Annual
------------------- ------------------- --------------------
Current Guaranteed Current Guaranteed Current Guaranteed Total Return
------- ---------- ------- ---------- -------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
12/31/1997 109,800 109,800 48,943 48,934 45,443 45,434 N/A
12/31/1998 86,289 86,096 39,602 39,505 36,102 36,005 -17.93%
12/31/1999 148,868 148,157 70,321 69,968 66,821 66,468 80.11%
</TABLE>
Note: Assuming the policy was purchased on 12/31/1997
36
<PAGE>
WARBURG PINCUS GLOBAL POST-VENTURE CAPITAL 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
Historical
Death Benefit Cash Value Cash Surrender Value Annual
------------- ---------- --------------------
Current Guaranteed Current Guaranteed Current Guaranteed Total Return
------- ---------- ------- ---------- ------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
9/30/1996 109,800 109,800 48,943 48,934 45,443 45,434 N/A
12/31/1996 106,585 106,525 47,509 47,474 44,009 43,974 N/A
12/31/1997 114,841 114,511 52,709 52,546 49,209 49,046 12.50%
12/31/1998 116,739 116,098 55,141 54,825 51,641 51,325 6.07%
12/31/1999 180,996 179,469 87,956 87,191 84,456 83,691 61.77%
</TABLE>
Note: Assuming the policy was purchased on 9/30/1996
WARBURG PINCUS INTERNATIONAL EQUITY 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
Historical
Death Benefit Cash Value Cash Surrender Value Annual
------------- ---------- --------------------
Current Guaranteed Current Guaranteed Current Guaranteed Total Return
------- ---------- ------- ---------- ------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
6/30/1995 109,800 109,800 48,943 48,934 45,443 45,434 N/A
12/31/1995 116,586 116,455 51,968 51,900 48,568 48,400 N/A
12/31/1996 121,967 121,540 55,979 55,771 52,479 52,271 9.21%
12/31/1997 113,279 112,577 53,510 53,165 50,010 59,665 -3.10%
12/31/1998 113,560 112,512 55,185 54,661 51,685 51,161 4.56%
12/31/1999 165,899 163,808 82,901 81,832 79,401 78,332 52.32%
</TABLE>
Note: Assuming the policy was purchased on 6/30/1995
WARBURG PINCUS SMALL COMPANY 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
Historical
Death Benefit Cash Value Cash Surrender Value Annual
------------- ---------- --------------------
Current Guaranteed Current Guaranteed Current Guaranteed Total Return
------- ---------- ------- ---------- ------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
6/30/1995 109,800 109,800 48,943 48,934 45,443 45,434 N/A
12/31/1995 135,904 135,752 60,579 60,500 57,079 57,000 N/A
12/31/1996 147,196 146,680 67,559 67,308 64,059 63,808 13.06%
12/31/1997 161,954 160,949 76,502 76,009 73,002 72,509 14.79%
12/31/1998 149,711 148,329 72,753 72,062 69,253 68,562 -3.58%
12/31/1999 241,028 237,992 120,445 118,891 116,945 115,391 67.87%
</TABLE>
Note: Assuming the policy was purchased on 6/30/1995
37
<PAGE>
WARBURG PINCUS VALUE 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
Historical
Death Benefit Cash Value Cash Surrender Value Annual
------------- ---------- --------------------
Current Guaranteed Current Guaranteed Current Guaranteed Total Return
------- ---------- ------- ---------- ------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
10/31/1997 109,800 109,800 48,943 48,934 45,443 45,434 N/A
12/31/1998 121,166 120,844 55,612 55,452 52,112 51,952 N/A
12/31/1999 122,470 121,827 57,851 57,534 54,351 54,034 5.45%
</TABLE>
Note: Assuming the policy was purchased on 10/31/1997
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>
Adjusted
Historical
Death Benefit Cash Value Cash Surrender Value 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 114,236 113,929 52,431 52,281 48,931 48,781 N/A
12/31/1988 128,925 128,245 60,900 60,566 57,400 57,066 17.75%
12/31/1989 180,441 178,962 87,686 86,947 84,186 83,447 45.97%
12/31/1990 171,389 169,430 85,645 84,642 82,145 81,142 -0.97%
12/31/1991 260,995 257,069 134,112 132,052 130,612 128,552 58.64%
12/31/1992 255,863 250,990 135,004 132,385 135,004 132,385 1.58%
12/31/1993 257,190 252,294 138,568 135,880 138,568 135,880 3.21%
12/31/1994 228,068 223,723 125,392 122,959 125,392 122,959 -9.00%
12/31/1995 324,866 318,677 182,146 178,612 182,146 178,612 46.05%
12/31/1996 371,519 364,442 212,582 208,456 212,582 208,456 17.09%
12/31/1997 425,599 417,493 249,420 244,579 249,420 244,579 16.68%
12/31/1998 682,864 669,857 409,622 401,672 409,622 401,672 63.29%
12/31/1999 1,064,213 1,043,942 653,040 640,366 653,040 640,366 58.52%
</TABLE>
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
<TABLE>
<CAPTION>
Adjusted
Historical
Death Benefit Cash Value Cash Surrender Value 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 531,236 519,775 280,304 274,156 280,304 274,156 103.70%
</TABLE>
Note: Assuming the policy was purchased on 3/31/1993
38
<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 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.
39
<PAGE>
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.
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>
Name Position with PFL Principal Occupation During Past 5 years
---- ----------------- ----------------------------------------
<S> <C> <C>
Bart Herbert, Jr. Director, Chairman of the Board, Director, Chairman of the Board, and
And Executive Vice President Executive Vice President
Larry N. Norman Director, President Director, President
Patrick S. Baird Director, Senior Vice President, Executive Vice President (1995-present),
And Chief Operating Officer Chief 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 President, Director, Senior Vice President, Chief
Chief Investment Officer and Investment Officer and Corporate Actuary
Corporate Actuary
Craig D. Vermie Director, Vice President, Director, Vice President, Secretary and
Secretary And General Counsel General Counsel
Robert J. Kontz Vice President and Corporate Vice President and Corporate Controller
Controller
Brenda K. Clancy Vice President, Treasurer and Vice President, Treasurer and Chief
Chief Financial Officer Financial 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
40
<PAGE>
$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).
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 0.94% 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. The figures would be lower if expense reimbursement
arrangements were discontinued. 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 and the 0.75% variable account Daily Charge,
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 -1.69%,
4.31%, and 10.31%, 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.
41
<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
Gross 0% 6% 12% 0% 6% 12% 0% 6% 12%
Net -1.69% 4.31% 10.31% -1.69% 4.31% 10.31% -1.69% 4.31% 10.31%
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 52,500 106,712 112,670 118,597 47,498 50,399 53,298 43,998 46,899 49,798
2 55,125 100,449 112,599 125,339 46,036 51,862 57,999 42,536 48,362 54,499
3 57,881 94,584 112,568 132,512 44,612 53,361 63,109 41,112 49,861 59,609
4 60,775 89,086 112,572 140,139 43,228 54,898 68,660 39,728 51,398 65,160
5 63,814 83,934 112,614 148,256 41,880 56,472 74,693 38,380 52,972 71,193
6 67,005 79,106 112,696 156,897 40,570 58,086 81,246 37,070 54,586 77,746
7 70,355 74,583 112,822 166,106 39,295 59,740 88,364 39,295 59,740 88,364
8 73,873 70,346 112,995 175,928 38,054 61,432 96,094 38,054 61,432 96,094
9 77,566 66,378 113,218 186,417 36,847 63,164 104,486 36,847 63,164 104,486
10 81,445 62,664 113,500 197,630 35,672 64,936 113,644 35,672 64,936 113,644
11 85,517 59,488 114,422 210,693 34,722 67,121 124,224 34,722 67,121 124,224
12 89,793 56,530 115,468 224,853 33,794 69,373 135,780 33,794 69,373 135,780
13 94,282 53,750 116,594 240,105 32,889 71,701 148,408 32,889 71,701 148,408
14 98,997 51,135 117,801 256,546 32,008 74,107 162,212 32,008 74,107 162,212
15 103,946 50,000 119,094 274,279 31,139 76,597 177,304 31,139 76,597 177,304
16 109,144 50,000 120,393 293,220 30,223 79,111 193,657 30,223 79,111 193,657
17 114,601 50,000 121,692 313,430 29,248 81,642 211,348 29,248 81,642 211,348
18 120,331 50,000 122,987 334,986 28,197 84,177 230,446 28,197 84,177 230,446
19 126,348 50,000 124,279 357,976 27,051 86,706 251,022 27,051 86,706 251,022
20 132,665 50,000 125,566 382,488 25,788 89,218 273,151 25,788 89,218 273,151
21 139,298 50,000 126,846 408,608 24,383 91,706 296,918 24,383 91,706 296,918
22 146,263 50,000 128,109 436,413 22,806 94,166 322,417 22,806 94,166 322,417
23 153,576 50,000 129,347 465,978 21,025 96,591 349,748 21,025 96,591 349,748
24 161,255 50,000 130,551 497,369 18,996 98,982 379,018 18,996 98,982 379,018
25 169,318 50,000 131,711 530,650 16,662 101,329 410,324 16,662 101,329 410,324
26 177,784 50,000 132,849 566,025 13,979 103,694 443,869 13,979 103,694 443,869
27 186,673 50,000 133,965 603,612 7,177 108,216 518,053 10,858 105,980 479,752
28 196,006 50,000 135,054 643,525 10,561 106,165 482,833 7,177 108,216 518,053
29 205,807 50,000 136,116 685,895 2,781 110,389 558,854 2,781 110,389 558,854
30 216,097 50,000 137,151 730,862 * 112,490 602,251 * 112,490 602,251
</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.
42
<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
Gross 0% 6% 12% 0% 6% 12% 0% 6% 12%
Net -1.69% 4.31% 10.31% -1.69% 4.31% 10.31% -1.69% 4.31% 10.31%
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 52,500 106,493 112,440 118,354 47,392 50,287 53,179 43,892 46,787 49,679
2 55,125 99,991 112,085 124,767 45,816 51,614 57,722 42,316 48,114 54,222
3 57,881 93,884 111,736 131,533 44,272 52,954 62,627 40,772 49,454 59,127
4 60,775 88,145 111,384 138,660 42,759 54,304 67,918 39,259 50,804 64,418
5 63,814 82,751 111,028 146,169 41,277 55,661 73,620 37,777 52,161 70,120
6 67,005 77,680 110,670 154,076 39,825 57,023 79,758 36,325 53,523 76,258
7 70,355 72,916 110,307 162,402 38,403 58,386 86,362 38,403 58,386 86,362
8 73,873 68,438 109,938 171,168 37,007 59,746 93,456 37,007 59,746 93,456
9 77,566 64,229 109,562 180,396 35,637 61,096 101,066 35,637 61,096 101,066
10 81,445 60,272 109,182 190,111 34,293 62,434 109,266 34,293 62,434 109,266
11 85,517 56,842 109,350 201,355 33,159 64,111 118,652 33,159 64,111 118,652
12 89,793 53,628 109,562 213,354 32,039 65,786 128,759 32,039 65,786 128,759
13 94,282 50,592 109,773 226,059 30,936 67,463 139,635 30,936 67,463 139,635
14 98,997 50,000 109,979 239,510 29,807 69,138 151,334 29,807 69,139 151,334
15 103,946 50,000 110,177 253,744 28,599 70,808 163,905 28,599 70,808 163,905
16 109,144 50,000 110,365 268,797 27,297 72,466 177,392 27,297 72,466 177,392
17 114,601 50,000 110,542 284,712 25,876 74,105 191,837 25,876 74,105 191,837
18 120,331 50,000 110,702 301,527 24,308 75,712 207,271 24,308 75,712 207,271
19 126,348 50,000 110,849 319,291 22,558 77,277 223,724 22,558 77,277 223,724
20 132,665 50,000 110,982 338,063 20,587 78,795 241,242 20,587 78,795 241,242
21 139,298 50,000 111,106 357,905 18,352 80,266 259,880 18,352 80,266 259,880
22 146,263 50,000 111,221 378,883 15,802 81,692 279,708 15,802 81,692 279,708
23 153,576 50,000 111,327 401,062 12,877 83,075 300,808 12,877 83,075 300,808
24 161,255 50,000 111,426 424,505 9,501 84,422 323,266 9,501 84,422 323,266
25 169,318 50,000 111,511 449,267 5,571 85,731 347,162 5,571 85,731 347,162
26 177,784 50,000 111,579 475,400 947 86,998 372,555 947 86,998 372,555
27 186,673 50,000 111,626 502,960 * 88,213 399,489 * 88,213 399,489
28 196,006 50,000 111,649 531,999 * 89,366 427,991 * 89,366 427,991
29 205,807 50,000 111,646 562,591 * 90,447 458,088 * 90,447 458,088
30 216,097 50,000 111,621 594,819 * 91,454 489,830 * 91,454 489,830
</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.
43
<PAGE>
APPENDIX A
Financial Statements - Statutory Basis
PFL Life Insurance Company
Years ended December 31, 1999, 1998 and 1997
with Report of Independent Auditors
44
<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 46 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:
A. (1) Resolutions of the Board of Directors of PFL Life establishing
the Separate Account (4)
(2) Not Applicable
(3) Distribution of Policies:
(a) Form of Principal Underwriting Agreement (8)
(b) Form of Broker-Dealer Supervision and Sales Agreement by and
between AFSG Securities Corporation and the Broker-Dealer
(3)
(4) Not Applicable
(5) Specimen Flexible Premium Variable Life Insurance Policy (7)
(6) (a) Certificate of Incorporation of PFL Life (1)
(b) By-Laws of PFL Life (1)
(7) Not Applicable
(8) Participation Agreements:
(a) Among MFS Variable Insurance Trust, PFL Life and
Massachusetts Financial Services Company (4)
(i) Amendment dated November 27, 1998 to Participation
Agreement among MFS Variable Insurance Trust, PFL
Life and Massachusetts Financial Services Company (6)
(ii) Amendment dated August 1, 1999 to Participation
Agreement among MFS Variable Insurance Trust, PFL
Life and Massachusetts Financial Services Company (8)
(b) Among PFL Life and Dreyfus Variable Investment Fund (5)
(i) Amendment to Participation Agreement Among PFL Life
and Dreyfus Variable Investment Fund (4)
(ii) Amendment dated November 27, 1998 to Participation
Agreement among PFL Life and Dreyfus Variable
Investment Fund (6)
(c) Among WRL Series Fund, Inc., PFL Life and AUSA Life
Insurance Company, Inc. and amendments thereto (2)
(i) Amendment dated November 27, 1998 to Participation
Agreement among WRL Series Fund, Inc., PFL Life and
AUSA Life Insurance Company, Inc. (6)
(ii) Amendment dated August 1, 1999 to Participation
Agreement among WRL Series Fund, Inc., PFL Life and
AUSA Life Insurance Company, Inc. (8)
(iii) 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. (10)
(d) Among Advantus Series Fund, Inc., Advantus Capital
Management, Inc., and PFL Life Insurance Company (12)
(9) Not Applicable
(10) Application for Flexible Premium Variable Life Insurance Policy
(7)
(11) Memorandum describing issuance, transfer and redemption
procedures (8)
<PAGE>
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 (11)
7. Consent of Frank A. Camp, Esq. (11)
8. Consent of Sutherland Asbill & Brennan LLP (11)
9. Consent of Ernst & Young LLP (11)
10. Powers of Attorney (7)
Power of Attorney - L. Norman, President (12)
Power of Attorney - Bart Herbert, Jr. (12)
__________________
(1) 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.
(2) 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.
(3) 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.
(4) 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.
(5) This exhibit was previously filed on the Initial Registration Statement on
Form N-4 (File 333-26209) filed on April 30, 1997 and is hereby
incorporated by reference.
(6) 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.
(7) 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.
(8) 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.
(9) 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.
(10) This exhibit was previously filed on Post-Effective Amendment No. 1 to the
Registration Statement on Form S-6 (File No. 333-86231) filed on April 28,
2000.
(11) To be filed by amendment.
(12) Filed herewith.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant,
Legacy Builder Variable Life Separate Account, has duly caused this Registration
Statement to be signed on its behalf by the undersigned thereunto duly
authorized, and its seal to be hereunto affixed and attested, all in Cedar
Rapids, Iowa, on 9th day of October, 2000.
(Seal) LEGACY BUILDER VARIABLE LIFE
SEPARATE ACCOUNT
PFL LIFE INSURANCE COMPANY
Depositor
LARRY N. NORMAN*
----------------
Larry N. Norman, 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 October 9, 2000
-----------------------
Patrick S. Baird
CRAIG D. VERMIE* Director October 9, 2000
-----------------------
Craig D. Vermie
BART HERBERT, JR. * Director October 9, 2000
-----------------------
Bart Herbert, Jr.
LARRY N. NORMAN* Director (Principal October 9, 2000
-----------------------
Larry N. Norman Executive Officer)
DOUGLAS C. KOLSRUD* Director October 9, 2000
-----------------------
Douglas C. Kolsrud
ROBERT J. KONTZ* Corporate Controller October 9, 2000
-----------------------
Robert J. Kontz
BRENDA K. CLANCY* Treasurer (Principal October 9, 2000
-----------------------
Brenda K. Clancy Accounting Officer)
</TABLE>
* /s/ Craig D. Vermie
----------------------
Craig D. Vermie
Attorney-in-Fact
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ----------------------
1.A.(8)(d) Form of Participation Agreement Among Advantus Series Fund, Inc.
Advantus Capital Management, Inc. and PFL Life Insurance Company
10 Power of Attorney - L. Norman, President
Power of Attorney - Bart Herbert, Jr. (12)
